JOURNAL OF HEALTH CARE LAw & POLICY VOLUME 2 1998 NUMBER 1 © Copyright University of Maryland School of Law 1998 Articles ANNOUNCED TO TROUNCED: A JOURNALIST'S COMMENTS ON THE DEMISE OF THE TOBACCO SETTLEMENT ADAM S. LEVY* I. INTRODUCTION As a journalist for Bloomberg News, I covered the tobacco settle- ment, and saw it go from announced to trounced in just one year. The settlement contained many beneficial provisions, and its demise has already resulted in many negative consequences. The tobacco set- tlement, in my opinion, was never passed by Congress largely because the key players in the settlement placed their personal agendas ahead of the need to compromise. In this article, I elaborate on these ideas, provide some lesser-known history behind tobacco litigation and the settlement, and offer an outlook for the future.' * Adam S. Levy, B.A., Haverford College, 1984. Mr. Levy is a reporter for Bloomberg News who covered the tobacco settlement. This article evolved from the author's presenta- tion at the 1998 Ward, Kershaw and Minton Environmental Symposium; University of Maryland School of Law; Baltimore, Maryland; April 24, 1998. 1. Parts of the article were adapted from CARRICK MOLLENKAMP ET AL., THE PEOPLE VS. BIG TOBACCO: HOW THE STATES TOOK ON THE CIGARETTFE GLANTs (1998) [hereinafter THE PEOPLE VS. BIG TOBACCO], a book co-authored by Levy, and Death of a Settlement: BitterDefeat for Tobacco Negotiators,Bloomberg News, June 18, 1998, available in LEXIS, Nexis Library, Bloomberg News File [hereinafter Bitter Defeat], a Bloomberg News article co-authored by Levy. JOURNAL OF HEALTH CARE LAW & POLICY [VOL. 2:1 II. A TELLING STORY2 In the second week of June 1997, two small groups of attorneys met late at night in a room at the Park Hyatt Hotel in Washington, D.C. One of the groups was comprised of attorneys for some of the largest manufacturers of cigarettes in the United States - Philip Mor- ris Cos., the manufacturer of Marlboro brand cigarettes, and RJR Nabisco Holdings Corp., the manufacturer of Camel brand cigarettes. The other group was comprised of the private trial attorneys who had filed class-action lawsuits against the tobacco industry on behalf of their clients, thousands of addicted smokers. After three months of very heated negotiations, these attorneys - along with scores of attorneys general, tobacco industry lawyers, leading public health advocates and White House officials - had ne- gotiated all but the final details of what could have been the biggest legal settlement in history.3 Hours earlier on that sweltering day, under direct orders from White House Deputy Counsel Bruce Lind- sey, the two sides had arrived at a $368.5 billion price tag to settle most of the pending lawsuits against the tobacco industry giants ("Big Tobacco") .' After dinner, one of the anti-tobacco attorneys mentioned in passing the $368.5 billion price of the settlement to the two lead attor- neys representing the tobacco industry. At that moment, all of the color washed out of the face of Meyer Koplow, the soft-spoken but powerful New York City attorney from Wachtell, Lipton Rosen & Katz, who was representing Philip Morris, the biggest cigarette manufac- turer in the world.5 Koplow said he had been told that the deal was for $386 billion, not $368 billion. The anti-tobacco attorneys were flummoxed. One reached for a cellular telephone and called Hugh Rodham, another attorney representing smokers in class-action lawsuits. Rodham, inci- dentally, also provided the anti-tobacco contingent with access to the President of the United States of America - he's Bill Clinton's brother-in-law. Rodham immediately called Lindsey, who was at home getting ready for bed. While in his bathrobe, Lindsey reviewed the numbers 2. Interviews with Anonymous Sources (Aug. - Sept., 1997). 3. 'See The Tobacco Resolution (visited Sept. 19, 1998) <http://www.tobaccoresolution. corn>. 4. Id. at tit. VI. 5. See Steve Bailey & Steven Syre, $300 Billion Settlement Wouldn't Likely Choke Tobacco Firms, BOSTON GLOBE, Apr. 17, 1997, at D1 (stating Philip Morris made $69 billion in reve- nue in 1996). 1998] ANNOUNCED To TROUNCED with Rodham. The lower amount - $368.5 billion over the next twenty-five years - was correct. The attorneys walked back into the negotiating room and told the tobacco lawyers that $368.5 billion was the true agreed upon amount. "We just saved you almost $20 billion," said one of them, rounding up the difference. Twenty billion dollars - an oversight to these negotiators - is the combined value of Apple Computer, Black and Decker Corp. and the entire 5,100-store Wendy's restaurant chain - combined, and times two.6 It's also about forty percent of the total dollar amount of cigarettes sold in the United States in a single year.7 It would pay the salaries of all the professional athletes in the National Basketball Asso- ciation until the year 2018.8 There were many beneficial provisions in the settlement propo- sal.9 Yet the fact that both sides would so sloppily handle $20 billion, as if it were a low-value chip in a poker game, is telling. The high stakes provided anti-tobacco negotiators with an incentive to back a less-than-perfect settlement, in that they would have secured - for future elections - the bragging rights of having scored the biggest civil settlement in history. The story also shows how willing Big To- bacco was to settle and how deep its pockets are as well as how badly it needed a settlement: the industry would swallow an additional $20 bil- lion, just for relief from this litigation. III. TOBACCO LITIGATION HISTORY - AND AN INGENIOUS IDEA Taking on Big Tobacco was, at best, improbable. In four decades of tobacco litigation, no plaintiff collected damages from any of the tobacco industry giants based on health problems resulting from to- 6. The combined market value of the three companies as ofJune 15, 1998, was $12.08 billion: Wendy's stock market capitalization was $3.18 billion, Black & Decker's was $5.19 billion and Apple Computer's was $3.71 billion. Search of Bloomberg Fin. Mkts. Commod- ities News, Bloomberg News, Atlanta, Ga. (Aug. 17, 1998). 7. The 40% estimate is based upon estimated annual United States tobacco sales of $50 billion, based on figures compiled by Tobacco Merchants Association. Telephone In- terview with Tobacco Merchants Association (June, 1997). 8. Telephone Interview with Billy Hunter, Executive Director, National Basketball Players Association (June, 1997). 9. For example, the settlement proposed to reduce underage smoking by penalizing retailers through fines of up to $25,000 or the revocation of their license to sell tobacco products for three years. See The Tobacco Resolution, (visited Sept. 30, 1998) <http:// www.tobaccoresolution.com/prd/AVI-58.html> app. II.2.f. It also allocated funds to gov- ernment agencies to be used for enforcement of the settlement, including $300 million annually to the Food and Drug Administration. See The Tobacco Resolution (visited Sept. 30, 1998) <http://www.tobaccoresolution.com/prd/PHF-36.html> tit. VII.A.24; see also notes 33-37 and accompanying text. For highlights of the Castano Smokers Common Benefits Funds, see generally, J.D. LEE, THE SETrLEMENT app. B (1997). JOURNAL OF HEALTH CARE LAw & POLICY [VOL. 2:1 bacco products.1" Big Tobacco was bullet proof. Liggett, a division of Brooke Group Ltd., had lost a lawsuit in the early 1980s, Cipollone v. Liggett Group, Inc." The jury returned a $400,000 verdict to the hus- band of a deceased smoker named Rose Cipollone for a claim of breach of express warranty. 12 Yet after an appeals court reversed the verdict and the Supreme Court remanded for a retrial, plaintiffs could not afford to pursue the suit further.'" The industry retained its rec- ord of never having paid a penny in damages. On a May afternoon in 1993, however, an ingenious strategy was hatched that would forever change the industry's invincibility. 14 It all started with a little-known and deeply-personal story. Michael Lewis, a small-town lawyer from Clarksdale, Mississippi, visited Jackie Thomp- son, his friend and former secretary. 5 Thompson was in Baptist Cen- tral Hospital, in Memphis, Tennessee, dying from complications tied to smoking cigarettes. 6 As Lewis left the hospital, he thought about the costs of treating people dying from tobacco-related cancer - the long hospital stays, the teams of doctors and nurses trying to squeeze out a few more days for patients, the expensive equipment pumping life and feeling for vital signs, the last days at hospices.17 Lewis sup- posed that these expenses were costing $1 million in his friend's case. Lewis then formulated a plan to sue cigarette manufacturers for the cost of treating sick smokers. Imagine combining the total costs the state was spending treating sick smokers, he thought. What if Lewis were to sue the cigarette makers on behalf of his home state, Mississippi, to recoup the public money spent treating the indigent, the aged and others who became sick from smoking? It was a simple plan, but one that was brilliant and would ultimately prove to be very effective. 10. See Robert L. Rabin, Institutional and Historical Perspectives on Tobacco Tort Liability, in SMOKING POLICY: LAW, POLITICS AND CULTURE 127 (Robert L. Rabin & Stephen D. Sugarman eds., 1993). Big Tobacco's winning streak in courts extends back to 1954 when the firstcase, Lowe v.RJ. Reynolds Tobacco Co., No.9673(C) (E.D.Mo. filed Mar.10, 1954), was filed. See Rabin, supra, at 112. The case, which was later dropped, marks the begin- ning of the "first wave" of tobacco litigation.