ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Thursday, March 14, 1996 TAG: 9603150009
SECTION: NATIONAL/INTERNATIONAL PAGE: A-1 EDITION: METRO
DATELINE: NEW ORLEANS
SOURCE: Associated Press
MEMO: ***CORRECTION***
Published correction ran on March 15, 1996.
The name of Franklin County tobacco farmer Johnny Angell was
misspelled in a story Thursday.
The tobacco industry's united front began to crumble Wednesday when the nation's fifth-largest cigarette maker agreed to settle a class-action lawsuit accusing tobacco companies of manipulating nicotine levels to keep smokers hooked.
Liggett Group, which makes Chesterfield and Eve cigarettes, said that for the next 25 years, it will pay 5 percent of its pre-tax profits, or $50 million a year, whichever is less, toward programs that help people stop smoking.
The settlement ``has destroyed the tobacco industry's invincibility. Never again can they claim they have never lost a smoking-related lawsuit,'' said Ken Carter, a lawyer pursuing the case on behalf of as many as 50 million smokers and former smokers.
The settlement removes Liggett as a defendant from the lawsuit, which claims the major tobacco companies and their lobbying arm, the Tobacco Institute, concealed research showing nicotine is addictive and manipulated nicotine levels.
Liggett said it also is pursuing a settlement with five states - Florida, Massachusetts, Minnesota, Mississippi and West Virginia - that want tobacco companies to pay their Medicaid costs of treating smoking-related illnesses.
``This is the first time that anyone in the tobacco industry has broken the code of silence,'' said Mississippi Attorney General Mike Moore. ``Their policy has been to fight every case - never settle, never pay.''
Franklin County tobacco farmer Gary Reynolds said he was surprised by the Liggett Group move.
``I don't think much of them breaking ranks,'' he said. ``I think it will cause more lawsuits.''
Reynolds said tobacco prices for what his 50 acres produce probably won't be affected by the litigation, but the long-term affects on the industry will likely hurt.
Claude Whitehead, who helped form the lobby Concerned Friends of Tobacco, said his group will ``take a wait-and-see attitude.''
The publicity surely does not help the industry as a whole, Whitehead said, and the farmers are part of the industry.
Johnny Angel, Franklin County tobacco farmer, said the business is ``precarious at best.'' Living in country that prides itself on its freedoms means that personal responsibility must follow.
Angel said if the government is going to put penalties on any type of unhealthy behavior he shudders to think of the possibilities.
``I'm a bit overweight myself,'' Angel said, ``I'm just as addicted to food as any smoker is to tobacco, but I don't expect the food makers to be responsible. You must be responsible for your own actions.''
Lorillard Tobacco Co. and R.J. Reynolds Tobacco Co. said they have no plans to settle. Brown & Williamson likewise said it ``will continue to defend all lawsuits aggressively.''
No. 1 tobacco maker Philip Morris USA said it remains ``confident in the strength of our litigation position, and we intend to fight and win all of the cases in which we are involved.''
The tobacco industry has been under assault in recent years from public and private officials.
David Kessler, chairman of the Food and Drug Administration, held hearings two years ago in which tobacco company executives said under oath they did not consider nicotine addictive. Yet internal company documents, which have been leaked in recent months, appear to contradict those claims.
The class-action case is still in the early stages of procedural maneuvering, with its class-action status under appeal.
The settlement with Liggett is subject to approval by the federal judge overseeing the case.
Liggett's payments, over 25 years, could reach $1.25 billion if the company paid the maximum each year. But that's extremely unlikely: Liggett's pretax income amounted to $11 million in 1994, which would mean a payment of just $550,000.
Liggett admitted no wrongdoing and attached two key strings to the deal: If it makes no profit in a given year, no payment will be due. And if other tobacco companies win the lawsuit in New Orleans, the settlement will be void.
Liggett also said it will comply with proposed federal regulations discouraging sales of cigarettes to children, such as a prohibition on using cartoon characters in ads and limits on distributing free samples. Until now, all major tobacco companies had been fighting the rules.
Bennett LeBow, chairman of Liggett's parent, Brooke Group Ltd., said the agreement means the tobacco maker's assets will ``no longer be held hostage by the tobacco litigation.''
``The tobacco industry has lived for too long with the possibility of financial catastrophe from product liability suits that could destroy the industry. This settlement is a fresh and prudent approach to this problem and positively addresses concerns about underage smoking,'' LeBow said.
Industry analysts said LeBow's motivation may have been to strengthen his bid for control of RJR Nabisco Holdings Corp., parent of the nation's No. 2 cigarette maker - R.J. Reynolds Tobacco Co.
LeBow, who with investor Carl Icahn owns 5.8 percent of RJR Nabisco, is trying to force an immediate move by the company to separate its food and tobacco businesses. RJR has resisted the spinoff, saying it feared such a move would invite legal challenges and damage its credit rating. LeBow said the settlement includes a promise by plaintiffs not to block the spinoff.
R.J. Reynolds Tobacco said that while it has not reviewed LeBow's proposed settlement, ``we suspect it's an irresponsible and reckless ploy to influence RJR Nabisco shareholders in the proxy contest.''
In trading Wednesday afternoon on the New York Stock Exchange, Philip Morris was down $3.2550 at $99.121/2 a share, and RJR Nabisco was off 75 cents at $34.121/2. Brooke Group was up $1.50 at $9.871/2.
Massachusetts Attorney General Scott Harshbarger said there is ``a significant way to go before we get an ironclad agreement,'' but that he hoped it would ``set the stage for a flood of industry concessions.''
Wendell Gauthier, another plaintiffs' lawyer, said other tobacco companies will have to pay more if they decide to settle. ``We hope there will be a domino effect,'' Gauthier said. ``This is like a war. We have won the first skirmish.''
LENGTH: Long : 118 lines ILLUSTRATION: GRAPHIC: Chart by KRT: Ligget settles. color.by CNB