Source: Seattle Times (WA) Contact: http://www.seattletimes.com/ Pubdate: Saturday, 03 October, 1998 Author: James V. Grimaldi and Matthew Ebnet, Seattle Times staff reporters SMALL AGREEMENT NO SURE SIGN IN TOBACCO CASE The latest, if minor, tobacco settlement between state lawyers and a small part of the tobacco industry might seem as if it would bode well for a more encompassing agreement between the two sides, that this baby step might lead to a big one. But people involved, including the attorney general, say that yesterday's $2 million settlement with the smallest of five tobacco companies - U.S. Tobacco - does not serve as a blueprint for a bigger deal with major companies. "We won't be celebrating until the big ones are down," said Mark Funk, who, as a spokesman for the Washington Alliance on Tobacco Control and Children's Health, keeps close tabs on the trial. The issues surrounding the smokeless tobacco industry are far less complicated than those of the cigarette industry - relatively speaking they are almost unrelated - and a settlement was easier to come by, lawyers said. In fact, the talks with U.S. Tobacco took place at separate tables from talks with the other companies. U.S. Tobacco, maker of Skoal smokeless tobacco, cut the deal with state Attorney General Christine Gregoire in talks in New York as lawyers continued to press their antitrust and consumer-fraud case against the other tobacco companies in a King County courtroom. The state is seeking $2.2 billion to recover the costs of treating sick tobacco users, a price tag that could double if the jury exacts stiff penalties. The Smokeless Tobacco Council, a small industry group, also was part of the settlement and was dismissed from the King County lawsuit. Gregoire said the snuff maker's agreement to pay legal costs is an indicator that things are going well in the jury trial, which heard its first witness Thursday. "U.S. Tobacco has done the responsible thing in agreeing to this settlement, but I also think it is a recognition that we have a good case and a good jury for this trial," Gregoire said. "That's one tobacco company down and four to go." Gregoire also said the $2 million was termed "legal costs" because U.S. Tobacco does not want to be named in future lawsuits. By calling the $2 million a penalty, it would suggest the company is liable and can be sued. The settlement was approved by Superior Court Judge George Finkle yesterday; attorneys met with him during what was an off-day for the trial. In the settlement, Gregoire said she secured public-health terms similar to settlements won by Florida and Texas, two states that settled their lawsuits with U.S. Tobacco and the four major cigarette companies. Under the agreement, U.S. Tobacco will: - -- Discontinue all billboard and transit advertising. - -- Refrain from opposing legislation that would ban tobacco vending machines in all but adult-only facilities. - -- Refrain from opposing legislation strengthening civil penalties for sale of tobacco to minors. The settlement is limited only to Washington state's allegations against U.S. Tobacco, and Gregoire said that while this smaller agreement is a good win for her and her team of negotiators, there still are three "major issues" standing in the way of a nationwide settlement in her talks with Philip Morris and Lorillard. The nationwide talks are continuing in the Manhattan skyscraper headquarters of a New York law firm - though without R.J. Reynolds and Brown & Williamson, the nation's second- and third-largest tobacco companies. They dropped out of those talks in August. Washington officials remain optimistic about a national settlement, and after two days of talks, Gregoire was prepared to work through the weekend rather than return to the state as earlier planned. "They're making some progress," said Fred Olson, director of administration for Gregoire. "The real issue is the complexity of this agreement. It is not that they've been at loggerheads over issues. These certainly are complex issues." Gregoire said she is optimistic because most of the issues the two sides tackle are resolved in some way; some simply take longer than others. As it stands, "it depends on how well we can finish the drafting." Gregoire would not elaborate on what the three issues are except to say that they are "transactional" and "non-economic" and that there still "isn't a meeting of the minds." The advantage of settling with the tobacco industry, Gregoire says, is that it can offer gains that are not economic, such as limits on advertising and establishing a code of conduct, that a jury could never award. "We are trying . . . to establish a code of conduct that will stand the test of time," Gregoire said. The nationwide talks are far more scaled back than the proposed $368.5 billion settlement of June 1997 that required approval by Congress. That deal collapsed when congressional committees attempted to change the deal, the tobacco industry balked and the U.S. Senate rejected a national plan. Gregoire is leading the effort of 38 states seeking at least what was won in the June 1997 deal: a $196 billion payout - the portion of the $368.5 billion designated for the states. Of that, Washington state would get at least $143 million a year, or $3.58 billion over 25 years. Gregoire said she thinks the two sides are close on monetary damages. A Wall Street analyst estimates the industry has offered close to what the states are asking; the money would come from a 35-cent-a-pack price increase. U.S. Tobacco was a smaller player in the scheme alleged in the state's lawsuit, said John Hough, a top administrator for Gregoire. Washington alleged that U.S. Tobacco was a co-conspirator to keep secret the dangers of smoking and a participant in the creation of the Tobacco Institute, which lawyers say was a front organization to spread misinformation. As a maker of smokeless snuff, U.S. Tobacco products are associated with mouth and throat cancer. The amount of Medicare damages the state alleges U.S. Tobacco caused is small in comparison to the amount sought from other companies being sued - Philip Morris, R.J. Reynolds, Brown & Williamson and Lorillard. - --- Checked-by: Don Beck