Cornered (38 page)

The Castano group said it was “filled with pride and hope” over the settlement. “Exactly two years ago, attorneys from around the country launched and organized a crusade against the multibillion dollar tobacco industry. This [settlement] has now destroyed the tobacco industry's invincibility [but] the battle is far from over. The sixty crusading law firms which are dedicated to forcing the industry to live up to its pledge, that ‘people's health is a basic responsibility,' will go forward with the lawsuit [against the other tobacco companies] that specifically addresses nicotine dependence and what that does to people's lives.”

Others thought it would push the entire industry to settle with the plaintiffs. Professor Daynard, who in one of his many forecasts of when the tobacco industry would begin to pay out money for its past sins, had said the spring of 1996, now declared that since tobacco litigation had moved into “the settlement phase … all that remains to be worked out is exactly how and when and to what extent the industry will be found liable and what kind of deal the plaintiffs can get for themselves.”

The shockwaves in the industry would rumble on, but the personal triumph of LeBow and the collective victory for the Castano group were short-lived. A month later, on April 17, LeBow lost his proxy battle for RJR Nabisco. (LeBow had actually conceded defeat on the eve of the vote.) And on May 23, the Fifth Circuit Court of Appeals would decertify the Castano class action, effectively canceling the settlement. LeBow had inserted a clause nullifying the deal if Castano lost the appeal. The bold venture had not produced the immediate gains the two parties had sought. And there was talk of industry retaliation against Liggett. “The industry's likely response might be to cut Liggett off at the knees,” Gary Black, of the investment analysts Sanford Bernstein, had said on the day the deal was announced. But Liggett had its own problems. The agreement with the five states was still in effect, but each month another state would file a Medicaid suit, and none of them had joined the settlement. Within a few months, the company's exposure to lawsuits was potentially worse than it had been before the deal. Watching the battleground from his New York office, Kasowitz called Barrett and together they concocted another plan that would make the big tobacco companies even angrier.

*   *   *

S
HORTLY AFTER
the Castano decertification, Barrett received a call from Kasowitz. “He was fussin' at me,” said Barrett. “He wanted to know why the new states that were filing Medicaid suits were not joining the settlement, and why I was not persuading them to do so, as I had said I would.” Barrett had tried. He had been to Washington state and suggested they join, but they had not done so. “And I don't blame them,” Barrett told Kasowitz, “because the antitobacco forces haven't got the kick out of the settlement that they need. You're not cooperating.”

One of the provisions—Section 16.12—in the thirty-six-page settlement with the attorneys general required Liggett to disclose to an appropriate judicial body “any fraudulent or illegal conduct” by the tobacco companies that results in the unlawful suppression of evidence, or otherwise is “designed to frustrate or defeat” plaintiffs.

This pledge had special meaning for one plaintiff who was not connected to either the Castano group or the state suits. Janet Sackman had been a glamor model for Liggett's Chesterfield cigarettes in the 1950s, one of a line of celebrities that included Ronald Reagan, Peggy Lee, and Joan Crawford. When Sackman started appearing in the Chesterfield ads in magazines and on billboards, she was seventeen and didn't smoke. A tobacco company executive suggested she would be more authentic as a promoter if she started to smoke, so she did. Soon, she was smoking two packs a day and, in 1983, she was diagnosed with throat cancer, which eventually spread to her lungs. She had her voice box removed and learned to talk again by forcing air through her esophagus. At sixty-two, she decided to devote what was left of her life to helping others with her condition and to warning children not to be taken in by glamorous cigarette ads like the ones she had appeared in and which are still found today in magazines and on billboards.

In 1993, she filed a lawsuit against Liggett, charging the company had sold a defective and addictive product, failed to warn her of the health consequences, fraudulently and deliberately denied that smoking was a hazard, and conspired with other tobacco companies to conceal evidence of the health threat posed by smoking. An articulate and intelligent woman, she appeared in antismoking ads in the Massachusetts campaign to stop teenage smoking.

Her case moved slowly, with Liggett putting up all the usual roadblocks, including trying to prevent her access in the discovery process to documents from the Council for Tobacco Research about “special projects.” Sackman's attorneys had asked for 123 documents relating to Liggett's participation in the CTR “Special Projects” program in the hope of showing that the company had used the documents to mount a public relations campaign designed to discredit the links they knew existed between smoking and disease. The thrust was to support Sackman's claims of fraud and conspiracy.

Liggett claimed, as other tobacco companies had done before them, that the documents were privileged under the attorney-client rule. Sackman counterclaimed that the documents fell within the crime-fraud exception to the rule. The court decided to hold a review of the documents in question and ruled, the same week of the Liggett deal, that they should be handed over. They were not privileged. Liggett and other tobacco company defendants appealed the ruling, delaying any resolution for another year.

The possibility of a raft of confidential industry documents being forced into the open spelled problems for the other tobacco companies, and they suffered stock losses. Tom Sobol, one of the attorneys representing Massachusetts, forecast that shareholders would now “seriously reassess whether it's in their short- or long-term interest to be fighting all these issues tooth and nail.” One RJR shareholder asked, “Is Bennett LeBow on the same planet?”

Liggett, however, showed no signs of speeding the release of the disputed documents in the Sackman case. Neither was it offering any documents to help the attorneys general, despite the inclusion of Section 16.12. Barrett told Kasowitz, “You're not cooperating. You really didn't give up much.” Kasowitz replied, “Bullshit, we can't cooperate because you're not giving us total peace. We cooperate and we cut our own throats in other cases.” He meant the new state suits and others that might be filed from class actions other than Castano.

Again, Barrett went out on a limb. “Suppose I could put together a group that would give you total peace—all the AGs and a separate class-action settlement to cover everything,” he asked. Kasowitz said it couldn't be done.

“We'll do it. But you're going to have to pay more money than you paid before, and the most important thing is that you're going to have to turn state's evidence.” Barrett meant Liggett would have to hand over all the documents for which they had fraudulently claimed privilege. Kasowitz wanted time to think about it. Three weeks later he agreed.

Barrett went to see Mike Moore and outlined the plan. Mississippi already had its settlement with Liggett and Moore didn't think Barrett could put the new deal together. In any case he was already starting down another road with Dick Scruggs making overtures to R. J. Reynolds about a national settlement. So Barrett went to Grant Woods, the Republican attorney general of Arizona, who had just filed his state's Medicaid suit in which Barrett was co-counsel. Woods jumped at the idea. It would give him a high profile in the Third Wave even though he had not been among the first to file. He brought in Steve Berman from Washington state. Once Woods had agreed, Moore changed his mind and joined in. Then came Ron Motley and his settlement strategist, Joe Rice. Scruggs was always reluctant, in the beginning. He was playing the bigger game with R. J. Reynolds and, as RJR and Philip Morris regarded LeBow as a traitor, he didn't want to be seen playing both sides.

As the talks progressed into 1997, Woods and Berman kept up the pressure about releasing the documents. In January,
The Wall Street Journal
heard of the talks and announced that Liggett was proposing to turn over its files of the industry's little-known joint defense group known as the Committee of Counsel. Philip Morris protested. “If Liggett's notes reflect the legal discussions at a joint meeting, Liggett has no right to turn those over without the consent of everyone. If they do that we would take appropriate action.” But LeBow went ahead anyway.

*   *   *

O
N
M
ARCH
20, 1997, a year and a week after the first Liggett settlement, LeBow delivered his second bombshell, agreeing to turn state's evidence. LeBow signed a new, broader settlement with the twenty-two states. In exchange for total immunity from the state Medicaid claims and from all current and future class actions and individual lawsuits, LeBow became the first tobacco chief to declare that nicotine is addictive and smoking causes cancer. He also agreed to turn over thousands of pages of documents the company had hitherto called privileged, including notes taken by Liggett lawyers at joint legal defense meetings with the other company lawyers in the so-called Committee of Counsel.

Announcing the deal in a Washington, D.C., hotel, Grant Woods said he believed this was “the beginning of the end for this conspiracy of lies and deception that has been perpetrated on the American public by the tobacco companies.” Standing beside him, Mike Moore, who had called the original Liggett deal the first “crack in the wall,” said this had “knocked that wall down.” Woods said the documents to be released by Liggett were “extremely damaging,” although he admitted that he had not actually seen any of them yet, and their privileged status still had to be cleared by the courts because of the challenge from the other companies. LeBow had promised full cooperation.

LeBow's tobacco colleagues were furious, accusing him of absurd double standards. Here was a man, they said, who three years ago in a deposition in the Florida secondhand smoke class-action suit by flight attendants had said nicotine was not addictive and he didn't know whether smoking caused lung cancer. Attempting to explain his sudden conversion, LeBow said, “I didn't really focus on it until about a year ago.” Asked if he had changed his mind simply because it was good for business, LeBow said, “Let's say it was both. It was the right thing to do, and we made a settlement with the attorneys general which the company had to do.”

This time, the settlement had been thoroughly covered in the media and the companies were ready. Hours before the formal announcement of the deal, the four biggest companies, Philip Morris, R. J. Reynolds, Brown & Williamson, and Lorillard, obtained a restraining order from a North Carolina state court judge barring Liggett from turning over the documents. The companies claimed that all proceedings of the Committee of Counsel were exempt from disclosure under what is known as “joint defense privilege,” an extension of the lawyer-client privilege protecting communications that are part of an ongoing effort to set up a common defense strategy.

The other companies were confident that these documents would never be released, but the plaintiffs would pepper the courts with requests to unseal them. Judges in Illinois, Texas, Mississippi, and Minnesota subsequently ordered that at least some of the documents be turned over under seal for review, but only a handful would be released and they would not take the evidence of deceit much further. The documents on which the other companies claimed privilege would remain under court seal, at least for a while.

Wall Street analysts saw LeBow's move as the desperate maneuverings of the owner of a tobacco company that was about to go under. They said the company would probably have to file for bankruptcy in 1998, unless LeBow could find a buyer. LeBow, it seemed to them, would say anything to rid his company of litigation liability and make it a more attractive proposition.

The other companies remained defiant, continuing to say the states' Medicaid cases were meritless and would be defeated. The wall had not come down. But there was a chink in it. Philip Morris acknowledged, “As we have said in the past, we will explore and discuss all reasonable measures that may be in the best interests of our shareholders, including a comprehensive legislative solution to smoking and health claims.” In fact, within a month of the signing of the second deal, the chief executives of both Philip Morris and R. J. Reynolds would sit down at the negotiating table with the antitobacco forces. LeBow may not have managed to sell his tiny, ailing company, but his deal helped push the bigger companies into a settlement of their own.

13

THE SORCERER'S APPRENTICE

They can stop us this year. They can stop us next year, but they can't stop us forever because we've now got the same perpetual existence that they have. There will always be a body of lawyers committed to this task.

—
Elizabeth Cabraser, Castano lead counsel

 

W
HEN
H
ATSY
H
EEP
answered the lonely hearts ad from “professional engineer,” she did it on a bet. Then she fell in love. Two years later, at the beginning of 1996, Heep, a forty-eight-year-old interior designer, was planning to marry Ron Tamol, the sixty-two-year-old retired research engineer for Philip Morris who'd placed the ad. Tamol moved into Heep's house in Richmond, Virginia, and brought with him thousands of Philip Morris research documents that he had collected during his thirty years with the company. Heep was not entirely happy about the documents, but she indulged Tamol's obsession with his past and allowed him to store them in her basement. As it turned out, it was a bad mistake for Tamol.