Cornered (46 page)

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T
HOSE BEHIND-THE-SCENES TALKS
between Scruggs, Moore, and the Castano team were about to take a decisive turn. The Castano lawyers had always been edgy about Scruggs's control of contacts with the industry through Sears. They had suggested direct talks with the industry, but Scruggs would not hear of such a thing. All along he had insisted on no direct talks; he did not want to be in a position of asking the industry for its agreement. He preferred to keep sending them his “term sheets” and getting their reaction. His idea was that once the draft of the proposal was in good enough shape to become a bill, it should be sent directly to Congress.

But before anything went to Congress it had to be approved by the White House, and the president wanted the two sides to meet. Backed by the White House, the Castano group started to insist on meeting directly with the CEOs—to show good faith. Still, Scruggs wouldn't budge. “Scruggs always thought he could get this thing done next week—I suppose through his brother-in-law,” said Coale, “but if Bruce Lindsey told me we had to have direct talks with the industry, then we had to have direct talks. There was no choice. We spent two weeks trying to convince Scruggs and Moore.”

Phil Carlton also tried to persuade Moore to accept direct talks, but he said no as well. At one point, Carlton even suggested to Lindsey that if Moore couldn't accept the talks, then he should be bypassed and they should look for another leader of the attorneys general. “There are plenty of other AGs who will come if we arrange it,” he said. Coale, who happened to be in Lindsey's office at the time of the call, objected. Moore was the obvious, and only real leader of the attorneys general group and should not be cast aside, under any circumstances.

Finally, at the end of March, Moore agreed—on two conditions. Goldstone of RJR and Geoffrey Bible of Philip Morris had to attend the first meeting. The meeting was set for April 3. George Mitchell personally called Matt Myers to invite him to attend; the White House said he was “an essential player.” Myers agreed.

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B
Y ACCEPTING THIS DANCE
with the devil, Myers had put himself in a position of inevitable compromise. From that moment, Myers became the official negotiator for the health groups and would always claim that he had the “confidential” backing of the heart and lung associations. For a man who had once described industry leaders as lacking a “moral gyroscope,” it was not an obvious transition—especially since he had also been one of the harshest critics of earlier efforts to produce a settlement. Myers had told friends in the antitobacco movement that he was worried a deal now would be selling out to the companies—and, worse still, he said, that Scruggs had no idea what he was giving away. “Why should the tobacco industry be immune, given the harm they've caused?” Myers had asked then. Through the end of 1996 and the beginning of 1997, Myers was telling the White House not to be involved in a settlement—and then boasting to his colleagues about it. Suddenly, there was a pirouette.

Myers's version is that the White House asked him to join the talks simply because he was the toughest critic. President Clinton's people said they would have nothing to do with the deal unless he was at the table. Some of his friends found this disingenuous. “So, why didn't he say no, not unless I have ten of my guys with me and there are free and open communications?” asked one of them. “What happened next was the original smoke-filled room and the negotiations proceeded on the understanding that Myers didn't get to talk to anyone, but the tobacco people got to talk to anyone they wanted to,” said Dick Daynard.

“Anybody who had studied the public health agenda would have felt compelled to listen,” Myers would say later, adding that not a day would go by when he didn't “reevaluate his position and swallow another dose of Maalox.” Myers would have one important supporter among the antitobacco forces: Michael Pertschuk, who had worked with Myers at the FTC and had been an antitobacco activist ever since. Pertschuk thought the arrangement worked well. “It's the perfect inside-outside strategy,” he said. “While Matt is at the table, the health community is free to say: ‘We weren't at the table. Either you add these critical elements, or we walk.'” In effect, it gave them two chances to present their views.

If he was upset about what he was doing, Myers didn't show it. Quite the contrary, he seemed to relish his privileged access. Myers had always liked being a Washington insider—and he was good at it. “He was not a believer that there was wisdom in the grass roots, among the great unwashed outside the Beltway, and the industry played to that weakness,” said one veteran antitobacco activist who had come reluctantly to the conclusion that Myers had eventually sold out.

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O
NCE THE PLAYERS
had been identified, the question was where to hold the meeting.

Gauthier insisted it should be in New Orleans. This was where the first lawsuit of the Third Wave had been filed; this was where the sixty plaintiffs' lawyers had come together to launch a common attack on the industry. Phil Carlton, speaking for the industry, was ready to agree to New Orleans, but Scruggs and the other AGs wouldn't allow it. They wanted neutral territory, preferably Washington, a place known for its deals and historic compromises. In the end, they settled for a hotel in Crystal City, Virginia, a severe, unattractive pocket of concrete offices and hotels across the Potomac from Washington and a virtual appendage of the capital's National Airport. Goldstone and Bible liked the idea because they could fly in on corporate jets and out again as quickly as possible. This was, after all, only a ceremonial appearance.

The hotel room had a square table around which sat attorneys general from six states, including Mike Moore, Grant Woods of Arizona, Bob Butterworth of Florida, and a latecomer, Christine Gregoire of Washington state. Scruggs was with Moore, as always. Coale, Herman, Rodham, and Stan Chesley led the Castano group. Matt Myers sat on his own. On the industry side, Goldstone and Bible were accompanied by their lead lawyers: Herbert Wachtel, who represented Philip Morris and had led the company's $10 billion libel case against ABC News, and Arthur Golden, of the New York firm of Davis, Polk & Wardwell, represented RJR. “I had to pinch myself—twice,” remembered Coale. “First because I was sitting down with the enemy, and second because this was a long way for me from drunk-driving cases in the D.C. courthouse. I think anyone who was honest with themselves had similar thoughts. It was bizarre.”

George Mitchell opened the meeting, and short speeches by Goldstone and Bible followed. They pledged to bring fundamental change to the industry's operations and promised to discuss advertising, FDA jurisdiction, financing for antismoking programs, and tight controls on youth access to tobacco. It was mostly ceremonial, according to those present, but Mike Moore warned them that he expected results. “Don't waste my time,” he said defiantly.

After two hours, other sessions were arranged and the meeting broke up. The negotiations became a ten-week marathon of hectic shuttling between Chicago, Dallas, New York, and Washington. They would be intense and exhausting, each side threatening on several occasions to walk out.

Even so, Bible and Goldstone would be hailed as the new breed of tobacco “deal makers,” realists who were finally prepared to admit the dangerous nature of cigarettes and take action to stop them from ravaging the public health, especially the health of American youth. But what the industry sought was financial stability. During the company's annual meeting in Richmond, Virginia, Bible of Philip Morris had met with a group of investors and had confirmed what the companies already knew: they were very upset about the fits and starts in tobacco stocks over the past two years. While increasing steadily, stock prices had reacted violently to each news item about Third Wave lawsuits. The shareholders were especially shocked at the $12 billion drop in value of the company's shares a few hours after the Grady Carter verdict in Jacksonville the previous August. More recently, each time word of a settlement leaked, cigarette stocks jumped. The industry could no longer ignore investor demand for the financial stability that a settlement would, in theory, bring—regardless of the price that had to be paid. Between August 1996 and May 1997, Philip Morris shares had increased over 60 percent. In the same period, BAT jumped 39 percent and RJR 43 percent. Even in a raging bull market, these figures were extraordinary. For the companies, there would be no turning back.

The talks were now on a more urgent footing—especially after some details of the April 3 meeting appeared in
The Wall Street Journal.
As the negotiators returned to the table, this time in Chicago, the pressure of the lawsuits was mounting on the industry. Courts were disallowing standard tobacco defenses and permitting the new legal theories behind the Medicaid suits to go ahead. In Pascagoula, the judge in Mississippi's suit rejected the industry's ghoulish “death benefits” defense, which claimed an “offset” for smokers dying early. Antitobacco forces continued to uncover embarrassing documents and were even beginning to break down the protective layers of legal privilege that had kept the truth about the tobacco enterprise from public view for so long.

By the end of April, the first Castano class action was certified in a state court in Louisiana. But the big shock for the companies was Judge Osteen's ruling in North Carolina: the Food and Drug Administration, he found, did indeed have the power to regulate tobacco as a drug. Despite his tobacco connections, Judge Osteen rejected the industry's arguments opposing FDA jurisdiction. He did, however, rule that the agency could not impose controls on tobacco advertising. His decision was based solely on the scope of the Food, Drug, and Cosmetic Act, which does not mention advertising controls, and not on whether the First Amendment permitted such controls.

The ruling was an unexpected triumph for the antitobacco forces. There was “no need for deals” with the industry now, said David Kessler. The FDA could do it all—and the government would fight the advertising exception. For its part, the industry focused on the judge's denial of advertising controls, but tobacco stocks dropped sharply. Big Tobacco immediately filed an appeal.

Two weeks later, the industry had some good news. R. J. Reynolds won the second of the individual smoking cases being steered through the courts by Florida's Woody Wilner. After a month-long trial in the same courthouse in Jacksonville where Grady Carter had won $750,000 the previous August, Woody Wilner lost the Jean Connor case. The jury found R. J. Reynolds not responsible for the lung-cancer death of Ms. Connor, who had died at age forty-nine in 1995. Her claim had been continued by her sister, Dana Raulerson, and her three adult children. Although Ron Motley was co-counsel with Wilner, they couldn't pull off a second win—largely due, it emerged later, to the judge's severely restrictive instructions to the jury.

The jurors had been told to absolve Reynolds if they found the risks of smoking were “commonly known.” In contrast to Brown & Williamson at the Grady trial, RJR produced an in-house scientist to show the company did its own safety research, and an historian to help persuade the jury that Ms. Connor had access to “common knowledge” of the risks of smoking. In a videotape deposition made before her death, Connor herself said that she generally understood the health risks of smoking, but smoked three packs a day of Winston and Salem brands for twenty years. Even worse, she admitted to the same camera that she had managed to stop only after her doctor insisted on it before she had a tummy tuck.

Woody Wilner vowed to keep going, predicting that he would win 50 percent of the other cases on his long list. The tobacco companies jeered: loss of the Connor case had shown the Grady case to be the “aberration” Philip Morris had said it was at the time.

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T
HE NEGOTIATIONS RESUMED
on May 6 at the law offices of Jones, Day in Dallas. Mike Moore reported that Matt Myers had been endorsed as the public-health group representative and would be working with Lonnie Bristow, ex-president of the American Medical Association. Meyer Koplow, a pudgy, amiable New Yorker from the law firm of Wachtel, Lipton, Rosen & Katz, led the discussions for the industry, in general, though he was retained by Philip Morris. He opened the session by saying the “ball is in our court” and restating the industry's goal—an end to the legal warfare. Big Tobacco wanted to settle all lawsuits. He reaffirmed that the industry had agreed on “fundamental changes” in the way it did business, particularly with regard to young smokers. Then he reviewed earlier preliminary agreements. It was an impressive-sounding list. It included proposed FDA rules, full disclosure of ingredients with food-type labeling, toxicology testing for non-tobacco and tobacco ingredients, stronger warning labels, elimination of all outdoor advertising, scrapping Joe Camel and the Marlboro Man, an end to brand sponsorship of events, and total elimination of vending machines. The industry was prepared to submit to manufacturing oversight with “real teeth,” disclose smoking and health reports, move toward production of safer tobacco products, and accept penalties if youth smoking did not decline—the “look-back” provisions.

Essentially there were still four issues to discuss: the package of health-oriented reforms, the fund for compensating the states and Castano, the legal immunity, and the attorneys' fees. The talks had gotten off to a rocky start on the money package. At one point, the Castano group discovered that the attorneys general had been talking privately about money to the Wachtel lawyers. Coale boiled over at this side action. “I totally lost it,” he said. “I said they were fucking rude, sneaking around like geeks in the night. Everyone had their eyes bulging out. They thought I had gone completely round the bend. Steve Berman [a lawyer from Seattle who represented several states] got up from the table and walked towards me. ‘One more step and I'll fucking kill you,' I said. Then Moore said he had heard one ‘fuck' too many and said he was not going to stand for such language in front of the women—there were one or two—and he walked out. Scruggs told me to get out with him. Stan Chesley loved it. Bob Redfearn [another Castano lawyer, this one from New Orleans] was mortified, and Hugh Rodham could see his life flashing by. They all came back in eventually and I apologized to Scruggs and Moore and then to the ladies, and it was over.”