When Brett DeLange started work on tobacco litigation in 1995, cigarette manufacturers were on a 40-year tear, having survived hundreds of individual lawsuits without paying a cent in damages to smokers.
That unblemished record was suddenly threatened, however, when states entered the legal fray.
Led by Mississippi in 1994, states began challenging the industry’s marketing practices. They also uncovered evidence that the firms knew their products were harmful, and sought to recoup billions of dollars for the taxpayers who shouldered the resulting health care costs.
To avoid potential bankruptcy, the four largest cigarette manufacturers negotiated settlements, first with Mississippi in 1997, followed by Florida, Texas and Minnesota.
A year later, they settled with the remaining 46 states.
The resulting Master Settlement Agreement is the largest class-action settlement in U.S. history. Dozens of smaller manufacturers eventually joined the agreement. In exchange for immunity from future state claims, the master settlement requires them to stop targeting youth smokers and restricts other advertising practices. The companies must also make annual payments to the states in perpetuity to help offset some of the tobacco-related health care costs.
It looked like the master settlement was the stone that took down Goliath.
Then Goliath got back up.
ABIDING BY SETTLEMENT
Almost from the day the agreement was signed, the industry has challenged a portion of the annual payments. To date, more than $11 billion has been funneled into a disputed payments account. Some states agreed to settle for a portion of what they were owed. Others, like Idaho and Washington, invest thousands of man-hours each year and hundreds of thousands of dollars in enforcing the master settlement and protecting their full payments.
“We always knew there would be disagreements,” DeLange said. “But I don’t think anyone anticipated there would be this level of dispute and litigation.”
DeLange began work in Idaho’s Office of the Attorney General in 1990. Five years later, then-Attorney General Alan Lance assigned him the task of evaluating whether the state had a case against the tobacco companies.
“At the time, no one had prevailed against them (in lawsuits), but the feeling was that someone needed to hold them accountable,” he recalled. “So I started looking at documents.”
Most of these were internal company memos and reports discovered during the course of litigation in other states.
“I remember reading some and just getting disheartened,” said DeLange, now chief of the attorney general’s Consumer Protection Division. “Then I got angry. There were documents talking about the need to capture the 14-year-old market, or saying they knew cigarettes caused cancer so what do they do next. It was clear this wasn’t just one bad actor; it wa
s the entire industry.”
Idaho’s case against the companies was based on consumer protection and anti-trust laws. The state alleged the industry targeted children and misrepresented the health risks of smoking, and that the firms colluded in intentionally not making safer cigarettes.
“We said, ‘Had you been truthful, there would have been fewer smokers. And as a state, we’re paying a lot in taxes to compensate for the misery you caused,’ ” DeLange said. “Our legal claims were tied to the impact to the state, not to individuals.”
This year, arbitration began over another $1.1 billion in disputed payments from 2004.
“Yes, that is not a typo,” noted one frustrated Vermont judge in a recent court ruling. “In 2016 we really are struggling with just commencing arbitration over payments nominally due 12 years ago.”
Since 2004, the industry has set aside an average of nearly $800 million per year in disputed payments — and each year needs to be arbitrated individually.
It’s unclear if this is an intentional strategy to wear down the states, but DeLange noted that some have chosen to settle their disputes. They agreed to give up a portion of the nonparticipating manufacturers adjustment they otherwise would be entitled to, in exchange for receiving the remainder without a fight.
“For the manufacturers, that was a win,” he said. In the 2003 arbitration alone, “they saved hundreds of millions of dollars.”
A tobacco industry spokesman, Brian May with Altria, the parent company of Philip Morris USA, declined to comment on the arbitration. He noted, however, that manufacturers have settled with 24 states “and we remain open to resolving these disputes with the remaining states.”
Idaho and Washington have so far declined to take that path.
“Our AG has said no,” DeLange said. “We’ve done our job, we’ve kept the bargain (by enforcing the adjustment agreement statutes). This is money we’re owed. We don’t like litigating, but if we have to we will.”
Settlement brought ‘sea change’
The master settlement wasn’t an effort to craft the best public policy regarding cigarettes and tobacco use; it was simply the best solution that could be devised to resolve the multiple lawsuits.
Nonetheless, it brought about a “sea change” in public attitudes toward tobacco and smoking, Brett DeLange said.
“I think it’s done some remarkable good in Idaho,” he said. “Youth smoking has dropped dramatically. Tobacco companies agreed to quit sponsoring concerts, they aren’t paying to place their product in movies and they aren’t advertising on billboards — changes that could not have been made through legislation. Now even the companies admit that cigarettes are addictive and cause cancer. I think (the master settlement) made a wonderful difference for the state.”