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Liggett settles with states
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March 20, 1997: 6:10 p.m. ET
Cigarette maker to admit smoking causes cancer; pay some $750 million
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NEW YORK (CNNfn) - Liggett Group Inc. on Thursday reached an unprecedented lawsuit settlement with 22 U.S. states, becoming the first tobacco company to admit that cigarettes are addictive and can cause cancer.
Breaking ranks with the rest of the tobacco industry, Liggett Group, a unit of Bennett LeBow's Brooke Group, also agreed to turn over 25 percent of its pre-tax profits for the next 25 years.
Under the deal, Liggett will pay an estimated $30 million annually to the states, or about $750 million in total.
Liggett will also pay a flat $25 million fee if the company either acquires an additional tobacco unit, or is itself purchased by a cigarette firm.
Further, Liggett agreed to add a label to its products, including the Chesterfield and Lark brands, stating the nicotine is addictive.
"This is the beginning of the end for this conspiracy of lies and deception that has been perpetrated on the American people by the tobacco companies," Grant Woods, Arizona's attorney general, told a Washington, D.C., news conference. "Someone is finally telling the truth." (814K WAV) or (814K AIFF)
Woods said Liggett would cooperate fully with state attorneys general in cases pending against the other companies, and would allow its current and former employees to testify about industry practices.
He said the company had already turned over internal documents, and would argue in court for the right to provide states with documents related to other tobacco companies.
Liggett executives did not make any immediate comment about the settlement.
While industry watchers long viewed Liggett, the smallest of the top cigarette makers, as a loose link in the powerful tobacco front, analysts say the company's admission that tobacco causes disease deals a major blow to the sector.
Tobacco companies face a growing list of lawsuits filed by states seeking to recoup the medical costs of treating tobacco-related illnesses in impoverished patients who receive state-funded Medicaid insurance.
Along with the cases brought by the states and individual civil suits, the Justice Department is investigating whether top tobacco-industry executives lied to Congress in 1994 when they testified that nicotine is not addictive.
Scott Harshbarger, the Massachusetts attorney general and president of the National Association of Attorneys General, told reporters that the Liggett deal "will produce information that indicates that major tobacco companies were fully aware that the product they were selling is addictive, that the product they were selling had great impact on public health."
The nation's four largest tobacco companies, which all claim nicotine is a non-addictive flavor enhancement, quickly lashed out against Liggett's deal.
Philip Morris called the agreement a "sham," and insisted in a statement that the settlement did nothing to impact other tobacco litigation.
"Philip Morris will continue to defend vigorously against the meritless lawsuits filed by the states seeking to recover health-care expenses," the statement said.
A key element of the settlement is Liggett's agreement to turn over potentially damaging documents, including notes between tobacco companies.
However, a North Carolina state judge issued a temporary restraining order prohibiting Liggett for the time being from given any notes to the states.
Lawyers for R.J. Reynolds Tobacco, Philip Morris, Brown & Williamson Tobacco and Lorillard Tobacco argued that the information is protected by a joint-defense privilege.
Liggett is expected to argue in court that all the documents should be delivered to the states, Arizona's Attorney General Woods said.
Yet Mike Moore, Mississippi's attorney general, said that even with documents only involving Liggett, states will receive unprecedented help in litigation against Big Tobacco.
"We will bring the other four tobacco companies to their knees," he vowed. (151K WAV) or (151K AIFF)
Just one year ago, Liggett became the first company to ever offer to settle smoking litigation, reaching an accord with five states. The company also agreed to settle its part of a class-action lawsuit in New Orleans.
As word of Thursday's settlement leaked out, Wall Street investors sent tobacco shares down sharply.
Shares of Philip Morris (MO), a component in the Dow Jones industrial average, closed down 7-1/4 to 114-3/4, while RJR Nabisco Holdings (RN) lost 3/4 to 31-1/2 and B.A.T. Industries (BTI) fell 13/16 to 15-5/8. Brooke Group (BGL) rose 5/8 to 4-7/8.
-- David Rynecki
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