1. There has been a lot of talk about lawyers making billions of dollars
from the tobacco deal. How does this work and what will they make?
The tobacco deal is no different from many other deals negotiated by
plaintiff's lawyers, except for its size. Attorneys who have brought suit to
recover state and federal Medicaid expenditures will get contingency fees of
between 3 and 33 percent, with most getting between 10 to 25 percent. For
example in Texas, Attorney General Dan Morales and his attorneys got $2.3
billion. They secured a record $15 billion settlement with the nation's major
cigarette makers. In Florida, attorneys stand to make $3 billion.
The basic idea is that plaintiff's attorneys put up all the money to try these
risky types of cases. Because they are taking such a big risk, they can
negotiate huge fees should the cases pay off. In the event of a national
settlement of the tobacco cases, which could be as much as $500 billion, the
plaintiff's lawyers would collect a percentage of the negotiated settlement,
usually based on how much time and effort they put into the case.
A number of people including George Bush, Jr., Governor of Texas, have
attacked the fees as "excessive" and have called on Congress to set
limitations. The fees are still in arbitration.
Richard Scruggs and Ron Motley are two of the plaintiff's lawyers who stand to
make the most, since they started the case and are working on many different
state cases. Scruggs and Motley have both agreed to let their fees be decided
by a national panel of judges. The attorneys fees would be paid by the tobacco
companies above and beyond the money collected by the states and the federal
2. Will the massive litigation against the tobacco industry cause the
industry to go into bankruptcy?
Not everyone agrees that bankruptcy is a certainty. President Clinton said
in April that he has no desire to put farmers out of work. More than 660,000
jobs depend on growing, manufacturing and selling tobacco. But the current
legal challenges have raised the possibility that one or more tobacco firms
will face hard times. In FRONTLINE's interview, Steve Parrish, Senior Vice
President of Philip Morris said, "It would be a terrible thing, and it would
not only be terrible from an industry standpoint and all the hundreds of
thousands of people across the country who depend on the industry for their
livelihood ..but also for the public".
The bankruptcy issue is complex. If the tobacco companies do not settle, the
magnitude of all the state cases would likely force most of the companies into
bankruptcy. Philip Morris may survive. But the companies can still
manufacture cigarettes in bankruptcy.
In the event of bankruptcy, the individual States would not receive the large
pay off expected from a national settlement. The company's assets would be
divided up by bankruptcy fees, lawyers and the States that manage to win
judgments before the bankruptcy.
If they do go into bankruptcy, the biggest losers will be the tobacco stock
holders. Many large pension funds in the United States are currently heavily
invested in tobacco stock. Another possibility is that the bankrupt companies
would be bought up by new companies. These new companies would have no past
liability and could operate without fear of past damages. The new companies
would present a difficult dilemma to regulators.
Click here for more about Big Tobacco's economics and the bankruptcy
3. Why does the tobacco industry want immunity ...and from what?
The question of immunity is a thorny one. When Big Tobacco came to the
negotiating table, the first thing they asked for was immunity from criminal
prosecution. That was not an issue the States Attorneys General had the
authority to negotiate. The industry also wanted to prevent other "third
parties" from suing them, including insurance firms. The June 20, 1997
settlement dealt with the following issues:
(i) Class Action: Pending class actions suits would be "settled" No new
class action lawsuits for past grievance would be allowed. This includes
insurance groups, restaurant workers, bartenders and the federal government.
Individuals may still sue. But Dick Daynard, Professor of Law at
Northeastern University, told FRONTLINE that tobacco has never lost an
individual case because juries have generally felt that individuals were aware
of the dangers of smoking. Attorney Ron Motley said, "There hasn't been a
single individual suit against the cigarette companies that has given the
victims a single penny". Experts also say that there is no incentive for law
firms to take on tobacco considering the past record.
(ii) Punitive damages : Punitive damages for past actions will be
eliminated and a payment of at least $60 billion will be made($10 billion in
the first year) instead. Punitive damages for ongoing activity will not be
There will be an annual cap of $6.5 billion in damages. This cap will be
removed if youth smoking does not fall to intended target levels.
(iii) Immunity from Criminal Prosecution. Federal authorities are still
investigating whether tobacco executives have broken criminal law. There will
be no criminal immunity in these negotiations.
The McCain Bill currently before Congress is much tougher than the above
limits. It puts an annual cap on damages but does not limit the types of cases
which can be litigated.
4. What are the tobacco companies giving up? What are they gaining?
The main thing that the tobacco firms want to eliminate is uncertainty.
Throughout the current controversy, share prices have been adversely affected
and there is a great deal of uncertainty about the future. Business analysts
believe that stock prices will stabilize, even increase, when an agreement is
reached. To achieve that goal, tobacco companies have been willing to
voluntarily give up their First Amendment right to advertise (see question 8).
According to an advertisement they ran in major newspapers on March 11, 1998,
the industry will also gain clear regulations about what it can and cannot do.
Payments of legal judgments against them will be capped at $6.5 billion each
year. Claims for past misdeeds will be barred. Lawsuits will be barred against
people other than tobacco manufacturers.
5. How will the deal affect tobacco companies internationally?
According to Dr. Stanton Glantz, University of California, San Francisco, the
tobacco industry is willing to enter a deal with the United States public
health forces so it can remove financial uncertainties and clear the way
for international expansion. He points out that the companies fastest
growing profitable market is in Asia and eastern Europe. The National
Cancer Policy board has described this as a "foreign policy time bomb".
Furthermore, government warnings would not have to be displayed on
cigarettes sold outside the United State and any FDA requirements about
advertising, ingredient disclosure or nicotine levels will only apply to the
Glantz's research concludes that the tobacco deal would result in increased
international tobacco sales, and it will encourage American tobacco
companies to establish overseas corporations.
6. How will the deal affect the 40 million people who currently
There is almost unanimous agreement that the deal will increase the price
of cigarettes -- the only question is by how much. Some analysts believe a
price hike will go as far as an extra $1.10 per pack. Critics of the
proposed deal also claim that a price increase would create a new black
market for untaxed cigarettes. It is also believed that there will be a
decreased tolerance for smoking in public. More buildings will
become smoke-free and more advocacy literature will circulate. Some see the
deal as an attack on smoker's rights.
7. What other products are owned by Big Tobacco?
Many common household products are owned by tobacco firms. Kraft Food Inc.
(the largest American food company) is owned by Philip Morris. It makes
products such as Maxwell House Coffee, Jell-0 and Post cereals. Philip Morris
also owns the Miller Brewing Company. RJR Nabisco makes cookies like Oreo,
Ritz and Snackwells food. The tobacco firms also own several real estate and
Click here for more on what Big Tobacco owns and who's on their
8. Why are we trying to settle this issue via legislation?
Under the First Amendment of the United States, the tobacco companies have the
right to advertise their products freely. However, they would voluntarily give
up this right under the proposed settlement. They have agreed to eliminate
billboards and not advertise near schools and in other places where young
children may see them. In return, they want the whole issue to be settled by
Many people believe that the only way to stop children from smoking is to limit
or stop tobacco advertising. A legislative framework would give the tobacco
companies the added benefit of manufacturing and selling their product in a
stable market environment.
Click here for a sharp quiz about tobacco marketing practices.
9. How will the negotiations affect other companies who sell products that
may be dangerous?
The deal being negotiated only addresses tobacco companies. But attorneys and
other experts agree that it could be used as a framework for other industries
including the chemical and nuclear industries. Opponents of the deal argue that
it will open the flood gates for these industries to seek protection from
immunity, even though they may pay large sums of money in compensation.
10. How will all the money be spent?.
A large proportion of the money will be spent on tobacco farmers, health
promotion and public education about smoking. President Clinton has earmarked
more than $65 billion for social and welfare programs, even though the deal has
not been settled.
More than $22 billion will go to the individual states to use as they see
fit. It is generally assumed that the most of the money will be used for
health care programs. The lawyers fees would be paid by tobacco companies
above and beyond the negotiated settlement amount.
the criminal probe .
will there be a deal? .
a look at the depositions .
big tobacco - what's at stake .
links & readings .
tapes & transcripts .
frontline online .
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