They called me up the next day. They said, "Mr. LeBow, you let us go to this
big law firm, Philip Morris will pay all of your legal fees." I said, "What?
They want to pay my legal fees. My competitor wants to pay my legal fees." I
know we're in the joint defense thing, but it didn't sound right. So I started
to smell something wrong there. This is now, I think we're talking about
September of '95. I said, "Go ahead and go there, because I'm busy with some
other things. Go there. They want to pay my legal fees. I won't right now look
a gift horse in the mouth. We'll take the money." But I really started to
Q: In effect these were bargain attorneys?
Lebow: Yeah, well, free.
Q: Free lawyers. Free. . .?
Lebow: Free lawyers. I mean, you know, how can I turn it down. It really
got my. . . the bells going off.
Q: What kind of money are we talking about in terms of your legal
Lebow: It was running about eight million dollars a year at the time.
Q: So, Philip Morris is willing to give you a legal defense fund at
eight million dollars a year, no questions asked.
Lebow: Right. Providing my lawyers go to one of the firms they like, not my
Q: And so then, you get into the attempt to leverage.
Lebow: And so then, I get involved with some other share holders and am
attempting to. . . recommending to RJR that they spin off Nabisco. They take
their three businesses and separate it from the tobacco business.
Q: You own Liggett, your holding group and you then want to try and take
over a larger company, RJR, which also obviously has a big tobacco component.
Lebow: And make money in stock that we've bought in RJR. And the obvious way
was to separate the two businesses, the tobacco business and the food business.
The food business in this case being Nabisco. So, myself and other
shareholders, we started an action doing that, and we won. All the
shareholders voted for this to be done.
Q: Now, why did you want to split them up?
Lebow: So, the share values would go up.
Q: And what was your sense of the Medicaid suits?
Lebow: Well, let me finish. They came out and said, "Mr. LeBow, we can't split
these two companies up because there is too much litigation." I said, "What
litigation?" I've been told for eight, nine years that there's no litigation.
There's a couple lawsuits, you know, Medicaid and a few other individuals.
There was some class actions then, which everyone has said, "No problem. We
win everything. There's no issue." Now, I've got two things happening. I
have Philip Morris paying my legal fees. I've got RJR saying they can't do
this spin off or split up because of all the litigation possibility. I really
got suspicious. So, then I authorized the new law firm. We're now talking
three months after Philip Morris' overtures to the other side. I really want
to find out what's going on now.
Q: Talk to the other side in what?
Lebow: Meaning the plaintiffs, meaning the Attorneys Generals, meaning the
Castano case class action lawyer.
Q: So, both the class action lawyers and the Attorney Generals like Mike
Moore. You authorized the new lawyers, not part of this big firm.
Lebow: Not part of those guys. In secret.
Q: In secret, to talk to the plaintiffs. Unheard of before.
Lebow: Never been done before. No tobacco attorney ever talked to any of these
other attorneys in thirty years. So, the first time in secret talking to them
in late December, '95, they had some secret meetings to explore what's going
on. Because I want to find out what's going on. And the easy way to find out
is to talk to the other side. Instead of trying to read papers, let's hear the
other guy's view point. The lawsuit, which I didn't quite understand at the
time. There are these class action lawsuits, and the big issue is nicotine.
Nicotine, never disclosed by the tobacco companies that they really believed
that nicotine's addictive. And also in the back of my mind, remembered
everybody getting up in Congress and swearing, "No, nicotine is not addictive.
We don't believe it is. Etcetera, etcetera."
Q: Tell me about when you first talked to the other side.
LeBow: But then in '95 when all these other things are happening, I'm starting
to think something's wrong here. See after meeting with these AG's, we had to
have two months of secret meetings not telling any of the attorneys, not
telling anyone. The only person I told was the new president of Liggett at the
time, and myself, and the new attorneys. We then negotiated...the settlement
in the March of '96.
Q: This is called Liggett One?.
Lebow: Liggett One, with five Attorneys General and the Costano class action
Q: Did you notify the people who were paying your legal fees or any of their
friends, or RJR that you're about to do this?
Q: You didn't tell them that after thirty or forty years of a united front,
that you were about to defect?
Lebow: Absolutely not. They all read about it in The Wall Street Journal. I
didn't tell anyone because I honestly, you know, I can't tell my attorneys,
they're being paid by the other tobacco companies. So, I can't. . . I don't
say, I don't trust them, but it wasn't right. The only attorneys who knew
worked with a new law firm.
Q: You didn't trust your own attorneys?
Lebow: Not in this place. Now, needless to say, when that came out, they came
and fired me, my attorneys.
Q: Wait, they fired you?
Lebow: They fired me.
Lebow: Because I didn't confer with them in this negotiation, I suspect.
You'll have to ask them why they fired me. It's pretty obvious. So, in this
Liggett One, in March of '96, everybody goes crazy. Wall Street says, "What
did you do? This is insane." Etcetera, etcetera. And the truth of all this,
I didn't believe the strategy these tobacco companies are following. I mean
none of the strategy made sense. Intellectually, I just didn't believe it.
You have to win every lawsuit. There's nothing here. We're never going to lose.
And also recognize that Liggett is the smallest of all the tobacco companies.
From a financial point of view, I also said to myself, we can't afford to lose
even one lawsuit, one Medicaid case. We go neatly bankrupt. So, from a
financial point of view, at this time, I figured it was the right thing to do,
to make a settlement. Why stay in court the rest of your life? The other
companies have this scorched earth policy that we're going to spend, and spend,
and spend, and spend, and spend, and win and win and win. And I didn't want to
become a satellite of Philip Morris with them paying my legal fees, or a
subsidiary of them. When we did this, everybody went berserk.
Q: Didn't you ever doubt what you were doing?
Lebow: No, I never did. Not for once. I knew it was the right thing to do. I
really did have this sense, call it a gut feel, call it what you want, it was
the right thing to do. Talking on a personal level, I also see a tobacco
company standing up and saying, "Well, cigarettes don't cause any harmful
effects." What kind of a statement is that? Cigarettes are not addictive...
what kind of a statement is that? How can they keep doing this? Then, let me
tell you what then happened. I got fired by my old law firm. I told my new
lawyers, let's get these documents everybody is talking about. I want to see
these documents. We had not looked at any of these documents, because I didn't
want to confer with my previous attorneys at the time. My new lawyers then
took the documents away from the old lawyers, and spent about four or five
months studying. And by the end of '96, the middle of '96, they came to me and
said, Ben, there's some serious things in these documents. There's some issues
of crime and fraud and all kinds of things, and it's well known that smoking is
addictive, and all these types of things in these documents. I said, "That's
it. I don't want to talk about it anymore. Let's get in touch with all the
Attorneys General, all the attorneys involved in this thing, and try to
negotiate a new settlement for us." Which we did.
Q: You mean a new broader settlement?
Lebow: A new, broader settlement. And by this time, more Attorneys General had
Q: And by then there were 23 states.
Lebow: Originally there were only four or five. Now more had come in, and it
had broadened the whole situation. Then, we took about four to six months
negotiating. We now come to March of '97 when we announced a new, broader
settlementt with 21 states. Now we're up to 26 states that have settled with
Q: And you've agreed at this point, not just on a financial deal, but also
to do what?
Lebow: To admit to everything, admit to smoking being addictive, admit to all
the health hazards of smoking, to turn over all of our documents, to waive all
of our attorney-client privilege. Turn all of our documents over which we did.
Immediately, that very day, RJR ran to a North Carolina court to stop me. . .
to try to stop us from turning over documents. And we had turned them over to
the courts in escrow for the judges to decide whether there is anything in
these documents that represents crime or fraud and whether attorney client
privilege should be waived, etcetera, etcetera. So, we did all this. And lo
and behold, two weeks later, all the attorneys, all the other companies show up
at the door of the Attorneys General to negotiate a broader, more comprehensive
settlement for themselves.
Q: Let me take you back, again. You indicated then--I'm talking about Liggett
One -- that you were not doing this out of altruism. You were doing this to
help you take over RJR.
Lebow: RJR was saying they couldn't do a spin off, they couldn't take out
Nabisco and so forth, because of all of these lawsuits. One obvious motive I
had was, okay, let's settle the lawsuits and solve that problem for the
shareholders. That's what got me started looking into it. To really find out
what's going on here, what the problems are. But the more I look. . . And
then after the lawyers fired me, and then we got the documents, I mean it was
obvious we were doing the right thing. And then the whole thing changed in
Q: What do you mean?
Lebow: All right, there were two elements to it. First of all, admittedly, the
first time we started looking at it, I had economic motivations going into
this. And one economic motivation was to get a better deal for Liggett, a
better economic deal. Now, in theory I had the idea that if Liggett got a
better economic deal...if the other people had to pay more and Liggett had paid
less, we'd have a competitive advantage and be able to survive. And at this
point, bear in mind that Liggett is going down.
Q: What was happening to your stock?
Lebow: Well, our stock and our sales are going down. And especially, after I
did something like this in Liggett One and Liggett Two, the other companies are
coming after us, I mean competitively. So, we had to have some sort of
economic life preserver to survive, to survive all this onslaught. The other
issue they're talking about is the RJR issue. At the time, back in '95, '96,
we were involved in this proxy fight, and RJR was saying they can't do the spin
off because of litigation.
So, the most obvious thing for a business man to do, okay, is settle the
litigation. There's no more problem, and we can do this spin off and everybody
makes money. So, I was sort of flabbergasted that when we did this, all the
shareholders are, "What are you doing?" "This is crazy" But we have the right
to spin her off. And as it turns out, a lot of the shareholders also hold
Philip Morris stock, own Philip Morris and RJR. And they saw this as possibly
hurting Philip Morris more than it would help RJR.
Q: Who are these shareholders?
Lebow: Institutions, major institutions.
Q: Like Fidelity Magellan.
Lebow: Every major institution in the United States you can think of, you know,
owns stock in both companies.
Q: Like public employee funds.
Lebow: Yeah, state funds, etcetera, etcetera, etcetera.
Q: So, these are the big heavy hitters in the marketplace?
Q: What I've been told by the negotiators, Scruggs, Moore, and others, is
that when they brought up the Liggett deals, RJR said, "That's a deal breaker."
We are not giving -- they wouldn't mention your name -- we are not giving them
anything. And Philip Morris' lawyers' eyes just rolled up to the ceiling.
Lebow: Well, it's not up to them, it's up to the President and the Congress to
do what's right here. It's not up to the tobacco industry. I mean, they don't
make the laws in this country. Yeah, I've heard they've threatened to walk
away from any settlement, tobacco settlement, that Liggett got, the contracts
we have. Nothing special. We're not asking for anything special...all we're
asking for is that our contracts be honored. The deals we negotiated.
Q: They're paying hundreds of millions of dollars.
Lebow: They're not paying a penny. They're paying nothing. Let's get it
straight. They're raising their prices to cover it. The poor addicted smoker
and the U.S. taxpayer is paying. So, don't yell at me that we're only paying a
couple of million dollars out of our pocket, I don't see them paying a penny
Q: They're not paying up front out of their own cash in Mississippi and
Lebow: They're raising the prices to get the money back.
Q: And they're already raising the prices.
Lebow: They already did. They did it last year. they've already done it. .
.with the new settlement.
Q: I mean, I was amazed that things have changed so fast.
Lebow: Yeah, I was too. I knew it would change. I felt it would change. I
thought it would take a little bit longer. But they had the trials coming up,
that was the impetus. The Mississippi trials, and the Florida trials coming
up. And they should have really done it six months earlier. Because it turned
out they didn't have time.
Q: What do you mean?
Lebow: Well, they really should have settled, I think, a year earlier than they
did. Started the negotiations a year earlier, because they're under the gun
with the trials, the Mississippi trials and the Florida trials. They had to go
settle with really big numbers, you know, a lot different than it probably
would have been a year earlier. And they knew the schedule, they knew these
trial schedules. These are all public knowledge. So my opinion is, they
should have started the negotiations to settle these things a year earlier.
And they could have had time to get it through Congress.
Q: Your perspective was, you guys might lose in court.
LeBow: I started to understand. I never understood before, but I do now.
Yeah, there are warning labels on the cigarettes, have been for many years,
since 1967 or so. But there was a never warning label that smoking is
addictive. That one warning label was not there. You know, when I really
focused on it a few years ago, when I heard the Medicaid cases from the
Attorneys General, they had a good case...maybe. But why fight? Why not try
and work out a reasonable settlement and do the right thing.
Q: But you're a businessman. You're not going to pay somebody a lot of
money or make such a settlement that will cause all this havoc, unless you were
making a bet that they could win.
Lebow: Obviously I was making that bet, yes. Absolutely. I believe they had a
strong case. And I believe sooner or later, they're going to win. And I
wanted to settle quickly. Obviously the first person is going to get a better
Q: But once you admit that it does all these things, aren't you admitting
that you're selling consumers something that could very well kill them?
Lebow: Well, A, it's legal. But, B, they're fully informed. Consumers now
have full information about everything. All of our documents are released.
We've waived our attorney client privilege, etcetera, etcetera. I mean, that's
the way it is, that's the way it's going to be going forward. And not sold to
children, that's the important thing. And by the way, another thing we've said
publicly which is important. We've said this publicly, and I'll say it again
now, that in 25 to 30 years, we sure will be out of business. Because by
definition, if you're really, really not going to sell to children, they're not
going to have any customers in 25 or 30 years. So, I'd like to hear the other
companies make that statement that they intend to be out of business in 25, 30,
whatever, a generation. If they're really, really not selling to children,
we're all going to be out of business.
Q: You're known as a hard dollars and cents guy.
Lebow: Liggett could not afford to lose one Medicaid case. Because we can't
even afford to post a bond to appeal it. Even though we thought we were right,
we had economic motivations in that regard to make a deal, no question about
it. But after seeing the documents and understanding these things, I couldn?t
just from a moral point of view couldn't go forward and keep saying that
smoking is not addictive.
Q: What did your attorneys tell you?
Lebow: My attorneys told me that these documents became serious evidence, a
crime, fraud, obstruction of justice, etcetera, etcetera, and we turned these
documents over to the various courts. And so far, three courts have found the
same thing. So it's obviously true. I mean a court in Florida, a court in
Minnesota, and even another court I believe, came out with the same type of
informations saying these documents have serious problems in them.
Q: And have you turned these documents over to the Department of Justice
Q: They've come here and gotten copies?.
Lebow: Yes. They got them from either our attorneys or from the courts we
turned them over to. There's no issue there.
Q: Have they come here and questioned people?
Lebow: Not to my knowledge. Not that I know have.
Q: No one from Liggett, as far as you know, has been subpoenaed or brought
to Washington to testify?
Lebow: I don't know if I can answer that question because I'm not sure of the
legalities. So, I'd rather not answer that. I'm sure some of the people have
Q: So, this could get serious. I mean beyond money, even if you're willing
Lebow: Well, it's well known that the Justice Department is investigating, has
some grand jury investigations going. That's well known. There was, one plea
on the nicotine plant issue last week. So, I suspect there's other things
going on. We'll see what the Justice Department does.
Q: But in the background of all of these discussions about public health and
how much in damages and how to change marketing, there still looms this cloud
of potential criminal charges.
Lebow: That's correct.
Q: Do you think that's motivating anybody in the settlement?
Lebow: My understanding is during their settlement negotiations, they do have
criminal attorneys present. They're trying to get some criminal immunity
without totally taking it off the table. So, I'm sure that's part of the
motivations the companies have. We have no concerns over it at Liggett. I
mean, I have no personal concerns. And we're cooperating completely with the
Q: So, when you say, you're in a sense turning over evidence to the Attorney
General, you're also turning over evidence to the Attorney General of the
Lebow: Oh, yes, absolutely.
Q: What about the so-called stealth amendment -- the fifty billion dollar
tax deduction if they had to make these settlement payments.
Lebow: Right. Instead of 368 billion, it would be 50 billion. Everybody in
Washington just went crazy over that. And it was 96 to 4 in the Senate. The
vote was completely lopsided. You don't do those things in secret like that.
You know, it just shows. . .
Q: It was a stealth amendment.
Lebow: It was a stealth amendment.
Q: They showed their power.
Lebow: They tried to show their power, and I think lost a lot of power because
of it. I think Congress and the White House -- they've wakened to the fact
that this is not the way things should be done. Things should be done
correctly, and I believe that Congress and the White House will do the correct
thing going forward.
Q: Let me change the subject on you a little bit, just because we're
focusing to a certain extent on the attorneys general and what happened. When
you first met Dick Scruggs and Mike Moore, what did you make of them?
Lebow: I thought they were really crusaders.
Q: Moore was a crusader?
Lebow: Absolute crusader. He was crusading for something he believed in. And
I was very impressed by his record. And it turns out he was a hell of a
crusader...General Moore. It turns out he was right all along. And I was
Q: Not your average politician?
Lebow: No, not your average politician.
Q: Why not?
Lebow: He had a focus. He and Dickey Scruggs wanted to accomplish something,
and they went for it, you know, all the way. And they did it, and they deserve
all the credit that they get.
Q: In a nutshell, what was the importance of these suits by the attorneys
general in your mind?
Lebow: I think they're very important, and I think it's obviously been proven
true. They led the way. It's gotten people really started thinking. And also
they were major in numbers. I mean the amount of money that they were
demanding, asking for was quite large. Florida, for example, passed a special
statute which took away a lot of tobacco's traditional defenses. So, I think
they were very, very important in the scheme of things.
Q: They, if you will, check-mated the industry.
Lebow: Yeah, as you saw, all the class actions got thrown out. Most of them
got thrown out. So, it's strictly the large lawsuits, the attorneys general
lawsuits, that worry the industry. The industry is never afraid of one
individual lawsuit. They could always pay, you know, a million dollars here or
a half million dollars there, wherever it may be. But the attorney general
lawsuits also included RICO charges and punitive damage potential, which really
got the industry thinking.
Q: Is it a lesson for other corporations, for other industries?
Lebow: Yeah, I think it should be a lesson. I think all these lawsuits and all
this litigation should be a lesson that people should do the right thing and
not withhold information. Not withhold over years and years, all these types
of things. You sit back and you look at it, it's kind of ridiculous. We all
know cigarettes cause problems. We all know it's addictive. So, why don't we
disclose all this stuff. Why were all these secret things being done. I mean
just on an individual basis, sitting back and looking at this, I don't
understand why they did it.
Q: I don't think I've ever talked to a businessman before who says that he
hopes that his business will go away.
Lebow: Well, I hope it goes away. I really, truly hope it goes away. I hope
I'm around to see it go away even, at my age. But I really hope it goes away.
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