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House of Representatives,
Committee on the Judiciary,
Washington, DC.

    The committee met, pursuant to notice, at 10:03 a.m., in room 2141 Rayburn House Office Building, Hon. Henry Hyde (chairman of the committee) presiding.

    Present: Representatives Henry J. Hyde, F. James Sensenbrenner, Jr., Bill McCollum, George W. Gekas, Howard Coble, Lamar S. Smith, Charles T. Canady, Stephen E. Buyer, Ed Bryant, Steve Chabot, Bob Barr, William L. Jenkins, Asa Hutchinson, Chris Cannon, John Conyers, Jr., Barney Frank, Howard L. Berman, Rick Boucher, Jerrold Nadler, Robert C. Scott, Melvin Watt, Zoe Lofgren, Sheila Jackson Lee, Maxine Waters, Martin T. Meehan, William D. Delahunt, and Steven Rothman.

    Staff Present: Diana Schacht, deputy staff director/counsel; Robert Corry, counsel; Vincent Garlock, counsel; Shawn Friesen, staff assistant; Daniel Freeman, parliamentarian/counsel; Thomas Mooney, general counsel/chief of staff; Annelie Weber, assistant to staff director; Shelly Pelletier, office manager; Samara Ryder, minority counsel; and Perry Apelbaum, minority general counsel.

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    Mr. HYDE. Good morning. The committee today will have its first opportunity to consider the proposed $368.5 billion global tobacco settlement. The parties who negotiated the agreement—tobacco manufacturers, State attorneys general, and public health advocates—tell Congress that by approving this deal we will achieve public health benefits well beyond what could be obtained through traditional regulation or litigation. If its proponents are to be believed, the settlement will lead to a reformation and restructuring of how tobacco products are manufactured, marketed, and distributed in the United States. And more importantly, it is designed to dramatically reduce under-age tobacco use.

    Few would quarrel with these laudable goals. But as is true in all of life, you have to give up something to get something. While the proposed settlement exacts a high price from the tobacco industry to compensate the States for tobacco-related health costs and to finance nationwide anti-smoking programs, it also carries a huge payoff for the industry: immunity from class action lawsuits and punitive damages for past misconduct, and an annual cap on damages paid in any single year. It is the propriety and scope of this tradeoff that is the subject of today's hearing.

    The parties to the proposed settlement, and particularly the attorneys general, have concluded that its civil liability provisions are appropriate as a means to achieve a greater good. But it is incumbent on the Congress, and particularly this committee, to evaluate these liability concessions in the broader context of the public interest. We must ask ourselves how these provisions would impact the rights of persons who are not a party to the settlement, and who would not be entitled to receive any direct compensation under the agreement. We are repeatedly told that the agreement does not grant the industry immunity, that every single individual who believes he or she has a tobacco-related personal injury may seek still full compensation from the industry in court.
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    While this may be technically true, what are the consequences of forcing litigants to try their cases one by one, or of limiting their potential recovery to compensatory damages? And what impact will these limitations have on the rights of joint tortfeasors, such as the asbestos industry, which is trying to force the tobacco industry to share the costs of injuries suffered by asbestos-exposed smokers? Also unanswered is the impact these provisions would have on the court system, and the ability of judges to deal with cases in an expeditious and efficient manner.

    It's also important to step back and ask whether the proposed settlement goes about modifying the liability exposure of manufacturers in the most efficacious manner. There may be other ways to structure a liability package which does less violence to the rights of third parties while granting the industry the predictability and the certainty that it seeks.

    It's from this perspective that we begin today's hearing. We have with us representatives of the manufacturers and attorneys general who negotiated and endorsed the settlement. I am particularly pleased that the Department of Justice has agreed to participate this morning. While the President has called for the enactment of comprehensive tobacco legislation, until today, he has not expressed his views on the civil liability aspects of the proposed settlement. So I look forward with great interest to the Department's testimony. Also joining us are witnesses representing the public health community, the asbestos community, and victims of tobacco-related injury. I anticipate that we will have an informative and spirited debate on this very important subject.

    I'm certainly going to recognize the ranking member, Mr. Conyers, for an opening statement, but I would like to announce that other members, by unanimous consent, may have their statements made a part of the record. But we will forego their delivering them in person because we have many members of the panel; we have many witnesses, and we would like to proceed with some dispatch.
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    So I now am very pleased to recognize the ranking member, Mr. Conyers, for an opening statement.

    Mr. CONYERS. Thank you. Good morning, Chairman Hyde and members. I think it's important that we called today's hearings concerning the civil liability provisions of the proposed tobacco settlement. The role of the Judiciary Committee is very critical in this respect.

    I'd like to ask Chairman Hyde to consider allowing the counsel to the attorney general of Minnesota, Scott Strand, to read the statement of the Honorable Hubert Humphrey III, who is not going to be able to be with us on the second panel.

    Now, civil liability is the critical issue in the entire $368.5 billion settlement proposal; $368.5 billion—now we have seen what has happened here. This is over a 20-year period, tax deductible. And guess what? The stocks went up in tobacco as soon as that proposal was announced. Now, absent the various limitations on liability, we are told that the tobacco industry would be unwilling to fund anti-smoking programs, submit to regulation, and otherwise alter their behavior to reduce teen smoking. The question before the committee, though, isn't what the industry is willing to accept, but whether it is appropriate public policy for the Congress to cap overall damages, eliminate punitive damages for past misconduct, and eliminate the use of class action and other consolidation devices for an industry responsible for the single-most dangerous consumer product in American history.

    And I come to these hearings with as open a mind as a Member of Congress is possible to have under these circumstances. I believe that the burden of proof lies with the tobacco industry to establish that civil liability relief will truly serve the interests of the American public, not the tobacco company, not the stockholders of tobacco. To meet this burden, it is imperative that the industry immediately make available all of the pertinent documents concerning their knowledge of the health effects of cigarette smoking and their efforts to market it to children and other market segments. Without this information, this committee has no way of knowing whether the proposed settlement is a good deal for the American public.
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    To this end, I am releasing a set of previously undisclosed marketing studies detailing efforts by the tobacco industry to target the African-American community, including its youth. We need to get these facts out on the table because the African-American community has a disproportionate share of smokers and suffers a far higher degree of heart disease than the rest of the population. If we can learn how this situation was brought about, I think we have a far better chance of responding to the problem.

    Several weeks ago, I released a 1969 RJR marketing document stating their view that when it comes to cigarettes, quality rates as a cherished attribute. ''Negroes''—their language—''buy the best scotch as long as the money lasts, most marketers agree.'' Today's release of documents shows that this was not a one-time isolated occurrence. In 1973, we learned that RJR completed a marketing profile which included a study of black smokers age 14–20. A 1981 marketing plan stated, ''the majority of blacks do not respond well to sophisticated or subtle humor in advertising. They relate to overt, clear-cut story lines and points when humor is used.'' Not only do these dangerous Amos and Andy-type stereotypes demean African Americans, but the specific targeting of our communities and our youth constitutes a dangerous and ongoing health risk.

    Unfortunately, the documents tell only a part of the story. Eight months after the settlement was announced, we still don't have a handle on the extent to which these marketing tactics were executed and the degree they were utilized by others in the tobacco industry. And that's why I'm calling today for the complete release of all the incriminating industry documents. If this agreement is in effect a plea bargain, then you've got to come clean with all the evidence. I'm not going to find out 20 years from now how much worse it was than I knew in 1998.
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    Congress can't intelligently determine whether the proposed civil liability relief is appropriate or ascertain the necessary amount of funds in smoking relief programs which need to be provided in the Black and other communities to counteract the pervasive marketing of the cigarettes they face. And I might as well let you know that the Congressional Black Caucus has a task force on this subject. Eva Clayton, Bennie Thompson, the chairperson and others, including myself, are working on it, and there is a concern about the small tobacco farmer, African American—where does he come out in all of this?

    So, Mr. Chairman, thank you for indulging my opening statement, and I am prepared to hear the witnesses.

    Mr. HYDE. I thank the gentleman, and as we have more members present, I'll repeat that your opening statements, without objection, will be made a part of the record. We do want to move on because we have so many witnesses. However, at this time, I would like to take a moment of silence to memorialize the loss of one of the really fine Members of this Congress, someone who made this chamber, this hearing room, brighter, and much more pleasant, Sonny Bono, whose nameplate we have kept at his seat. This is our first meeting since his very untimely and tragic death. So if we could just spend a moment of silence in his memory.


    Thank you very much. Our first witness representing the views of——

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    Mr. CONYERS. Pardon me, Mr. Chairman——

    Mr. HYDE. Yes, sir——

    Mr. CONYERS. For this unusual—could I ask the rest of my colleagues on this side of the aisle if they have opening statements, just for the record? Or if they wish to make them? I didn't want to make this case before the chairman if there was nobody that wanted to make them. Okay, thank you.

    Mr. HYDE. Thank you, Mr. Conyers.

    Our first witness, representing the views of the administration in the tobacco settlement, will be Mr. David Ogden, who is counselor to the Attorney General. Mr. Ogden is a graduate of the University of Pennsylvania and Harvard Law School. Before accepting his current position in August 1997, Mr. Ogden served as an Associate Deputy Attorney General at the Department of Justice. Prior to his work at the Department, Mr. Ogden received the Department of Defense Medal for Distinguished Public Service for his service as the Defense Department's Deputy General Counsel and Legal Counsel.

    The committee requests that you limit your oral testimony to 5 minutes. However, your written statement will be entered into the record in its entirety.

    Mr. Ogden, the committee welcomes you, and looks forward to your testimony.

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    Mr. OGDEN. Mr. Chairman, I am pleased to testify on behalf of the Department of Justice, addressing the civil liability portions of the proposed tobacco settlement.

    On September 17 of last year, and again in his State of the Union speech, the President made clear his strong desire to work with this Congress in a bipartisan fashion to enact national tobacco legislation. For our part, the Justice Department is eager to work closely with this committee and Congress to ensure that sound, comprehensive legislation is enacted. Smoking and the use of smokeless tobacco have had a devastating impact on our society in terms of death and human suffering. This cycle of disease and death is renewed each day, as 3,000 children and teenagers begin smoking regularly. The President and this Congress are faced with an historic opportunity and profound responsibility to address one of this country's greatest single health problems. We offer the following remarks in the hopes of facilitating the development and passage of comprehensive national legislation regarding tobacco products.

    Working closely over the last several years, State and Federal officials have dramatically altered the legal landscape faced by the tobacco industry. For decades, individuals harmed by the use of tobacco had little recourse. Those that sued the tobacco companies always lost, and regulatory agencies took no action to regulate tobacco to prevent future harm. This situation began to change in 1994, when the administration, prompted by an epidemic of tobacco use by teenagers, supported the Food and Drug Administration's initiative to conduct an extensive investigation to determine whether nicotine-containing tobacco products are subject to Federal regulation by the FDA.
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    Based on that investigation, the FDA promulgated regulations aimed at reducing youth tobacco use. During the same period, the tobacco industry has been sued in many jurisdictions. Since 1994, 42 states have sued the major tobacco companies in an effort to recover smoking-related health care costs. On June 20, 1997, the States and the companies reached a tentative settlement to most of these actions, contingent on the enactment of appropriate Federal legislation. This agreement is embodied in the proposed settlement that you have before you.

    After reviewing the settlement, the President, on September 17 of last year, called for comprehensive tobacco legislation, with the goal of reducing teen smoking by 50 percent within the next 7 years. The President stressed five key elements that must be at the heart of any national tobacco legislation.

    First, a comprehensive plan to reduce teen smoking, including a combination of penalties and price increases that raise the price of cigarettes by up to $1.50 a pack over the next 10 years, as necessary to meet youth smoking targets.

    Second, express reaffirmation that the FDA has full authority to regulate tobacco products.

    Third, changes in the way the tobacco industry does business, especially in the area of advertising directed at children.

    Fourth, progress toward other critical public health goals, such as the expansion of smoking cessation and prevention programs and the reduction of second-hand smoke.
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    And fifth, protection for tobacco farmers and their communities.

    During his State of the Union Address last week, the President again forcefully emphasized that the top priority should be the reduction of under-age smoking.

    Now the civil liability provisions of the settlement contemplate Federal legislation that would work major changes in the current tort liability regime. I'll address the specific provisions individually in a moment, but first I want to identify the general principles we believe should govern their consideration.

    Our civil justice system exists to provide redress for individuals who are harmed by the conduct of others and to deter such harmful conduct in the future. These are very important goals, and their achievement is fundamental to any just society. Although the existing tort system is certainly not perfect, or the only way to achieve these goals, it has, as a general matter, served them well. For that reason, the structure of the tort system should not be modified except for important reasons. Nor should the tobacco companies become special favorites of the law. Nevertheless, proposed modifications of the tort system should be considered in the larger context of this legislation, as the chairman suggested, in service not only of the compensatory and deterrence objectives of the tort system itself, but also of the compelling public health obligations identified by the President.

    Although three states have recently achieved large settlements with the tobacco companies, the victims of tobacco-related diseases to date have received virtually nothing in the form of compensation through the tort system. Nor has that system, until now, deterred industry misconduct, such as marketing cigarettes to minors or the other problems that Representative Conyers alluded to.
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    Certainly, recent revelations about the industry's conduct could change the situation, but litigation alone is unlikely to reduce youth smoking. Only comprehensive legislation, addressing price, access, marketing, and other industry practices, will be enough to achieve this objective.

    As the administration has consistently stated, if there is agreement on a comprehensive bill that advances the public health by fulfilling the President's five principles—reducing youth smoking; expressly reaffirming the authority of the FDA; changing the way the industry does business; achieving other public health goals; and protecting tobacco farmers—then reasonable provisions modifying the civil liability of the tobacco industry would not be a deal-breaker. We also believe that any such provision should be crafted to make more achievable the recovery of appropriate compensation for deserving injured parties than historically has been the case and to reinforce the legislation's other comprehensive safeguards against industry misconduct.

    In addition, any final settlement should create powerful incentives for the tobacco manufacturers to fully and publicly disclose all appropriate documents, as Representative Conyers stated. And any changes to the civil justice system must be constitutionally sound.

    Let me turn now to the provisions of the proposed settlement. The settlement leaves open many questions. No definite terms establish who or what will be paid, or for how long. Nonetheless, some initial observations are possible. There are four broad areas in which the proposed settlement would affect the civil liability system.
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    First, the settlement contemplates that much of the pending litigation would be settled, including the present States' attorneys general's actions. It appears that the settlement also contemplates that future litigation of that kind would be prohibited by Federal law.

    Second, the settlement contemplates Federal legislation that would impose limits on the annual aggregate and individual damage payments for which the participating tobacco manufacturers could be liable. An annual aggregate cap for the payment of judgments and settlements would begin at $2 billion in the first year and increase to $5 billion in the ninth year and thereafter. If total judgments and settlements for a given year exceeded the annual aggregate cap, the excess would be rolled over for payment in future years. If Congress wishes to consider annual caps, a variety of approaches could be discussed. Within the context of the settlement as a whole, we should explore whether liability caps can be part of a creative scheme that also promoted the goals I discussed earlier.

    One critical issue, of course, is whether annual caps or other mechanisms would provide sufficient funds to meet the needs of victims, or whether they should be raised. It may be valuable for Congress to ask that the tobacco manufacturers share their calculations and research concerning the likely dollar requirements of those injured by tobacco products.

    Third, under the settlement all punitive damages claims would be extinguished with respect to conduct taking place prior to the effective date of the bill enacting the settlement. Punitive damages could be awarded with respect to conduct taking place after that date. In considering these provisions, Congress should consider the overall legislative package and the framework it establishes for deterring future wrongdoing and serving the public interest. Congress could consider whether separate punitive damages limitations are needed if annual caps govern manufacturers' total liability. Moreover, Congress could consider alternatives, such as retaining punitive damages, with respect to claims based on facts not disclosed by the tobacco manufacturers to Congress and the public.
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    Finally, the settlement apparently contemplates Federal legislation that would abolish class actions and other forms of multi-case tobacco litigation without the defendant's consent. Litigation brought by third party plaintiffs, such as pension funds and health insurers, would be prohibited entirely unless the litigation was based on the subrogation of a single individual's personal injury claim. It has been difficult to bring class actions for tobacco-related injuries in Federal courts and many State courts have denied class certification. Still, restrictions on such joinder mechanisms could make it more difficult for some plaintiffs to pursue their claims in court.

    As with punitive damages, Congress should consider the need for special procedural restrictions if it enacts annual caps on industry liability. Moreover, such restrictions raise novel federalism concerns. Thus, we believe that Congress should consider carefully the practical and the legal consequences of such provisions and consider in tandem with them the adoption of rules or mechanisms that improve injured tobacco users' access to justice.

    In conclusion, Mr. Chairman, the Justice Department strongly supports comprehensive tobacco legislation. We would be happy to join with this committee in a dialog to find the best possible solution, and I will be pleased to answer any questions that you or the other members of the committee may have.

    [The prepared statement of Mr. Ogden follows:]


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    Mr. Chairman, I am pleased to testify today on behalf of the Department of Justice addressing, as you have requested, the civil liability portions of the proposed tobacco settlement.


    On September 17th of last year, and again in his State of the Union speech, the President made clear his strong desire to work with this Congress in a bipartisan fashion to enact national tobacco legislation. For our part, the Justice Department is eager to work closely with this committee and the Congress to ensure that sound, comprehensive legislation is enacted. Smoking and the use of smokeless tobacco have had a devastating impact on our society in terms of death and human suffering. This cycle of disease and death is renewed each day, as 3,000 children and teenagers begin smoking regularly. The President and this Congress are faced with an historic opportunity—and profound responsibility—to address one of this country's greatest single health problems. We praise the hard work and leadership of the President, the states' attorneys general and other public health advocates, whose unwavering efforts have been instrumental in creating this opportunity. We offer the following remarks in the hope of facilitating the development and passage of comprehensive national legislation regarding tobacco products.


    Working closely over the last several years, State and Federal officials have dramatically altered the legal landscape faced by the tobacco industry. For decades, individuals harmed by the use of tobacco had little recourse—those that sued the tobacco companies always lost and regulatory agencies took no action to regulate tobacco to prevent future harm. This situation began to change in 1994, when the Administration, prompted by an epidemic of tobacco use by teenagers, supported the Food and Drug Administration's (FDA) initiative to conduct an extensive investigation to determine whether nicotine-containing tobacco products are subject to FDA regulation. Based on that investigation, the FDA promulgated regulations aimed at reducing youth tobacco use. In April 1997, a federal district court in North Carolina affirmed the FDA's authority to regulate tobacco products. (This decision is currently on appeal.)
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    During the same period, the tobacco industry has been sued in many fora. Since 1994, forty-two states have sued the major tobacco companies in an effort to recover smoking-related health care costs. In addition, many private lawsuits have been filed by those who claim to have been injured by smoking. On June 20, 1997, the states and the companies reached a tentative settlement to most of these actions, contingent upon enactment of appropriate federal legislation. This agreement is embodied in the proposed settlement. The industry has already settled lawsuits in three states where trial was imminent (Mississippi, Florida, and Texas). Trial in the Minnesota case brought by Attorney General Hubert Humphrey, III, began on January 20, 1998, in St. Paul.

    After reviewing the settlement, the President on September 17, 1997, called for comprehensive tobacco legislation with a goal of reducing teen smoking by 50 percent within seven years. The President stressed five key elements that must be at the heart of any national tobacco legislation:

  1. a comprehensive plan to reduce teen smoking, including a combination of penalties and price increases that raise cigarette prices by up to $1.50 per pack over the next 10 years as necessary to meet youth smoking targets;

  2. express reaffirmation that the FDA has full authority to regulate tobacco products;

  3. changes in the way the tobacco industry does business, especially in the area of advertising directed at children;
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  4. progress toward other critical public health goals, such as the expansion of smoking cessation and prevention programs and the reduction of secondhand smoke; and

  5. protection for tobacco farmers and their communities.

During his State of the Union address last week, the President again forcefully emphasized that his top priority is the reduction of underage smoking. Of the three thousand young people who begin smoking each day in America, one thousand will die prematurely from tobacco-related diseases. Reducing teen smoking is the most important step that Congress and the Administration can take now towards protecting the Nation's health in the next century and minimizing future health care costs.


A. A Summary of the Provisions

    The civil liability provisions of the settlement contemplate federal legislation that would work major changes in the current tort liability regime. Broadly speaking, such federal legislation would provide an annual cap on the industry's potential liability in civil actions, eliminate punitive damages for past industry misconduct, and impose various procedural restrictions on parties who would sue tobacco companies for smoking-related injuries. I will address the specific provisions individually in a moment, but first I want to identify general principles we believe should govern their consideration.

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B. Guiding Principles When Analyzing the Civil Liability Provisions

    Our civil justice system exists to provide means of redress for individuals who are harmed by the conduct of others and to deter such harmful conduct in the future. These are very important goals, and their achievement is fundamental to any just society. Although the existing tort system is certainly not perfect or the only way to achieve these goals, it has as a general matter served them well. For that reason, the structure of the tort system should not be modified except for important reasons. Nor should tobacco companies become special favorites of the law.

    Nevertheless, proposed modifications of the tort system could be considered in the larger context of this legislation, in service not only of the compensatory and deterrence objectives of the tort system itself, but also of the compelling public health obligations identified by the President. Although some states have recently achieved large settlements with the tobacco companies, the victims of tobacco-related diseases, to date, have received virtually nothing in the form of compensation through the tort system. Nor has that system until now deterred industry misconduct, such as marketing cigarettes to minors. Certainly, recent revelations about the industry's conduct could change the situation. Litigation alone, however, is unlikely to reduce youth smoking; only comprehensive legislation addressing price, access, marketing, and other industry practices will be enough to achieve this objective. As the Administration has consistently stated, if there is agreement on a comprehensive bill that advances the public health by fulfilling the President's five principles—reducing youth smoking by substantially raising the price of cigarettes and imposing tough penalties on the industry; expressly confirming the full authority of the FDA; changing the way the industry does business; achieving other public health goals; and protecting tobacco farmers—then reasonable provisions modifying the civil liability of the tobacco industry would not be a dealbreaker. We also believe that any such provisions should be crafted to make more achievable the recovery of appropriate compensation for deserving injured parties than historically has been the case and to reinforce the legislation's other, comprehensive safeguards against industry misconduct.
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    I want to highlight specific principles that we believe must guide our analysis of any proposed modifications to the civil liability system as they apply to tobacco:

 Any legislation must be consistent with the President's goals of reducing teen smoking, improving public health by confirming the full authority of the Food and Drug Administration, and changing the way tobacco companies do business;

 Legislation should make deterrence of industry misconduct more effective—and compensation of victims more fair—than historically has been the case;

 Any final settlement should create powerful incentives for tobacco manufacturers to fully and publicly disclose all appropriate documents; and

 Any changes to the civil justice system must be constitutionally sound.

C. A Description of the Civil Liability Provisions and Some Questions Raised

    Let me turn now to the provisions of the proposed settlement.

    The proposed settlement leaves open many questions. No definite terms establish who or what will be paid or for how long. The settlement is more of a template for constructing a legislative solution than a traditional out-of-court settlement of the state lawsuits and the numerous individual and class action lawsuits. Nonetheless, some initial observations are possible.
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    There are four broad areas in which the proposed settlement would affect the civil liability system.

1. Resolution of Pending Litigation

    The settlement contemplates that much of the pending litigation would be settled, including the present states' attorneys general actions. It appears that the settlement also contemplates that future litigation of those kinds would be prohibited by Federal law. Pending addiction/dependence claims by injured smokers also apparently would be settled.

2. Limits on Annual Liability

    The settlement contemplates federal legislation that would impose limits on the annual aggregate and individual damage payments for which the participating tobacco manufacturers could be liable. An ''annual aggregate cap'' for the payment of judgments and settlements would begin at $2 billion in the first year and increase to $5 billion in the ninth year and thereafter. If total judgments and settlements for a given year exceeded the annual aggregate cap, the excess would be rolled over for payment in future years. Payments would be limited to $1 million per judgment per year unless every other judgment and settlement could first be satisfied in that year without exceeding the annual cap. Unpaid individual judgments in excess of the individual cap would be rolled forward, without interest, for payment in future years.

    If Congress wishes to consider annual caps, a variety of approaches could be discussed. Limits could be established on the amount paid in each lawsuit or could be imposed only on future claims, or only on past ones. Within the context of the settlement as a whole, we should explore whether liability caps can be part of a creative scheme that also furthers the goals discussed earlier.
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    One critical issue, of course, is whether annual caps or other mechanisms would afford sufficient funds to meet the needs of victims or whether they should be raised. It may be valuable for Congress to ask that the tobacco manufacturers share their calculations and research concerning the likely dollar requirements of those injured by tobacco products. We are prepared to work with Congress on that issue.

3. Limits on Punitive Damages

    Under the settlement, all punitive damages claims would be extinguished with respect to conduct taking place prior to the effective date of the bill enacting the settlement. Punitive damages could be awarded with respect to conduct taking place after passage of the legislation.

    The purpose of punitive damages is to deter and punish. Congress is being asked to remove this tool with respect to the tobacco manufacturers' past conduct. At the same time, however, Congress is considering legislative provisions that will serve similar purposes. In considering punitive damages provisions, Congress should consider the overall legislative package and the framework it establishes for deterring future wrongdoing and serving the public interest. Congress could consider whether separate punitive damages limitations are needed if annual caps govern manufacturers' total liability. Moreover, Congress could consider alternatives such as capping punitive damages or—perhaps most interestingly—retaining punitive damages with respect to claims based on facts not disclosed by the tobacco manufacturers to Congress and the public. Finally, with respect to any of these proposals, Congress will have to look carefully at the constitutionality of the proposed legislation.
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4. Procedural Restrictions

    The settlement apparently contemplates federal legislation that would abolish class actions and other forms of multi-case tobacco litigation without the defendants' consent. Litigation brought by third party plaintiffs, such as pension funds and health insurers, would be prohibited entirely unless the litigation was based on the subrogation of a single individual's personal injury claim. Third-party payor claims that were pending on June 9, 1997, would be allowed under a grandfather clause.

    It has been difficult to bring class actions for tobacco-related injuries in federal courts, and many state courts have denied class certification. Some state courts have granted class certification to claimants against the tobacco manufacturers, however, and other joinder mechanisms that would be affected by the proposal can significantly reduce individual litigants' costs of suit. Restrictions on such joinder mechanisms could make it more difficult for some plaintiffs to pursue their claims in court. As with punitive damages, Congress should consider the need for special procedural restrictions if it enacts annual caps on industry liability. Moreover, such restrictions raise novel federalism issues. Thus, we believe that Congress should consider carefully the legal and practical consequences of such provisions, and consider in tandem with them the adoption of rules or mechanisms that improve injured tobacco users' access to justice.


    The Department of Justice strongly supports comprehensive tobacco legislation. Crafting legislation that significantly reduces teenage tobacco use and meets the other goals the President has announced is an enormous, yet vitally important, challenge. We would be happy to join with this Committee in a dialogue to find the best possible solution.
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    Thank you for giving me this opportunity to furnish the views of the Department of Justice regarding this legislation. I will be pleased to answer any questions you may have.

    Mr. HYDE. Thank you, Mr. Ogden. Mr. Conyers——

    Mr. CONYERS. What should we do if they don't give us the documents?

    Mr. OGDEN. My view, and the administration's view on that, Congressman, is that while document disclosure is extremely important, and while we should work hard to find strong incentives to ensure that we get full disclosure, the fact of the matter is that every day 3,000 more of our young people are beginning to smoke regularly; and the fact is that 1,000 of those will die prematurely as a result. And it's extremely important that we get comprehensive legislation as soon as we possibly can. So what we would like to see are strong incentives for full disclosure, as much pressure as we can get for full disclosure, but we need to get this legislation accomplished.

    Mr. CONYERS. Well, that's their fault, not ours. I mean, for God's sake, man, I wanted the 3,000 kids that started smoking 50 years ago not to smoke. So now you're telling me it's my fault, if these guys jam me on the documents, then it's my fault that it's taking so long and 3,000 more are starting. I don't buy it.

    Mr. OGDEN. Well, Congressman, I certainly agree with you. It's not your fault and it's not the fault of any of us sitting here. What I am saying is that we have a very serious and continuing problem——
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    Mr. CONYERS. So why don't they come forward with the documents? This is in effect a plea bargain, isn't it?

    Mr. OGDEN. Well, I'm not sure I would characterize it that way, Congressman, because certainly criminal liability will remain with respect to criminal wrongdoers. But I don't quarrel at all with your basic premise: we need to get full disclosure. Your question was, ''what if we don't? what if we're not sure we've gotten it?'' And my answer to that is let's create strong incentives. One possibility would be to condition whatever protection we craft in the way of civil liability protections on being limited to lawsuits based on information that has been disclosed. So that if we learn something later, whatever limits we've crafted might not apply. That's one possible way of looking at it. It's also true that the FDA would retain authority to take action, and so the basic point is let's build the safeguards in, but let's move forward.

    Mr. CONYERS. Mr. Ogden, do you think that it will be more difficult for individuals to bring suits against the tobacco industry with no chance of recovering punitive damages as provided under this settlement proposal?

    Mr. OGDEN. One thing that's important to remember, Congressman, is that the settlement proposal does not affect the availability of punitive damages with respect to future conduct. It only applies with respect to conduct, as designed in the settlement, that the tobacco companies have already engaged in, and you might think about modifying that and limit it to those acts the tobacco companies actually disclose in this process. Certainly, the availability of punitive damages provides an incentive for civil litigation. On the other hand, the fact of the matter is that only one individual smoker, to my knowledge, has ever received a judgment under the tort system as it stands against a tobacco company. So you have to factor that in as well.
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    Mr. CONYERS. So what's your answer? Yes or no?

    Mr. OGDEN. I think it will certainly reduce certain of the incentives. And I think that one of the things we need to look at in the context of any legislation——

    Mr. CONYERS. Okay——

    Mr. OGDEN [continuing]. Is trying to make it easier for people to recover damages——

    Mr. CONYERS. Right. The yellow light's on—I've got two questions. Do you know how many people die of cigarette-related illnesses every year?

    Mr. OGDEN. It's more than 400,000, Congressman.

    Mr. CONYERS. Thank you. Are you aware of any statutory precedents whereby Congress has dictated State court procedural and evidentiary rules as this tobacco settlement does?

    Mr. OGDEN. Well, I think for one thing it's somewhat unclear what exactly is contemplated in terms of those evidentiary rules——

    Mr. CONYERS. From what you know what is contemplated?
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    Mr. OGDEN. I think there have been—my understanding is there has been in the Price-Anderson context something that bears some similarity, but in general this would be very unusual.

    Mr. CONYERS. It does raise a serious federalism issue, doesn't it?

    Mr. OGDEN. I agree with you.

    Mr. CONYERS. Thank you very much. Thank you, Mr. Chairman.

    Mr. HYDE. Thank you, Mr. Conyers. Mr. McCollum of Florida.

    Mr. MCCOLLUM. Thank you, Mr. Chairman.

    Mr. Ogden, you raised in the discussion of the punitive damages in your testimony the question of constitutionality of the limitation. Could you elaborate on that? What do you see in this, and what should we be looking for in considering whether or the not the settlement provisions with regard to punitive damages might be constitutional or not?

    Mr. OGDEN. Well, in general there is a concern that's raised any time the Federal government dictates to the States, or seeks to define for the States, the rules and procedures that govern their own court systems. And it's in that context that issues are raised. We believe that it is probably the case that limitations could be fashioned within the constitutional constraints, but we need to be careful about the way we do it because these federalism concerns are very important.
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    Mr. MCCOLLUM. You think it can be done, though?

    Mr. OGDEN. We believe that it can be done if it's done carefully. Yes.

    Mr. MCCOLLUM. You have not attempted to do that?

    Mr. OGDEN. Not at this point, no, sir. Our intention and our hope is to work together with the Congress in a bipartisan fashion to develop legislation.

    Mr. MCCOLLUM. What about the limitations with regard to class actions? Do they pose similar constitutional problems?

    Mr. OGDEN. They do, indeed. And, again, as applied—as they would be applied in State court proceedings, they raise federalism issues. Again, we believe that careful development of a structure could probably accomplish it within the Constitution. But due regard for the States and their prerogatives is very, very important.

    Mr. MCCOLLUM. You've stated in your testimony that tobacco companies should not become special favorites of the law, and I'd suggested, by the same token, they shouldn't be held to a higher standard than other industries should be held. So one of the things a little troubling was your comment that provisions should be crafted, in your judgment, to make more achievable the recovery of appropriate compensation for deserving injured parties than historically has been the case. I'm curious. Are you suggesting that we have a situation in which tobacco companies have not been found liable under traditional court tort concepts that we have strict liability or no-fault recovery for smokers to compensate them? Or, what are you suggesting?
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    Mr. OGDEN. What I'm suggesting is that we should look at the civil liability issue from a complete perspective, look at the problems that are created by the current civil liability system for the tobacco companies, but let's look as well at problems that that system has created for plaintiffs and see if we can craft something that improves the situation of everybody concerned. So that—there have been variety of mechanisms that in different circumstances have been used. I think we're open to looking at any of them.

    Mr. MCCOLLUM. Such as?

    Mr. OGDEN. Well, you know, there have been compensation-type schemes developed under which procedures have been simplified and recoveries have been capped in other contexts. That would be one option. I think another way of thinking about this entire problem is looking to the entire package of the legislation and thinking about what kinds of benefits are being provided to folks who are smokers. For people who are smoking and who are not yet sick, the best possible form of relief they could achieve is assistance in quitting smoking, and I think that's something we have to think about—a forward-looking solution to this problem.

    Mr. MCCOLLUM. You're not suggested a no-fault recovery system?

    Mr. OGDEN. I'm not suggesting anything specific at this time, Mr. McCollum.

    Mr. MCCOLLUM. Thank you. Thank you, Mr. Chairman.
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    Mr. HYDE. Thank you. The gentleman from Massachusetts, Mr. Frank.

    Mr. FRANK. Mr. Ogden, I certainly agree with your last statement and regret it. You are not suggesting anything specific at this time. I noticed you thanked the committee for giving you this opportunity to furnish the views of the Department regarding the legislation. I must say it is an opportunity largely unexploited by your testimony. [Laughter.]

    I have read it, and I don't know what you think. And I think that's a mistake. These are very important issues, and I resent the administration's unwillingness at this date to get specific. I do not think that you can be on all sides of this issue. I am glad the President wants to raise some money from the tobacco industry and use it for good purposes. But we will not get there unless a lot of people are willing to make some hard decisions that will justify that passing. And, apparently a decision was made, not by you, somewhere up that the administration would be for raising the money and duck all the tough issues, and I think that's unacceptable. I'm disappointed by it.

    For example, and I was struck by the same passage my legislative classmate from Florida just referenced. On page 5, you have a couple of sentences which seemed to me almost inconsistent. You do say that ''restricting liability''—modifying liability, I assume. Even there, you didn't want to say ''restrict,'' but I assume we're not talking about expanding, so I assume—so you say, ''modifying liability the civil liability would not be a deal-breaker.'' One, I'm disappointed by the kind of negative of that. I'd like to know what the administration thinks. We should or shouldn't restrict liability some. But then, you follow that by saying, ''the provision should be crafted to make more achievable the recovery of appropriate compensation.'' If we restrict liability substantially, what are we talking about? I mean, are we talking about both restricting liability and compensating individual smokers. How do I put those two together?
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    Mr. OGDEN. First of all, Congressman, our intention, and the President's intention, from the beginning in approaching the whole issue of this legislation, is to try to work together with the Congress to develop the provisions rather than to come up with our own pre-established set of provisions. What the President has tried to do is to take the principles, the objectives that we think this legislation should seek to achieve—he's provided a good deal of detail in terms of how much should be raised and what it should be put to in the budget, and I'm here attempting to explain what our position is with respect to these concepts. Fundamentally, we are not proponents of these limitations on civil——

    Mr. FRANK. You are not proponents, you say?

    Mr. OGDEN. We are not proponents——

    Mr. FRANK. But you are not opponents——

    Mr. OGDEN. What we——

    Mr. FRANK. You're here as ''ponents'' [Laughter.]

    Mr. OGDEN. What we are proponents of a comprehensive solution that accomplishes the objectives that the President——

    Mr. FRANK. Mr. Ogden, spare me. I got that already, and I've only got 5 minutes. I just have to say that I don't think that works. I would also say—I also feel like, you know, it's not quite Passover, but, you know, why is this bill different from all other bills? Why, all of a sudden, do you come in and you have not specific proposals to make? You just want to work with us. Well, that's true of everything. But having your own specific proposals does not preclude working together. We always do that. But let me even take you on the line—you say, well, you just want to state principles. Should we in the legislation, as a condition of raising significant money from the tobacco industry, restrict the liability that they would face if sued by individuals claiming harm from smoking? Should that be part of the bill?
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    Mr. OGDEN. If it is necessary to accomplish comprehensive legislation, we are prepared to accept that, yes.

    Mr. FRANK. No, I didn't ask you whether you were prepared to accept it. You know, it's like Margaret Fuller said, ''I accept the universe.'' And I think it was Emerson who said, ''By God, she'd better.'' I mean you know——[Laughter.]

    You'll accept what you'll accept, but I want to know whether you are in favor of that. Is that a good thing to do?

    Mr. OGDEN. Let me try to answer it this way: If we could achieve those objectives without such provisions, the administration would certainly prefer that.

    Mr. FRANK. But if it were necessary to trade off a restriction of civil liability for the money, you would be in favor of that. Let me ask you, because you've been around a while, you've been paying attention, what's your estimate of the likelihood of raising a significant amount of money without some compensatory restriction on liability?

    Mr. OGDEN. It's very difficult for me, honestly, to assess what the political situation is with respect to that. I really can't do that. What I can say is that there are large advantages to having a resolution in which the tobacco companies are involved. For one thing, one of the key objectives here is changing the way they do business, changing their marketing practices, changing their whole approach. A key element in that is their involvement in the solution.
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    A second important feature of it is that, whatever we craft in the way of reform, as the FDA regulations are potentially subject to litigation that would tie them up, if we can have a——

    Mr. FRANK. We know that, Mr. Ogden. I appreciate that. I didn't mean to trigger a repetition of the non-controversial statements. I was trying to get some statement of opinion on the tough ones.

    Absent that, Mr. Chairman, I thank you for your indulgence.

    Mr. HYDE. Much as I hate to say the gentleman's time has expired, it has. [Laughter.]

    Mr. FRANK. Mr. Chairman, I appreciate it, but in this case my time and my patience were running out about the same time, so it's just as well that you call on somebody else. [Laughter.]

    Mr. HYDE. The gentleman from Pennsylvania, Mr. Gekas.

    Mr. GEKAS. I thank the chairman.

    The President, is it not true, submitted a budget in which he has counted dollars out of the proposed tobacco settlement for payment of the new programs and other initiatives which are contained in that proposal, that budget proposal. Is that correct?
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    Mr. OGDEN. What the President's done is to identify the amount of revenue that he believes the increase in tobacco prices would bring about, and he has accounted for the way in which he believes the monies raised should be spent, yes.

    Mr. GEKAS. So that in your assertions that you wish to work together, or the administration wishes to work together with the Congress, if we should not have a product on which would be passing back and forth between the White House and the Congress, and amended here, and changed there, and modified there, that we might end the year without a tobacco settlement. What happens to those dollars which the President wants to appropriate to X, Y, and Z out of a tobacco settlement fund? Do you have any idea? Or, do you have any general feeling about that? Or, don't you care?

    Mr. OGDEN. Well, of course, we care—very much. We very much want to have comprehensive tobacco legislation, because we want to get these mechanisms in place to reduce youth smoking immediately. What happens if the revenue is not raised is obviously that those dollars can't be spent.

    Mr. GEKAS. Then I, for one, respectfully request that you convey to the administration that it submit a bill, a proposed bill, to this committee, to the Congress for evaluation against what we already have before us; that it contain the five or what other conditions that the President has outlined and which you have reported to us today; and that it contain estimates of what may run into constitutional problems, estimates of what may not yield the monetary results that are hoped for, et cetera. It is a time-honored tradition in this Congress, and in the Congress in 1789, that the President's proposals become a focal point, and beginning point, starting point for the deliberations of Congress, especially in those issues in which the administration has gone out front in determining that it is a priority. I respectfully request that the White House, that the administration, the Justice Department, and the custodial department, whatever is necessary, present a bill to the Congress containing the demands, or conditions, of the President, so that we don't have to waffle back and forth about what they mean and know best how to modify them. Will you convey that request?
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    Mr. OGDEN. I certainly will, Congressman.

    Mr. GEKAS. And if it winds up that only one Member of Congress has requested that, what will be the result? Do you have an estimate?

    Mr. OGDEN. Well, I can commit to convey it. I cannot promise what the response will be.

    Mr. GEKAS. I thank you. It is worth it to me to reestablish in the record what has been bandied about, both in your testimony and in all the consultations we've had on this issue. And that is the theorem that this tobacco settlement does not grant immunity forever and forever to the tobacco industries from civil liability. Do you agree with that proposition?

    Mr. OGDEN. Yes, I do.

    Mr. GEKAS. Do you agree that the—even when we talk about immunity and the settlement of the cases up to date, that that doesn't preclude, and you've stated this, but I want to reestablish it in the record, that does not preclude cases from reaching the punitive damage stage and result in future cases?

    Mr. OGDEN. With respect to future conduct, that's correct.

    Mr. GEKAS. I thank the gentleman, and that's where I would yield back the balance of my non-time.
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    Mr. HYDE. I thank the gentleman. The gentleman from New York, Mr. Nadler.

    Mr. NADLER. Thank you.

    First of all, let me associate myself with the comments of the gentleman from Massachusetts. I find this testimony to be very broad, very general, and to say almost nothing about whether the administration has a good or not good idea about the topic of the hearing today, civil liability—civil liability immunity.

    You say, for example, ''we also believe that any such provision should be crafted to make more achievable the recovery of appropriate compensation for deserving injured parties than historically has been the case.'' Now one major provision of the agreement is the abolition of class action lawsuits even in state courts in the future. And if the tobacco industry is granted immunity from class action suits for prior conduct, please tell me who will be able to afford to bring individual claims against the industry. It appears that unless you're a multi-millionaire, who likes to sue for damages as a hobby, you're not going to be able to sue, because nobody has the millions of dollars unless you're in that category to be able to sue the tobacco companies and win, which is why we have class action suits. You're not going to be able to sue, and you sure as heck won't be able to win. So what you're really saying—not what you—but what the agreement really says is, no one should be able to sue the tobacco companies anymore because you're abolishing class actions suits in the future. Do you regard this provision as making more achievable the recovery of appropriate compensation for deserving injured parties than historically has been the case?
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    Mr. OGDEN. In isolation, I certainly would not, no. But I think what we need to do is to look at the entire package, including other items which may not be in——

    Mr. NADLER. All right, but, sir. In isolation, you don't regard that provision as doing that. What else in the package would mitigate the conclusion, or would mitigate the impact that abolishing class action lawsuits would have on eliminating people's ability to recover in the future?

    Mr. OGDEN. I don't think anything in the package——

    Mr. HYDE. Mr. Ogden, Mr. Ogden, would you move the mike a little closer?

    Mr. OGDEN. Certainly, sir. I apologize——

    Mr. HYDE. That's all right. Some of the members aren't hearing you.

    Mr. OGDEN. Maybe I need to move myself.

    Mr. HYDE. Whatever is easier.

    Mr. OGDEN. Certainly nothing in the package will make it easier to recover in tort actions. Much in the package will provide benefits to smokers outside the context of the tort system. We're interested in those kinds of benefits. We're also interested in looking at the specific proposals. If they are too onerous, if they make it too difficult to recover——
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    Mr. NADLER. All right, let me stop you there. If that is the case, then what does this language mean? That reasonable provisions, modifying the civil liability of tobacco industry, should not be a deal-breaker? We believe that any such provisions should be crafted to make more achievable the recovery of appropriate compensation for deserving injured parties than historically has been the case. In other words, the provisions limiting civil liability should not make it more difficult for people to sue and recover, as I assume what this means.

    Mr. OGDEN. Than has historically been the case—I think that one thing that's extremely important to bear in mind in this is that in all the years that the tort system has been in operation, and in all the years in which tobacco companies have been selling products that injure people, there has been, I believe, a grand total of one judgment for less than $1 million against the tobacco companies——

    Mr. NADLER. And that's, that's largely—I would simply assert that that's largely because of the industry's success until very recently in keeping everything secret. Let me ask you one completely separate question, though. This deal is designed to try—and commendably so—to try to lower smoking in the United States, especially smoking among young people, and hopefully, if approved, it will have that impact. But there's nothing in this deal that will inhibit the tobacco companies, through their foreign subsidiaries, from doing what they're obviously trying to do, which is to poison the rest of the world—which is to say we're going to make up for our loss of sales in the United States by greatly increasing marketing abroad and making nations that are not now smokers, smokers.

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    And, frankly, don't you think, or does the administration believe, that it is morally permissible to structure a deal to try to save the health of American citizens, which deal gives the tobacco companies every incentive and no prevention from stepping up their efforts to poison and kill millions of people in every other country in the world?

    Mr. OGDEN. No, Congressman. In fact, one of the four points that the President has insisted on is the achievement of other public health objectives, including the problem of international marketing of——

    Mr. NADLER. And how do you propose to do that?

    Mr. HYDE. The gentleman's time has expired——

    Mr. NADLER. I'd ask for unanimous consent for 1 additional minute.

    Mr. HYDE. Okay, but I just would like to remind the committee we have a long day ahead of us.

    Mr. NADLER. Thank you. I just asked the witness how does the administration propose to do that and where is that proposal?

    Mr. OGDEN. What the admin—there is in the—I believe there is in the budget, and I'm straying a bit beyond my expertise here, an indication that funds will be expended on international—on programs of working on international issues. And the Department of Health and Human Services has addressed that issue. Secretary Shalala has testified——
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    Mr. NADLER. And do you believe that should be included in legislation on this agreement?

    Mr. OGDEN. I certainly think that would be a good idea, and my understanding is that it's the administration's position that that should be part of what we're achieving.

    Mr. NADLER. Thank you.

    Mr. HYDE. Thank you. The gentleman from North Carolina, Mr. Coble.

    Mr. COBLE. Thank you, Mr. Chairman.

    Mr. Ogden, would the administration prefer a comprehensive bill with civil liability provisions or a more limited bill directed exclusively at youth access restrictions?

    Mr. OGDEN. The administration would prefer a comprehensive bill that deals with the entire problem of smoking, with an emphasis on youth smoking. And if it is necessary, in connection with that, to have reasonable provisions addressed to civil liability, then the administration is prepared to proceed in that way.

    Mr. COBLE. Now you've been close to this negotiation process, Mr. Ogden. You've been exposed, I'm sure, to all the details. Having said that, can you illuminate for the members of this committee—strike that. Let's assume that the $368.5 billion amount is accepted, and approved, and enacted, for the sake of discussion. Can you tell us where the growers fit into this scheme? Because it seems to me that the growers have been conspicuously absent in many of these negotiations. And, as we say down home, that's a heap of money. From that pot of money, there ought to be some money set aside, earmarked, for the growers. What can you say to us about that?
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    Mr. OGDEN. First, before I answer that question, I just want to make clear I actually have not been close to the details of the discussions among the State attorneys general and the industry, and the public health advocates, so that I don't have any personal first-hand information on that. I can tell you that one of the five priorities that the President has established for this legislation is protecting tobacco farmers and their communities. And the fact of the matter is that tobacco farmers, many of them, work on small farms. Many communities in tobacco growing states are extremely dependent on this. The President doesn't believe that they are responsible, that they've done anything wrong. And if there is to be, as we hope there will be, a dramatic reduction in the amount of tobacco use, then we are committed to finding a way, within the scope of this legislation, to dealing with those problems.

    Mr. COBLE. Mr. Ogden, some insist, and I neither refute nor confirm this, that the goal posts in the tobacco policy discussion continue to be moved. At one point the President, the FDA, Secretary Shalala, and others said that all we needed to combat under-age smoking, and incidentally, to reduce it by 50 percent over 7 years, was to codify the FDA rule which the proposed settlement adopts in its entirety. I think I'm right about that. Am I right?

    Mr. OGDEN. My understanding is that one of the features of the proposed settlement would be to reaffirm FDA regulatory authority. We are very concerned about the way in which it does that, because it would actually confer significantly less authority than the FDA has now, in our view. But certainly one of the objectives here should be to reaffirm the full authority of the FDA.

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    Mr. COBLE. And I'm told—you know how rumors fly on this hill. But I'm told that you all at Justice and or the administration have given your blessing to the negotiators of the proposed settlement. Now I'm told that there may be some dissatisfaction with some of the proposals, but the details as to these dissatisfactions have been vague and elusive. And I'd like say, to reiterate what my friend from Pennsylvania said: I think if you will, and you said you would, ask the President to get his plan up here with his fingerprints all over it, so we can examine it in some detail. Can you? Do you tell me that you'll do that? I think you told Mr. Gekas you would.

    Mr. OGDEN. Yes, sir.

    Mr. COBLE. As soon as you can?

    Mr. OGDEN. I will do it right away.

    Mr. COBLE. We're not going to shoot the messenger if we don't get it tomorrow. But it would be nice to get that plan imminently.

    Mr. OGDEN. I appreciate the former, and I certainly will convey it, Congressman. I will say it is our intention to be fully engaged on this, to work together with you in whatever the most productive way is. And, I appreciate your comments.

    Mr. COBLE. Thank you, Mr. Ogden, and our chairman sees red when that red light comes on. And I yield back, Mr. Chairman.

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    Mr. HYDE. Well, I thank the gentleman for yielding back, and before I recognize Mr. Scott, the gentleman from Virginia, I just want to elicit some sympathy for Mr. Ogden, who, I think, is in a very awkward position. The Association of Trial Lawyers of America, which is an important constituency of the administration, don't want anything done. The tobacco companies want it all. The President wants some achievement in this field, and the middle ground involves elements of tort reform, which are not high on the administration's priority list. So it's like standing on two stools that are separating. A terrible hernia will be the result. [Laughter.]

    So I sympathize with Mr. Ogden. I want you to know that you have one person up here who's bleeding with you. [Laughter.]

    Mr. OGDEN. May I respond, Mr. Chairman?

    Mr. HYDE. Sure.

    Mr. OGDEN. I appreciate very much your concern, but honestly, I don't feel that sense of jeopardy. Our focus truly is on the public health and on attempting to get a bill that reduces youth smoking and addresses these issues. We all have a difficult challenge, because it's a complex problem. But we're certainly dedicated to working toward it in the best way we can.

    Mr. HYDE. Well, I'm sure of that.

    Mr. Scott, the gentleman from Virginia.
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    Mr. SCOTT. Thank you, Mr. Chairman.

    And as one who has generally opposed tort reform, I appreciate your comments, because most of the proposals on tort reform just merely deny victims fair compensation and reward the wrongdoer without any balance. I support the situations like worker's compensation, where the victim gives up the right to sue, but in all cases they can recover, whether they could have won or not, if they're injured on the job; and there's a balance. So in this situation, we need to know a little bit about what the balance is to see whether or not the compensation is appropriate. And from that basis, you've kind of alluded to it, but I wanted to know what you would assess a victim's ability to win in the future. Do people bringing cases against the cigarette manufacturers have ''winnable'' cases in the future or not. They haven't won so far.

    Mr. OGDEN. Well, you're right that they certainly haven't won so far, by and large. And I think that is a serious concern. I think one of the things we want to look closely at is whether in the context of whatever we do in this area, we are able to make compensation fairer and more efficient, and that's certainly something that we're very conscious of. If we're going to tamper in this area, if we're going to look at this area, let's see if we can't do that as well.

    Mr. SCOTT. What chance do you think any of the States have in winning their cases?

    Mr. OGDEN. I really wouldn't comment on pending litigation.
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    Mr. HYDE. I'm going to ask Mr. Scott to withhold. We have two votes imminent on the floor, to use a favorite word here today. And I'm going to ask the committee to stand in recess while we go vote and to please return promptly after the last vote so that we can proceed with the hearing. We've only gotten to the first witness, and we have many more. The committee stands in recess for a short time.     [Recess.]

    Mr. HYDE. The committee will please come to order. When last we were here, Mr. Scott was interrogating Mr. Ogden, and so we return to Mr. Scott.

    Mr. SCOTT. Thank you, Mr. Chairman.

    Mr. Ogden, I think I was asking you what the—an individual plaintiff would be losing if the legislation would pass, in terms of what chances there would be in actually winning a lawsuit and with the States? And the bells were going off, and I'm sorry I didn't hear your answer.

    Mr. OGDEN. I'm not sure I remember my answer, either, Congressman. Well, what they lose obviously would depend on what Congress actually passes. If caps are passed that apply to individual lawsuits or they apply in an aggregate way to pay out over time, they would recover any—potentially recover any damages over a longer period of time, because the way the caps work involves rolling over the excess into future years. With respect to class actions, which I think was what you were——

    Mr. SCOTT. Well, speaking of the rollover, is the rollover—does the rollover work both ways so if in the $2 billion, if only $1 billion in judgments are awarded that year would the $1 billion roll over for next year?
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    Mr. OGDEN. My understanding is that under the settlement, that would not happen. What would happen is that the money that was not spent in a particular year would go to a commission that would be established, and that commission would decide what public purposes to put the money to. But, of course, a different arrangement could be made if Congress saw fit.

    Mr. SCOTT. On the class actions, is it, from a practical point of view, impossible to bring a case against a manufacturer by an individual without a class action?

    Mr. OGDEN. Well, I don't think it's impossible. Certainly, one thing that we ought to be looking at in all of this, if we are going to address class actions, is whether there are other ways to reduce the transaction costs, to reduce the cost of filing suit for individuals. The critical thing, I think, why I think there's an opportunity here to do something that, in some measure, actually helps plaintiffs, is that under this agreement, there is $2 billion to $5 billion per year actually set aside for this purpose. And it doesn't go back to the tobacco companies if it's not spent; it gets put to some other purpose.

    In all of history, we've had less than $1 million worth of judgments in favor of injured smokers. Now it's possible that will change. One great advantage of what's going on is that documents are getting out there and maybe Congress can ensure that even more documents are out there and readily available to plaintiffs to use. And we may be able to do some other things. But there's more money available in a single year, under this arrangement, then ever has been paid out. And I think that creates an opportunity for us to find a way to do better than we have in the past. That's all I've said.
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    Mr. SCOTT. What effect would this have on the State settlements in the Minnesota case, which is actually going to trial?

    Mr. OGDEN. I think it probably would be best to address that question to one of the States' attorneys general who's going to come up here. The exact details as to how this would interact with particular lawsuits are not entirely clear to me.

    Mr. SCOTT. But you anticipate any judicial ratification of the settlement since you're involving so many different individual rights?

    Mr. OGDEN. Again, I think the details of how separate settlements would interact with legislation is something that would need to be worked out. It's an important subject, but I don't think it's clear, at the moment, exactly how that would work.

    Mr. SCOTT. Thank you, Mr. Chairman. I will yield back the gentleman from New York's extra minute.

    Mr. HYDE. Thank you. The gentleman from Tennessee, Mr. Bryant. I'm sorry. Forgive me. I overlooked Mr. Canady, down in the foggy mists at the end of the row—tobacco smoke. [Laughter.]

    Mr. Canady.

    Mr. CANADY. Thank you, Mr. Chairman.
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    I want to join with the point that a number of my colleagues have made this morning that if the administration wants this to be a successful legislative effort, I think the administration is going to have to be specific about what it will support and to present positive proposals to us for us to consider. I think that's—otherwise, I think the prospects for this are not so great, and that's something, I think, you need to take back to the administration and communicate to them. I think that's coming through on a bipartisan basis from the members of the Judiciary Committee.

    Mr. OGDEN. Well, Congressman, if I may respond——

    Mr. CANADY. Please respond. Yes.

    Mr. OGDEN [continuing]. To that? I appreciate that, and as I told Congressman Gekas and others, I certainly will communicate that back. I do think it's important to bear in mind that the President has been quite specific about what he wants to accomplish with this legislation—the objectives that he wants to accomplish. And I don't appear, sir——

    Mr. CANADY. Well, I think we're also interested in how to accomplish the objectives, specifically. All of us can probably hold hands and talk about broad objectives on a wide range of proposals, but that really doesn't get the work done. We have to have the specific mechanisms to accomplish it. Again, I understand your, your——

    Mr. OGDEN. And I don't disagree with that. All I'm—the President has offered specifics with respect to certain matters. With respect to the immediate matters that the committee is considering today, the administration is not urging the Congress to adopt such provisions and as the lead off witness I am in that respect, I think, Mr. Chairman, in something of an awkward position, because we don't come here as proponents of these provisions. But what we do understand is that in order to bring down youth smoking, we need to increase the price of cigarettes, dramatically. That's a critical element in it. That's going to generate a tremendous amount of revenue that should not go to the tobacco companies. It should go to the public—to public purposes. And if it's necessary, in accomplishing all of that, if it proves to be necessary to have these provisions, we're prepared to talk about them.
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    Mr. CANADY. But again, I don't want to burden you more than you've already been burdened. But to tell me that you support an objective, but you're not a proponent of the mechanism that's necessary to obtain the objective strikes me as a little silly.

    Mr. OGDEN. Well, I hope it's not silly, Congressman, and I appreciate your point. I guess what I'm trying to communicate is that we are open to discuss this issue. If this needs to be added, we want to make it happen in the best possible way. But we are not coming to you with specific proposals in this area, because this is not part of the President's personal agenda here. It's not part of what he thinks needs to happen for its own sake.

    Mr. CANADY. The Federal government has not brought suits that are the equivalent of the suits brought by the various attorneys general around the country against the tobacco industry. Why is it that the Federal government has not sued the tobacco industry?

    Mr. OGDEN. I appreciate the question and the opportunity to explain that. The Medicaid statute establishes a framework in which the states are authorized, and, indeed, obligated to pursue third party—to pursue companies or entities that have caused health care costs that should be recouped, not only on their own behalf, but on behalf of the Federal government. That's the way the Medicaid statute is structured. And so, they are effectively representing the United States with respect to the United States' portion of the Medicaid payments in these lawsuits. We've certainly looked at the question whether we can add anything in the litigation or, more broadly, whether other Federal programs might be appropriate subjects for litigation; and ultimately our judgment is that the opportunity presented by this legislation is an opportunity to resolve all of these issues in a comprehensive way without the——
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    Mr. CANADY. Well, let me ask on that, though. In this proposal, would there be a bar on litigation by the Federal government, equivalent to the restrictions placed on the States?

    Mr. OGDEN. That's not something that's specified, I don't believe, in any language in the settlement.

    Mr. CANADY. Do you think—there should be should a bar? Is that the intention?

    Mr. OGDEN. I think that would depend entirely—again, I hate to give an answer that's not directly responsive—but it really does depend on what else is accomplished. If what the Congress does is resolve those claims—decides which types of Federal programs should be compensated and makes a judgment about how much that should be and passes legislation that accomplishes that kind of compensation—then it probably would be logical to extinguish the causes of action which would recover those same dollars.

    Mr. HYDE. The gentleman's time has expired. The gentlelady from California, Ms. Lofgren.

    Ms. LOFGREN. Thank you, Mr. Chairman. I should note before asking any questions that I come from a State that recently banned smoking in bars, and when the tobacco tax was put on the ballot, well over 80 percent of California voters wanted to increase tobacco taxes. And polls show that California voters would increase taxes up to $2 a pack or more by 80 percent margins.
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    So with that as a background, understanding this is a representative democracy, I'm wondering how this settlement gets something for people who hope to extinguish smoking for health reasons that we couldn't get otherwise. I very much agree that the President's motives on this are absolutely admirable. His interest in decreasing teen smoking, getting revenue for important purposes are just the best. But it's a moving target, and as the litigation scene changes, the ability of plaintiffs to recover may be very different than when this whole thing started out.

    I'm also mindful that if we had the political will, we could raise taxes on cigarettes as much as we could get votes for, certainly up to $1.50 a pack. And I think there would be popular support. So I guess the question is: putting aside the litigation issue, what in terms of revenue to the federal government couldn't be available to us through taxation, regulations of use of tobacco just by will, by votes?

    Mr. OGDEN. From a public health perspective, the critical issue is to raise the price of a pack of cigarettes. The best estimates are that a 10 percent increase in the price will bring about a 7 percent reduction in youth smoking. That's what the experts tell us. So this is a very critical element in it. The President's proposal is to do that by requiring lump sum payments from the industry——

    Ms. LOFGREN. If I may interrupt, though—I mean, we have the ability, do we not, to raise the same amount of money through taxation by a vote of this Congress?

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    Mr. OGDEN. Yes, I believe that is so, and certainly if the Congress were inclined to proceed in that fashion, that would probably be acceptable to the administration. I would say this, though. One key element in what the President is proposing is that a component of these price hikes would actually be in the form of penalties that would be imposed on the industry, and potentially on individual manufacturers, based on their failure to meet certain targets. So there actually would be incentives built into the system, and I think we need to look at that.

    Ms. LOFGREN. Let me ask about the payments into the, I guess, the punitive damage or penalty trust fund. In reading through, and I realize that we don't have the proposal before us, but it looks to me that the payments would be paid for by future revenues so that, in essence, we've got to have more people smoking in order to come up with the revenue to pay for the punishment. Is that an accurate analysis?

    Mr. OGDEN. No.

    Ms. LOFGREN. What would be accurate then?

    Mr. OGDEN. What would be accurate is that the increase in price would be a result of the payments that the industry is required to make in the first place. So the industry's commitment to pay comes at the front end. The price hike is their way of paying for it. That price hike itself is a good thing for the American people for the reasons I've stated.

    Ms. LOFGREN. My time is almost out. I've got to ask this one final question, because it's a huge California issue and if you could respond in writing to the prior question. California counties actually fronted the state's costs for Medicaid. I mean, it's really scandalous what went on for multiple years. California counties have brought some lawsuits and gotten settlements. My question is and the question posed to me by California counties is: if a settlement goes through, and there is a deal made on repayment of costs, will those settlement funds flow back to the entities that actually paid them—in this case, California counties? Or, will the State rip off those funds once again, leaving local taxpayers holding the bag?
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    Mr. OGDEN. I don't think that, at this point, there is specificity as to how the State funds specifically would be expended. The President certainly wants, with respect to some portion of the monies, them to be dedicated to States to specific purposes. But beyond that, I'm not aware of there being any specifics.

    Mr. HYDE. The gentlelady's time has expired. The gentleman from Tennessee, Mr. Bryant.

    Mr. BRYANT. Thank you, Mr. Chairman. Mr. Ogden, good morning.

    Mr. OGDEN. Good morning.

    Mr. BRYANT. My first question is, Minnesota is involved, as we speak today, with litigation trying to recover approximately $1.7 billion in its State costs. And at the same time, we have attorneys in Florida who themselves are battling over $2.8 billion in legal fees. In Florida, they're seeking almost double in legal fees what the entire State of Minnesota is trying to recover. What is the administration's position on these outrageous, unconscionable attorneys' fees that some of the States have negotiated, which would result in lawyers becoming instant multi-millionaires, in some cases, billionaires?

    Mr. OGDEN. Well, as a general matter with respect to attorneys' fees, it's important, of course, that attorneys who do the work and incur the risk receive fair and reasonable remuneration for that, and that's necessary for the access to justice——
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    Mr. BRYANT. Is that fair and reasonable in your view, the administration's view?

    Mr. OGDEN. Certainly, the administration also believes that it is important to have mechanisms in place so that wildly unreasonable levels of compensation are not realized by attorneys, because the result of that is that those monies don't go to the public purposes they should go to. So we are open to mechanisms to address that issue——

    Mr. BRYANT. Exactly.

    Mr. OGDEN. There obviously also are——

    Mr. BRYANT. Let me interrupt you.

    Mr. OGDEN. Certainly.

    Mr. BRYANT. So you're committing, on behalf of the administration, that you will work with Congress and join in our efforts to effectively limit those fees to reasonable fees so that money can go elsewhere for other good causes?

    Mr. OGDEN. We support that concept, yes.

    Mr. BRYANT. Thank you.

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    Mr. OGDEN. There are constitutional issues that obviously would need to be addressed.

    Mr. BRYANT. I understand that. Now, you've testified, consistent with the President, that there are basically five objectives that would have to be considered in any settlement. Do you see this particular agreement that we're talking about today, the comprehensive settlement as embodying those five principles? And in particular the one that, I believe, very effectively deals with youth smoking and, in fact, offers a money-back guarantee that if it doesn't work, then people are going to pay. But do you believe that agreement embodies those five principles that the President is seeking?

    Mr. OGDEN. We want to build on that agreement. We think that wonderful things have been done to get to that point, but the President believes there things that need to be improved. For one thing, he wants a much larger increase in the price of cigarettes than is called for in the current agreement. For another thing, he wants no restrictions on the FDA's regulatory authority with respect to cigarettes and other tobacco products. And there are other ways, I think, in which it can be improved. But that's not to denigrate the achievement that it represents, because it is a great deal of progress.

    Mr. BRYANT. I want to commend your position. I often ask, ''Why would tobacco want to make all these concessions that they make in any kind of agreement like this?'' You know, both parties have to agree and make concessions. Why would they do that if they didn't get some kind of limitation on liability? Not complete immunity but some limitation. And apparently, this idea of simply taxing tobacco here is being suggested as an alternative. But as you point out, I think very effectively, when you go that route you lose so many things that you get in this agreement—things such as voluntary cooperation with tobacco in terms of their advertising, their marketing, which, if you didn't do that you would spend years in litigation over, as well as these penalties and incentives for people to work together and, indeed and truly, for the first time cut youth smoking. You lose so much when you do that. That's why I am please to see the administration supporting that position and some sort of omnibus overall settlement of this case. Thank you. Do you have a quick answer?
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    Mr. OGDEN. Well, simply to say that we think everybody—Congress and the administration—needs to keep its eye on the ball of reducing youth smoking. That's the central thing, and the other points that the President is seeking to achieve. And while we are not proponents of these provisions with respect to civil liability reform, civil liability changes, we are prepared to look at them in the service of those.

    Mr. BRYANT. But isn't this the most realistic approach to really, really getting the objectives we want and keeping our eye on the ball?

    Mr. OGDEN. Well, whether it is or isn't, I think, remains to be seen. We certainly are willing to work very hard with you to try to develop the best solution.

    Mr. BRYANT. Thank you, Mr. Chairman.

    Mr. HYDE. The gentlelady from Texas, Ms. Jackson Lee.

    Ms. JACKSON LEE. Thank you very much, Mr. Chairman. I'd ask unanimous consent to submit an opening statement that I had in the record.

    Mr. HYDE. Without objection.

    [The prepared statement of Ms. Jackson Lee follows:]

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    Mr. Chairman, I want to thank you for bringing us together in this forum to explore this very important issue.

    Tobacco use is the leading cause of preventable death in the United States. According to the Centers for Disease Control and Prevention it accounts for one out of every five death each year.

    In the United States, approximately 46 million adults 18 years of age and older are current smokers. An estimated 32 million of those current smokers report that they would like to quit smoking. Ninety percent of all smokers begin smoking before age 18, and more then one-third start before the age of 14. The average age at which they begin smoking is approximately 12 1/2 years of age.

    An astonishing 3.1 million adolescents smoke on a daily basis. In my home state of Texas, 28% of high school students currently smoke cigarettes. Each day more than 3000 children in the United States begin to use tobacco, according to the National Cancer Institute—that is approximately one new child smoking every thirty seconds. One third of these children will eventually die from tobacco-related disease.

    Most disturbingly, although most segments of the American adult population have decreased their use of cigarettes, smoking among youth has failed to decline for more then a decade. In fact, youth smoking rates have recently begun rising. The CDC reports that teen smoking rates have gone up for the past five years and smoking among African American high school boys, in particular, has nearly doubled between 1991 and 1995, from 14.1–27.8%.
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    The CDC estimates that cigarette smoking cost our economy $50 billion in direct health care costs in 1993, and at least $50 billion in additional, indirect costs such as loss of productivity.

    Each time I look at those statistics I must say that I am horrified. And I am mobilized by that horror to fight for the regulation of this product that has brought, and continues to bring, such devastation into the lives of the American people.

    I commend the state attorneys general for the commitment and hard work that they have shown in negotiating with the tobacco companies to reach the compromise that we have before us today. I am concerned, however, that it is just that—a compromise. And while it is necessary to make certain concessions when negotiating a settlement, I am concerned that this proposed agreement is inadequate for those individuals injured by tobacco and substantially invades the constitutionally guaranteed rights of both consumers and the states.

    When we look at the tremendous amount of money that has been offered by the tobacco companies in exchange for the protections we will explore today, it easy to be blinded. I hope though that we will take a careful and considered look.

    There are a number of questions that will be raised this morning about various of the civil liability provisions in the proposed tobacco settlement. For the moment, I would like to focus on just a few. The first of these involves the prohibition on punitive damages. The proposed settlement essentially insulates the tobacco industry from any penalty for past wrongs by providing that no punitive damages may be imposed in individual tort actions.
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    The purported rationale for this provision is that some portion of the settlement money—approximately $60 billion—has been designated as punitive damages. There are two very obvious flaws in this rationale, however. To begin with, this amount is woefully inadequate given the extent of the industry's wrongful conduct. This is an industry which has apparently been engaged in remarkable deceit with the American public for the past decades. The purpose of punitive damages is to punish a defendant for its wrongful conduct and to deter similar harmful conduct from occurring in the future. Prohibiting the award of punitive damages arguably prevents the civil justice system from serving its deterrent purpose. Secondly, punitive damages are not tax deductible whereas all the payments required under the settlement would be deemed ordinary and necessary business expenses and thus tax deductible.

    The ban on punitive awards is compounded by the fact that the settlement would prohibit all class action suits as well as other devices to consolidate or aggregate claims. If both these practices are disallowed, there will be just a very few individuals in a position to commit the resources necessary to pursue a case against a big tobacco company. The costs of litigating a tobacco case are extraordinarily high as a plaintiff attempts to meet the necessary evidentiary burden. These prohibitions are certain to decrease the ability of plaintiffs to go to trial. By stripping away the rights of individuals to band together to bring class actions suits, the settlement affords tobacco victims fewer rights than individuals injured by other consumer products.

    Which brings me to my next concern, the preemption of existing and future actions against the tobacco industry. To date, 40 states and Puerto Rico have filed suit against the tobacco industry seeking recovery of tobacco-related health care payments expended on behalf of Medicaid recipients. Twenty-two state class action suits on behalf of individuals claiming nicotine addiction and dependence are pending. And suits have been filed on behalf of the asbestos industry and labor unions seeking compensation from the tobacco industry for expenses they have incurred from tobacco-related it injuries. The tobacco settlement would require the termination of all of these suits.
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    The settlement also places strict caps on the amount of damages a tobacco company would have to pay in a given year and on the amount an individual could recover in one year. This delays the delivery of just compensation and is a serious violation of the Seventh Amendment's guarantee of the right to a trial by jury. Under the Seventh Amendment determination of the amount of damages is constitutionally committed to the jury. The proposed settlement would violate that constitutional mandate. It would also disadvantage claimants and their families who may be required to wait years before receiving the entirety of their award. And the industry is released from paying interest to plaintiffs on the amount not awarded each year.

    Finally, under the provision of the tobacco settlement, certain state procedures and laws are preempted. Through the settlement, Congress would direct the state court systems to change their rules of civil procedure and rules of evidence, and would override state constitution provisions prohibiting limited liability provisions. In light of the Supreme Court's recent stance on the Tenth Amendment supporting rights of states to control their internal operations, the settlement seems to be a dramatic overstepping of federal authority.

    I know that I have just treated you to an extensive list of concerns about the settlement. These are very real and very strongly felt. It is of fundamental importance to me that the American people not be required to give up their existing legal rights. My concerns do not, however, mean that I totally unconvinced that a national settlement is the best way to proceed—it just means that before we move hastily, I want to be sure that we have given every consideration to the sacrifices that the settlement, in its current form, would require of the American people and of our 50 states.

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    I believe that everyone on this room would support the goal of reducing youth smoking. The challenge then becomes how to do so without sacrificing the rights of other Americans. It is a difficult balance. I look forward to hearing from the very distinguished witnesses who have joined us this morning as they share with us their perspectives on this issue.

    Ms. JACKSON LEE. Let me first acknowledge the hard work that has brought us to where we are today and certainly appreciate the work of various attorneys general, in particular, of course, Dan Morales, the Attorney General of Texas, who has successfully reached a settlement in my home State. I also sit on a task force that is working on this issue from the congressional perspective.

    Tell me what the structure is in the Justice Department. Is there an existing task force that deals with this particular matter, tobacco settlement?

    Mr. OGDEN. Yes, the Civil Division of the Department has been looking very hard at this issue from a number of perspectives, with involvement from our Office of Legal Counsel and other components. And we are working together and have been for some time.

    Ms. JACKSON LEE. Are you the principal—and I say you, meaning that task force or that structure—the principal structure upon which the White House relies for its advice and input on this settlement?

    Mr. OGDEN. Certainly from the Justice Department we are. Obviously, there are other departments in the executive branch that provide very important input, including Health and Human Services.
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    Ms. JACKSON LEE. Is there a person in the White House that you deal with that is the principal negotiator, or principal point person on this issue other than the President?

    Mr. OGDEN. We deal principally with the Domestic Policy Council—Mr. Reed.

    Ms. JACKSON LEE. Are Attorney General Reno or Eric Holder active participants in the Justice Department's task force?

    Mr. OGDEN. Both of them are actively involved.

    Ms. JACKSON LEE. Is there a reason that they are not here—and I'm not sure whether the chairman invited them—but is there a reason that they're not here today?

    Mr. OGDEN. The Chair issued a very gracious invitation to the Attorney General. Mr. Holder had been hoping to be able to testify. Unfortunately, he took ill over the weekend. He's better now, but he did not have the time to prepare adequately and so you're stuck with me, I'm afraid.

    Ms. JACKSON LEE. Thank you. I wanted that to be clear for the record. I think that this is one of the most challenging decisions that we, as a Congress, and this Nation will have to deal with, because it has far-reaching impact on the health of our Nation, not just on isolated groups, or States, but the health of our Nation as a whole.
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    So let me proceed with some of the concerns that I have and to add to inquiries and, I imagine, instructions that you have heard from several of my colleagues with respect to a proposal by the administration. Mine would be slightly different. I do believe that the administration has the responsibility of making, or getting, the best deal, the best proposal, the best settlement. And I would take issue with the wait-and-see posture or we-will-work-with-you posture because this impacts the national health policy, and impacts the financial bottom line of a nation—how much Medicaid, how much Medicare, how much funding prospectively we'll have to reduce the use of cigarettes. This is very much a national issue.

    So I would argue vigorously that the government, the National government, has a responsibility to be active in this area. Criticism has been made about trial lawyer fees and whether or not trial lawyers are moving this train. Attorneys fees have been judged according to Federal judges who have reviewed them. Let me say that trial lawyers that I have spoken to have said to me, ''get the best deal that you possibly can get,'' bar none, on the settlement or anything else.

     My question to you is, what happens with this cap on punitive damages? Even though we have the $60 billion, how does that help the injured smoker in the year 2010 and why are we not weighing in on that issue? What happens with this settlement with result to the class action part of it? And how do you see the FDA being a vital part of the regulation of nicotine? Do they put big block letters on the cigarettes? People already know that. How would you see this being implemented, and don't you see a role for the government to make this a better settlement? If you'd answer—I gave you three questions, and if you'd answer those, I'd appreciate it.
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    Mr. OGDEN. I'll do my best, Congresswoman. First of all, I certainly agree with you that this is an issue of the most pressing national importance, pressing importance to the government, to the Administration. And we want to be as proactive a participant in crafting a solution as we possibly can.

    Second, I think the second question related to punitive damages. Certainly, I don't come here as a proponent of limitations on punitive damages. However, restricting punitive damages in a scheme that maintains deterrence against wrongdoing by the companies is something that, if necessary, we would be prepared to look at.

    Finally, I guess I lost your third question. Do you remember what it was?

    Ms. JACKSON LEE. Yes, it had to do with how this lawsuit and how the FDA regulation is going to be implemented, and how this settlement would impact that injured smoker in the year 2010.

    Mr. OGDEN. Critically important is the FDA's continued role; they'll be able to respond to any new information that comes out, issue new regulations with respect to tobacco. There should be no restriction on them with respect to needing to make some finding about black markets or contraband, as has been proposed in the settlement. They'll be able to provide significant protection, including addressing marketing issues and access issues—that I think are extremely important to this problem.

    Mr. HYDE. The gentlelady's time has expired.
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    Ms. JACKSON LEE. Thank you, Mr. Chairman.

    Mr. HYDE. The gentleman from Ohio, Mr. Chabot.

    Mr. CHABOT. I thank the chairman.

    Mr. Ogden, I know you have been listening to the various questions that have been put to you today, and there's been kind of a common theme from both sides of the aisles. I think Barney Frank, early on, from the Democratic side pressed you on the fact that the administration has not really put forward a plan yet. Mr. Gekas on our side, and I, agree with the tenor of those comments. I think there's been a woeful lack of leadership from the White House on this issue thus far. I think it's time—time's long overdue—that you put forward proposed legislation that we can consider in Congress.

    I mean, the other night when the President gave the State of the Union address, he talked about all kinds of ways to spend the money from this proposed settlement, things which sounded good, you know, things like shoring up Social Security and finding some money for child care and education and other things—things a lot of us agree with. But those things aren't going to happen unless this settlement happens, and this settlement isn't going to happen unless we have leadership from the White House. So I would strongly encourage you to send that message back, loud and clear: we want the President's plan, we want the details, and we want it very soon.

    Mr. OGDEN. I've committed to do that, Congressman. But I also would, I guess, repeat what I've said before, which is that the President has laid out what he believes the objectives should be and he has laid out quite a bit of what he thinks the mechanism should be—this critical increase in the price of tobacco through lump sum payments and penalties that will reduce youth smoking so dramatically.
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    Mr. CHABOT. Give us a timeframe, if you could. How soon do you expect us to actually have the President's detailed plan before Congress?

    Mr. OGDEN. I can't give you an estimate about that because—as I—my understanding of what the administration hopes to do is to work together with the Congress, with the leaders of the Congress, to craft bipartisan legislation to accomplish these objectives.

    Mr. CHABOT. So you don't know how long it's going to take then? You don't know when we'll get the President's plan?

    Mr. OGDEN. I hope that we can have bipartisan legislation drafted very, very soon, but I don't have any timetable.

    Mr. CHABOT. But you don't know what very soon is at this point—if we're talking weeks or a couple of months or how long we're talking?

    Mr. OGDEN. I don't have a timetable. It depends on how quickly we can all agree on the appropriate way to go.

    Mr. CHABOT. All right, well, let me move on to something else. We also discussed the potential of increasing a tax on cigarettes in order to come up with the funding, and let's talk about that for a minute. I know some years ago the administration had a proposal, and actually carried it forward, about a luxury tax on yachts and expensive cars and that sort of thing. The idea was a lot of revenues would come in, they could things with these revenues. And ultimately what happened, as we all know, is that people didn't buy yachts, and they stopped buying cars and we actually crippled an industry; and not many revenues came in. And I'm just wondering: is there a point of diminishing returns on the cigarette tax? And what do you see happening out there? How high can that go before—and I know we ultimately want to reduce smoking. So you're ultimately trying to reduce smoking, particularly to young people. And I'd just like you to discuss, perhaps in a little more detail, how you see that playing out?
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    Mr. OGDEN. Well, as you say, the objective—I don't know what the objective was with yachts and cars, but certainly the objective with tobacco is to reduce dramatically the number of people who are smoking in the future. And, therefore, exactly the point of this—indeed, the whole point of the lump-sum payments and the penalties that the President thinks should be imposed—is to reduce dramatically the amount of smoking that is going on, particularly by young people, but also in general. Obviously, there's a relationship between price and demand, and we hope to use that, particularly with starting smokers to do that.

    What the President has proposed is lump-sum payments and penalties that would potentially raise the price of a pack of cigarettes by up to a $1.50 over the course of the next 10 years with attention to how well we are doing in our targets. How much is youth smoking coming down?

    Mr. CHABOT. Well, again, just to reiterate as strongly as I can, I think we ought to have the President's proposal and have it here as quickly as possible.

    Thank you, and I yield back the balance of my time.

    Mr. HYDE. I thank the gentleman.

    The gentleman from Massachusetts, Mr. Meehan.

    Mr. MEEHAN. Mr. Chairman, I would like to first of all take this opportunity to thank you for holding today's hearing. Enacting comprehensive legislation to reduce tobacco use should be one of the top priorities for this Congress, and I hope that today's hearing helped move that process forward.
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    However, let me be very clear: absolute immunity from civil liability for the tobacco industry is and should be dead.

    With regard to the President, while I would like to see a specific proposal, let me just point out that Bill Clinton is the first American President in history to stand up to big tobacco on behalf of America's children, and I am very appreciative of the President's efforts on tobacco.

    We in the Congress have a unique and historic opportunity this year to change the course of this country's public health. Tobacco uses have indicated it's a leading, preventable cause of death in the United States.

    For decades the tobacco companies have marketed this addictive and deadly product to America's children. They have targeted young people with advertising, and just over the last few weeks a new set of internal documents have been released that conclusively proved the existence of a deliberate strategy to market to children.

    And it's interesting, because here in Congress even longtime allies of the industry have expressed dismay and disgust over these documents detailing blatant and cynical ploys to entice kids into lifelong and life-ending addiction.

    Now, Mr. Ogden, in your written testimony you touch upon many of the provisions which I think ought to be included in a comprehensive tobacco bill: a combination of penalties and price increases that raise the price of cigarettes by $1.50, full authority for the FDA, changes in the way the tobacco industry does business, particularly with regard to advertising, and a number of other critical public-health goals.
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    I agree with these principles, and I think we can include many others in a comprehensive proposal to reduce tobacco use. Now, however, de facto immunity, full immunity from civil liability for the adoption of these measures to protect health, however, I think is dead. I don't think that we need to negotiate as equals with this industry.

    Mr. Ogden, in December of 1994, I submitted to Attorney General Reno a 114-page prosecution page memorandum detailing a number of potential criminal violations by tobacco companies and their executives, and since that time The New York Times and The Wall Street Journal and many other media outlets have suggested that the Justice Department has been conducting a number of grand jury investigations focused on the tobacco industry and its attorneys.

    From media accounts, at least, it appears that this is one of the major criminal investigations that the Justice Department has conducted, with charges or allegations of perjury and misleading the Federal government, wire fraud, mail fraud, criminal conspiracies, securities violations, and abuse of attorney-client privileges.

    And just 2 weeks ago the Justice Department announced that a small, biotech firm in California had plead guilty to the illegal export and import of genetically-enhanced tobacco seeds in conjunction with the company's work for Brown and Williamson.

    Now, in light of the Justice Department's ongoing investigation into potential criminal violations, do you believe now is an appropriate time for the Congress to grant de facto immunity to this industry from civil liability that at least in part is designed to punish the industry for decades-long duplicity on their part?
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    We don't have all the results of that criminal investigation. I wonder if you could respond.

    Mr. OGDEN. Well, I can't, of course I can't comment either to confirm or deny the existence of any——

    Mr. MEEHAN. You don't have to do that. We read the Journal and the Times and there are leaks, so——

    Mr. OGDEN. But apart from that, yes, I think it is extremely important that the Congress move forward expeditiously with this legislation. Part of it——

    Mr. MEEHAN. And de facto immunity?

    Mr. OGDEN. De facto, well, certainly anything that constitutes immunity for the industry for future acts would be unacceptable, and that's not on the table. With respect to other matters, we are willing to consider limited measures, reasonable measures, that would change the way in which the liability system works, with respect to tobacco, if that's necessary in order to achieve these larger purposes.

    De facto immunity certainly is not anything that's on the table.

    Mr. HYDE. The gentleman's time has expired. The gentleman from Georgia, Mr. Barr.
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    Mr. BARR. Thank you, Mr. Chairman.

    Mr. Ogden, I think it was in response a question by my colleague from Tennessee, Mr. Bryant. You said that there were constitutional issues that need to be addressed with regard to attorney's fees. What constitutional issues are those?

    Mr. OGDEN. Well, my understanding, Congressman, is that when you have a completed contractual arrangement and legislation seeks to modify the benefits of a completed contractual arrangement that may exist—for all I know I assume does exist—between the States and certain of their attorneys, questions arise with respect to the degree to which settled expectations about levels of compensation can be modified after the fact. It's an issue that, you know, I am not prepared to comment on in terms of how it can be resolved. We are certainly interested in working in the manner that I indicated to Mr. Bryant on the question.

    Mr. BARR. So the constitutional issue in your view is simply a contractual one?

    Mr. OGDEN. It is——

    Mr. BARR. The sanctity of whatever contract there might be?

    Mr. OGDEN. Contractual expectations can give rise to certain property interests that the government's bound to respect in certain ways, and we just need to be careful in looking at this issue that we're consistent with what the Constitution requires.
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    Mr. BARR. Let's focus for a minute on the Constitution. I notice that in your written remarks the word ''Constitution'' doesn't appear nor does the word ''constitutional'' appear anywhere. Correct me if I am mistaken.

    Mr. OGDEN. I hope you are mistaken.

    Mr. BARR. I read through it again after your reference to constitutional issues needing to be addressed with regard to attorneys' fees. There are people, including myself, that think that there are some fairly fundamental constitutional issues with regard to this so called global settlement.

    There have been, over the course of recent national history, a couple of matters in which the Federal government played a lead role in addressing legal matters that affect huge segments of our population, the Bell breakup back in the 1970's and 1980's, an antitrust-based matter, asbestos litigation.

    Neither of those I think really provides the constitutional framework for what we are contemplating here. If you feel otherwise, I'd be interested to hear that. I think we're basically going into uncharted territory.

    We have essentially the three branches of government just sort of setting down, like at a table, and carving up an industry, a product that is not illegal. Smoking is not illegal. The product is not an illegal product. It doesn't carry criminal penalties for its possession, as with controlled substances.
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    And I am also concerned not only with the separation of powers—potential separation of powers problems here—but also blurring of other lines as well, for example between the way our country historically in its constitutional framework has handled civil problems as opposed to criminal. I don't think that the Congress could pass a law criminalizing possession of tobacco or use of tobacco. To my knowledge no State has.

    Yet it seems to me what's happening is the Federal government and many of States' attorneys general are trying to do just that, sort of coming in through the back door.

    Do you have any concerns—does the administration have any concerns at all for constitutional limitations in the area of separation of powers and what we are getting into here, or in terms of blurring the lines between civil and criminal judicial proceedings in our country?

    Mr. OGDEN. The constitutional concerns that I've addressed in my testimony, and they are mentioned in a couple of places, pages 5 and 8 for example, relate principally to questions about federalism, that is the extent to which——

    Mr. BARR. I did see those. I do know that you referenced federalism.

    Mr. OGDEN. And we do say that any changes must be constitutionally sound, and that is extremely important, and the issues are issues about what can the Federal government do with respect to State institutions in terms of modifying them and under what circumstances can they do that.
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    I confess it has not occurred to me that there are any separation of powers questions with respect to the branches of government that are posed by—by the proposal. Certainly if there are specific concerns that you have, we would look at them, as we take any of these things very seriously, and as far as the questions of civil——

    Mr. BARR. Closing off access to the courts would be one that would perhaps come to mind.

    Mr. OGDEN. Of course, Congress does have certain powers with respect to establishing what business the courts are open to conduct, and there are limits on that, but certainly any specific concerns that you have we'd be——

    Mr. BARR. None have come to the administration's mind thus far?

    Mr. OGDEN. Not with the separation of powers that I am aware of, sir.

    Mr. HYDE. With regret, the gentleman's time has expired.

    The gentleman from—we have nine more witnesses, folks. We've been 2 hours with this excellent witness, and I just merely give that as a little fascinating datum. [Laughter.]

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    And it is not a misdemeanor to curtail questioning, and one might even get immunity if they would, but in any event, Mr. Jenkins—and I am only picking on you and Mr. Hutchinson because you are both Republicans, and I am more comfortable jumping on you than Democrats.

    Mr. JENKINS. Well, thank you, Mr. Chairman, and you speak of this excellent witness, and I agree, and the lawyer in me almost wants to go out and be on his side. He's badly outnumbered. He's fielded questions from all around the field here. I think he's a brave man.

    My questions are a little more practical, and of course they'll be fewer after the chairman's admonition, but on page 5 of your testimony, Mr. Ogden, the second paragraph from the bottom, you say that ''the legislation should make compensation of victims more fair than historically has been the case.''

    There's an implication that the trials that we've had have not been fair relating to this subject. Is that true?

    Mr. OGDEN. No, I didn't mean to imply that any particular trials had been unfair, but there is a concern that access to justice simply by the mechanics of what exists within the system has been complicated over history.

    Very few recoveries have been made in this area, and what I intended there was what I was addressing with Mr. Scott earlier which is the fact that under the arrangement, under the settlement, funds would be set aside for compensation, far in excess of what has previously been paid out, and it would be incumbent upon us to find out appropriate ways that injured parties who were deserving of it could receive some of those funds.
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    Mr. JENKINS. When we talk about setting aside compensation, let me ask you—we talk about fair trials. Has anybody thought of this aspect of this? We're going to have a fund out there. Nobody can keep from the minds of perspective jurors that this is case.

    Now aren't we, in effect, nationally pointing jurors in a direction about verdicts in any future cases? Is there any situation that's analogous to this in our law? Of course, I mean you could say insurance is similar, but I guess in every State the instructions of the trial judge are that there will be no mention of that, and it's not brought into the law suit.

    I don't know that that's the law in every State, but is there anything that you can think of as analogous, and how are we going to keep from the juror ultimately out there, in the end result, from saying ''Gosh, we've got the money for this. Let's award a verdict.''

    Mr. OGDEN. What these are——

    Mr. JENKINS. Excuse me. I am sorry.

    Mr. OGDEN. What these are of course, in essence, are limitations on the amount of money that can be paid out in any given year. And that's really how they function, at least as I understand it.

    Now it is true that under this arrangement, if they are not allocated in any given year, as I mentioned earlier, to compensation, they would be put to other public purposes, but these are, in essence, limitations on payment in a particular year, and I think as such may impose somewhat less of a concern than might appear if we really thought about this as a fund per se.
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    Mr. JENKINS. All right.

    Thank you, Mr. Chairman.

    Mr. HYDE. I thank the gentleman very much. The gentleman from Arkansas, Mr. Hutchinson.

    Mr. HUTCHINSON. Thank you, Mr. Chairman.

    The administration's position, so far as you have indicated today, for comprehensive tobacco legislation I think is a significant step. I wish that step had come sooner in giving Congress the administration's position, but I think it is significant what you've said today, reflecting the administration's view on this.

    I do agree with Mr. Gekas and others that the administration needs to submit a piece of legislation. So, add my voice among those other members that are requesting specific guidance from the administration on this important subject.

    Mr. OGDEN. I am taking notes.

    Mr. HUTCHINSON. Keep writing.

    Another subject—Mr. Conyers and others have raised the issue that there are documents still out there that have not been disclosed, and he indicated he wants all the facts on the table. And my question to you is, are you satisfied that all relevant documents and information have been provided by the tobacco companies?
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    Mr. OGDEN. If I may, first—this is not the first moment that someone from the administration has indicated support for comprehensive tobacco legislation or these five points. The President outlined them in September, and this has been a position that's been indeed clear for some time, but——

    Mr. HUTCHINSON. Could you get to my question, please?

    Mr. OGDEN. Yes, I just wanted to be sure that the record was straight on that one point, but the—remind me what your question was. I am sorry.

    Mr. HUTCHISON. The question is, are you satisfied that all relevant documents and information of the tobacco companies have been provided? If not, what do you believe is out there? Where are we in relation to the disclosure of the information and documents?

    Mr. OGDEN. I think that ensuring ourselves that we do have full disclosure is extremely important.

    Mr. HUTCHINSON. I understand, but where are we right now?

    Mr. OGDEN. I really can't say. Certainly more revelations are coming out. More documents are being released all the time. I think what's important is that there be strong incentives and requirements that non-privileged documents be produced as part of this resolution.
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    Mr. HUTCHINSON. Well, do you know—does the Administration know of any documents that the tobacco companies have that have not been disclosed?

    Mr. OGDEN. Well, certainly privileged documents, or documents as to which there are claims of privilege, have not been disclosed. We believe that there is an appropriate place for a valid assertion of the attorney-client privilege.     Beyond that, I certainly don't have any specific information, but I think it is incumbent on us to make sure that all of it is produced.

    Mr. HUTCHINSON. And I agree. I think that there should be full disclosure, but I don't like just throwing out that unless there's specific items that Congress should address to require full disclosure. If we're just throwing out words then I think that's demagoging an issue.

    The other——

    Mr. OGDEN. My impression is that there are at this point a fair number of documents that remain under seal in litigation, and so there is a role for making things public, making them more broadly available and all that.

    Mr. HUTCHISON. If the administration believes those should be disclosed, I would like to have a list of those documents, and I think that we ought to put pressure on the companies so they can be produced.

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    Another area of questions real quickly—there is historic precedent, is there not, for limitations on tort liability?

    Mr. OGDEN. Certainly many States have various rules with respect to that.

    Mr. HUTCHINSON. And including limitations that Congress has enacted on freedom from liability from vaccine manufacturers or limitations of liability in that area.

    Mr. OGDEN. I believe that's right.

    Mr. HUTCHISON. If the settlement is enacted, an individual would still be able to file suit individually—under the settlement. What would be the theories of liability that an individual could file suit on and what theories would be barred under the settlement?

    Mr. OGDEN. That's a question that might be best addressed to the States' attorneys general. My understanding is that with respect to future claims the law really wouldn't be changed under the terms of the settlement, with respect to what kinds of claims could be asserted.

    Mr. HUTCHINSON. So an individual could file suit?

    Mr. OGDEN. On any legal theory, I believe, except to the extent that that case is already in existence or settled. That's my understanding, but many of the details are somewhat sketchy, or at least in my mind are, and I think it'd be best to get the answer from the folks who are more familiar with it.
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    Mr. HUTCHINSON. The administration's budget included $65 billion from the tobacco settlement. Is that over and above what would be used to fund, for example, assistance to the tobacco farmers?

    Mr. OGDEN. My understanding is that the monies that are generated through these lump-sum payments and penalties, that are designed to raise the price of tobacco, would be dedicated to accomplish the purposes, including assistance to tobacco farmers.

    Mr. HUTCHINSON. I am out of time, and I thank the Chair.

    Mr. HYDE. I thank the gentleman, and Mr. Delahunt, who just came in, do you have any—you don't have any questions, do you? [Laughter.]

    Thank you. Thanks very much.

    Well, I want to thank you, Mr. Ogden. You've been a very forthcoming witness, given the limitations of the situation, and we thank you, and if we have more information, as I am sure we will, we'll be in touch with you.

    Mr. OGDEN. Thank you very much, Mr. Chairman.

    Mr. HYDE. Thank you.

    Now the next panel, panel two, the first witness will be Mr. Meyer Koplow of the firm of Wachtell, Lipton, Rosen & Katz. Mr. Koplow represents Phillip Morris and participated on their behalf in discussions which resulted in the proposed tobacco settlement we are examining today. He will be representing the views of the tobacco industry.
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    We are pleased to have Colorado Attorney General Gale Norton as our second witness. General Norton is a graduate of the University of Denver and its law school. Her prior experience includes service as Associate Solicitor at the U.S. Department of Interior, Director of the legal staff of the National Park Service and the U.S. Fish and Wildlife Service, and an appointment by President Bush to the Western Water Policy Review Commission. She has also been recognized by the American Institute of Architects as the Colorado Public Official of the Year.

    The panel's final witness will be former president of the American Lung Association, Dr. Alfred Munzer. Dr. Munzer is a graduate of Brooklyn College and the State University of New York Downstate Medical Center. In addition to being president, he has served at the American Lung Association in the capacity of chairman of its Program and Budget Committee and chairman of the World Lung Health Committee.

    We had hoped to hear from Minnesota Attorney General Hubert Humphrey, III, on this panel, but due to the inclement weather in his part of the country, he was not able to attend. His written testimony will be placed in the record.

    I want to thank all of you in advance for your testimony, and ask that you limit your oral testimony to 5 minutes. Be assured your written statements will be entered in their entirety in the record.

    Mr. Koplow.

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    Mr. KOPLOW. Thank you, Mr. Chairman.

    My name is Meyer Koplow. I am a member of the firm of Wachtell, Lipton, Rosen and Katz, and I participated in representing Phillip Morris in the negotiations that led to the June 20, 1997, proposed resolution. I thank you for the opportunity to appear before the committee to address the civil-liability provisions of that resolution.

    Let me make one thing clear at the outset, Mr. Chairman, because these provisions have the subject of a great deal of commentary and media coverage, much of it wrong. The civil-liability provisions contained in the proposed resolution do not give immunity to the tobacco manufacturers.

    They are part of a comprehensive approach to address all of the issues and controversies that swirl around the sale and use of tobacco products, and they are designed to create a common-sense policy towards tobacco use in this country.

    These provisions and others deal with unique issues presented by tobacco products, products that are legal, that millions of people use and will continue to use but that also present recognized health risks to their users and are seen to impose expenses on society.

    In the context of a comprehensive resolution of the tobacco issues, these civil-liability provisions make sense. In fact, in the context of a comprehensive resolution of tobacco issues, these provisions are essential. They are an integral part of a resolution in which the industry would make hundreds of billions of dollars in payments to benefit the public, compensate claimants and further the public health.
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    And the industry will consent to many additional measures, such as far-reaching advertising and marketing restrictions and surcharges for non-attainment of youth smoking reduction targets that simply could not be constitutionally imposed on it.

    Mr. Chairman, we believe it's essential for the American people to understand what the civil liability provisions are and what they mean. Let me begin by saying how the provisions will not change existing law.

    Individuals will still be able to sue tobacco companies for actual damages, as they can now, and they would be able to receive every dollar that they were finally awarded. There is no limit on the amount of individual compensation.

    The industry remains fully subject to punitive damage claims related to any future misconduct. The industry receives no protection of any kind from criminal liability now or in the future.

    In addition, the resolution would benefit individual tobacco plaintiffs by reducing discovery costs and facilitating the use of industry documents that will be placed in a publicly-accessible document depository.

    Given these facts, I submit that it's simply wrong to describe proposed resolution as providing legal immunity for the tobacco manufacturers.

    The resolution does provide for some modifications in respect to tobacco litigation. The industry will pay more than $60 billion to settle all claims for punitive damages for past conduct, and those funds will be put to public use, including a massive increase in health research expenditures. The resolution settles all addiction-only claims in exchange for funding tobacco-use cessation programs for those who want to quit.
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    To preserve the industry's ability to make hundreds of billions in payments and to see that all claimants have an equal chance at recovery, the resolution eliminates aggregated claims, including class action suits for past industry conduct, and limits them as to potential future conduct.

    The proposed resolution allows everyone other than the tobacco manufacturers to be fully protected by any liability. Tobacco farmers, suppliers, retailers, distributors, truckers, affiliated companies, and their insurers would be prevented, as they are not now, from being defendants in tobacco cases.

    Businesses other than the tobacco manufacturer should not be subjected to this litigation, as they are now and have been in the past. These other businesses do get civil immunity under the proposed resolution. Tobacco manufacturers do not.

    Thank you, Mr. Chairman.

    [The prepared statement of Mr. Koplow follows:]


    I am Meyer Koplow of the law firm of Wachtell, Lipton, Rosen & Katz. I was one of the negotiators for Philip Morris in the negotiations leading up to the June 20, 1997, agreement among leading members of the tobacco industry, State attorneys general and counsel for plaintiffs in private tobacco litigation. I thank the committee for the opportunity to address it in connection with the consideration of the civil liability provisions of that agreement, and respectfully submit the following written testimony for the committee's consideration.
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    For decades, the nation has had no comprehensive policy addressing the fundamental issue that tobacco products present: how should we best address the manufacture and sale of products that are legal, that millions of people want to use, but that present recognized health risks to their users. Instead, this fundamental policy issue has been left largely to litigation and the courts—and this process has not resulted in a sensible comprehensive policy, nor can it. Anti-tobacco plaintiffs have brought lawsuit after lawsuit against the industry, and have come up short. The latest trend is actions by state attorneys general seeking huge judgments that could bankrupt the industry and multiple private class actions that could have a similar result. The industry, for its part, has successfully defended itself in litigation, but only at the cost of massive legal expenses, social opprobrium and continuing financial uncertainty and unpredictability. And in the process, overarching questions unfit for resolution in litigation, such as regulation of the manufacture and sale of tobacco products, have been left unresolved.

    Nor does continued litigation offer any brighter prospects for the nation. If history (including the most recent jury verdict just last year) continues, plaintiffs will get nothing at all. Even if, contrary to this history, plaintiffs suddenly attain complete success in court, they will have succeeded only in bankrupting the tobacco companies and securing a financial recovery for some smokers and some states. They will not have resolved the issues presented by products that millions of people will still want to use, that give rise to the employment of tens of thousands of people in the country, and that form a significant portion of the nation's economy. The products may come from new and different sources, without the payment of taxes or the use of American tobacco—but they will still come.
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    The central recognition of the June 20th proposed resolution is what these years of lawsuits have very clearly shown: that tobacco issues require a legislated, not a litigated, solution. The proposed resolution envisions a comprehensive national tobacco policy containing three basic elements. First, participating tobacco companies will consent to unprecedented regulation and oversight of, and restrictions upon, the manufacturing and sales of their products—including a number of significant measures that would be unconstitutional if Congress sought to impose them without the industry's consent—and a strict regime of enforcement and penalties for non-compliance. Second, these companies will agree to pay enormous sums, totalling hundreds of billions of dollars and continuing for as long as they sell tobacco products in this country, to pay for any perceived past misconduct, to defray the perceived past and future societal cost of tobacco products and to fund cessation programs for people who want to quit. And third, those companies consenting to this regulation and to these payments would receive limited protection from civil liability, ending the potential threat posed by untrammeled litigation to those companies' ability to remain in business while preserving individuals' rights to seek full compensation. Liability protections would also be available to the numerous other industries—retailers, distributors, tobacco growers, insurers—that could otherwise be swept up in wide-ranging tobacco litigation.

    Each of these elements, I respectfully submit, is an integral and necessary component of a comprehensive national tobacco policy. The tort system is designed to stop altogether the sale of certain unreasonably risky products; some of its features are thus wholly unsuited to address the unique issues presented by products that present known health risks, but that public policy has nonetheless determined should be sold and that millions of people use. It would defeat much of the purpose of a national tobacco resolution—under which tobacco products would remain legal, but the tobacco companies would pay billions of dollars per year to the public on an ongoing basis and be subject to stringent governmental regulation and marketing restrictions—for the companies at the same time to be subject to ruinous tort liability to millions of smokers.
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    Nor would such a regime benefit the public. It would do the public no good for the current producers to agree to governmental regulation, advertising restrictions and huge payments, only to be driven out of existence by, for example, a spate of attorney general lawsuits or huge class actions consisting of millions of smokers. In that case, instead of paying hundreds of billions of dollars to benefit the entire public, the industry's financial wherewithal would be directed to a limited number of states or plaintiffs. Worse still, it is inevitable that tobacco products will continue to be produced and sold in this country, and it would hardly benefit the public for the current producers to be replaced by illegal and unregulated black market production and sales (with the attendant public health and law-enforcement consequences) or by foreign companies (with the attendant consequences to domestic growers and workers and to the domestic economy). And it would also harm future claimants to see all available funds exhausted by a few who got to the courthouse first.

    Indeed, not only would development of a comprehensive national tobacco policy without civil liability provisions be unwise, it would be impossible. Many of the most significant provisions of the proposed restrictions on the tobacco industry—such as the wide array of advertising and marketing restrictions, the limitations on industry trade associations and the requirement that the industry fund ''counter-marketing'' campaigns to discourage tobacco use—would infringe upon the industry's constitutional rights if imposed without the industry's consent. Yet the only way the industry can possibly commit to forego its constitutional rights in these ways, and to pay the enormous sums of money at issue, is in the context of an overall resolution that provides a degree of predictability and certainty in its continuing business operations. The civil liability provisions are the only consideration the industry would receive in a national resolution. This is truly a situation in which everyone will achieve more, and the public health significantly advanced, if all parties to the debate work together than if a few are permitted to continue to try to put the legal tobacco industry out of business through unlimited litigation.
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    The ultimate question, in our respectful view, is this: is it better for the nation for tobacco products to be manufactured by strictly regulated companies paying billions of dollars each year for the public good and waiving their constitutional rights to advertise and market their products; or is it better instead to jeopardize these benefits by offering the prospect of a continued litigation scenario that may make some people wealthy but do nothing for the greater public good. I submit that the answer is clear.


    The civil liability provisions of the proposed resolution strike a reasonable balance among preserving individuals' rights to sue the tobacco industry, allocating available funds to the best uses, and affording those companies who participate in the new national tobacco regime with some measure of predictability and certainty in their continuing operations. Those provisions seek to leave in place a system of tort litigation that subjects the industry to significant potential liability exposure without preventing its ability to continue in business. The most prominent civil liability provisions in the proposed resolution include the following:

 Punitive damages claims based on allegations regarding past industry conduct are settled in return for an industry payment of in excess of $60 billion for various public uses, including the funding of a public health trust to further various public health initiatives and research. The industry, however, remains fully exposed to punitive damages for any future misconduct.

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 Claims based solely on allegations of addiction—that is, claims seeking money solely because the plaintiff is allegedly addicted to tobacco, and not because the plaintiff has some allegedly tobacco-related personal injury—are settled in return for the industry's funding of tobacco-use cessation programs for persons wishing to quit.

 All other individual claims are preserved, but the industry's obligation to pay judgments or settlements on such claims in any given year is capped. This cap is up to $5 billion per year, and any excess above this amount rolls over to the next year.

 Class actions, which have generally been held by the courts to be unavailable in tobacco and health cases, are prohibited. Individual actions, however, may be aggregated for purposes of discovery and other pre-trial proceedings, to allow plaintiffs to share the expenses of such proceedings.

 Third-party payors (for example, health insurers or unions that paid tobacco-related health-care costs) could seek recovery from the tobacco industry in subrogation to the rights of the injured person whose costs they paid. However, like the injured person himself or herself, the third-party payor could not aggregate subrogation claims together in a single action.

 Tobacco and health actions could be maintained only against tobacco-product manufacturing companies, and not against retailers, distributors, growers or the manufacturing companies parent companies or other subsidiaries or insurers (except to the extent of any fraudulent transfers). The manufacturing companies would be vicariously liable for the acts of their agents.

 To reduce costs of discovery for plaintiffs litigating against the industry, the industry will place an enormous quantity of existing (and future) documents in a central depository open to the public, and be subject to an expedited process by which any interested person may challenge industry claims of attorney-client and other privilege.
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    These provisions are fully justified as part of an overall resolution. They collectively afford the certainty and predictability to the companies necessary to ensure that they can continue to make the huge annual payments to the public; to ensure that a source of potential recovery will remain for all future plaintiffs, regardless of when their claims arise; and to ensure that tobacco products will be produced by fully regulated companies. And the provisions achieve these aims without unduly affecting injured parties' rights to seek compensation from the industry, but instead by limiting only those uses of the tort system that could jeopardize the industry's ability to continue in business.

1. The civil liability provisions do not confer ''immunity'' on the industry

    The civil liability provisions in the proposed resolution cannot fairly be described as conferring ''immunity,'' the polemic term that some opponents of a comprehensive tobacco resolution persist in using. Every single individual who believes that he or she has a tobacco-related personal injury may still seek full compensation from the industry in court. The industry likewise remains fully exposed to criminal liability, and to punitive damages for any future misconduct. The industry is not ''immune'' from these suits; it remains fully subject to them.

    Moreover, the civil liability provisions are part of a settlement, a settlement in which the industry is paying enormously for the limited protection it would receive. In an ordinary settlement—much less one involving the massive payments proposed here—the settling party obtains a complete release, not merely the limited protections the industry would receive under the proposed resolution. The ''immunity'' issue is a red herring.
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2. Settlement of punitive damages for past conduct

    In all the decades of tobacco litigation, punitive damages have never been awarded against the industry in a tobacco smoking and health case. Not a single dollar. Against that backdrop, the proposed resolution's provision for the industry to pay more than $60 billion in settlement of punitive damages claims is an extraordinary result: indeed, that amount likely dwarfs the total amount of all punitive damages paid in all cases in this nation since its founding. This result, moreover, is all the more in the public interest in that the money will go to a governmental public health trust to benefit the public at large and other public uses—and not, as would punitive damages awards in litigation, into the hands of a few fortunate plaintiffs.

    In light of this, there is no justification at all for reducing or jeopardizing the funds that the industry will otherwise pay to the federal and State governments for the public good, or to compensate deserving plaintiffs, so that a limited number of smokers can seek a punitive damages recovery above and beyond full compensation. And since this provision applies only to claims based on past conduct—with the industry fully subject to punitive damages for any future misconduct—there is no issue of lack of deterrence or ''immunity.''

3. Settlement of addiction claims

    The proposed resolution's settlement of addiction claims in return for cessation programs funded by the industry's annual payments is perfectly sensible. In fact, a person whose sole claim is that he or she is addicted is best compensated by measures designed to end the claimed addiction. At the same time, the proposed resolution does not bar a person with a disease or other injury from claiming that the disease was caused by addiction to tobacco products.
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    More fundamentally, the notion of continued addiction claims is wholly inconsistent with the rationale underlying a national tobacco resolution. There is little point in preserving the legality of tobacco products, and setting ground rules (including a specific addiction warning) under which companies can produce and sell those products in the years to come, if everyone who uses those products can nonetheless seek huge recoveries based simply on a claim of addiction.

4. Prohibition on class actions

    The provision barring class actions and aggregated trials in tobacco litigation arises from the unique nature of tobacco products. The sheer number of potential claimants against the tobacco industry is staggering—virtually every user of tobacco products, literally tens of millions of people, all of whom can make some general allegation that their use of these products has jeopardized their health. At the same time, the principal issue in each case and the industry's principal defense—that the particular user was aware of the products' risks—can be fully assessed only through trial on an individual by individual basis.

    For these reasons, Federal courts have already reached the conclusion that individual smoking and health claims may not proceed as class actions because of the large number of individualized issues they raise. E.g., Castano v. The American Tobacco Co., Inc., 84 F.3d 734 (5th Cir. 1996); Barnes v. The American Tobacco Co., Inc., Civ. No. 96–5903 (E.D. Pa. Oct. 17, 1997); see also Amchem Products, Inc. v. Windsor, 117 S. Ct. 2231 (1997).
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    And any other approach would be fundamentally irreconcilable with the basic tenets of what we believe should be national tobacco policy: that tobacco products should be legally produced by strictly regulated companies making huge payments to the public. Allowing plaintiffs and their lawyers to lump together in a single lawsuit the claims of multiple plaintiffs, irrespective of their individualized levels of knowledge of the risks of tobacco use, would create an enormous coercive pressure toward what two of the nation's most respected jurists have termed '' 'blackmail settlements' ''—''settlements induced by a small probability of an immense judgment in a class action.'' In re Rhone Poulenc Rorer, Inc., 51 F.3d 1293, 1298 (7th Cir. 1995) (Judge Posner) (quoting Henry J. Friendly, Federal Jurisdiction: A General View 120). As the U.S. Court of Appeals for the Seventh Circuit recently wrote of this phenomenon even in the context of a far smaller class action, the ''sheer magnitude of the risk'' presented by large class actions creates an ''intense pressure to settle'' regardless of the actions' underlying merit. Id. at 1297–98 (emphasis in original).

    In a very real sense, then, the prospect of these types of actions could operate to inhibit or prevent the production of tobacco products in this country. At a very minimum, it would jeopardize the continued payments by the industry to the public at large. To prevent this, the proposed resolution contemplates that tobacco trials proceed solely on an individual basis, consistent with the ultimate issue in each case: what the individual in question knew about the risks of tobacco products, and the cause and extent of any injuries. In that way, any deserving individuals may still have their day in court and get full compensation, without allowing others to obtain an unjustified windfall at the public expense.

    Moreover, this provision is not only in accord with the public interest in an overall resolution, it is also completely fair to individual litigants. As noted above, the provision simply confirms the result already reached by many courts. In addition, this is not an area in which litigants need to proceed as a class in order to prosecute their claims effectively or to persuade lawyers to take their cases. Unlike where persons with small individual claims must band together in order to make litigation cost-effective, the damages sought in individual tobacco cases can be large indeed. Many individual tobacco cases have thus been brought in the past decade alone—thus proving that lawyers are willing and available to take such cases. And more fundamentally, the proposed resolution does not bar aggregation of claims for purposes of discovery and other pre-trial proceedings, and therefore affords plaintiffs with the economy of joint discovery.
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    Finally, the proposed resolution contains a number of provisions designed to make individual tobacco litigation more feasible. It requires the industry to deposit most of its existing and future documents on an ongoing basis in a centrally located, publicly accessible depository, and thereby substantially eliminates the need for expensive discovery in litigation. It also provides for an expedited process by which anyone may challenge industry assertions of the attorney-client and other privileges before a specially composed Federal court.

5. Limitations on third-party claims

    The provision limiting the types of third-party claims against the industry arises from like concerns. Inasmuch as some third-party claimants have misunderstood this provision in urging Congress to reject it, it would be best to summarize the provision briefly. Third-party payors—such as health insurers and unions claiming to have reimbursed a policyholder or a member for tobacco-related health care costs—could still seek compensation from the tobacco industry. They could do so, however, only in actions based on subrogation to a single individual's claims: like the individual claimants themselves, these third-party payors could not aggregate their claims into a single huge action.(see footnote 1)

    The reason for this is the same as that for the prohibition on class actions. It would render that prohibition effectively meaningless if, although individual smokers could not bring massive aggregated actions, their health insurers could. There is no basis for treating these third-party payors more favorably, for exempting them from the basic requirement of individual litigation applicable to everyone else.
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    To the contrary, there is even less reason to support a policy of aggregated third-party claims. With only a couple of exceptions, the recent spate of such claims against the tobacco industry by health insurers, unions and asbestos companies is a totally new phenomenon, commenced only after the announcement of the proposed resolution last year (when the third-parties evidently decided that they would need to have actions on file in order to lobby for a share of the money available under the proposed resolution). And the actions that have now been filed are ironic indeed. Health insurers who have historically charged tobacco users far higher premiums than everyone else are now, like Captain Renaud in the film ''Casablanca,'' professing to be shocked that tobacco use poses health risks, and are claiming that the tobacco companies should pay their ''added'' costs. Asbestos companies who have successfully fought efforts of plaintiffs to sue them on a class basis are now clamoring that they should have the right to bring mass suits against the tobacco industry. There is absolutely no reason to jeopardize a national tobacco resolution in order to give preference to these claims.

6. Actions brought only against tobacco-product manufacturing companies

    The proposed settlement's limitation on tobacco and health lawsuits to actions brought against tobacco-product manufacturing companies serves to prevent additional sections of the nation's economy (such as retailers, distributors, growers, insurers and the parents and other subsidiaries of tobacco product manufacturers) from being swept up in massive litigation, while at the same time not affecting successful plaintiffs' ability to collect from the industry or the industry's ability to make its annual payments to the public. Under the proposed settlement, tobacco-product manufacturers are required to share any tort liability for past conduct and the annual industry payments on the basis of their relative shares of domestic sales of tobacco products in the year in which the liability is paid (or, in the case of the annual industry payments, the year for which the payment is made); plaintiffs and the public will thus be assured of a source for collection of all payments owed, even if a particular company has gone out of business or suffers a financial decline. Moreover, the settlement additionally provides that a tobacco-manufacturing company's obligations to pay its share of the annual industry payments and tort liability for past conduct is not dischargeable in bankruptcy. For these reasons, the proposed settlement likely offers plaintiffs greater assurances that any judgments will be paid than does the present regime, in which (a) a tobacco manufacturing company that previously possessed a large share of the market, but whose financial resources have since declined, might now effectively be judgment-proof; and (b) a tobacco-manufacturing company can avoid past tort liability altogether by undergoing a bankruptcy proceeding and then continuing to sell tobacco products.
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7. The annual cap

    The annual cap operates simply to institute a regularized pay-out process in the event that tort liability were in some future year to rise to such levels that the industry's ability to pay immediately would be jeopardized. If that were to happen, excess liability would roll over to the next year. Plaintiffs thus would not lose their claims, but would receive delayed payment. The cap, as indicated above, is high enough—up to $5 billion per year—to ensure that delays in payment occur only when truly necessary.

    The annual cap accordingly gives certainty to participating companies, serves the public interest of helping to ensure that the industry's annual payments can continue and be directed to the most deserving uses, and assures that all future claimants will have a source of recovery. It can accomplish these aims, however, only in combination with the other civil liability provisions. The annual cap establishes an extremely large, but nonetheless limited, amount of money for tort liability: in the absence of, for example, the prohibition on class actions, it is possible that one enormous class judgment could exhaust the annual cap for a year or more, leaving successful individual litigants wholly unpaid during that period. More generally, the cap cannot function appropriately if untrammeled litigation produced an explosion of liability against the industry, leaving the companies subject to an enormous backlog of obligations and greatly delaying payments to successful plaintiffs in favor of payment of windfall punitive damages, coercive class action settlements or other less deserving causes.

8. The proposed resolution imposes full deterrence of future misconduct

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    Finally, the proposed resolution and the civil liability provisions maintain full deterrence of future misconduct by the industry. To place this issue in context, it should be noted first that, under a comprehensive resolution, the tobacco companies going forward will be statutorily or contractually obligated to comply with the resolution's provisions, will be operating under a regulatory microscope and will be subject to strict enforcement by the federal and state governments—an enforcement regime far stricter than that applicable either to the companies now or to any other industry. The companies will also be required to turn over to the public depository all original laboratory health-related research documents, and any studies relating to the use of tobacco products by minors, that they subsequently create, where the documents will no doubt come under intense scrutiny by public health organizations and others searching for any evidence of misconduct. And the companies will receive absolutely no protection against criminal liability—none.

    This regime alone provides every incentive for full compliance. Above and beyond this, however, the tort system will remain. The industry will be fully responsible for compensation of all persons injured by any future misconduct. It will also be exposed to punitive damages for any such misconduct, and punitive damages will unquestionably be sought by a literally inexhaustible supply of plaintiffs if any evidence of future misconduct appears. In the environment that now exists and that will likely continue, any tobacco company that would violate the letter or spirit of the overall resolution would do nothing more than court its own destruction.


    The civil liability provisions fall well within Congress's authority under established practice and precedent. Numerous cases from the Supreme Court and lower federal courts have upheld congressional statutes that either restricted causes of action or eliminated them entirely. Indeed, the proposed restrictions here are even more clearly within Congress's powers, for they are (1) less restrictive of lawsuits than were many of the statutes upheld in the previous cases; and (2) part of a settlement providing enormous benefits to those whose lawsuits might potentially be affected.
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    1. The courts have repeatedly upheld legislation eliminating or restricting causes of action against constitutional challenge. A prominent example is the Federal Price-Anderson Act, which preempted causes of action arising from nuclear power accidents and limited the liability of the nuclear power industry. See 42 U.S.C. §2210. The Supreme Court upheld this Act in 1978, stating that ''statutes limiting liability are relatively commonplace and have been consistently enforced by the courts.'' Duke Power Co. v. Carolina Environmental Study Group, Inc., 438 U.S. 59, 88 n.32. Other Supreme Court cases have repeatedly confirmed that legislatures may, consistent with the Constitution, create new substantive immunities that retroactively and/or prospectively eliminate or restrict tort liability. See, e.g., Logan v. Zimmerman Brush Co., 455 U.S. 422, 432 (1982); Martinez v. California, 444 U.S. 277, 281–83 (1980); Silver v. Silver, 280 U.S. 117 (1929).

    Indeed, when Federal statutes preempt state law, they frequently eliminate causes of action altogether. See, e.g., CSX Transportation, Inc. v. Easterwood, 507 U.S. 568 (1993) (speed limits imposed by Federal regulation on freight and passenger trains preempt certain tort lawsuits); Morales v. Trans World Airlines, Inc., 504 U.S. 374 (1992) (Federal Aviation Act preempts certain state lawsuits relating to airlines' fare advertising practices).

    These and other cases have made clear instead that Congress may restrict lawsuits unless those suits have been reduced to final, unappealable judgments. (The proposed civil liability provisions would not apply to claims that have reached final judgment.) A list of Federal statutes—in addition to those cited above—eliminating or restricting causes of action, and the cases upholding them as constitutional, includes:
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 The 1988 amendments to the Price-Anderson Act, Pub. L. No. 100–408, 102 Stat. 1066, which (among other things) retroactively eliminated punitive damages claims against certain nuclear energy contractors—upheld in In re TMI, 89 F.3d 1106, 1113 (3d Cir. 1996); O'Conner v. Commonwealth Edison Co., 13 F.3d 1090 (7th Cir. 1994).

 The Portal-to-Portal Act, 29 U.S.C. §251–262, which retroactively eliminated employees' lawsuits against private industry for certain overtime payments otherwise potentially due under the Fair Labor Standards Act—upheld in Cartage v. Reynolds, 166 F.2d 317 (6th Cir. 1948); Darr v. Mutual Life Ins. Co. of New York, 169 F.2d 262 (2d Cir. 1948); Fisch v. General Motors Corp., 169 F.2d 266 (6th Cir. 1948).

 The Westfall Act (also known as the Federal Employees Liability Reform and Tort Compensation Act of 1988), Pub. L. No. 100–694, 102 Stat. 4563, which retroactively eliminated lawsuits against Federal employees—upheld in Salmon v. Schwarz, 948 F.2d 1131 (10th Cir. 1991); Arbour v. Jenkins, 903 F.2d 416 (6th Cir. 1990); Sowell v. American Cyanimid Co., 888 F.2d 802, 805 (11th Cir. 1989); Petrousky v. United States, 728 F. Supp. 890 (N.D.N.Y. 1980).

 The Swine Flu Act, 42 U.S.C. §247(b)j et seq. (1976, repealed 1978), which immunized vaccine manufacturers from certain lawsuits and substituted a remedy against the Federal government—upheld in Ducharme v. Merrill-National Laboratories, 574 F.2d 1307 (5th Cir. 1978); Sparks v. Wyeth Laboratories, Inc., 431 F. Supp. 411 (W. D. Ok. 1977).
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 The Federal Drivers Act, 28 U.S.C. §2679(b)–(e), which immunized Federal employees from tort lawsuits arising out of operation of a motor vehicle in the scope of their employment and substituted a remedy under the Federal Tort Claims Act—upheld in Carr v. United States, 422 F.2d 1007 (4th Cir. 1970). Similar statutes involving medical personnel (38 U.S.C. §7316; 10 U.S.C. §1089; and 22 U.S.C. 2702) have likewise been enacted. See Baker v. Barber, 673 F.2d 147 (6th Cir. 1982).

 The Department of Energy National Security and Military Applications of Nuclear Energy Authorization Act of 1985, 42 U.S.C. §2212, which retroactively eliminated certain lawsuits against military contractors arising from United States' atomic weapons testing programs and substituted a claim against the United States—upheld in Hammond v. United States, 786 F.2d 8 (1st Cir. 1986); In re Consolidated United States Atmospheric Testing Litig., 820 F.2d 982 (9th Cir. 1987).(see footnote 2)

    2. Indeed, Congress's authority to restrict lawsuits is all the more clear in the present context: where the restrictions are part of a settlement of claims. Settlements virtually always contain restrictions on lawsuits—indeed, they generally contain full releases from such suits—that are effected by contract (in individual actions) or by court order (in class or other representative actions). Congress undoubtedly has the power to ratify a settlement, including its provisions regarding restrictions on lawsuits, where doing so would be in the national interest. Indeed, the Supreme Court's recent decision in Amchem Products, Inc. v. Windsor, 117 S. Ct. 2231 (1997), makes clear that Congress has greater authority to ratify and give effect to such a settlement than do the courts. See id. at 2238, 2252.(see footnote 3)
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    I would like to conclude by urging that we avoid the mistakes, errors and failure to compromise of the past and move on to a new era. That new era needs to include full regulation of the manufacture of tobacco products, full disclosure of everything the companies know or come to know about the health effects of the products, huge industry payments to offset the perceived costs the products create, industry funded cessation programs to help people quit if that is what they want to do, measures intended to prevent children from using the products, and full enforcement of all of these things. But it also needs to include the necessary modifications to tobacco litigation so that companies operating under the new regime can continue to produce and sell their products to adults who want to use them, and can continue to make the payments required to fund the programs of the new era.

    Mr. HYDE. Thank you, Mr. Koplow. Our next witness is the attorney general from Colorado. We are going to be joined by Attorney General Humphrey's representative, even though he couldn't be here, because the staff on the minority side feels that he's made the trip out here, and we should hear him, and I'm for everybody saying anything they want as long as they want, so we'll bulk up this panel, and we'll proceed.

    So General Norton.


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    Ms. NORTON. Thank you, Mr. Chairman and members of the committee.

    I appreciate the opportunity to discuss this historic chance to alter the way in which the tobacco industry conducts its business, to eliminate marketing of tobacco products to the youth of our country and to provide compensation to the States and to citizens injured by the past practices of the industry.

    I support the June 20th agreement. While not perfect, it is a reasonable compromise, and it can achieve much more than piecemeal litigation ever could.

    Before Colorado filed suit, my staff and I reviewed thousands of pages of documents. These documents contained the same disturbing and startling information about the companies' illegal marketing activities, now being revealed to Congress and to the public.

    Without the solid evidence we found in these documents to support our allegations, I would not have filed suit. I am pleased that many of these documents are now becoming public so that skeptics of the litigation can better understand the basis for our legal claims. You can be appalled at the tobacco companies' actions and still think that the civil-liability provisions of the June 20th settlement make sense.

    These provisions have been widely misunderstood. Although often characterized as providing ''immunity'' to the tobacco companies, they do not provide any immunity from liability, either civil or criminal. The specifics of the proposal are spelled out in my written testimony, with considerably more detail than in the settlement document itself.
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    Let me quickly outline the background in which we must judge the idea of putting the industry on a time-payment plan to handle their liabilities.

    We must first question the assumption that the tobacco money supply is virtually infinite. Like the golden goose of fairy tales, tobacco's golden days may be numbered.

    It's understandable that many public health advocates feel that the capital punishment of bankruptcy is a fitting end for producers of a product that kills 425,000 people annually. Yet the people who would be hurt most by such a result are the injured smokers and their families.

    In the past few months the industry has entered into courthouse steps agreements with three States and a class of flight attendants. Together these settlements total about $30 billion. Payments are spread over 25 years.

    If the industry had gone to trial and faced immediate judgements for the same dollar amount, the financial stability of the industry, or at least of certain competitors, would be in serious doubt. If we don't have a comprehensive settlement, scarcity of money will create a rush to the courthouse situation.

    The first successful litigants will get compensatory damages. Every jury will be asked to punish the industry for targeting kids. By awarding punitive damages large enough to make an impression on a behemoth industry, those first plaintiffs and their lawyers will be richly rewarded. They'll get Lear jets and mansions.
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    Those at the end of the line will get a chance to wade through lengthy bankruptcy proceedings, clutching their still-unpaid medical bills.

    If the existing companies declare bankruptcy and new companies take their places, the new companies would bear no legal responsibility for the misconduct of the old companies. The corporate documents that have been revealed in the last few months would be worthless.

    To avoid a race to the courthouse, the settlement places an annual aggregate cap on the amount of money the industry can pay out in damages in a given year. It would not prevent individual smokers from collecting the full amount of any verdicts against tobacco companies. It would simply spread out payments on a predictable schedule.

    In response to comments and questions from the chairman, from Chairman Hyde, Chairman Bliley, Representatives Hansen and Meehan and their Coalition on Tobacco and Health, as well as the Republican leadership, today I would like to propose something new that I believe will help clarify the proper scope of civil liability protection.

    The settlement spells out stringent new regulatory requirements. For example the agreement takes tremendous measures to prevent marketing of tobacco products to kids and to protect public health, but what if the industry ignores these new measures and again targets kids? What if it adds harmful new ingredients to cigarettes and hides that fact from the FDA?

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    The agreement clearly provides that punitive damages would be available for new conduct. I propose that they also face a new Federal cause of action allowing individuals to sue, including through class actions, for bodily harm anyone suffers as a result of the industry's violations.

    This new cause of action fits well within the framework of the settlement, yet it should alleviate some concerns about the impact of civil-liability provisions, if the industry does not reform its ways. Hopefully this provision, as well as a better understanding of what the settlement does and does not do, will end some of the confusion that has characterized the civil-liability debate.

    I would be happy to work with this committee to more fully flesh out this approach.

    [The prepared statement of Ms. Norton follows:]


    The national tobacco settlement document does not present provisions concerning civil liability and related issues in a detailed fashion. Because the document is only sketchy, many misconceptions about the proposal have arisen. The following document provides a thorough explanation of the process intended by the parties to the settlement.


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    The proposal settles all punitive damage claims in exchange for payment of $60 billion as part of the settlement. Rather than allowing individual litigants to obtain these awards for individual benefit, the agreement would utilize all of these funds for public benefit. Accordingly, it would prohibit any court from awarding punitive damages against participating tobacco companies for their past actions.

    If tobacco companies in the future engage in conduct justifying an award of punitive damages, the settlement would not prevent a court from awarding such damages. Only punitive damages based upon past conduct are settled.


    In the settlement, the parties agreed to limit the availability of class actions and other methods for consolidating cases in suits against tobacco companies. Although cases could be consolidated for discovery and other preliminary purposes, trials would have to be on an individual basis. Mechanisms similar to class actions would also be prohibited, including extrapolations, consolidations, and aggregations. Only cases related to a single individual, such as actions by the spouse and children of a deceased smoker, could be handled together.


    The proposed settlement does not prevent any individual from obtaining the full amount of compensatory damages that a court might award. It may, however, under some circumstances, force plaintiffs to wait to obtain the full amount of their judgment. The proposal limits the overall amount tobacco companies must pay in judgments each year. In a year when courts award few judgments against tobacco companies, successful plaintiffs would receive their full awards immediately. If the total amount of judgments reaches the liability cap in a particular year, then an individual would receive only the first $1,000,000 of their judgment in that year, and would have to wait until later years to obtain the remainder of their judgment. If a very large number of judgments were outstanding, a plaintiff might have to wait to receive the first $1,000,000 payment. In no event, however, would the judgment be reduced; the plaintiff would simply have to stand in line (on a first in, first out basis) to receive his or her full judgment.
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    To determine the order in which plaintiffs would be paid, the proposal would establish a central point for registering final judgments or court-approved settlements. The Secretary of the Treasury could, for example, be designated to receive notice of judgments and payments, and determine who would be next in line to receive payments.


    The state attorneys general wanted these restrictions on litigation to be implemented with a minimum of federal disruption of state court operations. Rather than conditioning receipt of settlement money on adoption of changes in state court procedures, or moving all tobacco litigation to the Federal courts, the parties propose to create a Federal cause of action that can be tried in either state or Federal court. Any suit for personal injuries caused by tobacco, or related types of damages, would be considered a ''tobacco claim'' and certain aspects of tobacco claim litigation would be spelled out in federal law. Similar to a Federal court case based on diversity jurisdiction, this cause of action would adopt the substantive law of the relevant state, to the extent it is not inconsistent with Federal law. Each State's laws regarding causation, negligence, strict liability, assumption of the risk, and so forth, would apply in tobacco cases, just as they would in any other products liability case. However, the federal cause of action would mean that certain provisions would apply to handling of these cases, but without changing the overall operation of state courts or requiring amendment of state court rules.

    For example, states would not have to change their statutes or court rules regarding punitive damages. If someone filed a tobacco claim in state court, however, the state court would look to the federal law spelling out particular requirements applicable to tobacco claims. Federal law would specify that courts could not award punitive damages, and the state court would apply this provision.
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    To ensure compliance with the national framework, tobacco company defendants could ask that actions be removed to Federal court. Federal courts would be clearly bound to follow all federal directives governing tobacco claims. A Federal court would review the action taken by the state court and determine whether it violated federal law governing tobacco claims. If so, the case would go forward in Federal court. If the Federal court determined that the state court acted properly, it would return the case to state court. This enforcement mechanism is much less intrusive upon State court prerogatives than other types of Federal enforcement might be.


    The main mechanism for enforcing advertising restrictions, changes in ''corporate culture'' of the tobacco companies, and other important elements of the settlement would be consent decrees in each of the litigating states. It is important that whatever Federal legislation Congress enacts keep the underlying state causes of action sufficiently alive to allow a court to maintain continuing jurisdiction through a consent decree. States that have not sued would be able to contractually enforce similar provisions by signing a master settlement agreement.


    Whether or not the tobacco companies win individual lawsuits filed against them, they must still pay almost the same amount of money. Money that they do not need for individual tort payments can be allocated to a fund administered by a presidentially appointed commission. This commission would distribute equitable payments to statutorily defined classes of eligible recipients to compensate them for past damages they have suffered. Institutional claimants like local governments, hospitals, union health and welfare funds, and insurance companies would submit documentation of their costs attributable to smoking. The commission would choose between these competing claims for equitable compensation. Pursuing litigation would not be necessary for these claimants.
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    The proposed settlement bars suits by third party payers, like insurance companies, hospitals or local governments who absorb the medical costs of indigent patients, union health and welfare plans, or similar institutions. Those already underway would be settled. This provision is closely related to the prohibition of class actions: if these third parties could aggregate the claims of their patients or members, then this would become a backdoor way of pursuing class actions. Third-party payers may, however, gain the right to pursue an individual case if the individual assigns it to them through subrogation. Like the individual whose claim they acquire, they can proceed only with individual trials.


    The states felt that they could not resolve the Federal government's claims, and that the federal government could go through litigation to recover its losses in the same manner as the States. Accordingly, the June 20th settlement did not bar Federal government claims.


    The agreement contemplated two different types of joint liability claims. The first would be a suit against both a manufacturer participating in the tobacco settlement and a tobacco manufacturer who did not participate. The other type of joint liability claim would involve a participating tobacco product manufacturer and a non-tobacco defendant, such as an asbestos company. Because only the participating tobacco manufacturer would be entitled to the liability limitations described above, the claims would need to be separated so courts could handle the defendants differently.
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    The annual liability payment cap would not limit any claim against a defendant other than a participating tobacco product manufacturer (or the manufacturer's agents). Class actions and punitive damages would be available against non-participating defendants.


    Plaintiffs have filed a number of class action suits against the tobacco industry seeking compensation for individuals who are addicted to tobacco products. On behalf of these smokers, the suits seek, among other things, money to pay for stop-smoking programs. Because the settlement contemplates that billions of dollars from the federal share of the total payments will fund smoking cessation programs, the relief sought in these suits is being successfully obtained through the settlement. Accordingly, these suits are settled and cannot be pursued. It is important to note, however, that a smoker who has manifested a disease as a result of smoking is not barred from using the addictiveness of cigarettes as one element of his or her claim. The settlement simply bars those cases where addiction itself is the sole claimed injury.


    The agreement clarifies the liability of various aspects of the tobacco industry. The tobacco companies have agreed to assume any liability for their attorneys and agents. This provision stems from claims against trade associations like the Tobacco Institute and the Council for Tobacco Research, and claims filed against various law firms alleging industry lawyers played a central role in the industry's misconduct. These organizations can continue to be named in lawsuits, and the industry will pay any judgments against them in the same manner as judgments against the companies themselves.
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    Farmers, distributors, retailers, suppliers, and so forth, are excluded from suit under the agreement. Only the tobacco companies are considered proper defendants. Suits have historically not been filed against these types of entities for tobacco injuries, and it appears that the manufacturers are the proper defendants for the tobacco industry's misconduct. Thus the agreement intends that a suit against a farmer or retailer for a tobacco claim would be dismissed.


    Manufacturers would obviously be required to comply with the provisions of the settlement, and administrative penalties for violations are specified elsewhere in the agreement. In addition, the proposed settlement would create a federal cause of action, which can be tried in either State or Federal court, for bodily injury caused by a significant violation of the settlement's provisions. In suits pursuant to this federal cause of action, punitive damages and class actions would be available, and payments would not be subject to the annual liability limits. Not every violation would give rise to suit under this provision, since minor or technical violations would be unlikely to cause bodily injury. On the other hand, this provision would allow plaintiffs to respond to serious violations. For example, if a manufacturer added a harmful ingredient without FDA disclosure, or a manufacturer's employee inserted a contaminant, and that substance made smokers sick, then a class action could be filed under this provision.


    The settlement extends its benefits only to manufacturers who are willing to undertake restrictions on advertising, who commit to specific changes in company policy and corporate culture, who pay their share of the settlement payments, and who otherwise agree to be bound by the settlement. Specific provisions apply to those who do not participate. They are not able to take advantage of the civil liability provisions described above.
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    Distributors and retailers who deal with non-participating tobacco companies cannot take advantage of the special protections described above for any of their activities. The rationale is that the key mechanism for enforcing in-store advertising restrictions is largely through contractual arrangements between manufacturers and their retailers. The effectiveness of the advertising restrictions would be undermined if retailers promoted unrestricted brands of products.


    One important result of the settlement should be technological progress toward reduced-risk tobacco products. In the past, tobacco companies faced the prospect that safer products could be used as damaging evidence in court cases. It was feared that plaintiffs could demonstrate that older products were unreasonably unsafe in comparison with new products. State antitrust claims have alleged that this fear motivated the companies to jointly discourage development of less hazardous products.

    The settlement eliminates the ''catch 22'' that new, less hazardous products could be used as damaging evidence in court. Of course, ''safer'' cigarettes can never be as safe as not smoking at all, but for the many Americans who cannot stop smoking, technological advancements may provide a healthier future. (The settlement also provides for a regulatory mechanism facilitating review of advertising promoting ''healthier'' cigarette claims and facilitating cross-licensing of technological advancements.)

    Mr. GEKAS [presiding]. We thank the attorney general. The time of the attorney general has expired.
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    We turn to Dr. Munzer.

    Dr. MUNZER. Mr Chairman——

    Mr. GEKAS. If the gentleman from North Carolina has a unanimous——

    Mr. COBLE. I ask unanimous consent to have my written statement entered into the record.

    Mr. GEKAS. Without objection.

    [The prepared statement of Mr. Coble follows:]


    Ladies and Gentlemen, this Congress has been presented with an opportunity to possibly end decades of controversy and contention regarding the sale and use of tobacco products in this country.

    Tobacco holds a proud place in our national heritage. Since the first colonists set foot on our shores, honest, hard-working Americans have earned their livings from tobacco. In my district, and across the United States, tobacco stands for a way of life that can and should be preserved.
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    Nevertheless, over time we have learned of the health risks associated with tobacco, and that has changed our way of thinking. For example, we trust adults to make their own decisions about tobacco use, but we have determined that youths and children should not smoke or use smokeless tobacco.

    As our thinking about tobacco has evolved, we have searched for a national consensus about tobacco use and its effects. That search has consumed and convulsed our national government, our state governments and our courts. The debate over tobacco policy in this country has grown increasingly angry and destructive.

    The national tobacco settlement negotiated among the States, representatives of the public health community and the tobacco industry presents us with a unique opportunity to temper this debate. It offers us a chance to put the tobacco wars behind us, and to march into the 21st century as a more unified society.

    The negotiated settlement has enormous potential benefits. As an initial matter, it could end the tobacco litigation explosion. In recent years, the national debate on tobacco policy has been conducted in the courts. This development has resulted in a monumental waste of time and resources. Litigation has not proven to be an effective method of setting national tobacco policy.

    Secondly, the national settlement offers more to promote public health goals than all the pious proclamations of the anti-smoking zealots. Under the Proposed Resolution, the tobacco companies would pay $368.5 billion over 25 years. Those payments would fund massive public health efforts, including scientific research, smoking cessation programs and a range of initiatives designed especially to combat youth smoking.
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    Also, the companies have voluntarily agreed to give up advertising and marketing practices that they have a constitutional right to employ, but that may appeal to young people. To protect the rights of nonsmokers, the settlement provides for stringent federal regulations governing smoking in public places.

    Finally, the proposed resolution would ensure that the tobacco industry is not hounded out of existence by an endless series of lawsuits, with the enormous collateral damage that would entail for tobacco growers, retailers, and the economy in general. The settlement contains reasonable civil liability provisions that protect the rights of any individual who wants to sue the tobacco industry, but that also afford the industry enough stability and predictability to plan for the future. Those protections, which have been agreed to by the attorneys general who sued the tobacco industry in the first instance, represent an important and integral aspect of the negotiated settlement.

    Before I conclude, I must express my concern over the conspicuous absence of the growers during the formulation of this agreement. As Congress continues its decision of the proposed settlement, we must allow the tobacco farmers a chance to be heard, as their livelihoods stand to be greatly affected by any Federal settlement.

    In sum, the proposed resolution represents a comprehensive plan to revolutionize the manufacture and sale of tobacco products in the United States. Because that plan requires changes in laws governing tobacco in this country, the negotiators have come to us for assistance. This committee—indeed this Congress—has an opportunity to assist the responsible and reasonable people who crafted the negotiated settlement. While many Members of Congress have expressed some concerns over certain aspects of the settlement, I believe that this proposal provides us with a solid base with which we might begin our discussion. My hope is that all parties to the proposed settlement will enter this discussion with an open mind, and prepared to work together to reach a consensus on tobacco policy in our country for the next century.
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    Mr. GEKAS. We have 11 minutes before we have to rush to the floor, but I think we can listen to Dr. Munzer in the meantime.


    Dr. MUNZER. Mr. Chairman, members of the committee, my name is Alfred Munzer. I am a physician specializing in lung disease. It is a personal honor to appear before your committee today. Thirty years ago I became an American citizen. The wonderful day was marred by an INS hearing officer who told me, ''This country is run like the army. You don't do what you want. You do as you are told.''

    When I complained to the Department of Justice I received no reply, but when I contacted the then-chairman of this committee, my own Congressman, Mr. Emmanuel Celler, there was immediate corrective action. Ever since then I have looked on this committee as the guardian of freedom and justice.

    The issue before you today——

    Mr. GEKAS. Everything you say will become a part of the record. [Laughter.]

    Dr. MUNZER. The issue before you today is whether Americans will continue to enjoy one particular freedom, the freedom to seek redress of torts committed against them in the courts, or whether the tobacco industry will be placed beyond their reach.
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    Today, I speak on the behalf of the Nation's oldest voluntary health agency, the American Lung Association, of which I am a past president. The American Lung Association was founded in 1904 to fight tuberculosis and for more than three decades it has led the efforts against death and disease caused by tobacco.

    And now the American Lung Association leads the opposition to the proposed tobacco deal. Our position is simple, save children, full disclosure, and no special protection for the tobacco industry.

    You cannot protect public health and the tobacco companies at the same time. The American Lung Association is not alone in calling this a bad deal. In June, the American Lung Association served on the panel chaired by former-Surgeon General C. Everett Koop and former-FDA Commissioner David Kessler.

    More than 20 health organizations unanimously endorsed the final report. I encourage you to use the Koop-Kessler report to help craft any legislation, and I join Doctors Koop and Kessler in opposing any special protection such as immunity for the tobacco industry.

    The American Lung Association is also an active member of Save Lives Not Tobacco, the Coalition for Accountability. Save Lives is a nationwide coalition of over 300 organizations that oppose special protection for the tobacco industry and are committed to a strong public health policy. Dr. Koop has endorsed the coalition's principles.

    It is important to recognize why we are here today. It is not because cigarettes kill or because 3,000 kids begin smoking every day. We are here because the tobacco industry no longer is invincible and because tobacco companies are anxious to make all of their legal uncertainties go away. They agreed to this deal for legal certainty, the practical immunity the deal affords.
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    Scientists and public health experts must have complete access to all industry documents if we are to keep kids from smoking and stem the epidemic of smoking-related disease.

    The FTC has released a report that found that the proposed tobacco deal will grant the tobacco industries $123 billion exemption from antitrust law. That is outrageous.

    Under the proposed deal, tobacco companies will be immune from punitive damages. State laws will be preempted, and tobacco companies will be immune from consolidated litigation.

    Mr. Chairman, Congress does not need permission from the tobacco industry to enact tobacco-control legislation to prevent our children from starting to smoke. A national survey that's being released today, which I would like to submit for the record, shows that the public decisively rejects the notion of giving the tobacco industry special protection from law suits.

    Thank you.

    [The prepared statement of Dr. Munzer follows:]


    Mr. Chairman, members of the committee, I am Dr. Alfred Munzer, past president of the American Lung Association. I am also Director of Critical Care and Pulmonary Medicine at Washington Adventist Hospital in Takoma Park, Maryland, where I specialize in treating diseases of the lung. I am here today to speak on behalf of the American Lung Association, the oldest voluntary health agency in America. The American Lung Association was founded in 1904 to fight tuberculosis and for more than three decades we have led this nation's efforts against the death and disease caused by tobacco.
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    The following information is provided in compliance with clause 2(g)(4) of House Rule XI of the Rules of the House of Representatives:

    The American Lung Association received $699,657.00 in Federal grants and contracts for fiscal year 1998, $479,757.00 grants and contracts in fiscal year 1997 and $685,606.00 in Federal grants and contracts in fiscal year 1996. All funds for the past three fiscal years were grants from the Environmental Protection Agency.

    The American Thoracic Society (ATS), medical section of the American Lung Association, is a medical specialty organization with 12,600 members. Approximately 25% of the members reside outside of the United States. Further, approximately 50% of the members are clinicians and do not conduct research.

    From the very beginning, last spring, the American Lung Association led the opposition to the proposed tobacco deal because we found many flaws in it. Our experience tells us that this is a sweetheart deal for the tobacco industry and is a bad deal for the American people. The deal is especially bad for our children; it simply achieves too little.

    Our position is simple: No special protections for the tobacco industry. You cannot protect public health and the tobacco companies at the same time.

    We are pleased that it appears that Congress will not rush to ratify a bad deal. We hope Congress will seize this opportunity to enact meaningful, effective tobacco control legislation. We believe that Congress can enact tobacco control legislation to help prevent our children from starting to smoke without preempting state laws, punishing farmers, changing the nation's time-honored civil justice system or allowing the tobacco industry to keep its worst secrets hidden.
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    The American Lung Association is not alone in calling this a bad deal. In June, the American Lung Association served on the panel chaired by former Surgeon General C. Everett Koop and former Food and Drug Administration head David Kessler. More than twenty health organizations unanimously endorsed the final report. The strength of the Koop/Kessler report is its very premise. Drs. Koop and Kessler did not ask us to come up with recommendations that are acceptable to the tobacco industry. The committee did not ask the industry for permission to regulate it. Drs. Koop and Kessler challenged us to determine what is necessary to combat the addiction, disease and death caused by tobacco. Mr. Chairman, I encourage you to use the Koop/Kessler report to help craft any legislation. I join my colleagues Drs. Koop and Kessler in opposing any special protections, such as immunity, for the tobacco industry.

    In addition, the American Lung Association is an active member of Save Lives Not Tobacco: The Coalition for Accountability. Save Lives is a nationwide coalition of over 250 organizations that oppose special protections for the tobacco industry and are committed to a strong public health policy. Dr. Koop has endorsed the coalition's principles.

    It is important to recognize why we are here today. It is not the simple fact that cigarettes kill over 430,000 people each year. It's not the thousands of patients I have treated over the years with emphysema and lung cancer caused by cigarettes, it is not even the fact that 3,000 kids start smoking each day. These facts did not prompt meaningful Federal action in 1964, when the Surgeon General first reported on the health hazards of smoking or any time since. We have seen meaningful action in large part because of the justice system. We have seen precious few victories in court over the years but there is change in the air. The tobacco industry is very anxious to make all of their legal uncertainty go away. They agreed to a $368 billion deal for legal certainty—the practical immunity the deal affords. We strenuously object to this approach.
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    An important health-related provision of this deal relates to document disclosure. The document disclosure provisions of the proposed settlement represent nothing less than a clever attempt by the industry to avoid making public critical materials relating to public health, medical research, marketing and advertising, consumer fraud, potential criminal activities, and anti-trust violations.

    Right now, tobacco industry documents are locked away from public scrutiny. We are finally getting the first glimpse of these documents. In December Chairman Bliley released 864 documents. Mr. Waxman released more documents on the Joe Camel marketing campaign geared to children last month. In Minnesota, Attorney General Humphrey is starting to introduce more documents into evidence as his case progresses. And just last week, the industry promised to disclose 33 million pages of documents. Of course, the industry still will not release documents improperly shielded under attorney client privilege. Attorney General Humphrey is using the crime/fraud exception to get the industry to release 240,000 of these most secret documents.

    The documents are the key to the truth. How can Congress even think about changing the civil justice system—granting special protections—to the tobacco industry without full and complete information?

    We know the tobacco companies realized long ago that nicotine was addictive. We just don't know how long they have known it. We don't know how they manipulated nicotine to increase the likelihood of addiction. We don't know what they know about how to reduce the impact of that addiction.

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    We know that the tobacco companies have targeted children. If we understand more about how this targeting works, we can intervene and keep children from smoking.

    Moreover, Mr. Chairman, we have no idea what their studies show about the impact of tobacco on health. We know, for example, that tobacco and asbestos are an incredibly dangerous combination. We don't know what the tobacco industry knows about that relationship, how long they have known it or what its implications are for asbestos-related disease.

    We don't know what the tobacco industry's own research reveals about the relationship of tobacco to other occupational and environmental contaminants. And, most of all, we don't know what the tobacco industry knows about how people addicted to smoking might be cured or how nicotine and other health-related aspects of tobacco might be reduced.

    Mr. Chairman, it would be criminal to deny scientists and public health experts complete access to any industry documents that might answer these critically important questions.

    The Federal Trade Commission has released a report that found that the proposed tobacco deal will grant the tobacco companies a $123 billion exemption from anti-trust law. It is outrageous and inappropriate to grant anti-trust immunity to this industry.

    Under the proposed deal, the tobacco companies will be immune from punitive damages. State laws will be preempted. The tobacco companies also will be immune from disclosure of potentially revealing documentary evidence of their past actions. Finally, the tobacco companies will be immune from consolidated litigation. If these provisions become reality, successful litigation against the tobacco companies will be highly unlikely. Not because the evidence will be suppressed but because the economics of successful litigation will be eliminated.
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    Alan B. Morrison, the nationally-respected attorney at Public Citizen, wrote in Legal Times:

  Eliminating punitive damages does not simply lower the amount that may have to be paid in each case, but it also significantly reduces the likelihood of industry ever having to pay anything. Tobacco cases are always expensive, and industry always fights hard, with highly skilled counsel and virtually limitless bankrolls. Without the possibility of punitive damages, most lawyers will be unwilling to represent smokers against such a formidable opponent. Moreover, with punitive damages gone, the focus is on the smoker and not on what the industry did, knew, and covered up, where it is most vulnerable.

    There are thousands of victims of tobacco-related disease. While they may have been warned of the disease-causing aspects of tobacco, they had no reason to believe that the product was addictive; they had no reason to believe that the tobacco companies deliberately addicted victims to tobacco smoke or that the tobacco companies may have manipulated nicotine in order to increase addiction.

    Under ordinary circumstances, victims like these who have been deliberately or willfully misled are eligible for punitive damages. The very threat of punitive damages imposes a standard of caution on businesses and individuals. Otherwise, businesses and individuals may have little economic reason to act in the public interest. The tobacco industry's willful disregard for human life by using or hiding its knowledge of the addictive nature of nicotine will not be punished if the tobacco deal is approved. The precedent is awesome. To think that this industry, which may have committed the most egregious and deliberate acts against the health of their consumers, may be insulated from punishment raises the question: What kind of conduct should be held to a higher standard of economic damages?
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    Punitive damages are not tax deductible. Shareholders bear the cost of corporate disregard for appropriate behavior. The proposed deal would immunize the tobacco companies from this form of capital punishment. It also would make sure the public never knows the full nature of the tobacco companies' efforts to addict the public. It will be virtually impossible for individuals, insurance companies, labor union health plans or others to recover the full range of costs incurred as a result of tobacco-related disease.

    Mr. Chairman, some in Congress believe that this deal is the only or best chance we have to curb the scourge of tobacco. When someone tells me I have to buy today because a deal this good won't last, I get very suspicious. The proposed deal is inadequate in so many ways that there is little to redeem it or recommend quick congressional action on the issue.

    In the meantime, we are not worried about the states proceeding with their individual cases, in fact, we welcome it. Only the tobacco industry fears court. The revelations in the Minnesota case show clearly why the industry is so desperate to avoid trials. We thank Attorney General Humphrey for taking his case to trial. As a result, the American people are learning more each day about the nature of the tobacco industry's wrongdoing.

    Mr. Chairman, the American Lung Association urges you to oppose any special protections for the tobacco industry. Please be cautious and patient as you explore the best ways to protect the people of this nation, and the world, from the health hazards of tobacco use.

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Bethesda, MD., December 17, 1997.
    DEAR FRIENDS AND COLLEAGUES: The time has come for us and every ally we can muster across the country to dedicate our best strategies and efforts to fight for significant advances in national tobacco control policy.

    Let us mobilize our energy and our talents. Let us get every local activist and national organization to seize this historic moment to save hundreds of thousands of lives and to spare millions of children and adults from nicotine addiction and debilitating disease. Let us expand the excellent work begun at the grassroots to make this truly a national campaign for the improvement of public health.

    I endorse the principles and goals of Save Lives, Not Tobacco: The Coalition for Accountability, and commend the Coalition's vigorous opposition to granting special privileges and protections to the tobacco industry.

    Let us encourage the entire health community and health-related organizations to join together to bring the American public a safer and healthier environment. A united front will be of greater significance in the months ahead as Congress creates tobacco legislation.


C. Everett Koop, M.D., Sc.D.

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    Mr. GEKAS. The time of the witness has expired. This committee will stand in recess until at least 12:55 p.m.


    Mr. HYDE [presiding]. The testimony had reached the point, before we were interrupted by the vote, to the representative of the Attorney General of Minnesota, Hubert Humphrey, a Mr. Strand who is here in his place. Mr. Strand, you'll be recognized for 5 minutes, and the full statement will be made a part of the record.


    Mr. STRAND. Thank you, Mr. Chairman. Thank you very much for the opportunity to speak with you this morning. I want to start by extending Attorney General Humphrey's greetings to the committee and his apologies for not being able to be with you today. He was diverted away from Washington last night to Detroit and was unable to get here this morning.

    He looked forward to being here with you, and he hopes that you will invite him back to talk about some of these issues.

    Today's inquiry in the committee is focused on one aspect of the tobacco debate, the issue of civil-liability protection. We have been very critical of the proposed deal on many grounds, on the undermining of the powers of the FDA, on the impact on State and local tobacco laws, and we've been concerned that it would not effectively reduce the rate of teen smoking.
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    Today, however, I'll focus my remarks on the issue at hand, which is whether this industry has somehow earned the right to special legal protections not available to any other American business.

    With the committee's permission, and I guess I would offer Attorney General Humphrey's written testimony, which speaks at greater length on some of the detailed analysis of the civil liability protections that were proposed in last June's deal.

    One topic that I do want to address, and it was addressed in some of the early questioning in the committee is the issue of document disclosure. We do believe that it would be a grave disservice to the American people to grant big tobacco special civil-liability protection without seeing all of the evidence. You need to know what the industry has done. You need to know what kind of evidence you would be sacrificing.

    To put it differently, Mr. Chairman, we in the law-enforcement business, we do sometimes allow defendants to negotiate plea bargains, but we don't do so until we've have a chance to take a look at all the evidence.

    Our message for Congress on this issue is this: You should demand that the industry go to the court in Minnesota, where we are currently in trial, and ask that the protective order that the court has imposed, that restricts public access to the documents are relevant, be lifted. We ask you that you demand that the industry lift the protective order so that we can show you in explicit detail and in the tobacco industry's own words how they marketed to kids, how they manipulated nicotine, and how they manipulated public policy.
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    We further ask that you demand that the industry release to Congress the remaining 240,000 documents that are subject to a crime-fraud review by our Minnesota court before you consider granting this industry any special protection from civil liability.

    Mr. Chairman, as you know, we are currently in trial with big tobacco in Minnesota, and so for the first time a jury is hearing the full story of this industry's 40-year pattern of misconduct. We have begun putting into evidence some of the millions of documents that we were able to get out of their vaults over 3 years of very bitterly fought discovery battles.

    The most important documents still remain under lock and key. We are still awaiting a ruling on about a million pages of some of their most jealously-guarded secrets, which have never been seen outside of the industry. We believe the American public is likely to have little tolerance for anyone who gives this industry a safe-conduct pass, without first getting at the truth.

    Let me give the committee just a few examples of the kind of evidence that we are talking about. Just from this Tuesday's trial proceedings in Minnesota, that indicated that the companies' not only understood that nicotine is a drug, but they've actually known for decades and understood that for decades that they are in the drug business.

    A 1980 Phillip Morris document, ''I believe the thing we sell most is nicotine.'' A 1980 BAT document, ''We are searching explicitly for a socially-acceptable additive product. The essential constituent is most likely nicotine or a direct substitute for it.'' 1991, RJR, ''We are basically in the nicotine business. Effective control of nicotine in our products should equate to a significant product performance and cost advantage.''
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    Mr. Chairman, another example of the conduct that we have talking about has been the issue of youth marketing. We're still dealing with the issue of youth marketing. Things are landing in our consumer boxes that indicate that the marketing to kids continues.

    So we ask, with all of that, that you ask for the documents first, demand that you see them before you consider granting immunity, and with that I'd be happy to answer your questions.

    [The prepared statement of Mr. Humphrey follows:]


    Thank you, Mr. Chairman, and members of the committee for inviting me, and allowing me to share my views on the legal issues surrounding the number one public health problem of our time. These issues are quite complex, and the implications of what the tobacco industry is asking you to enact are truly staggering. So I want to begin by commending Chairman Hyde, Representative Conyers, and the entire committee for having the courage to tackle these tough issues. This is the first in what I hope and expect will be a series of hearings to explore the legal ramifications of both what the tobacco industry wants you to adopt, and, more importantly, what our nation's tobacco policy should be in the future.

    As I think most of you are aware, the tobacco industry is on trial, right now, today, in St. Paul, Minnesota. Minnesota is in fact the first government, anywhere, to go to trial to prove that this industry engaged in a decades-long conspiracy to deny the truth, delay justice and deceive the American people and their elected representatives. At least one Wall Street analyst has suggested that our trial may prove to be the death knell of this deadly industry. I make no such predictions today. But I do assure you that, whatever the jury's verdict, we will make public the secrets this industry has concealed for years—secrets contained in the 33 million pages of industry documents we have pried from their vaults in three-and-a-half-years of fierce litigation. These are the same documents they so ''generously'' promised to release in their appearance before the Commerce Committee just last week—documents we wrested from them, page by page, through dozens and dozens of court hearings and multiple appeals, documents we are already placing into the public domain in our trial. As these documents become public, they will show how this industry manipulated kids, manipulated nicotine, and manipulated public policy.
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    Of course, they still refuse to release the crown jewels of the conspiracy, the documents no one has seen—a million pages of their darkest secrets they still hide behind claims of attorney-client privilege—claims that are under review by our Court's Special Master as we speak. We are now in the second week of what we expect will be a four or five month trial. The evidence that will be coming out in the next several weeks will, I think, be of enormous significance, not just in the courtroom but also here in the halls of Congress. Evidence from the industry's own secret files will show:

—how, despite a half-century of denials, this industry has deliberately targeted our young people—our children—to get them hooked on the most dangerous product ever sold. And, despite all the CEO protestations to the contrary last week in Representative Bliley's committee, how they continue to do so today;

—how the industry has understood the addictive nature of nicotine for decades, but still conceals the truth from the American public; and

—how the industry has manipulated nicotine levels and nicotine potency to make their products more attractive, more addictive, and ultimately more dangerous.

    Understanding that history—what the industry knew, when they knew it, what they did with that knowledge, and what have been the terrible consequences for America's public health—is critical if Congress is to fashion appropriate, effective tobacco policy for the future. That is why I believe this Congress should insist that the industry disgorge all of its secret documents, come clean with the truth, before even considering any of the industry's proposal. Mr. Chairman, I am in the law enforcement business, or, you might say, the justice business. I can tell you that, in law enforcement, we don't accept a plea bargain until we have looked at the evidence. We don't let anyone cop a plea until we know exactly what offenses they've committed. I submit that's a sound rule for Congress as well.
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    This industry obviously knows that the release of our documents means big trouble in the courtroom. That's why they're here—that's why we're all here. Don't let anyone tell you that no one can beat the tobacco industry in court. They know better. They know that, without a Congressional bailout, their liability problem will soon become unmanageable. They know that, whatever success they have had in the past convincing juries that smokers assume the risk of death and disease, that defense is not available against the States, against the other public and private health care payors, or against those who have involuntarily been exposed to secondhand smoke. They know that growing public knowledge about addiction and their manipulation of children is undermining their defenses even in individual smoker's cases. And they know that as the full truth becomes known, juries will conclude that it is the tobacco industry and its executives that must take personal responsibility for the incalculable damage their product has caused.

    In short, Mr. Chairman, this industry knows that, for all its success in avoiding accountability for so many years, time is just about up, and they cannot remain above the law forever. That's why, when they were sued by former cigarette advertising model Janet Sackman, they settled. That's why, when the State of Mississippi's case headed toward trial, they settled. That's why, when they faced litigation in California over the Joe Camel campaign, they settled. That's why they settled with the flight attendants. That's why they settled with the State of Texas.

    And that's why they want you to protect them—to shelter them from the prosecutors, judges and juries that are, even now, beginning to bring this industry to justice.

    Now, they will tell you that their proposed bailout preserves victims' right to sue. Indeed, they will argue that they are setting aside up to $5 billion a year for individuals who continue to press claims for damages. But the reality is that the only claims that will be preserved will be the claims the industry is sure it can win. More importantly, what they gain with the liability cap is the assurance that, whether they win or lose, they enter the future confident that they need not change the way they do business.
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    Let's look at what they actually propose:

—No claims could be asserted against them by the Federal government.

—No more claims could be asserted by State or local governments.

—No more third-party payor claims could be asserted, whether it be worker health and welfare funds, other public or private health insurers, or other industries or businesses who have had to pay health care costs attributable to tobacco, with the exception of individual subrogation claims.

—No more claims based on addiction or dependence.

—No claims by anyone against the non-tobacco assets of these companies.

—The tobacco industry's trial attorneys, some of whom are named as co-defendants in pending cases, because of their decades-long role in directing the industry's research and shaping its public positions, have written this proposal to bar any and all claims against themselves, or any other tobacco industry attorneys, insurers, advertising agencies, wholesalers, distributors, retailers, or any other third party—even though these third parties would contribute nothing to the so-called ''resolution''.

    Even those few cases that might remain will be subject to crippling restrictions:
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—No punitive damages, ever, under any circumstances, based on past conduct. That matters a lot, because the level of compensatory damages for a typical smoking victim is too low to permit the victim's attorneys to mount the kind of case necessary to stand up to this industry's scorched-earth litigation tactics. In other words, without the possibility of punitive damages, individual cases will be difficult to pursue at all, and impossible to do well, to meet the burdens of discovery, developing epidemiological and statistical evidence, and securing the help of the expert witnesses needed to have a chance to succeed.

—No class actions, but not only that, but no joinder, aggregations, consolidations, extrapolations, or any of the other devices the courts have developed to resolve mass tort cases, unless the industry agrees. Big Tobacco will still be able to find willing plaintiffs' lawyers to use these procedures to get favorable settlements, but they will have eliminated any risk of having to actually go to trial against more than one plaintiff at once.

—Again, no addiction or dependence claims, and further, no evidence of the availability of reduced risk products will be admissible, precisely the evidence any victim needs to be able to introduce in order to have a prayer of success.

—And then, just to make absolutely sure, the industry adds annual individual damages caps, and then annual global liability caps, in order to guarantee Wall Street, its shareholders, and those who share in the profits from tobacco that liability will never be a problem again, no matter what comes out or what the law becomes in the future.

The bottom line: all the tobacco industry asks you to do, Mr. Chairman, is to guarantee them decades of prosperity.
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    Remarkably, with the exception of punitive damages, the industry proposes that you grant them all of these protections, even if they are sued for their future misconduct. I'll concede that the proposal will not prohibit the tobacco companies from getting sued, but I want to state, just as plainly as I can, that this proposal will make it almost impossible for victims to succeed. Let me say that again: this proposal will not protect the industry from all lawsuits; but it will protect them from all winning lawsuits. Even more important, it will leave the industry with no financial incentive to change the pattern of corporate misconduct that we are today putting on trial in Minnesota. Call it what you will—the practical effect is that this outlaw industry gets immunity.

    ''But Skip,'' some of my colleagues say, ''look at all we get in return—FDA authority, youth lookback provisions, advertising restrictions, document disclosure, and more money than we could have dreamed.'' When we look at the fine print, however, we find that most of those supposed concessions are illusory at best, and at times, even counterproductive.

    I recognize that the focus of this hearing is the civil liability question, but let's recognize that what the industry deal promises and what it delivers are two very different things.

—It says the FDA will have authority to regulate. But the fine print says FDA won't be able to ban, deem as misbranded, or recall any tobacco product. It won't be able to do anything serious about nicotine for at least twelve years. And it will have to overcome so many new evidentiary and procedural burdens that it is virtually certain FDA won't be able to do anything much about tobacco at all, at least over the industry's objection.
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—It says we'll have a whole new set of advertising and marketing restrictions. They do go beyond the current FDA rule, but let's understand what they do not do. They do not go beyond the FDA's current statutory authority, which was confirmed by the Federal district court in Greensboro, North Carolina. The terms of the proposed ''resolution'' permit continued brand logo advertising and substantial point-of-sale advertising. They tie up the FDA's authority to strengthen the rules for five years. And, there are no penalties for violations—no civil penalties, no damages, no fees, no private enforcement standing.

—The industry deal says we'll regulate retailers. What it will really do is preempt tougher state regulation of tobacco retailing, like what we passed last year in Minnesota, and instead sanctions programs like Philip Morris' so-called ''Action Against Access'' program, a toothless public relations ploy designed to ward off real regulation.

—The deal says we get disclosure of the hundreds of chemical additives in cigarettes. The reality is we don't. The industry gets five years of protection from state ingredient disclosure laws, like those already passed in Minnesota and Massachusetts and five years to decide what information it wants to give the FDA about the safety of those chemicals. Then, the FDA gets a completely absurd 90 days to absorb all the information and make new rulings, if it doesn't want to just accept what the industry offers. All this when we know the industry already has reams of secret information about the safety of its chemical additives.

—The industry says we get a youth ''lookback'' provision. But again, the reality is the targets are too low, the penalties come too late (again, after five years), and, with a cap, full tax deductibility, shared liability, and so-called ''good faith'' abatements, the penalties are far too low to change industry conduct.
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—The deal claims to give us document disclosure. It does the opposite. The discovery process that has done so much in Minnesota will be short-circuited. The jurisdiction of State courts to apply state rules will be wrested away to a new Federal panel that will apply different rules. And the industry gets a new unlimited period of time to review all their documents again to decide what position they want to take. This deal will keep the truth this industry fears most under wraps for years, if not forever.

—Finally, the deal, of course, offers money. They like to refer to it as $368.5 billion, payable over 25 years. Because of the time value of money, it is really a $194 billion deal, in present value, according to Professor Jeffrey Harris of MIT. That's still a lot of money. But, let's keep some perspective. The $10–15 billion a year contemplated by the deal is, according to Dr. Harris, just enough to cover the states' smoking-attributable Medicaid costs into the future. In other words, not one penny for past damage, not one penny in penalties, not one penny for all other health care payors. Just enough for the states to stay even, going forward.

    From the industry perspective, the deal doesn't make a dent. First of all, they get an antitrust exemption, so they can pass every penny, perhaps even more, on to their addicted consumers. Then, they get to deduct the amounts on their taxes. Then, they get a credit against any other judgments or settlements they might have to pay. Then, they get to reduce the payments if their domestic sales volume declines. In the meantime, they get to reap the reward of recovering any litigation discount built into their share prices. The reality is that, as Wall Street figured out a long time ago, the tobacco industry will make a windfall if this sweetheart deal is enacted. And no one, not the states, not the Federal government, nor anyone else, will be made whole. In fact, Wall Street analysts have predicted that tobacco stocks will rise another 25%–33%, depending on the company, if Congress enacts the industry's sweetheart deal.
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    That's why I call this deal a Trojan camel. At first glance, it looks good, but, when you look inside, you find that you have let Public Health Enemy #1 off the hook again.

    Members of the committee, I hope you will consider the message you would send if you adopted the June 20th industry deal. The message you would send is this. If you're a normal business, putting a product or service out into the marketplace, you're fully accountable, and you're on your own when it comes to managing your liability risks. But, on the other hand, if your misconduct has been so egregious, and the damages you have caused are so great that you are no longer sure of your economic future because of the risk of liability, come to Congress. Not only will we get you off the hook, but indeed we'll go into business with you. We'll keep you afloat; we'll get judges and juries and victims off your back; we'll arrange to let you and all your competitors increase your prices together—in fact, we'll see to it that you prosper well into the 21st century. All we ask for is a financial cut of the action, so we can pay for some programs that are sure to be popular.

    Well, Mr. Chairman, members of the committee, that's not justice. That's not accountability. That's not taking responsibility. That's going into business with the devil, and Congress should have no part of it.

    What should Congress do instead? Instead of trying to guess what the tobacco industry will accept, let's try to enact what America really needs—a national tobacco policy that truly protects future generations. I believe Congress's priorities should be threefold. First, I agree with the Koop-Kessler Commission, and with the President, that the FDA should have untrammeled authority under the Federal Food, Drug, and Cosmetic Act to regulate nicotine as a drug and cigarettes as drug delivery devices.
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    Second, Congress should design and enact youth ''lookback'' penalties that have real teeth, and, unlike the June 20th deal, will actually reduce youth smoking.

    Third, Congress should recognize the impressive work going on in our states and localities—in our ''laboratories of democracy''—to deal with the tobacco menace, and, frankly, get the Federal government out of the way. Repeal the preemption provisions still in the Federal Cigarette Labeling Act, and adopt specific, clear nonpreemption provisions to let our states and localities do the job of protecting their people.

    Fourth, increase the price of a pack of cigarettes substantially. The President, the American Cancer Society, the American Lung Association, dozens of other health groups and prominent economists have urged an increase of $1.50 to $2.00 per pack to effectively reduce teen smoking. If we can get the per-pack price up, not just the sixty or seventy cents contemplated by this deal, but by $1.50 to $2.00 a pack, we can cut youth consumption significantly, and use the proceeds both to counter the state-of-the-art advertising the industry has lavished on the American public over the decades, and to generally promote our public health.

    Members of this committee, you don't need Philip Morris' blessing to proceed. You don't need to do the kind of ''deal'' that has led so many members of the public to mistrust their public institutions. The American people have placed decisions about our national health policies in your hands, and not in those of the tobacco industry. The question before you today is not, ''What will this outlaw industry accept?'' but rather, ''What do the American people deserve?''

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    I thank you for your attention, and I look forward to your questions.

    Mr. HYDE. Thank you.

    The gentleman from Massachusetts, Mr. Delahunt. Do you have any questions? Surely. You're on.

    Mr. DELAHUNT. Thank you, Mr. Chairman. I'll be brief.

    Mr. HYDE. Good.

    Mr. DELAHUNT. Mr. Koplow, in terms of the calculation of the caps, can you describe that process, and do you have documentation that you could submit to the committee in terms of establishing those numbers, the 2 billion and then the 5 billion?

    Mr. KOPLOW. I am not aware, Congressman, that there were any either formal or informal calculations that were done.

    Mr. DELAHUNT. It wasn't pulled out of the air obviously.

    Mr. KOPLOW. In terms of setting that cap, it was a number that was set in relationship to the overall annual number that the industry would be paying.

    Mr. DELAHUNT. With all due respect, that doesn't answer my question. In other words, what you are saying is it's just pulled out of the air?
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    Mr. KOPLOW. It wasn't just pulled out of the air. What we tried to do in the negotiations—it was a hotly negotiated item, and what we tried to do in the negotiations was to arrive at a number——

    Mr. DELAHUNT. Did anybody scribble down numbers? Did anybody do any calculations? I mean there had to be discussions, Mr. Koplow.

    Mr. KOPLOW. I obviously don't know what other people scribbled down or didn't, but I will proceed to ask, find out what their is, and if there is, to the extent it's not privileged we'll give it to you, but I'll have to go back to the companies to ask whether anybody has anything, and I'll commit to check my own limited documentation to see if I scribbled anything down on a piece of paper in the course of doing this.

    Mr. DELAHUNT. I really don't think it's a specious question because when we're talking about something as fundamental as capping civil awards, that information I think is absolutely essential to have.

    Mr. KOPLOW. I appreciate that, Congressman.

    Mr. DELAHUNT. Thank you. In terms of the State cases that have been settled, either Attorney General Norton or Mr. Strand, what's the relationship between those cases at the State level and the tobacco settlement as it was negotiated between the attorneys general and the other side?

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    Ms. NORTON. Congressman, those suits that were settled were settled essentially in order that the national settlement could go forward, and so there are provisions in those settlements that attempt to reconcile those settlements with the national settlement, if that is adopted.

    My concern is——

    Mr. DELAHUNT. So, has any challenge been brought at the State level against any of the proposed settlements? I mean has there been any court proceeding whatsoever—a declaratory judgment for example—as to the State's authority to affect a settlement of that nature?

    And again, I am not familiar with the details of the various settlements.

    Ms. NORTON. I can't imagine why there would be any charge that the States would not have the ability to settle their own law suits. These are suits based on state anti-trust laws, consumer protection laws, State RICO laws, those kinds of things, where we as attorneys general enforce those laws all the time, and we have the ability to settle the disputes that——

    Mr. DELAHUNT. What have been the amounts of the settlements so far?

    Ms. NORTON. The amounts of——

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    Mr. DELAHUNT. Right. I think there are three States that have reached settlements.

    Ms. NORTON. Those are negotiated amounts based in part on the damages and penalties that the States would be imposing. I——

    Mr. DELAHUNT. Do you know the figures, Attorney General?

    Ms. NORTON. The State of Mississippi is a $3 billion plus settlement. Florida was $11 billion plus, and Texas was $15 billion. So it's a total of about $30 billion.

    Mr. DELAHUNT. About $30 billion with three states?

    Ms. NORTON. That's right. If the rest of the States were to get such a good settlement, I would certainly hope that we would, but it's quite unlikely because those are such massive settlements, and part of our concern is waiting at the end of line, hoping that there will still be money available for us.

    Mr. HYDE. The gentleman's time has expired. The gentleman from North Carolina, Mr. Coble.

    Mr. COBLE. Thank you, Mr. Chairman.

    Good to have you all with us. General Norton and Mr. Strand, let me share a perplexing problem with you. Regarding the various State law suits that have been initiated by the attorneys general, on the one hand these States eagerly collect and warmly embrace sales-tax monies resulting from the sale of tobacco products, and then, on the other hand, these attorneys general can hardly wait to race down to the courthouse, file their complaints, naming as codefendants tobacco companies in an effort to obtain money judgments to defray medical costs that were incurred by voluntary consumption of a lawful product.
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    Now, folks, am I being too hard on the issue by detecting indicators of hypocrisy and inconsistency? If I am, tell me so. I am not thin-skinned.

    Ms. NORTON. If I can respectfully point out that whenever we file an antitrust action against someone, whenever we charge that someone has engaged in violation of truth in advertising, we don't deduct the taxes that they have paid from any penalty that might be due, and I see those as very separate items.

    Colorado's lawsuit is based on very carefully examining the evidence that was in front of us, based on a strict reading of our statutes. I feel very strongly that Colorado's law is well within the bounds of the reading of our State statutes.

    Mr. COBLE. But you all do warmly accept tax receipts from the sale of tobacco products, do you not?

    Ms. NORTON. Any government entity does that.

    Mr. COBLE. As far as I know they do indeed.

    Folks, let me ask you this question. I've heard from some of your colleagues regarding the negotiations, they say that eliminating class actions is akin to eliminating an illusory right. Interpret that for me. What do you all think that means?

    Ms. NORTON. Class actions have been rarely certified in these kinds of situations. If you are talking about a case where someone is seeking damages for their medical injury, those who are most severely impacted, you have differences in the causation. You have differences in assumption of the risks. Many of the legal issues would differ from one person to another, and the courts have been reluctant to certify class actions in those situations.
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    Where you are talking about something like the pure addiction claims, where essentially what is being requested is the ability for someone to have help in kicking the cigarette habit, the relief requested is essentially funding for anti-smoking campaigns and stop-smoking programs. Those are the kinds of things where the courts have certified class actions, but that's the relief that is already provided under this settlement.

    Mr. COBLE. Let me get one more question in before the red light illuminates. I don't want to be in the Chairman's dog house.

    Break out your magic wands, folks. What scenario do you all envision if the proposed settlement is not enacted and litigation continues at the current pace. How do you read that?

    Mr. KOPLOW. Well some of the States will be tried, as we have a trial going on in Minnesota. Some of the State suits will likely be settled. The industry is not going to settle all of them. There are large parts of some of the State suits that have already been dismissed by the courts in which they are pending.

    There are about 25 pending class actions. The industry will continue to litigate those, I think largely successfully, and the individual litigation will bounce along. If there is some huge judgement that is entered against the industry in one of the State suits I think that that could pose some problem for some of the members of the industry.

    Mr. COBLE. Anybody else want to be heard on that? Let me get someone who hasn't had a chance to speak yet.
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    Dr. MUNZER. The American Lung Association would like to see these cases proceed on a State-by-State basis, in an orderly fashion, without any protection afforded to the industry. We would like to see the Congress enact meaningful legislation that would curb teenage smoking.

    Mr. COBLE. Thank you, folks. Mr. Chairman, thank you.

    Mr. HYDE. Thank you. The gentleman from Virginia, Mr. Scott.

    Mr. SCOTT. Thank you, Mr. Chairman.

    I'd like to ask any of the panelists what chance an individual plaintiff might have in the future. Individual plaintiffs have been remarkably unsuccessful. What chance would they have in bringing a successful suit, particularly if there is a prohibition against class actions?

    Ms. NORTON. Mr. Scott, if I might address that. There have been a number of inconsistencies and inaccuracies that have been raised about that. It's my belief, having worked very closely on this, that individuals would still be able to file their own suits and recover.

    There would be things made available to them: a document repository that would include huge numbers of the industry's documents so that obtaining all the evidence would be fairly cost effective; and there would be assurance there that money would be available to actually pay judgments.
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    The cases would become more routine as the law suits would go forward. They can be consolidated for discovery and for pretrial activities which would bring down the cost. The change in mind set of juries that would come about as a result of the——

    Mr. SCOTT. Well, one of the things we talk about in a settlement is you give and you give—obviously, there's a lot that has been given—is the amount sufficient to offset what would be given up in the speculation that someone might win in the future?

    Ms. NORTON. Obviously, attorneys general fought very hard against these kinds of restrictions, but it was our judgment overall that the settlement does compensate for the other measures.

    Mr. STRAND. Congressman, if I might respond to that question—our view is that without the opportunity for punitive damages or the opportunity to aggregate claims under various rules of civil procedure, it would be very difficult for any individual plaintiff to financially hang in there against the tobacco industry.

    In Minnesota they have admitted in open court that they have spent over a $100 million just on document disclosure and discovery alone. No individual plaintiff without the prospect of a substantial recovery is going to be able to match that.

    Mr. KOPLOW. Congressman, could I just be heard on that because part of this settlement will eliminate the issue with respect to documents by reason of setting up the central document depository?
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    Second of all, I think it ought to be pointed out that, in a majority of States, punitive damages are already not available to claimants.

    Mr. SCOTT. Let me ask two other questions, and I will yield the balance of my time to the gentleman from Massachusetts.

    Is there any way, without a settlement, to get limitations on advertising?

    Mr. KOPLOW. We don't believe you could get limitations anywhere near as far-reaching as these.

    Ms. NORTON. The attorneys general felt that having enforceable consent decrees that would have restrictions on advertising, that the industry had voluntarily agreed to, would avoid any kind of constitutional claims that would in fact invalidate any of those.

    Mr. SCOTT. And very quickly, there is a penalty against the industry if they do not reduce teenage smoking by a certain amount. Are those penalties sufficient to give the industry the economic incentive to actually follow through?

    Mr. STRAND. Congressman, in our view they are not. Responding to your past question, the advertising restrictions can be legislated, they can be imposed by administrative rule, they can be obtained in court as part of——

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    Mr. SCOTT. Okay. I don't want to cut you off because I wanted to yield the balance of my time to the gentleman from Massachusetts.

    Mr. DELAHUNT. I thank the gentleman for yielding. I have just one quick question.

    In terms of the ability of individuals to pursue litigation, I presume that these cases are taken by counsel on a contingency basis. Has that been the experience of—I'd ask that as a question to all of you?

    Mr. KOPLOW. Yes, Congressman.

    Mr. STRAND. I think that's right, but again the reality is that without the prospect of punitive damages of the possibility of aggregating claims, it is not going to be possible, even under a contingency-fee basis, in order to fund the kind of litigation this involves.

    Mr. KOPLOW. We disagree. This has been raised now just in connection with the class action settlement in Florida last week. Twelve Florida plaintiffs' firms indicated that they would be prepared for example to handle the flight attendants' cases on a contingency-fee basis, going forward.

    There are no punitive damages. The claims range anything from sinusitis to lung-cancer claims. So you've got the total panoply, and, as I said, in a majority of States punitive damages are not available in any event.
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    Mr. HYDE. The gentleman's time has—I am sorry, someone wanted to say something?

    Mr. STRAND. I just wanted to clarify, Mr. Chairman, that the flight attendant litigation that Mr. Koplow refers to was brought as a class action. There's been a class settlement in that case that allows those claims to go forward with a much lesser burden.

    So without the class device, without the aggregation of claims, in that particular litigation, nobody would have been in a position to do those cases on an individual basis.

    Ms. NORTON. Those cases go forward as individual cases.

    Mr. KOPLOW. Right, there's an ETS case going forward on an individual basis next week with one plaintiff, I think, in Indiana.

    Mr. HYDE. The gentleman from Tennessee, Mr. Bryant.

    Mr. BRYANT. Thank you. It's with great interest that I hear some of the discussions. I have to admit I find it rather outlandish that someone would say that they could not—will not—be able to find a lawyer to handle a case when there is a pot of money already out there to pay a judgement.

    Given the records that will be available, I think it will come down to some point where you'll have a form law suit that you can file and the case will be settled very quickly. I don't think it is going to be that difficult to pursue individual cases. That's my comment.
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    Now, let me get onto the settlement. With the exception of the fact that tobacco farmers were not at the table, and I think the horrible arrangements that were made with the trial lawyers that perhaps will result in obscene legal fees, I like the settlement.

    I think under the circumstances it was a good settlement reached. I think any time anybody that knows anything about litigation or compromise, who has been in Congress or anything, knows that both sides have to give and take. I think that was what was done here.

    Again, I think tobacco's take of this was the limited liability, not immunity completely in return for the concessions they made, and vice versa.

    Attorney General Norton, I want to ask you, and I want to be clear for the record, for the public once and for all—because as these documents continue to come out from tobacco, as has been pointed out, they're terrible, quite frankly—but as I understand, during your negotiations with tobacco, you had access to and saw, if not all of these, some of these documents, enough to give you a flavor of what you had.

    I assume what we are talking about, these billions of other documents, are basically cumulative, just repetitions, maybe other instances, but again the same essence. Taking into consideration those documents that you had, I understand you moved forward with a settlement.

    Did you have access to those?

    Ms. NORTON. Yes, we had access to the documents that have now become public for the most part, and those documents are now the basis on which you all can make a decision, but those were the documents upon which we made our decisions.
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    Mr. BRYANT. Was a part of the settlement, a part of the compensation that was agreed to by tobacco, was that earmarked for that type of cause, consideration for that? Is this the $60 billion pool we are talking about?

    Ms. NORTON. Yes, $60 billion of the settlement in our view is based on payment of punitive damages. And so essentially for whatever is in all of the documents, for the millions of pages of documents that have now become public, the $60 billion is a huge punitive damages amount that is based upon the huge misconduct of the industry.

    Mr. BRYANT. Now, Dr. Munzer, I know for years the American Lung Association, and other medical organizations, have opposed smoking and I think—and I understand—I've been lobbied in my office back in Memphis by representatives, and I agree with much of what you are saying.

    But it just seems to me that once and for all we have an opportunity here to put some meat into this talk—that we are all used to the saying ''let's stop teenage smoking.'' This is a money-back guarantee. If these standards, these benchmarks, aren't achieved than both the tobacco companies, who have to pay more, and the States, who don't do a good job enforcing their laws, could lose some of their money.

    This is money-back guarantee that we are going to achieve some real standards once and for all. I simply don't think we can't those outside of this global settlement, and obviously you do.

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    Dr. MUNZER. I believe that Congress and State legislatures have the power to enact all the necessary legislation——

    Mr. BRYANT. Why haven't we done it already then?

    Dr. MUNZER. Well that's a very good question, and I think you should have. I think that the climate is changing——

    Mr. BRYANT. But it's not just——

    Dr. MUNZER [continuing]. The climate is changing. I think we've seen a revolution in the public's attitude about smoking that is finally catching up in the halls of Congress and in State legislatures. I think you can and should pass very strong legislation that would limit access to tobacco products by minors and reduce the burden of tobacco smoking, and I don't think there is a need to give a payoff to the tobacco industry.

    Mr. HYDE. The gentleman's time has expired.

    The gentlemen from Michigan, Mr. Conyers.

    Mr. CONYERS. Thank you, Chairman Hyde.

    Attorney Meyer Koplow, you represent whom here today?

    Mr. KOPLOW. I represent Phillip Morris.
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    Mr. CONYERS. Well, then why do we have on the hearing's witness list ''Meyer G. Koplow, Esq., Watchell, Lipton, Rosen and Katz on behalf of the tobacco industry''? You don't know why.

    Mr. KOPLOW. No. I think the industry was invited to send a person who could speak for the companies that were parties to the proposed resolution, and——

    Mr. CONYERS. So you represent the tobacco industry?

    Mr. KOPLOW. Well, I——

    Mr. CONYERS. Or you don't represent the tobacco industry?

    Mr. KOPLOW. Well, I am certainly speaking for Phillip Morris, and I'll do my best to speak for everybody.

    Mr. CONYERS. Well, but which is it? I am glad you are so ambiguous, but you are either speaking for the tobacco industry or you are speaking for the tobacco company that's retained you and your law firm.

    Mr. KOPLOW. Congressman, with respect to the civil-liability provisions, I am speaking for the entire industry.

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    Mr. CONYERS. Well, thank you. That took 1 1/2 minutes out of my time.

    Okay, now that we've gotten that straightened out, let's go to something else. Now that we've got you representing the tobacco industry, if we are going to reduce the impact of addiction, is there any way we can do that without seeing some of the documents that have not been revealed, to see how we can reduce the impact of addiction?

    Mr. KOPLOW. Congressman, I feel compelled to point out that the vast bulk of the industry's documents that have been produced in the Minnesota litigation are being made public by the industry.

    Mr. CONYERS. So you agree with the thrust of the question I take it, that we should be seeing something, right, and that the Minnesota litigation reveals the vast bulk of it.

    Mr. KOPLOW. Well, Congressman, the documents that general Humphrey selected for use in the litigation will all be up on the Internet within the next couple of weeks.

    Mr. CONYERS. But what is the answer to my question? I am glad you are giving all this free advice, but I am saying to you again, and you're a lawyer, if we are going to reduce the impact of addiction don't we, the Congress, need to see the documents to see how we can reduce the impact of addiction?

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    I take it the thrust of your response, so far, is yes.

    Mr. KOPLOW. The thrust of my response, Congressman, is I don't know. I am not familiar with those documents and I do not know.

    Mr. CONYERS. Oh, okay. Well, can we get some lawyer representing the tobacco industry to this hearing that does know?

    Mr. KOPLOW. If there are specific questions that you'd like to have addressed by a representative of the industry we'll try to make available somebody who can answer your questions, Congressman.

    Mr. CONYERS. Well, that's very generous of you, sir. I appreciate that very much. Don't we know how they have targeted—they, you and your clients—have targeted children and minorities if we're to intervene and prevent these groups from smoking? That's yes or no.

    Mr. KOPLOW. I am sorry, but I cannot answer that question yes or no.

    Mr. CONYERS. You can't do that? Okay, take, as Chairman Hyde says, take all the time you need.

    Mr. KOPLOW. First of all, I don't know what they have done with respect to children and minorities.
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    Mr. CONYERS. Who are they?

    Mr. KOPLOW. The tobacco companies. It's not——

    Mr. CONYERS. You represent them, but you don't know what they have done.

    Mr. KOPLOW. Congressman, I started to represent them in connection with working on this settlement. That's what I am familiar with. I am sorry but I cannot testify to things that I am not familiar with.

    Mr. CONYERS. I yield back the balance of my time, and Mr. Chairman, why don't we get one person from the tobacco-industry side that can answer these elementary questions?

    Mr. HYDE. Well, you tell me who you want, and we will invite them in.

    Mr. CONYERS. Well, I sure will. I'll give you a list because I don't know how many we will have to go through to get one of them that are being paid to represent these fellows.

    Mr. HYDE. I certainly hope so. In any event, we are going to stand in recess because we have another vote. We'll be back as soon as the vote is over, and I ask the committee to please return.
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    Mr. HYDE. There will be a quorum call shortly for the ceremonial swearing in—not ceremonial, the real-life swearing in—of a new Member, Mr. Meeks, and Ms. Jackson Lee would like to attend that so we're going to recognize her to ask some questions now so that during the pendency of the swearing-in, we may continue over here, if I can corral one other member to stay and I am looking at one steadfast Rock of Gibraltar named Gekas.


    So, the gentlelady from Texas.

    Ms. JACKSON LEE. Thank you very much, Mr. Chairman. My departure should be fleeting, but temporary. This is an important hearing and I thank the chairman and thank the panelists for their presence here. I think we are at the beginning of debate on this subject, though many feel that we're near to closure.

    Let me ask Ms. Norton her perspective. Would any national settlement that we would have, and I believe—am I incorrect—has Colorado finished theirs or you're still in the midst of——

    Ms. NORTON. We are still litigating.

    Ms. JACKSON LEE. All right, you're still litigating but your perspective is that Texas, for example, has settled theirs and some other States. Any independent settlements that States may incur or proceedings—I think Texas was an independent lawsuit—would you think that the Federal settlement or negotiated legislation should or would impact those already decided cases?
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    Ms. NORTON. I think the Federal settlement should be structured to take those into account and I think there are provisions within those settlements that look forward toward the national settlement. I am not familiar with the details and so I would be happy to provide you the information about how those settlements are structured to anticipate the national settlement.

    Ms. JACKSON LEE. Mr. Chairman, let me just ask the question of any Justice Department remaining staff that is here. I did not get a chance to ask as often and, as I had already made clear, I preferred or would have preferred the Attorney General to be present. But, in any event, I'd like the Justice Department's response to what they believe the impact of any decision, legislation, or negotiated settlement on the national level would have barring any side-bar agreements or what provisions are in the individual State agreements, what impact it would have on individual State agreements. Mr. Chairman, I'd appreciate if that could be conveyed.

    The concern that I have, again, is why we can't do better. This is not in any way a reflection on individual determinations by different States.

    And, Mr. Koplow, let me raise a point with you. Just about a week or so, I had occasion on late-night television to see one of the new leaders of the one of the major tobacco companies. He was being interviewed, he was dressed and looked distinguished, he had a very calm demeanor, decent fellow, obviously hands were not in the midst of the great and well-known episode of denial on record of the level of addiction, and he proceeded to simply say that he had children, he would discourage them from smoking but he will sell as many cigarettes as he can, it is business. I paraphrase and don't call his name out of respect.
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    With that in mind, you have been in the midst of negotiating this settlement, realizing that it's business. Do we, in fact, have the best deal? And, Dr. Munzer, I'm going to come to you next. Do we, in fact, have the best deal? Who can predict on this day in 1998 the damages in the future? Although I know there are actuarial tables, there are other kinds of tables that people utilize. My concern is the prohibition on that class or individual or child that ultimately may be negatively impacted when this is a business decision. This is a question of how many more cigarettes I can sell, whether it's in Sub-Saharan Africa, Brazil, whether it's in Russia, Czechoslovakia, or Paris, France. It is the question of how much, and it's the international question, or how much you can sell in Des Moines, Iowa or Houston, Texas. My question to you on that, sir, recognizing that we must have winners and losers: Is this settlement at least relatively even-handed for the winners and losers, Mr. Koplow?

    Mr. KOPLOW. Well, let me focus on your concerns here first. One of the features of this settlement is a major effort to try to make sure that kids don't smoke. There's going to be about $.5 billion a year available through this for anti-smoking education campaigns through government public health organizations and community organizations. In addition to that, another $1 billion a year, and I think increasing over time, is being devoted to try to help adults, who want to quit, quit. So, in terms of focussing on the benefits and what the effects of this are going to be, and on whether more or fewer cigarettes are going to be sold, I think those aspects of the settlement are critical.

    If I could just put a Philip Morris hat on for a moment addressing international, Philip Morris has indicated that it is prepared to be first in line in every country in which it operates to try to work with the governments in those countries to come up with procedures, agreements, and the like, country by country, that will address the issue of youth smoking with all of the market participants in those countries, which is the only effective way that we know that can be done.
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    Ms. JACKSON LEE. Mr. Chairman, I see the red light. I beg your indulgence for an additional minute to have the panelists answer the question and just to respond to Mr. Koplow. Mr. Chairman? Sorry.

    Mr. HYDE. Yes.

    Ms. JACKSON LEE. Thank you for your graciousness.

    Mr. HYDE. You want another minute?

    Ms. JACKSON LEE. Yes, Mr. Chairman.

    Mr. HYDE. All right, without objection.

    Ms. JACKSON LEE. Thank you, Mr. Chairman. I am concerned that although the agreement dictates some good things, and even though it contains a limit on advertising or advertisements in certain ways, that the tobacco companies will still be doing business as usual and there will still be people encouraged to smoke. So, my concern is that we're not hitting the problem.

    Let me go to Dr. Munzer, if I could. Your opinion of this settlement, please.

    Dr. MUNZER. I think we can really do a lot better than the settlement. The basic problem is this: I have been involved in a fight against the tobacco industry for the past 30 years. I do not trust the tobacco industry and I would not entrust the future of our children to a program for decreasing smoking that is basically generated by the tobacco industry. I do trust the U.S. Congress and I do trust our executive branch to come up with sound programs and I do not think that we have to go by the dictates of this particular settlement.
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    Ms. JACKSON LEE. And you believe, then, we should be pro-active?

    Dr. MUNZER. Absolutely.

    Mr. HYDE. I thank the gentlelady——

    Ms. JACKSON LEE. Thank you.

    Mr. HYDE [continuing]. And the gentleman—there is a quorum call and they're going to swear in the new member. I intend to stay here through the quorum call. Mr. Gekas has agreed to do that as well so we can proceed. So, the Chair recognizes Mr. Gekas.

    Mr. GEKAS. I thank the Chair.

    Mr. Koplow, in your statement—you didn't get a chance to touch upon it in your oral presentation—you touch upon the question of the constitutionality issues which we're going to have to face and you preempt, in your statement, the concerns that we might have on the question of eliminating causes of action, in effect, retroactively.

    Mr. KOPLOW. Yes.

    Mr. GEKAS. And as one of the citations that you pose is the TMI case with which I happen to be familiar with. It rose in my district, et cetera. But I thought—and I tried to reread it while we were sitting here to determine how you make that comparable when it seems to me that that was a statute of limitations retroactive—the theme that was struck by that case. In other words, that the Price Anderson precept there was as to whether a statute of limitations of previous claims could be upheld, not having anything to do with immunity. Or am I wrong there?
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    Mr. KOPLOW. I don't think you're wrong there, but the basic point is that the court cases have held that Congress does have the power, basically, to take away causes of action right up until the point that somebody achieves a final judgement.

    Mr. GEKAS. I understand, but what I thought was, though, that in that particular case—in the TMI case—it was the statute of limitations which forbad any other case in not a limitation or an immunity that was set. Is that correct?

    Mr. KOPLOW. I think that's right but the principle would be the same.

    Mr. GEKAS. All right. General, I'm intrigued by the proposal that you have to try to establish a new Federal cause of action because it seems to me that that would end all kinds of problems that could be created in the future. Let me ask you this. Have you bounced that off the desks of the other attorneys general who are cooperating with you?

    Ms. NORTON. This is a proposal from the negotiating attorneys general.

    Mr. GEKAS. Ah. Oh, it is?

    Ms. NORTON. Yes.

    Mr. GEKAS. Would that entail amendment of the Federal Rules of Civil Procedure or do you think that Congress should act on it directly as to the tobacco settlement?
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    Ms. NORTON. This is something that would be in statute and would not really require changes to the Rules of Civil Procedure.

    Mr. GEKAS. All right. And Dr. Munzer, one thing concerns me here and one of the question that I posed in my first round to the individual from the Justice Department was to explain for the record, and we've done it several times, on the basis of what immunity, if any, vests in favor of the tobacco industry. I believe that the answers that we have received and the documentation that we have received on this tobacco settlement make it clear that there is no immunity as such. Yet, you make it a tenet of your presentation that you abhor the concept of immunity to the tobacco industry. Can't you agree that what we're talking about is that there is no immunity in this concept, at least for the future claims? Do you want to acknowledge that much?

    Dr. MUNZER. Certainly in looking at the original document of the settlement, the deal that was proposed, it certainly appeared to include immunity for the tobacco industry, perhaps not for future actions, but certainly in terms of their past actions.

    We should not be granting any type of immunity until we have full disclosure of all documents and everything that the tobacco industry has done thus far to addict our children to tobacco, to keep people addicted, and to reap the harvest——

    Mr. GEKAS. Granting all that, are you willing to admit on the record or acknowledge—you're not under oath or anything like that—to acknowledge that we are concerned about not depositing full immunity to the tobacco industry, that, indeed, the future cases will still be viable? Do you acknowledge that? I'd like to have something on the record.
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    Dr. MUNZER. I will be happy to review that and then submit a written response.

    [The information follows:]

American Lung Association,
Washington, DC, February 17, 1998.
Chairman, Committee on Judiciary,
U.S. House of Representatives,
Washington, DC.

    DEAR CHAIRMAN HYDE: Thank you for the opportunity to testify before the Judiciary Committee on the civil liability portions of the proposed tobacco settlement.

    I agreed to provide a written response to a question from Mr. Gekas concerning full immunity for the tobacco companies in the proposed deal. The American Lung Association has never interpreted the deal to provide ''full'' immunity for the tobacco industry. However, the deal would provide unprecedented and unwarranted special protections for the tobacco industry. In the area of civil liability, the deal would eliminate class actions and other mechanisms to consolidate cases. The deal would also eliminate punitive damages for past misconduct and eliminate claims based on addiction. The total effect of these changes to the civil justice system is to single out the tobacco industry for practical if not literal immunity. These changes would make it extremely difficult, if not impossible, to bring an action against a tobacco company.
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    The civil justice system has been the most potent public health tool to force a debate about the conduct of the tobacco industry. The tobacco industry has a long record of broken promises and has repeatedly told outright lies to the public about its conduct. This industry does not deserve any special protections. The civil liability protections the industry seeks are extraordinary and unjustified. Without strong, potent oversight by the civil justice system, there is little deterrence to prevent a continuation of the type of conduct that has targeted our children and bankrupted our health care system.

    The American Lung Association encourages the Congress to make protecting the public health the priority, not saving the tobacco industry.

    Thank you for the opportunity to share this response. The American Lung Association looks forward to continuing to work with the Judiciary Committee on this issue.


Alfred Munzer, M.D.

    Mr. GEKAS. I'd be happy to receive it. Thank you.

    Mr. HYDE. Thank you. The gentleman's time has expired. Mr. Coble, the gentleman from North Carolina?

    Mr. COBLE. Chairman Hyde, if I may have 1 minute, I would——
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    Mr. HYDE. You may.

    Mr. COBLE [continuing]. Be appreciative. Folks, we are by no means in the waning stages of this exercise. We're still in the fairly early stages and I think the more information we can accumulate, the better.

    Having said that, Mr. Chairman, I would appreciate if General Norton and Mr. Strand would advise the committee the total amount of revenues collected by the States of Colorado and Minnesota over the past 5 years from the sale of tobacco products. I think that would be a pertinent bit of information and I'd like to know that, Mr. Chairman.

    Mr. HYDE. Well, I'm sure that General Norton and Mr. Strand will get you that information, Congressman.

    Ms. NORTON. I'd be happy to.

    [The information follows:]

State of Colorado Department of Law,
Office of the Attorney General,
Denver, CO, February 20, 1998.
U.S. House of Representatives,
Washington, DC.
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    DEAR REPRESENTATIVE COBLE: I hope you found the information presented at the February 5th Judiciary Committee hearing helpful.

    As you requested, I am sending tobacco products tax revenue information for the State of Colorado, along with copies of Colorado's statutes pertaining to cigarette and tobacco product taxation. While the revenue stream from taxes on cigarettes and tobacco products is significant, we do not consider it an offset against any civil penalties or damages. All businesses in Colorado are expected to pay income taxes, sales taxes, or whatever other specific taxes may be applicable to an industry. Just as you would not expect an individual to deduct incomes taxes paid to the state or county from fines imposed for speeding on the highway, it is not appropriate for a business to deduct taxes from fines or penalties imposed for violating consumer fraud or anti-trust statutes. If it were otherwise, the state would never be able to enforce penalties against a lawbreaker, and penalties established by law as a deterrent to illegal activities would be meaningless.

    It is important to understand that Colorado's lawsuit against the tobacco companies is based upon civil enforcement of statutes related to business practices. Our suit is based on the industry's conduct, not upon theories of tobacco as an inherently dangerous product.

    I hope this explanation is helpful to you, but I would also be pleased to talk with you in more detail about this issue if you have additional questions or concerns.


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Gale A. Norton, Attorney General.


Office of the Attorney General,
St. Paul, MN, February 25, 1998.
U.S. House of Representatives,
Washington, DC.

Re: Minnesota Cigarette Excise Tax Collections

    DEAR REPRESENTATIVE COBLE: When I visited the House Judiciary Committee on February 5, you asked for information on the cigarette excise tax that has been collected in Minnesota during the past five years. Following is information from the Minnesota Department of Revenue Tax Research Division showing revenues generated from 1993 through 1997:

Table 1

    This revenue, however, is dwarfed by state-incurred smoking-related health care costs. The judge and jury in the Minnesota case are currently hearing testimony on the calculation of those costs.

Very truly yours,
SCOTT R. STRAND, Deputy Counsel.
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    Mr. COBLE. Thank you.

    Mr. KOPLOW. Sure.

    Ms. NORTON. Look forward to it.

    Mr. HYDE. Very well. Before I dismiss this panel with my profound thanks, I want to say something about Mr. Koplow's situation. He was criticized by Mr. Conyers concerning not knowing the details of documentation. He was invited here to testify on civil liability aspects of the settlement and he is a person familiar with the negotiations and the settlement. He was not invited here as an expert on what's in the documents or past misconduct or anything like that. Now, that's a legitimate area for inquiry but not in this hearing. The Commerce Committee held a hearing last week on past misconduct of tobacco companies and that would have been appropriate there. And I don't mean it's inappropriate to inquire but Mr. Koplow should not be blamed for not coming here prepared to discuss every one of thousands, if not hundreds of thousands, of documents with which he is not familiar. He is familiar with the settlement and its terms and the negotiation and he was invited to speak, at least relate the views, of the tobacco industry in addition to his own company, which, I would say, he has done. So, I just think it's fair that he not be unduly burdened with not having information he wasn't required nor expected to have. With that, this panel is dismissed with our great thanks. Thank you all. Your full statements will be made a part of the record.

    And now, our final panel. The first witness is Professor James Pfander from the University of Illinois College of Law. He's a graduate of the University of Missouri and the University of Virginia School of Law. Before his arrival at the University of Illinois in 1988, Professor Pfander was an attorney at the Washington, D.C. law firm of Rogovin, Huge and Lenzer.
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    Following Professor Pfander, the committee will hear from Professor John Coffee of Columbia University Law School. An alumnus of Amherst College, Yale Law School, and New York University Law School, Professor Coffee was an associate for 6 years at the firm of Cravath, Swaine, and Moore before beginning his academic career in 1980. He's a Fellow of the American Academy of Arts and Sciences, and, last year, the National Law Journal included him on the list of the ''100 Most Influential Lawyers'' in America.

    Our third witness is Professor Robert Rabin of Stanford University Law School. His experience includes services as a Senior Environmental Fellow at the Environmental Protection Agency and as a reporter for the ABA Action Commission to Improve the Tort Liability System. Professor Rabin's recent publications include a history of tobacco tort litigation published in the Stanford Law Review and the book, Smoking Policy: Law, Politics, and Culture.

    The panel's fourth witness is Professor Richard Daynard from the Tobacco Control Resource Center at Northeastern University Law School, where he's chairman of Tobacco Liability Project. Professor Daynard is a graduate of Columbia College, Harvard Law School, Columbia University, and MIT, and has published numerous articles on tobacco litigation. In addition to his current position, he also serves as president of the Group Against Smoking Pollution of Massachusetts and secretary for the Tobacco Control Council at the National Association for Public Health Policy.

    After Professor Daynard, Steven Kazan, the founder and senior partner of the law firm of Kazan, McClain, Edises, Simon and Abrams, will testify on behalf of the asbestos industry and victims of asbestos-caused injuries. A graduate of Brandeis University and Harvard Law School, Mr. Kazan's prior experience includes service at the Interstate Commerce Commission and as an Assistant United States Attorney. He is a member of the Asbestos Victims Creditors' Committee and a member, former vice president, and former board member of the California Trial Lawyers Association.
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    Our final witness today is Mr. Harold Taylor. Mr. Taylor is here to testify on behalf of victims of the tobacco industry. He served his Nation honorably in the U.S. Army for 3 years, followed by a career in the computer industry and as a systems programmer. On several occasions, he has testified before New York City Hall on these issues we are addressing today.

    I urge you to limit your oral testimony to 5 minutes and be assured your written testimony will be entered into the record in its entirety. We thank you in advance for your testimony.

    Professor Pfander.


    Mr. PFANDER. Thank you, Mr. Chairman. In my written statement, I focused on the constitutionality of the procedural or jurisdictional provisions of the proposed settlement and, in particular, focussed on the ban on class action litigation as it applies to State——

    Mr. COBLE. Mr. Chairman, if the professor would draw his mike a little closer, I would appreciate that.

    Mr. PFANDER. Very well, thanks.
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    Mr. COBLE. Thank you.

    Mr. PFANDER [continuing]. The ban on class action litigation in State court, the proposal for removal of those consolidated actions, if they were consolidated by the State courts, into the Federal Court and the three-judge panel for the decision of issues of privilege and trade secrecy.

    Today, I'll focus in my oral remarks on the Tenth Amendment, the federalism issues that have occupied various members of the committee today and there are a couple of questions for us to consider. First, is there a Tenth Amendment problem with the proposal to limit class action litigation in State courts? That seems to me to be a tough question. And, secondly, can we work around that Tenth Amendment problem? I think we probably can.

    The first question on the plate, then, is whether there is a Tenth Amendment problem and there are conflicting ways to approach that question. There's a general principle, as you know, that Congress is not supposed to conscript State government; it can't just send mandates or regulatory directives to the State governments; but Congress is free to regulate so long as the States are willing to go along.

    The legislation, as it's proposed, could be seen as a kind of conscription of the States because it contemplates litigation of these liability issues in State court with a Federal limit on the availability of class action litigation that could be seen as imposing additional costs on the States associated with that more cumbersome litigation. So, there might be a question about the validity of that proposal from a Tenth Amendment perspective.
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    But, the cases so far that have recently interpreted the Tenth Amendment don't extend the principle to State courts. The no-conscription principle has been applied to conscriptions of State legislatures. It's been applied to conscriptions of State executive branch officials, most recently in the Printz case, but hasn't yet been extended to the courts. That said, there are a series of cases that seem to contemplate the use of State courts as agents of Federal regulatory purpose and I cited them in my prepared submission; cases like Testa v. Katt and its progeny.

    So, it's difficult, it seems to me, to say at the end of the day whether there is a Tenth Amendment problem but it's rather easier for me to say that we might be able to solve it because the Tenth Amendment cases make it clear that if Congress offers the State a choice, it is free to go ahead with the regulation.

    So, it seems to me that Congress could solve the problem by giving the States a choice, whether they want to comply with the ban on class action regulation and encouraging them to do so with financial incentives. There are financial incentives, as you know, in other sections of the proposed settlement and those, if applied to the class action ban, would seemingly solve that Tenth Amendment problem.

    The other way to give the States a choice would be to provide for removal, as the agreement does, to remove the cases from State to Federal court in situations where the States decide that they are unwilling to accept the proposed Federal rule against class action or consolidated litigation, so that the removal provision would seemingly solve some of the Tenth Amendment problems as well, and it appears to me, in any case, that removal would be permissible under the terms of Article III.
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    So, the question for the committee, then, and for the Congress generally, is one of policy, one of the wisdom of the legislation, and, perhaps, not one of constitutional dimension.

    Thank you.

    [The prepared statement of Mr. Pfander follows:]


PREPARED STATEMENT OF JAMES E. PFANDER,(see footnote 4) Professor, the University of Illinois College of Law


    The global tobacco settlement makes a number of proposals that would fundamentally alter the litigation of personal injury claims by those who claim to have been injured by exposure to cigarette products. Among these provisions appear some that would make procedural changes in the way tobacco litigation goes forward. In particular, the proposed settlement would ban any class-action litigation of these claims, as well as provisions calling for the joinder or consolidation of similar claims. In addition, the settlement would provide for a three-judge Federal panel to pass upon questions of privilege and trade secrecy that may arise in the course of such tobacco litigation. Finally, the settlement would provide for the removal of claims from State to Federal court whenever State courts refused to give effect to the no-class-action rule.
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    Critics of the proposed settlement have expressed doubts as to the constitutionality of these changes in litigation practice. First, some have questioned the power of Congress to regulate the procedure of the State court system with respect to class-action or consolidation of claims. Second, some have raised doubts as to the power of Congress to provide for the removal of such actions to Federal court. Third, some have doubted the constitutionality of the proposed creation of a three-judge panel to pass on questions of privilege, especially those posed by members of the general public who have no legal dispute pending with the tobacco industry.

    In his testimony today, Professor James E. Pfander of the University of Illinois College of Law addresses these concerns and concludes that they do not present an insurmountable constitutional obstacle to the implementation of the proposed settlement. Although the proposal relating to the power of Congress to impose a no-class-action rule on the States raises legitimate Tenth Amendment questions, it appears that the removal provisions would address that concern, especially if coupled with a grant to the States to cover some portion of the increased cost of individualized litigation. Similarly, the existence of concrete disputes between litigant and the tobacco industry answers both the standing and case-or-controversy requirements of Article III and thus places the provision for specialized judicial determination of privilege and trade secrecy issues beyond doubt. Finally, the creation of a reward or other financial incentive for successful litigation would largely answer any question concerning the constitutionality of the proposal to allow members of the general public (who might otherwise fail the so-called injury-in-fact requirement of Article III) to litigate tobacco industry disclosure issues.

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    I am honored to appear at the committee's invitation to discuss the civil liability provisions that appear in Title VIII of the global tobacco settlement. The settlement has already been the subject of distinguished commentary and testimony, including that by Professor Laurence Tribe before the Senate Judiciary Committee on July 16, 1997. Rather than retrace Professor Tribe's steps, I propose to use his testimony to frame the issues I will address before the committee.

    In general, I share Professor Tribe's conclusion that the settlement's proposed legislative resolution of existing claims, its elimination of punitive damages, its caps on the payments of damages in any one year, and its escrow provisions present no substantial constitutional problems. I also share his First Amendment concerns. I do differ with Professor Tribe, primarily on certain technical issues in the field of federal jurisdiction and procedure, and I will focus on such issues today. Finally, I have several suggestions for ways in which the committee can structure implementing legislation to work around the problems I have identified.


    It appears from the settlement that, in preserving individual personal injury claims, the civil liability provisions of Title VIII assume that state common law will provide the source of the right to secure damages from the industry. The settlement's decision to retain State common law claims for personal injuries has a number of consequences.

—First, the preservation of State substantive law as the rule of decision determining industry liability may raise doubts about the power of Congress to regulate certain aspects of State court litigation.
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—Second, the preservation of State substantive law will necessitate the creation of a specialized rule to implement the suggested provision authorizing removal of the actions from state to Federal court.

—Third, the preservation of State substantive law may have some impact on the proposal in Appendix VIII to create a three-judge Federal panel with exclusive jurisdiction to resolve all disputes over questions of privilege and trade secrecy.

A. Class Action Limitations in Federal and State Court

    The proposed settlement makes an important procedural innovation by barring all class action and consolidated litigation, including provisions for joinder and consolidation of like claims. Professor Tribe rightly points out that Congress has ample power to regulate the practice and procedure of the Federal courts but has less power over practice in the State courts. In particular, Professor Tribe suggests that the Tenth Amendment and principles of federalism may bar Congress from extending its ban on consolidated litigation to State court proceedings. Second, Professor Tribe raises doubts about the power of the Federal courts to hear state-law claims removed in the wake of an order of consolidation in violation of the new no-class-action rule. I take up the two issues in turn.

1. Tenth Amendment Issues

    An uneasy tension exists between what appear to be the two relevant sources of Supreme Court authority on the question whether Congress can make its rule barring class action and consolidated litigation applicable in state court. On the one hand, the Court's recent decisions in New York v. United States, 505 U.S. 144 (1992) [hereinafter NY–US], and Printz v. United States, 117 S. Ct. 2365 (1997), suggest that Congress cannot simply commandeer or conscript the resources of State government by issuing directives binding on state officials. Such decisions appear to raise questions about the power of Congress to impose on the states an obligation to implement federal rights at state expense. One might argue that the rule against class-action litigation falls into that category, inasmuch as Title VIII of the implementing legislation would ban all consolidated litigation in state courts on state-created rights of action.
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    Although NY–US and Printz may appear to raise doubts about Congress's power, decisions such as Testa v. Katt, 330 U.S. 386 (1947), point in the opposite direction. Testa holds that, under the Supremacy Clause, State courts may not refuse to hear a Federal right of action without a valid excuse. Subsequent decisions in the Testa line of cases go beyond a rule barring discrimination against Federal claims and seemingly impose on State courts an obligation of reasonable accomodation to the enforcement of Federal rights. See Howlett v. Rose, 496 U.S. 356 (1990) (state claim of immunity from suit not a valid excuse for refusing to hear Federal claim); Felder v. Casey, 487 U.S. 131 (1988) (State may not apply an across-the-board notice of claim provision to bar litigation of otherwise timely Federal claim).(see footnote 5) There's more than a little tension between the NY–US rule of no conscription and the Testa-Felder recognition that State courts must provide a reasonably accommodating forum for the adjudication of Federal rights.(see footnote 6)

    How to resolve that tension, at least in this situation, remains an unsettled question. The Supreme Court has explicitly noted that the rule in NY–US does not apply to the Testa line of cases and to Federal conscription (through the Supremacy Clause) of the resources of the State courts. See NY–US, 505 U.S. at 178. Although that holding might appear to suggest that Testa and its progeny would control, those cases all dealt with Federal rights of action created by Congress. See Testa (Federal right of action for violation of Federal price controls); Felder (Federal civil rights action against state official). In this instance, as I've noted above, the proposed statute would provide for the continued existence of a State-created cause of action to be litigated for the most part in State courts in the first instance. None of the decisions in the Testa line address such a situation. It may be, therefore, that the proposal to create a Federal rule barring class-action litigation would be said to fall outside the rule of Testa and Felder and would lie within the compass of the no-conscription rule of NY–US and Printz. Yet it remains somewhat difficult to see why State courts have an obligation under the Supremacy Clause to respect and enforce Federal rights of action under Testa and need not give effect to a decision by Congress to establish a Federal rule barring class-action or other consolidated litigation.
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    In the end, though, it seems likely that Congress can legislate around any such problem, as I suggest below. For example, the removal of claims from state to Federal court may shift the cost of the class-action ban to Federal dockets and avoid any Tenth Amendment problem. Moreover, Congress might link its payments to the states to a rule requiring the States to agree to accept the rule barring class actions and other consolidated litigation. Such financial incentives largely avoid any Tenth Amendment problems that might otherwise exist.

2. Article III Issues

    Perhaps anticipating these difficult Tenth Amendment issues, the parties to the global tobacco settlement provided for the removal of State court actions to Federal court any time the parties applied for or the State court ordered class action or consolidated litigation without the defendant's consent. Professor Tribe raises doubts that such removal would be permitted, at least where Federal jurisdiction were otherwise lacking. This conclusion seems to me partially correct. Under our current system of jurisdictional statutes, Federal courts have limited power to entertain such State-created claims. Generally, plaintiffs can litigate such state-created claims in Federal court only where they satisfy the requirements of diversity of citizenship or where they include a Federal ingredient on the face of the well-pleaded complaint that satisfies the rather demanding standards of the general Federal question grant of jurisdiction in 28 U.S.C. §1331. See Merrell Dow Pharmaceuticals Inc. v. Thompson, 478 U.S. 804 (1986). Similarly, defendants can typically remove such actions to Federal court only in circumstances where the plaintiff could have initiated them there in the first instance. See 28 U.S.C. §1441 (limiting removal jurisdiction to claims over which Federal district courts have original jurisdiction); Louisville & Nashville R.Co. v. Mottley, 211 U.S. 149 (1908) (Federal defense will not support removal under general grants of Federal question removal jurisdiction).
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    The absence of current statutory authority, however, presents no problem if, as the settlement appears to contemplate, Congress enacts a new statute authorizing the removal of State-created claims into Federal court. Many personal injury claims against the tobacco industry present Federal issues, especially in light of the industry's argument that Federal statutory law, such as the Federal Cigarette Labeling and Advertising Act, preempts or precludes State causes of action.

    Moreover, the ban on class-action litigation would (if otherwise valid under the Tenth Amendment) create a Federal right to individual trials and would itself present a Federal defense to consolidated litigation in State court. Although these Federal defenses do not ordinarily support removal under the well-pleaded complaint rule of the Mottley case, Congress has power under Article III of the Constitution to regulate the jurisdiction of the lower Federal courts and can enact a special removal statute allowing removal on the basis of the assertion of Federal defenses. See, e.g., 28 U.S.C. §1442 (allowing removal of State actions and prosecutions against persons acting under color of Federal authority into Federal court). Cf. Mesa v. California, 489 U.S. 121 (1989) (allowing Federal officials to invoke removal authority of section 1442 only where they set up a Federal defense in response to the State prosecution). See also City of Greenwood v. Peacock, 384 U.S. 808, 833 (1966) (assuming that Congress is ''constitutionally fully free to establish the conditions under which civil or criminal proceedings involving Federal issues may be removed from one court to another''). The existence of a Federal question, even by way of defense, should solve any Article III problem with the removal scheme.

3. Does Removal Solve the Tenth Amendment Concern?
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    The legality of the removal proposal under Article III, at least in any case in which the defendant has asserted colorable Federal defenses, suggests a possible answer to the federalism concerns (embodied in the Tenth Amendment). As we have seen, the rule of NY–US and Printz raises doubts as to Congress's power to impose the cost of individual trials (through the no-class action rule) on the State court system. Yet the removal device might well save the scheme from such a challenge by giving the States an option as to whether they wish to comply with the rule against class-action litigation.(see footnote 7) If the States voluntarily implement the rule, well and good; if they choose not to do so, the scheme provides for a Federal takeover of the litigation through the device of removal to Federal court. Such Federal preemption through removal may satisfy the requirement that the Federal system stand ready to take over the cost of Federal regulatory initiatives in the face of State recalcitrance. Cf. NY–US, 505 U.S. at 168 (reaffirming the power of Congress to offer the states a choice to regulate in accordance with Federal standards or to have state law preempted by Federal standards; limiting the premption threat to situations where Congress otherwise has regulatory authority).(see footnote 8) In this instance, the removal scheme would place the cost of individual trials squarely on the Federal courts (except where states chose to bear them) and that would seem to answer Tenth Amendment arguments premised upon the cost to the States of individual trials in the State court system.

    A few final points deserve mention. First, provisions for conditional grants to the states to support enforcement efforts appear in Appendix VI dealing with State Enforcement Incentives. The Supreme Court has reaffirmed the use of such conditional spending as a solution to Federal regulatory initiatives that might otherwise violate the Tenth Amendment. See NY–US, 505 U.S. at 167 (citing South Dakota v. Dole, 483 U.S. 203 (1987)). Congress might wish to consider (as an alternative to the removal device) the advisability of including a financial incentive for the States to take on the considerable costs associated with individual trials of tobacco cases. Second, if Congress chooses to rely upon the removal device, it should carefully weigh the impact of such legislation on the already burdened dockets of the Federal courts. If States were permitted to do so and broadly refused to enforce the Federal no-consolidation rule, removal of consolidated cases for trial in the Federal courts might have an enormous docket impact as the number of such suits grows in the future. Third, the language of the proposed no-consolidation rule appears to apply to the joinder of both plaintiffs and defendants. A rule banning joinder of defendants would expose personal injury plaintiffs to a threat of inconsistent verdicts and should be carefully studied before Congress makes it law.
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B. Provisions for Federal Judicial Resolution of Privilege Claims

1. What Law Governs?

    The failure of the proposed legislation to federalize the right of action for personal injuries may also raise questions about the proposal in Appendix VIII (Public Disclosure) for central Federal judicial resolution of all disputes over privilege and trade secrecy. Under the current system of adjudication in this country, State courts and legislatures remain generally free to craft their own rules of privilege on issues of state law litigated within their own court systems. Similarly, the Federal Rules of Evidence provide that ''principles of common law, as they may be interpreted by the courts of the United States in the light of reason and experience'' will govern issues of privilege in the Federal courts. See FRE 501. Yet the Federal Rules of Evidence go on to declare that with respect to matters as to which state law supplies the rule of decision, privilege will be determined in accordance with State law. Id. Under current law, therefore, the decision of Congress to leave the right of injured smokers and others to State law would seemingly make many issues of privilege a matter for state law determination as well. A simple grant of jurisdiction to a Federal three-judge panel to apply rules of privilege to state-created claims might raise substantial questions under Article III. For such a dispute over privilege might be seen as presenting no Federal questions of the kind necessary to support a grant of Federal question jurisdiction. See Osborn v. Bank of the United States, 22 U.S. (9 Wheat.) 738 (1824) (authorizing federal adjudication of State-created claims only where Federal law appears as an element or ingredient of the action). Cf. Mesa v. California, 489 U.S. 121 (1989) (expressing doubt as to the vitality of theories of protective jurisdiction); Textile Workers Union v. Lincoln Mills, 353 U.S. 448, 473–81 (1947) (Frankfurter, J., dissenting) (same).
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    That said, it appears clear that Congress may choose to create uniform Federal rules of privilege and trade secrecy for the tobacco industry in the exercise of its commerce powers. Does the proposed settlement do so? Professor Tribe expresses some doubts on this score. He notes that the ALI/ABA Model Rules and the Uniform Trade Secrets Act do not now appear as Federal law but as proposals drawn up by scholars and experts. To the extent that the proposed settlement simply directs the federal courts to apply these rules without making them Federal law, it presents both federalism and separation of powers problems. But despite I read the proposal to suggest that Congress will create a Federal rule of privilege and trade secrecy by incorporating the ALI/ABA Model Rules and the Uniform Act by reference to define the content of federal law. So long as the implementing statute proceeded in this way, by incorporating other rules into federal law, it would present no constitutional problems.(see footnote 9) In any case, Congress should make it clear that it intends to create a rule of Federal privilege law to control in this area, albeit one that would confer a measure of Federal common lawmaking authority on the Federal court in question. Language similar to Rule 501 might suffice.

2. Case or Controversy Problems?

    A host of additional questions have been raised as to the propriety of the proposed three-judge panel as a procedural mechanism for adjudicating disputes over the rules of privilege and trade secrecy that will govern the tobacco industry. Most of them do not appear problematic to me. First, Professor Tribe has rightly noted the existence of the ''case or controversy'' requirement, which precludes Federal courts from answering hypothetical questions and limits their role to the resolution of concrete disputes. It does not appear to follow that the three-judge panel's exclusive jurisdiction over issues of privilege and trade secrecy would present a ''case or controversy'' problem. References or removals of privilege issues from States or Federal courts to the three-judge panel would present something essentially similar to a certified question of Federal law for resolution by the panel. The Supreme Court of the United States has heard certified questions for many years in which it passed on matters of Federal law without taking cognizance of the whole case or controversy and then referred the answer back to the certifying court for guidance in the disposition of the rest of the case. See 28 U.S.C. §1254(2) (authorizing certification from the courts of appeals to the Supreme Court of any question of law). See generally Richard H. Fallon, Jr., Daniel J. Meltzer & David L. Shapiro, HART AND WECHSLER'S FEDERAL COURTS AND FEDERAL JURISDICTION 1672–76 (4th ed. 1996). Although the Court has rightly sought to avoid answers to abstract or hypothetical questions in response to such certificates, it has never doubted that the parties to such certified question disputes were engaged in a legitimate dispute sufficient to satisfy the case or controversy requirement. By analogy, references of disputed questions of federal law from state and Federal courts involved in active litigation over issues of privilege ought not to present a case or controversy problem.(see footnote 10)
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3. Standing Problems?

    A similar problem may arise, however, from that provision of the disclosure proposal that allows members of the public at large to join in litigation before the three-judge panel on any disputed issue of privilege or trade secrecy. Such members of the general public may appear to lack any concrete ''injury in fact'' as a result of tobacco-industry nondisclosure and may appear to lack standing under recent decisions of the Supreme Court. See Lujan v. Defenders of Wildlife, 504 U.S. 555 (1992). Lujan treats the injury-in-fact requirement as an indispensable element of the constitutional test for standing and thus precludes Congress from conferring litigation authority on individuals who have nothing concrete to gain or lose by the resolution.

    At least two solutions to this standing problem come to mind. First, to the extent that the individual litigant has a stake in some litigated case against a member of the tobacco industry, that person enjoys standing to contest a decision respecting the disclosure of documents by the defendant in the party's particular case. The settlement would appear to require the release of any document to the document depository and to give any suitor access to all such documents. All suitors with pending claims against the particular manufacturer/defendant would seemingly have standing to litigate document disclosures because those disclosures would then become available for use (if not necessarily admissible) in their pending cases.

    Congress might address some portion of the remainder of the standing problem by creating a set of procedural rules similar to those that underlie the Freedom of Information Act to regulate public access to documents in the depository. As the Committee knows, the FOIA allows any person to request a document from the government and its agencies and further allows such persons to litigate refusals on the part of the agencies to produce such documents. See 5 U.S.C. §552 (a). Cf. McDonnell v. United States, 4 F.3d 1227 (3d Cir. 1993) (legislative history of the FOIA clearly indicates that Congress meant to authorize any person to request and obtain public records from governmental agencies; holding that only those persons who actually make a request for documents have standing to litigate the agency's nondisclosure). Creating a similar procedural right to the production of documents from the tobacco depository (and by extension from the tobacco companies themselves), especially if the statute were to create a ''bounty'' for successful litigation, would appear to overcome the standing problem that might otherwise arise under the authority of Lujan.(see footnote 11) The statute might provide for successful plaintiffs to recover, say, $1,000 plus attorneys' fees, from any tobacco company defendant that erroneously failed to produce requested documents and that reward would likely suffice to create the kind of injury-in-fact necessary to justify broad standing for citizen challenges to decisions by the tobacco industry to withhold documents.
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4. Inferior Federal Court Review of State Court Decisions

    The proposal for three-judge Federal judicial determination of privilege and trade secrecy claims at least presents the prospect that the panel might review on appeal final decisions by the several State supreme courts. The proposal calls for the panel to hear privilege and secrecy matters with respect to all pending claims, and at least some of those claims might be ''pending'' on appeal to the State appellate courts. Some might criticize the proposal on federalism grounds by questioning the constitutionality of legislation that assigns the power to review state court decisions to a lower Federal tribunal, rather than by the Supreme Court of the United States. After all, only the Court enjoys a general grant of power to review on appeal final decisions of the supreme courts of the several States. Some might contend that Congress cannot assign this power of appellate review to another Federal tribunal.

    For a variety of reasons, however, such a constitutional objection would not appear to be well taken. First, Congress has often assigned removal powers to the lower Federal courts and one can readily liken the provision for determination of pending privilege and secrecy claims to the removal power. Second, Congress has given the lower federal courts the functional equivalent of appellate review authority by vesting in them the power to issue writs of habeas corpus to prisoners held as a result of State court convictions. Third, Federalist No. 82 (Hamilton) contended that Congress could authorize the lower Federal courts to hear appeals from State court dispositions. Finally, the text of Article III contemplates that Congress may create exceptions to the appellate authority of the Supreme Court and assign any such excepted jurisdiction to inferior Federal tribunals.

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    Appendix VI (State Enforcement Incentives) of the proposal imposes fairly tight restrictions on the scope of judicial review of any decision by the FDA to withhold moneys otherwise payable to punish the States for noncompliance with the enforcement targets set forth therein. The proposal authorizes review of FDA withholding decisions only by the United States Court of Appeals for the District of Columbia Circuit and makes all decisions of that court final, thereby seemingly denying the Supreme Court of the United States both original and appellate jurisdiction over such matters. Professor Tribe notes these provisions and raises doubts, which I share, as to the constitutionality of any provision denying the Supreme Court original jurisdiction over a State-party challenge to any such FDA decision. The weight of scholarly and judicial opinion holds that the Court's original jurisdiction over State-party cases operates of its own force to vest the Court with such jurisdiction and to override any act of Congress that would restrict its operation. See California v. Arizona, 440 U.S. 59, 65–66 (1979) (expressing doubt as the constitutionality of a statute restricting the Court's original jurisdiction in state-party matters). See also South Carolina v. Reagan, 465 U.S. 367, 395 (1984) (O'Connor, J.) (doubting power of Congress to regulate the availability of injunctive relief in an otherwise proper action by the State on the Court's original docket). Of course the Court may take the view that the statute does not curtail its original jurisdiction, and proceed to hear suits as an original matter. Cf. South Carolina v. Katzenbach, 383 U.S. 301, 381–82 (1966) (asserting, without comment, jurisdiction over an original action brought by a State to challenge a Federal statute that itself purported to deprive the Court of original jurisdiction). But it probably still makes sense to follow Professor Tribe's suggestion and both to vest the Court with appellate jurisdiction and to clarify the continuing availability of its original jurisdiction.
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    I want to thank the committee for inviting me to appear today. I also wish to thank Diana L. Schacht and other members of the staff for their assistance. I stand ready to answer any questions the committee may have.

    Mr. HYDE. Thank you very much, Professor.

    Mr. Kazan.


    Mr. KAZAN. Thank you. I didn't realize I was next in the order. I'm delighted to be here and thank you for the opportunity. You introduced me as being here on behalf of the asbestos industry and normally I would have taken offense at such an accusation. I'm a plaintiff's lawyer from California, but because of the unique circumstances that the asbestos litigation finds itself in, I am, in fact, here today speaking on behalf of just about everybody involved in that litigation. I am counsel to the Asbestos Victims of America and I am counsel to the Manville Personal Injury Settlement Trust in its case against the tobacco industry, and I'm also speaking on behalf of a broader coalition which is described in my prepared statement and I won't reiterate that.

    We're here because of the unique interrelationship between asbestos and tobacco, both scientifically, medically, and in the litigation system and, therefore, because of the unique impact upon our concerns of the tobacco settlement. We're here also to propose a solution that we think deals with issues of concern to us, that involves the creation of a tobacco-asbestos trust that would function similar to the way that the asbestos bankruptcy trusts function. It is designed to make sure that, first of all, the asbestos companies who have paid money in the past for asbestos claims and on behalf as well of the tobacco component of those claims, obtain contribution or indemnity money which they will devote 100 percent to payment of claims to asbestos-tobacco victims, and also to make sure that all future asbestos-tobacco victims can receive fair and prompt and effective compensation for the tobacco component of their injuries.
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    I say that we have a unique problem and it is really two-fold. The first aspect is the medical one. It's one that is described by the term ''synergy,'' which is to say not just a combination of risk factors but a multiplication of impact. We have on the chart a reproduction of a chart from the Surgeon General's report of 1985 showing the dramatic impact of combining smoking and asbestos exposure in the production of lung cancer.

    [Chart shown.]

    [Chart is Exhibit C of Mr. Kazan's prepared statement; see p. 110.]

    In a nutshell, somebody who smokes a pack a day or more of cigarettes and works with asbestos has 87 times—not 87 percent, but 87 times—greater risk for developing lung cancer than an American who has neither exposure. Although this data was published and adopted by the Surgeon General in 1985, it found its first expression in medical literature in studies reported in the late 1960s known at that time to the tobacco industry and something about which they have yet to provide any warning to anybody. They've done nothing other than suppress any action or knowledge about it.

    The other aspect is what I could call the synergy in the litigation system. In preparation for this hearing, I got a copy of hearings that this committee held in 1991 and 1992 on the asbestos litigation crisis in Federal and State courts. I'm sorry to say that things have only gotten worse in the last 7 or 8 years and probably are going to continue to get even worse as time goes on.

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    The fact of the matter is that just as there is synergy in the medical aspect, if you add the coming tobacco litigation to asbestos, which is currently the country's leading mass tort, things are only going to get exponentially worse. We have had to date, to put it in simple terms, about half the asbestos cases that we will ever see. There have been about 350,000 cases filed to date, half of which have pretty much been resolved, the other half unresolved, and we anticipate another 350,000 cases before the asbestos disease cycle runs its course, probably around the middle of the next century.

    What I'm saying is that we have 500,000 asbestos cases yet to litigate and to add the complexity of tobacco liability litigation to those cases, in almost every one of which it will be an issue, is going to dramatically complicate the work of the Federal courts and will create an incredible obstacle to the courts dealing with whatever is left of tobacco product liability tort litigation when Congress gets through with dealing with the tobacco proposal.

    Now, obviously, if there's blanket immunity, that problem goes away. To the extent that anything survives, that is a major problem. And, although there's been talk about immunity here, the fact is that while the agreement may not technically provide complete immunity to tobacco, it effectively, on a pragmatic de facto basis, does immunize the tobacco industry from any significant fear about ongoing product liability litigation.

    The reason that's the case is that over the years we've had very little tobacco litigation as the result of two factors: one is that the industry, until recently, has done a great job of suppressing the evidence, hiding the documents, concealing the truth; the other is that when they are taken to court and called to task, they have engaged in what we can describe as a ''scorched earth'' policy. It's in my materials but I will put up a quote from an internal tobacco memo describing a victory in getting a plaintiffs' lawyer in my town to dismiss his asbestos tobacco cases. The tobacco industry explanation of their victory was to basically talk about how they economically forced him into a corner and bragged about the fact that, as they paraphrase General Patton, they won the case not by having R.J. Reynolds spend all it's money, and this is their language, but by having the other S.O.B. spend all of his.
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    Mr. HYDE. The gentleman's time has expired on that high note. [Laughter.]

    Mr. HYDE. Thank you, Mr. Kazan.

    Mr. KAZAN. Thank you.

    Mr. HYDE. Your full statement will be made a part of the record.

    [The prepared statement of Mr. Kazan follows:]



    I am Steven Kazan, a lawyer with the firm of Kazan, McClain, Edises, Simon & Abrams in Oakland, California. For 25 years I have represented asbestos victims. I am here today in a very unusual role—one that I could not have envisioned even a short time ago—unveiling a joint proposal submitted to Congress by asbestos victims, unions representing asbestos workers, asbestos trusts and defendants. This coalition combines the disparate parties to the asbestos litigation crisis that has rocked the Nation's courts for 25 years.

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    The issue concerning Tobacco liability and immunity with respect to asbestos victims is far different than that presented to Congress in any other context, for two principal reasons. First, smoking is far more harmful to asbestos victims than to other smokers. Second, because of the situation that the Judicial Conference has accurately described to this committee as the asbestos litigation crisis, the tort system cannot deliver adequate or timely relief to asbestos victims for their smoking-caused harm. While immunity granted to tobacco companies—without an alternative mechanism under which they pay their fair share—would be a disaster for asbestos victims, so too would infusing tobacco defendants into virtually every asbestos case in the already historic asbestos-litigation backlog.

    As the result of a tragic synergy, smoking is so dangerous to asbestos workers that it constitutes a unique smoking-related public health problem. According to the Surgeon General, asbestos workers who smoke a pack a day are eighty-seven times more likely to die of lung cancer than nonsmoking Americans. This is eight times more than other smokers.

    In the past, because of the tobacco companies' suppression of documents and scorched-earth defense tactics, the Tobacco companies' share of the liability has been borne both by the largely bankrupt asbestos industry and by victims. The release of the tobacco documents is changing everything. The result: our soon-to-be largest mass tort—tobacco—is about to be merged into virtually every case that makes up our current largest mass tort—asbestos. The enormous asbestos-case backlog is like a bus stuck on the tracks, and the onrushing tobacco litigation will cause an unparalleled litigation train wreck.

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    The solution we propose would create a mechanism, a ''Tobacco Asbestos Trust,'' similar to the existing asbestos trusts, through which asbestos victims would receive prompt, efficient and equitable compensation for their smoking-caused harm. Tobacco companies would receive targeted tort immunity—but only in exchange for a better method of meeting their responsibilities. Asbestos defendants would give up their ''third party payor'' suits against Tobacco—but only in exchange for tobacco funds to be used exclusively for victims.

    Any tobacco legislation—whether or not it contains broad grants of tort immunity to the tobacco industry in other contexts—should address the ''tobacco-asbestos'' problem. Tobacco companies' most culpable conduct has been directed at those most vulnerable to smoking's harm, such as teenagers and asbestos victims. It is indisputable that smoking has caused much of the unique harm suffered by asbestos victims—and that Tobacco has not paid a dime of its share of that responsibility. Congress should not permit the release of pent-up tobacco litigation to worsen the asbestos litigation crisis, thereby denying any meaningful or timely relief to asbestos workers. We urgently request that Congress adopt the solution we propose.


    I am Steven Kazan, a lawyer with the firm of Kazan, McClain, Edises, Simon & Abrams in Oakland, California. As the committee can tell from my attached curriculum vitae, much of my practice is devoted to representation of asbestos victims and has been for almost 25 years. I appreciate your invitation to appear today to discuss the proposed tobacco settlement, and in particular, its impact on asbestos victims.

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    In addition to my role as a plaintiffs' lawyer representing victims in suits against asbestos companies, I am Class Counsel in Ahearn v. Fibreboard (Fibreboard Global Settlement); a member of the Asbestos Victims' Creditors' Committees in the Amatex, Celotex, and H.K. Porter bankruptcies; a member of the Trustees Advisory Committee to the Celotex and Amatex Victims Creditors' Trusts; and a member of the Plaintiffs' Steering Committee in the Asbestos Multi-District Litigation pending in the U.S. District Court in Philadelphia. I am a member of the Asbestos Litigation Group, 1975 to the present, and I chaired the national Plaintiffs' Asbestos Litigation seminar from 1985–1991. (My curriculum vitae is attached as Exhibit A.) I serve as counsel to the Asbestos Victims of America as amicus in various appellate cases. I am also serving as co-counsel to the Manville Personal Injury Settlement Trust in its lawsuit seeking contribution from the tobacco companies. The Trust, successor to all of the asbestos liabilities and some of the assets of the bankrupt Johns Manville Corporation, exists solely to pay asbestos victims compensation for what Manville owed them in compensation for their injuries. I regret to report that, because of the inadequacy of its assets, the Trust can pay only ten cents on the dollar of its admitted liabilities. It has more than $6 billion in unpaid obligations to date, and anticipates an additional $20 billion shortfall.

    The impact of the proposed tobacco settlement on asbestos victims, in fact on all the parties to what has been rightly called ''our national asbestos litigation crisis,'' is both unique and devastating. For a while last summer, big tobacco sought to stampede Congress into a rush to judgment on that proposal. I was afraid that Congress would not have the opportunity to examine the very clever stratagems that the tobacco companies crafted, in that so-called settlement, to escape the asbestos liability that they have long feared. I was afraid no one would notice that it would make our existing, grossly inadequate system for compensating asbestos victims far worse. Your invitation to appear today leads me to believe my fears will not be realized.
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A Coalition—And a Proposed Solution

    The proposed settlement's connection to asbestos litigation is, in fact, so outrageous and so destructive that it has led to one of the most remarkable turns of events that I have witnessed in my quarter century of involvement in this issue. The impending disaster has spurred representatives of victims' groups, unions that represent asbestos workers, asbestos trusts, and asbestos defendants to come together, negotiate a proposed solution, and jointly present it to Congress for your consideration.

    This testimony is our first opportunity to explain this proposed solution to Congress and answer questions about it. I attach separate statements by some of the members of our informal coalition, briefly commenting on our joint proposal from their points of view and affirming their support for it. The statements come from the International Association of Heat and Frost Insulators & Asbestos Workers, the Asbestos Victims of America, and the Alliance for a Fair Tobacco Settlement (the latter a group of asbestos trusts and defendants).

    We have devised an alternative mechanism for Tobacco to meet its responsibilities to those involved in the ''tobacco-asbestos crisis.'' It is a mechanism that both avoids litigation and devotes all proceeds, even those that would otherwise belong to the asbestos defendants as ''third party payors,'' directly to the relief of victims. It provides the tobacco companies the limited tort immunity they seek—but it does so only in exchange for their fair share of compensation in an alternative system that is better for victims.

    I want to emphasize four essential preliminary points about our proposal.
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    First, while its impetus was the threat posed by the immunity provisions of the proposed global tobacco settlement, that is not its core rationale, and the proposal is not contingent upon the inclusion of broad immunity, covering ''non-asbestos'' cases, in any tobacco legislation. Instead, the special plight of asbestos victims who smoked represents one of the nation's most pressing smoking-related public health and welfare issues, and it should be dealt with in any tobacco legislation for that reason. Moreover, the staggering backlog of asbestos cases into which tort claims for asbestos-tobacco victims would have to be interjected, and the asbestos litigation system's other unprecedented failings, demonstrate that the tort system is uniquely unsuited to providing timely and adequate relief to the great bulk of asbestos-tobacco victims. Indeed, the coming flood of tobacco litigation into asbestos litigation will make the existing asbestos litigation crisis far worse, unless Congress acts.

    Second, our proposal does offer targeted immunity to tobacco companies from their tort exposure arising from the ''tobacco-asbestos'' problem, but it does so on the only in exchange for payments that meet their obligations in a different and far more efficient fashion. In other words, immunity granted under our proposal would be justified because the victims and the ''third party payors'' see it as a better way to resolve Tobacco's responsibilities to them. The third party payors involved—the asbestos trusts and defendants—would give up their rights to proceed against Tobacco in the tort system in exchange for funds that could be used exclusively to pay victims. Victims would have the option of giving up the right to proceed in the tort system against tobacco companies in exchange for compensation paid through an alternative ''administrative-like'' mechanism that is less wasteful and more prompt. We understand why the tobacco companies prefer last year's deal—they get the immunities and pay nothing to the asbestos trusts, defendants and victims in exchange. But fair legislation would require that they meet their huge responsibilities within our nation's tobacco-asbestos crisis, not simply absolve them of that responsibility.
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    Third, our proposed solution—unlike either the proposed global tobacco settlement or its rejection, which would leave it all to an unmodified tort system—is entirely consistent with the proposed legislative approach to the asbestos crisis that was submitted to this Committee by the Judicial Conference's Ad Hoc Committee on Asbestos Litigation. The Judicial Conference urged Congress to find ways to mitigate the waste, delay, inadequacy of awards and bankruptcies that are endemic to asbestos tort litigation.

    Fourth, while enactment of our proposal would be the first legislative response to the asbestos litigation crisis, it is not simply an attempt to ameliorate the existing crisis. It is necessary to avoid a coming tobacco-caused litigation crisis that will be greatly magnified in the asbestos context. The asbestos litigation mess, in other words, is the context which greatly compounds the impact of the coming tobacco litigation explosion, but it is the onrush of pent-up tobacco litigation, caused by the breakdown of the various tobacco conspiracies of silence and suppression, that is new. The current asbestos litigation is the bus stalled on the tracks, but it is the onrushing tobacco litigation locomotive that will cause the real disaster.

Smoking and Asbestos/Causation and Liability


    It is hard for those who have not been involved in the asbestos litigation wars over the last decades, or for those who are not scientist or doctors working in this area, to comprehend the enormous role that smoking-caused harm plays in what, to the uninvolved, are thought of as purely ''asbestos'' diseases. There has been plenty of litigation over the precise extent of smoking's contribution, in case after case, in Courts all over the country. But the indisputable essential, scientific fact is that smoking is a huge part of the asbestos litigation problem.
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    The contribution of smoking to asbestos-related disease is so well established that it does indeed constitute one of the clearest and most important smoking-related public health issues, an issue virtually as broad as the entire population of asbestos workers because the vast majority of these workers smoked and the rest were exposed to particularly intense second-hand smoke. Attached to this statement, as Exhibit B, is a summary I have prepared of some of the principal studies of the association of smoking with ''asbestos'' diseases, as well a bibliography of important publications.

    One particularly acute association merits special emphasis. Attached as Exhibit C is a chart reproduced from the 1985 Surgeon General's report, The Health Consequences of Smoking: Cancer and Chronic Lung Disease in the Workplace. It shows that asbestos workers who smoked a pack a day or more are eighty seven times more likely to die of lung cancer than the general nonsmoking public, which is eight times more than other smokers, and seventeen times more than nonsmoking asbestos workers.

Liability/Past Litigation

    In most asbestos litigation to date, the chief issue with respect to smoking-caused harm was how much of it would be borne by the smoker because of the ''personal choice'' defense (comparative fault or contributory negligence) and how much would be borne by the asbestos defendant under various legal theories (of joint or concurrent causation, ''joint and several'' liability, or otherwise shared or alternative liability). There are two principal reasons why tobacco companies were absent from these cases and escaped liability. The first is that the tobacco companies hid the crucial evidence. The second is their scorched-earth defense tactics.
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1. Document Suppression and Release

    The tobacco companies made ingenious use of attorney-client privilege to hide virtually all of the relevant evidence. Their successful suppression of the evidence made it very difficult for either an asbestos victim or an asbestos defendant to prove the tobacco companies' legal liability for the harm they indisputably caused. Judicial findings under the ''crime/fraud'' exception are putting an end to this suppression of evidence. The resultant document disclosures, both as to the tobacco companies' conduct in general and to their especially egregious conduct specifically directed at asbestos victims and the ''tobacco-asbestos issue,'' will end the tobacco companies' ability to escape legal liability for their unique contribution to the causation of disease in asbestos workers. The documents will change everything.

    Because asbestos workers were especially vulnerable to smoking-caused harm, because, that is, the risk to them caused by smoking was far greater than that of the average smoker, virtually all of the ''smoking gun'' tobacco documents will have special relevance to asbestos workers and special impact in their cases. Even more explosive, however, will be the impact of the ''tobacco-asbestos'' documents.

    All indications are these documents will show a decades-long effort on the part of the tobacco companies, orchestrated primarily by the Committee of Counsel, to avoid being held accountable for their share of the asbestos crisis and to keep asbestos victims from becoming aware of the full extent of the special harm they faced. For example, of the eight documents recently released by a Florida court under the ''crime/fraud'' exception,(see footnote 12) two dealt with asbestos. One of these is handwritten notes from a June 23, 1981, meeting of the Committee of Counsel that reflects a discussion of the fact that the ''individual must appreciate the risk'' and of two special problems for the tobacco companies with respect thereto: ''asbestos workers and pregnant women.'' Available documents also show that the tobacco companies created separate computer codes to keep track of their asbestos documents and amassed what appears to be one of the world's most extensive libraries on the connection between smoking and asbestos. Similarly, the professionals engaged in hiding the facts from asbestos victims were ready with a widely published disparagement of the Surgeon General's 1985 report on the day it was issued, calling it ''essentially a political document . . . designed to shift the focus from workplace hazards to life styles, thus raising questions about the obligations of employers to maintain clean workplaces.''(see footnote 13)
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    It will take some time before all of the tobacco-asbestos documents are released, digested by the asbestos bar, and can begin to have their revolutionary effect on smoking-related issues in asbestos litigation. In the meantime, Congress should accept no assertions from tobacco about its lack of culpability in asbestos cases unless the tobacco companies promptly turn over these documents to Congress. In fact, Congress would be doing a great service to asbestos victims in their efforts to achieve justice, as well as to itself in its effort to write fair tobacco legislation, if it were to demand that the tobacco companies promptly turn over to it all of the asbestos documents, beginning with all memoranda and notes of meetings of the Committee of Counsel dealing with the issue.

2. Scorched-Earth Defense

    The second reason that tobacco companies have been absent from asbestos cases is the tobacco companies' scorched-earth defense tactics. These were especially effective in asbestos cases since there were other defendants available. Tobacco's scorched-earth defense in asbestos cases is clearly illustrated in the increasingly infamous R.J. Reynolds document concerning winning asbestos litigation by making ''the other son of a bitch'' spend all of his money. A copy is attached hereto as Exhibit D.

    While that line has been quoted in court decisions, it was only upon its release on the Internet in recent months that we realized that memo was about asbestos cases. It is part of a document in which Reynolds' chief outside lawyer is crowing about his success in getting a California plaintiffs' lawyer to drop all of his ''asbestos cases'' against Reynolds. The memo cites two factors. One is the presence of asbestos defendants to pick up the tab under joint and several liability. The other is tobacco's ability to make discovery prohibitively expensive, especially for a ''sole practitioner'' handling a few individual cases.
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    Well, I am a small-firm, California plaintiff's lawyer who usually brings his asbestos cases one at a time. While I am not the plaintiff's lawyer referred to in the document, I know him well; he is my friend and colleague, John Robinson. And he is no ''SOB;'' in fact, he is a former asbestos insulator disabled by asbestosis who went on to become a lawyer so that he could represent his friends and co-workers. Those cases were filed across the street from my office in the courthouse where I file my cases. I was in court and watched the scorched-earth strategy play out day-after-day, week-after-week, month-after-month, as squadrons of tobacco lawyers filled the asbestos complex litigation coordinating judge's courtroom to argue over everything ad nauseam.

    I cite the scorched-earth defense tactics not just to explain one reason tobacco companies were excluded in the past from asbestos cases, but also to explain why including them in the future is not the best way to resolve their legal responsibilities to asbestos victims. The huge backlog of asbestos cases, as the Judicial Conference report details, is due in part to the fact that asbestos cases are already too complex and already overwhelm the ability of courts to deal with them. Can you imagine what these cases will be like when, as a consequence of the documents, a whole new class
of tobacco defendants are joined, with their only goal to win by making ''the other son of a bitch spend all his [money]''?

Three Alternative Routes

    Judge Reavley, Chairman of the Judicial Conference Ad Hoc Committee on Asbestos Legislation, submitted a report on the asbestos crisis to this committee during an immensely revealing three days of hearings conducted by the committee in 1991 and 1992. This committee's report, Asbestos Litigation Crisis in Federal and State Courts: Hearings Before the Subcomm. on Intellectual Property and Judicial Administration of the House Comm. on the Judiciary, 102d Cong., 1st Sess. (1991), 2d Sess. (1992) (hereinafter Hearings: Asbestos Litigation Crisis), is most worthy of a second look; its relevance to the issues before the committee with respect to tobacco liability is striking. Virtually every page of that document amounts to both a condemnation of the proposed tobacco settlement as it relates to asbestos and a ringing endorsement of the principles of the alternative solution recommended by our coalition.
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    By way of example, the Judicial Conference report, in its conclusion, recommended two alternative approaches to Congress to deal with the asbestos litigation crisis. The first involved making asbestos-related compensation less wasteful and slow by incorporating administrative-type streamlining of claims processing, while the second alternative recommended methods of streamlining and simplifying the processing of asbestos cases. Id. at 381. I urge the committee to evaluate the three basic options before it in light of those recommendations.

    1. The proposed global tobacco settlement—It would wipe out a huge potential asset of asbestos defendants and trusts—their third party payor suits against tobacco companies; it would further damage asbestos defendants by permanently transferring to them much of tobacco's share of the problem; and it would greatly complicate asbestos cases by saddling them with the special, and especially inefficient ''tobacco tort rules'' that the global settlement would create. This was clearly deliberate. One of the settlement proponents testified before the Senate Judiciary Committee in July 1997 that the Attorneys General and the Tobacco lawyers set out to protect the tobacco companies' assets from the asbestos defendants and their insurers.

    2. Leave it to the tort system—Resolving the exploding issue of tobacco company liability to asbestos victims by injecting tobacco companies into asbestos court cases will further complicate and delay them, to an almost unthinkable extent. It is no solution at all, although it is preferable to the proposed global settlement.

    3. Coalition proposal—By contrast, the coalition's alternative resolves the issue of tobacco companies' responsibility in asbestos cases in an expeditious and equitable manner that does not further complicate or delay asbestos cases. In fact, by removing the issue of smoking-caused harm from them, and by providing substantial additional funds to asbestos defendants and trusts that can be used only to resolve asbestos cases, it will greatly improve the existing situation. It will increase the incentives for settlement in pending and future cases, and secure fair and reasonable compensation efficiently.
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The Proposed Global Tobacco Settlement

    The proposed global tobacco settlement causes unique harm to the rights of asbestos victims and defendants. This unique harm, ultimately, derives from the unique relationship of smoking to asbestos disease, from the extraordinary ''synergistic'' and ''joint'' causation, resultant ''joint'' liability of various sorts, and the existence of the litigation impasse known as the ''asbestos litigation crisis.'' Below, I will briefly describe the three unique impacts of the tobacco settlement on the parties to asbestos litigation.

1. The End of Third-Party Payor Suits

    By effectively extinguishing the rights of ''third party payors'' to sue tobacco companies for reimbursement of amounts they have paid in the past and will pay in the future as a result of smoking-caused harm,(see footnote 14) the proposed global tobacco settlement wipes out an enormous potential asset that could be used by asbestos trusts and defendants to pay victims of tobacco and asbestos. In a patent conflict of interest, the attorneys general agreed to wipe out these and other third-party payor suits in exchange for over $190 billion to be paid to their states for their own third party suits. Their suits, brought on behalf of state taxpayers, sought recovery for the higher costs that state Medicaid plans have paid as a result of smoking-related diseases. To get this money they gave up rights of those not represented in their negotiations.

    But, the third party suits of asbestos defendants and trusts are stronger as a matter of law and more compelling as a matter of policy. The primary basis upon which the asbestos defendants and trusts have paid tobacco's share of liability, joint and several liability, makes little sense and is very unfair without the concomitant right to seek contribution from tobacco companies in a ''contribution'' suit. Moreover, while the harm to state taxpayers has been very widely spread, the harm to the asbestos trusts and defendants has been very concentrated, to the point that it has caused great ''consequential'' harm, including bankruptcy. Of course, the state taxpayers have an alternative remedy; the power to tax cigarettes. The asbestos defendants and trusts have only one remedy—their tort law right as third party payors to seek contribution and indemnity. Finally, the money that the states receive in settlement of their third party claims will not go to tobacco's victims. It was their often fatal injuries which are the basis for the States' fiscal harm. By contrast, all of the money received by the asbestos trusts and defendants, under our proposal, will go solely to victims—to asbestos workers who were harmed by exposure to cigarette smoke.
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2. Transference of Liability

    Once immunity is granted to tobacco companies, the various forms of joint or alternative liability as between asbestos defendants and tobacco companies for smoking-caused harm in asbestos workers serves to transfer both litigation and liability to the asbestos defendants and trusts. So too with the various procedural advantages tobacco companies will get (see §3, below). As an asbestos plaintiffs' lawyer, this phenomenon—though clearly unfair—would not be of tremendous concern to me or my clients but for an unalterable fact of asbestos litigation—many asbestos manufacturer defendants are already bankrupt and most of the remaining solvent defendants already have insufficient cash flow to promptly settle the enormous backlog of claims against them. In other words, this ''transference'' phenomenon is another way that the ''asbestos crisis'' and the plight of asbestos victims will ultimately be made worse.

3. Litigation Complexities

    The proposed global tobacco settlement creates a special class of rules for ''tobacco torts.'' These include the bars to class actions, consolidations, and ''addiction/dependence'' claims. Inevitably, these rules will find themselves operating in asbestos cases—in conflict with the ''regular'' rules operating in those cases. For instance, as the documents come out, I may well join tobacco defendants in my asbestos cases. If the tobacco settlement is enacted, the joinder will rule out consolidations. Further, while I will likely be able to use ''addiction/dependence'' claims against the asbestos defendants to defend any efforts to blame my client as negligent for smoking, I could not do so against tobacco defendants. For individual clients, this may well be the way to maximize their awards. For the overall asbestos crisis, however, it will just mean even greater complexity, waste, delay and inefficiency.
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    Similarly, the existence of the separate tobacco tort rules will give asbestos defendants a potentially powerful new weapon to defeat consolidations, especially in conjunction with ''indispensable party'' arguments. They will argue that since they have had their right of ''contribution'' extinguished, the only way they can keep from permanently picking up tobacco's tab is if the court will either deny consolidations in order to include tobacco defendants or force their inclusion through ''indispensable party'' principles, also at the price of proceeding on an individual-case-only basis and under asymmetrical substantive rules.

    It is hard to think of a more destructive change in asbestos litigation. As the Judicial Conference report emphasizes, the tort system is already incapable of dispensing, in its words, ''timely and inexpensive'' justice for asbestos victims. As it further states:

  Virtually all of the diseases associated with asbestos exposure are progressive in nature, moving from minor affliction, to disability, to death, in total disregard of the lethargic judicial machinery in place to resolve underlying claims. Indeed, the simple determination of appropriate compensation for asbestos victims often becomes bogged down as the ravages of the disease progress. Death often overtakes events with no response from the system. The committee simply refuses to accept the continuation of such a result routinely visited upon the victims of a national public health disaster.

Hearings: Asbestos Crisis, 410–411. It should be unthinkable to make that situation worse.

The Proposed Solution
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    Our proposed solution directly addresses the additional complexity, waste and delay in asbestos litigation that will be caused either by the proposed tobacco settlement or by the flood of asbestos-associated tobacco litigation in its absence. It creates a trust, similar to the existing asbestos trusts, to pay for smoking-caused harm to asbestos workers. Trustees would include representatives of victims groups, unions whose members include asbestos victims, existing asbestos trusts and defendants and the medical profession.

    The Tobacco Asbestos Trust would be divided into two funds. Fund I, which would dispense a majority of the Trust's proceeds, represents reimbursement to the asbestos defendants and trusts for amounts they have paid in the past or now owe to asbestos victims for smoking-caused harm. The asbestos defendants and trusts will release the tobacco companies from liability to them. The proceeds of this fund, nonetheless, will be available for the sole purpose of paying asbestos claims against these defendants and trusts. Accordingly, our proposal contemplates massive relief from the single most significant deficiency in asbestos-related compensation today—insufficient assets on the part of defendants and trusts to pay claims. It contemplates, that is, a huge increase in the rate of settlement of asbestos claims and a huge decrease in the existing backlog that is denying most asbestos victims any semblance of timely relief.

    Fund II will pay promptly, efficiently and equitably for the smoking-caused portion of the harm to asbestos workers with pending or future claims for asbestos related disease or disabilities, in accordance with standards and procedures established and approved by the trustees. At their option, asbestos workers could instead sue tobacco companies for smoking-caused harm, subject to whatever restrictions are enacted for all smokers. Because the Trust will be well-funded, it is presumed that few asbestos workers will take the litigation option. A worker who accesses the fund will release the tobacco companies from all liability.
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    The proposal does not attempt to replace the tort system for asbestos claims. Asbestos claims would proceed as before, with two important differences. First, an asbestos claimant could claim only for his asbestos-caused harm; as for his smoking-caused harm, he must look to Fund II, or sue the tobacco companies. Second, the asbestos defendants against whom he is proceeding will have access to substantial funds that can be used only to settle asbestos claims through Fund I.

    The Tobacco companies' payment into the Trust would be set at $35 billion. While that represents an amount far less than Tobacco's potential tort liability to asbestos victims, trusts and defendants, it is a reasonable compromise figure.

    I again thank the committee for the opportunity to submit this statement, and look forward to answering any questions the committee might have.


Exhibit A: Curriculum Vitae of Steven Kazan

Exhibit B: Medical Aspects of Asbestos and Tobacco

Exhibit 03C: Chart, ''Relative risk of dying of lung cancer for smoking and nonsmoking asbestos workers and smoking and nonsmoking control group members,'' from The Health Consequences of Smoking: Cancer and Chronic Lung Disease in the Workplace, A Report of the surgeon General, 1985, p.218.
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Exhibit D: R.J. Reynolds ''Son of a bitch'' memo, cited in Haines v. Liggett Group, Inc., 814 F. Supp. 414 (D. N.J. 1993)

Exhibit E: Statement of the Asbestos Victims of America

Exhibit F: Statement of the International Association of Heat & Frost Insulators & Asbestos Workers

Exhibit G: Statement of the Alliance for a Fair Tobacco Settlment



    STEVEN KAZAN, born in New York, N.Y., is the founder and senior partner of the Oakland, California firm of Kazan, McClain, Edises, Simon & Abrams, A Professional Law Corporation, a 14-lawyer plaintiff firm specializing in asbestos, occupational and environmental disease, and catastrophic injury litigation. Mr. Kazan received his B.A. from Brandeis University in 1963 and his L.L.B. degree from The Harvard Law School in 1966.

    Mr. Kazan has been a member of the New York Bar since 1967 and California Bar since 1970. He was Assistant to the General Counsel, Interstate Commerce Commission, Washington, D.C. from 1967–1969. He was an Assistant United States Attorney, Northern District of California, 1969–1971. After two years with a plaintiffs' medical malpractice specialty firm in San Francisco, he started a private practice in Oakland in 1974.
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    Mr. Kazan is admitted to the Bar of the U.S. Supreme Court (1971); U.S. Court of Appeals for the Ninth Circuit (1969), Third Circuit (1994); and Fifth Circuit (1995); U.S. District Courts of the Northern District of California (1970) and Eastern District of California (1979).

    Mr. Kazan is Class Counsel in Ahearn v. Fibreboard (Fibreboard Global Settlement); a member of Asbestos Victims Creditors' Committees—Amatex, Celotex, and H.K. Porter Bankruptcies; counsel to Mr. James Vermuelen, founder of Asbestos Victims of America, in his role as the only lay member of the Manville Trust Asbestos Victims Creditors Committee; a member of the Trustees Advisory Committee to the Celotex and Amatex Victims Creditors' Trusts; the Plaintiffs' Steering Committee-Asbestos Multi-District Litigation; and the Asbestos Litigation Group, 1975 to present. Mr. Kazan chaired the National Plaintiffs' Asbestos Litigation Seminar from 1985–1991.

    Mr. Kazan is a member, former Vice-President (1990), and former Board Member 1980–1996) of the California Trial Lawyers Association, now the Consumer Attorneys of California; with recognized experience in the fields of trial practice, professional negligence, general personal injury, and products liability law; member (1974 to date) and former President (1980), of the Alameda-Contra Costa Trial Lawyers Association; member of The Association of Trial Lawyers of America; and member of Trial Lawyers for Public Justice and its Program Development Committee.


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    Disease or disability in individuals exposed to asbestos has been substantial in number and in human pain and suffering. Future injuries from asbestos and cigarette smoking are projected to continue well into the next century in people with occupational and bystander exposure to asbestos. Present or past cigarette smokers with asbestos exposure are at even greater risk for life-threatening disease than people with either asbestos exposure or cigarette smoking alone because both risks together can multiply the risk. The cancers known to be increased by cigarette smoking—lung, laryngeal, pharyngeal and buccal mucosa, esophageal, stomach, kidney and colon cancers—are also impacted to a greater or lesser degree by inhalation of asbestos fibers.

    In 1964 Dr. Irvine J. Selikoff, of Mt. Sinai Hospital in New York, presented initial data from the most exhaustive study of asbestos-exposed workers ever done. He found substantial increases in tumors of the lung and its lining, stomach, esophagus, colon, kidney, larynx and pharynx and mouth. Additional data 20 years later confirmed and refined the initial results (Selikoff, 1988).

    Asbestos-exposed workers are more likely to be cigarette smokers. Numerous studies show that ''blue collar'' workers have the greatest smoking prevalence (Covey, et al., 1981; Sterling et al., 1976). Sophisticated methodology to track smoking incidences by specific occupation is available. A well-constructed study of smoking frequency by occupation was published by Brackbill et al. (1988). Data from 1978–1980 was collected on a sample of 49,715 workers. Predictably, the highest rates for cigarette smoking were found among ''blue collar'' jobs, including but not limited to construction (48.8%), equipment operators (48.7%), crafts people (44.6%), and laborers excluding farm workers (40.4%).
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    Between 1971 and 1982 more than eleven studies looking at smoking prevalence in asbestos workers were published. Most show a smoking incidence close to 70%. All types of asbestos workers, including shipyard, textile, paper millboard, repair, miners and insulators were studied. More specific data on smoking incidence among asbestos workers is available. Weiss et al. (1971) looked at a small group of asbestos workers and found a 75% incidence of cigarette smoking. A larger study comprising almost 25,000 asbestos workers confirms this high incidence of cigarette smoking (Harries et al., 1976). Seven cohort studies found similar smoking prevalence rates of approximately 70 percent.

    This high smoking prevalence is not matched by a similar incidence of pulmonary disability from ''end stage'' chronic lung disease such as emphysema or chronic bronchitis because such a large number of smoking asbestos-exposed workers die of cancers before they are old enough to exhibit chronic respiratory disease.

    A large percentage of asbestos workers are cigarette smokers. They are also exposed to environmental tobacco smoke at work. Thus 'non-smoking' exposed asbestos workers, if indeed there are any, must be a very small group, and smoking histories obtained in pack/years will under estimate the true dose of cigarette smoke individuals have had.

Are asbestos diseases aggravated by cigarette smoking?

    The three major asbestos-related diseases that have been studied are asbestosis (pulmonary fibrosis, or scarring, mostly of the lower lobes of the lung), lung cancer, and mesothelioma, (a cancer of the lining of the lung or abdomen). All three are usually fatal. The last two are rapidly fatal with an average time from diagnosis to death of about twelve months (Cecil et al., 1988).
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Pulmonary Asbestosis and Cigarette Smoking

    Discovered in the early 20th century, pulmonary fibrosis resulting from asbestos inhalation was well understood by 1930. However, ongoing unprotected worker exposures occurred well into the 1980s. Animal studies show that cigarette smoking increases pulmonary fibrosis by increasing the penetration of asbestos fibers into the lung (McFadden et al., 1986).

    The lungs clean themselves with the help of ciliated cells along the airways that act in a conveyor-belt manner to lift microscopic sized foreign bodies out of the airways. Cigarette smoking decreases the effectiveness of this mechanism. In smokers, asbestos fibers are removed from the lung less efficiently than in non-smokers, so more fibers get deeper into the lungs. Smoking also increases the permeability of the airways to asbestos fibers. Thus, tobacco smoke indirectly increases the asbestos burden in the lungs.

    In animals exposed to cigarette smoke and asbestos a 30-fold increase was seen in total numbers of (asbestos) fibers retained in macrophages in smokers compared to non-smokers by one month, and there was an eight-fold increase in retention of short fibers in lung tissue by one month. (Churg). Churg has also shown increased asbestos burden in human cigarette smokers and suggests this may explain one of the ways asbestos fibers cause disease (Churg, et al., 1995; Churg, et al., 1992).

    McFadden et al. demonstrated more than ten years ago that cigarette smoking increased the number of asbestos fibers in the lung (McFadden et al., 1986). Weiss et al. (1984) reviewed 21 scientific studies on cigarette smoking and pulmonary fibrosis of different workers exposed to asbestos whose smoking status was also known. He concludes, ''A majority of (studies) of asbestos workers with information on smoking habits have shown a positive interaction between the two agents.'' (cigarettes and asbestos) ''The interaction is thought to be additive rather than synergistic. Smoking may exert an effect on the frequency of pulmonary asbestosis by increasing the effective fiber dose retained in the lungs through interference with clearance.''
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    The lung reacts to all inhalation injuries by laying down areas of fibrosis or scar tissue. The fibrosis caused by cigarette smoking is not itself distinguishable from that caused by asbestos. Cigarette smoking has an additive effect on asbestosis seen radiographically, and combined exposure causes more pulmonary fibrosis than either exposure to cigarette smoke or asbestos alone. ''We conclude that in the setting of heavy occupational exposure to asbestos, cigarette smoking confers added risk for the development of roentgenographic small opacities.'' (Barnhardt et al., 1990).

    Kilburn et al. (1986) studied smoking and non-smoking shipyard workers in Long Beach, California. He found smoking insulators exposed to asbestos had a 20% incidence of pulmonary fibrosis compared to non-smoking insulators with a 7.2% incidence of fibrosis. He concluded that cigarette smoking and asbestos exposure worked synergistically to cause pulmonary fibrosis.

    Blanc et al. (1988) calculated that cigarette smoking increased the likelihood of developing asbestosis (pulmonary fibrosis) thirteen-fold. Other prospective controlled studies drew similar conclusions (Lilis et al., 1991; Schwartz, 1992). The combined effects of cigarette smoking and inhalation of asbestos in causing asbestosis (pulmonary fibrosis) has been confirmed in other countries. A Finnish study of 7,095 adults concluded that asbestos-exposed workers who smoked had an increased incidence of pulmonary fibrosis and pleural disease.

    Pearle et al. compared smoking asbestos workers to non-smoking asbestos workers. Cigarette smoking increased the presence of radiographic pulmonary fibrosis from asbestos and hastened abnormalities in pulmonary function leading to disability (Pearle, 1982). He concluded that ''Smoking contributes to many of the functional and roentgenographic (x-ray) abnormalities in asbestos workers.''
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Non-Malignant Pleural Disease

    There are four types of non-malignant pleural disease caused by inhalation of asbestos: Pleural plaques, diffuse pleural thickening, rounded atelectasis and pleural effusions.

    Several studies have found a clear association between pleural thickening, asbestos exposure and cigarette smoking. Harries et al. (1975) studied 19,000 dockyard workers exposed to asbestos. Pleural thickening was found in 2.7% of 5,552 non-smokers and 4.9% of smokers and 6.4% of ex-smokers.

    Hedenberg et al. found pleural plaques in 30% of 103 smokers and 19% of 94 non-smokers (1979).

    Weiss et al. found a positive correlation between cigarette smoking and the presence of pleural disease (1981).

    Findings of a direct correlation between cigarette smoking and radiographic abnormalities such as pleural plaques, thickening and interstitial fibrosis—have also been confirmed by Pearle et al. (1982) and Bader et al. (1970).

    It is fair to say that ''We conclude that among men exposed to asbestos dust at work the risk of developing an asbestos-related lesion is related to smoking habit in addition to the duration, intensity of exposure and time since first exposure; smokers and ex-smokers may have a significantly higher risk than non-smokers.'' McMillan et al. (1980).
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Asbestos Exposure, Lung Cancer and Cigarette Smoking

    Selikoff compared smoking and non-smoking asbestos-exposed workers and discovered a ''multiple'' or ''synergistic effect'' (Selikoff, 1968). He found that men not exposed to asbestos or cigarette smoking had a negligible risk of less than one, called X. Smoking non-asbestos-exposed workers had a ten-fold increased risk, or 10×. Asbestos-exposed workers had an eight-fold increased risk, or 8×. But smoking asbestos-exposed workers had roughly an 80-fold greater risk than non-smoking non-asbestos-exposed workers. In other words, the risk was not just additive, i.e., 10 + 8 = 18, but multiplicative, i.e., 10 × 8 = 80 (The Health Consequences of Smoking: Cancer and Chronic Lung Disease in the Workplace, A Report of the Surgeon General, 1985, p. 218). The risk held regardless of the specific occupation of the asbestos-exposed individual.

    In one very well done and respected study, Selikoff stated, ''The increased risk of neoplasia (mainly bronchiogenic carcinoma and mesothelioma) among insulation workers reported here should be evaluated in the knowledge that these men have comparatively light exposure as asbestos trades go. Primarily employed in construction work, many of the materials used by such workers contain little or no asbestos and others have only 5% to 15%. Conditions of work vary; these men often work outdoors unlike asbestos operators engaged in factory work. Comparatively few dust exposure surveys have been made in this trade but their results have generally been within the five million particles per cubic foot permissible limits currently accepted by the American Conference of Governmental Industrial Hygienists.'' (Selikoff, 1968). Nonetheless, he showed that 20% of insulators died of lung cancer. (Selikoff, 1973).

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    This multiplicative effect has been confirmed by other investigators in the field including Doll, Berry, and Newhouse.

    Among physicians there are legitimate differences as to what constitute the necessary criteria to demonstrate that a lung cancer is caused in part by asbestos. Some investigators demand the presence of radiographic or pathologic proof of asbestosis, i.e., pulmonary fibrosis caused by asbestos dust. Others require the presence of an ''occupational number'' of asbestos fibers in tissue, or other markers of asbestos injury like pleural disease on x-ray (Hughes, 1991; Liddell, et al., 1980).

Asbestos, Cigarette Smoking and Other Cancers Mesothelioma

    Mesothelioma is a rapidly fatal cancer of the lining of the lung and abdomen. These cancers have been described since 1870. In 1960 Wagner (Wagner et al., 1960) showed a causal relationship between asbestos exposure and these cancers. Experimental work in animals and additional epidemiological work have established that the only known cause of mesothelioma in the United States is asbestos exposure.

    In the course of research on mesothelioma and asbestos ''burden,'' studies have been performed identifying the number and type of asbestos fibers present in the lungs of people with mesothelioma. Factors that increase the number of asbestos fibers in the lung, such as cigarette smoking, have also been studied.

    A study by McDonald et al. (1980) found that female smokers had a greater incidence of mesothelioma than non-smoking females exposed to asbestos. Mesothelioma is invariably disabling, intensely painful and almost always fatal in less than fourteen months (Cecil, 1988). Mesothelioma exhibits a ''dose response'' effect with asbestos. This means that the more asbestos in the lungs, the greater the chance of developing a mesothelioma.
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    Cigarette smoking plays a key role in increasing the asbestos burden in the lung, because mechanisms used to clear asbestos from the upper respiratory tract are impaired by cigarette smoke, which also increases the amount of asbestos in lungs by facilitating passage of asbestos fibers through deeper airways in the lungs.

    McFadden states ''Increased penetration of fibers into the airway epithelium and eventually into the interstitium, resulting in functionally increased doses of fibers to the tissues, may be one of the mechanisms whereby smoking potentiates asbestos disease.''

    Weiss states ''However, the effect of cigarette smoking may be exerted through increase in the effective dust dose deposited in the lung tissue. The damaging effects of cigarette smoke on the entire respiratory tract probably produce a vicious cycle leading to serious disruption of defense mechanisms by changing protease-antiprotease balance, compromising immune systems and interfering with clearance processes.''

Laryngeal Cancer

    Laryngeal cancer is diagnosed in more than 10,000 Americans each year. Cigarette smoking is the greatest promoter of laryngeal malignancy. More than a dozen epidemiological studies have shown that cigarette smoking and asbestos exposure act cumulatively to increase the incidence of laryngeal cancer. Sir Richard Doll and Julian Peto conclude that ''On the present evidence we conclude that asbestos should be regarded as one of the causes of laryngeal cancer.'' (Doll & Peto, 1987).
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Gastrointestinal Cancers

    In their article ''Asbestos Exposure and Neoplasia,'' in 1964, Selikoff, Churg and Hammond report 29 deaths attributable to gastrointestinal cancers of the esophagus, stomach, colon and rectum. In the age-matched non-asbestos-exposed control group 9.7 gastrointestinal cancers occurred. This increased number (29) may have been artificially lower because a substantial number of men in the asbestos-exposed group died prematurely of mesothelioma and lung cancer. However, other studies have not shown the same high incidence of gastrointestinal cancers. While not all gastrointestinal cancers appear to be increased in asbestos exposed individuals, the cancers that are also promoted by cigarette smoking are increased in asbestos-exposed workers.


    In the United States thousands die each year from cancers caused in part by asbestos. Thousands more suffer disability from asbestos-related cancers or from other non-malignant asbestos diseases, which occur more often and are of greater severity in smokers. Workers who smoked and were exposed to asbestos constitute an important sub-set of smokers, and are at much greater risk than other smokers.


    Bader, et al. ''Pulmonary function and radiographic changes in 598 workers with varying duration of exposure to asbestos,'' Mt. Sinai J. Med., 1970, vol. 37:492–500.
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    Barnhardt, S., et al. ''The Degree of Roentgenographic Parenchymal Opacities Attributable to Smoking Among Asbestos Exposed Subjects,'' Am. Rev. Resp. Disease, 1990, vol. 141:1102–1106.

    Berry, G., et al. ''Mortality of Workers Manufacturing Friction Materials Using Asbestos,: Brit. J. Industr. Med., 1983, vol. 40: 1–7.

    Blanc, et al. ''Asbestos exposure-cigarette smoking interactions among shipyard workers,'' JAMA, 1988, 259: 310–313.

    Brackbill, R, et al. ''Smoking Characteristics of U.S. Workers, 1978–1980,'' Am. J. Of Ind. Medicine, 1988, vol 13: 5–41.

    Burch, J.D., et al. ''Tobacco, Alcohol, Asbestos and Nickel in the Etiology of Cancer of the Larynx,'' J. Natl. Cancer Institute, 1981, vol. 67: 1219–1224.

    Cecil, Textbook of Medicine, 18th Edition, WB Saunder Company, 1988, p. 1031.

    Churg, A., et al. ''Effects of cigarette smoke on the clearance of short asbestos fibers from the lung and a comparison with the clearance of long asbestos fibers'' Intl. J. Exp. Path. 1992, vol. 73: 287–297.

    Churg, A., et al. ''Enhanced Retention of Asbestos Fibers in the Airways of Human Smokers,'' AM. J. Respir. Crit. Care Med., 1995, vol. 151:1409–13.
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    Clemmeson, J. ''Cancer Incidence among 5686 Asbestos Cement Workers Followed from 1943 through 1976,'' J. Ecotoxicol. Environ. Safety, 1981, vol. 5: 15–23.

    Cooke, W.E. ''Fibrosis of the lungs due to the inhalation of asbestos dust,'' Br. Med. J., 1924, 2:147.

    Covey, L.S., et al. ''Smoking Habits and Occupational Status,'' J. Occup. Med, 1981, vol 23: 537–542.

    Doll, R., & J. Peto. ''Asbestos : Effects on Health of Exposure to Asbestos,'' Health and Safety Commission, Her Majesty's Stationery Office, London, 1985.

    Doll, R. ''Mortality from lung cancer in asbestos workers,'' Br. J. Of Indust. Med., 1955, 12:81–86.

    Gloyne, S.R. ''Two cases of squamous cell carcinoma of the lung occurring in asbestosis,'' Tubercle, 1935, 17: 5–10.

    Harries, P.G., et al. ''Radiological Survey of Men Exposed to Asbestos in Naval Dockyards.'' Br. J. Ind. Med., 1972, 29: 274–9.

    Harries, P.G., et al. ''Royal Naval Dockyards asbestos research project, main morbidity study of the total population of Devonport, Chatham, Porsmouth, and Rosyth dockyards.'' Report no. 1, December 1975, CRWP Report 1/76. Alverstoke Gosport: Institute of Naval Medicine, 1976.
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    Hedenberg, L., et al. ''Directed health survey of workers exposed to asbestos (abstract). In: ICRDB cancergram on environmental and occupational carcinogenesis. Series CK02, No. 4. Bethesda, MD: National Cancer Institute, April 1979.

    Hinds, M.W., et al. ''Asbestos, Dental x-rays, Tobacco and Alcohol in the Epidemiology of Laryngeal Cancer,'' Cancer, vol. 44: 1114–1120, 1979.

    Holleb, H.B. ''Bronchogenic carcinoma in association with pulmonary asbestosis. Report of two cases,'' Am. J. Pathol., 1942, 18: 123–35.

    Hughes, J.M., et al. ''Asbestosis as a precursor of asbestos-related lung cancer: Results of a Prospective Mortality Study,'' Brit. J. Indust. Med., 1991, vol.48: 229–233.

    Kilburn, K.H. ''Interaction of Asbestos, Age, and Cigarette Smoking in Producing Radiographic Evidence of Diffuse Pulmonary Fibrosis,'' Am. J. Med., 1986, vol. 70: 377–81.

    Langlands, J.H.M., et al. ''Insulation workers in Belfast, 2. Morbidity in men still at work,'' Br. J. Ind Med., 1971, vol. 28: 217–25.

    Liddell, F.D.K., et al. ''Radiological changes and fibre exposure in chrysotile workers aged 60–69 years at Thetford Mines,'' Ann. Occup. Hyg, 1982, vol. 26: 889–98.
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    Liddell, F.D.K., et al. ''Radiological Findings as Predictors of Mortality in Quebec Asbestos Workers,'' Br. J. Ind. Med., 1980, vol. 37: 257–267.

    Lilis, R., et al. ''Asbestosis: interstitial pulmonary fibrosis in a cohort of asbestos insulation workers: influence of cigarette smoking,'' Am. J. Ind. Med., 1986, vol. 10:459–470.

    Lilis, R., et al. ''Radiographic Abnormalities in Asbestos Insulators: Effects of Duration from Onset of Exposure and Smoking. Relationships of Dyspnea with Parenchymal and Pleural
Fibrosis,'' Am. J. Ind. Med., 1991, vol. 20: 1–15.

    Lynch, K.M. ''Pulmonary asbestosis III Carcinoma of the lung in asbestos-silicosis,'' AM. J. Cancer, 1935, vol. 14: 56–64.

    Mancusco, T.F., et al. ''Methodology in Industrial Health Studies,'' Arch. Environ. Health, 1963, vol. 6:210–226.

    McDonald, et al. ''Malignant Mesothelioma in North America,'' Cancer, 1980, vol. 46:1650–1656.

    McFadden, D, et al. ''Cigarette Smoke increases the penetration of Asbestos Fibers into Airway Walls,'' Am J. Path, 1986: vol. 123: 95–99.

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    McMillan, G.H.G., et al. ''Effect of Smoking on attack rates of pulmonary and pleural lesions related to exposure to asbestos dust,'' Br. J. Ind. Med., 1980, 37: 268–72.

    Merewether, E.R.A. ''Annual Report to the Chief Inspector of Factories for the Year 1947,'' London, Her Majesty's Stationery Office, 1949, pp. 79–87.

    Merewether, E.R.A. ''Report on effects of asbestos dust on the lungs and dust suppression in the asbestos industry,'' Part I and II, His Majesty's Stationery Office, London, 1930.

    Newhouse, M.L., et al. ''Aetiology of carcinoma of the larynx,'' in: Biological Effects of Mineral Fibres, vol. 2, IARC Scientific Publications No. 30, Lyon: International Agency for Research on Cancer, 1980, pp. 687–689.

    Newhouse, M.L., et al. ''Mortality of Factory Workers in East London, 1933–1980,'' Br. J. Ind. Medicine, 1985, vol. 42: 4–11.

    Nicholson, W.J. ''Occupational Exposure to Asbestos: Population at Risk and Projected Mortality, 1980–2030,'' Amer. J. Indust. Med., 1982, vol. 3: 259–311.

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    Weiss, W., et al. ''Pleural Plaques and Cigarette Smoking in Asbestos Workers,'' J. of Occupational Medicine, vol. 23, p. 427, 1981.

    Weiss, W. Et al. ''Pleuropulmonary disease among asbestos workers in relation to smoking and type of exposure. J. Occup. Med., 1978, 20: 341–5.





TO: S&H Attorneys

FROM: Mike Jordan

DATE: April 29, 1988

SUBJECT: John Robinson's California Cases

    Although it is not confirmed in writing at this point, during the week of April 25 John Robinson agreed to dismiss his cases against the tobacco industry. Presently I am unsure as to the mechanics of the dismissal, but I suspect that we will receive orders of dismissal in cases filed by John solely, whether served or unserved. I do not know whether this agreement extends to cases filed jointly by John Robinson and George Kilbourne; Brown and Sutton.
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    Thus Fleming I and II, Monthei, Quandt, Shrum, Whitner, Chidester, Daffron, Denver and Gillespie should be officially ending soon.

    This agreement seems to be the result of two factors. First, the California Supreme Court recently ruled that Proposition 51, the proposition that affected joint and several liability, was not retroactive. This meant that asbestos plaintiffs' lawyers could satisfy their entire judgment from any solvent asbestos company, thus eliminating the need to have tobacco as a party to bear a pro rata share. Secondly, the agressive posture we have taken regarding depositions and discovery in general continues to make these cases extremely burdensome and expensive for plaintiffs' lawyers, particularly sole practitioners. To paraphrase General Patton, the way we won these cases was not by spending all of Reynolds' money, but by making that other son of a bitch spend all his.

    Mr. HYDE. Professor Daynard.


    Mr. DAYNARD. Thank you very much, Mr. Chairman. Since I come toward the end of the hearing and, not to tax people's patience, I won't talk about what I have in my written statement. It's available but I will try to say a few things in light of the kinds of things that have been discussed so far today, beginning with Mr. Kazan's statement, a suggestion that there may be some kind of system set up in picking up Mr. Ogden's suggestion this morning that a compensation system, although he didn't flesh it out, was under consideration. That might well be an appropriate way to proceed here at some point. I certainly didn't hear that from the tobacco industry.
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    The problem is that the deal we have in front of us is not a deal to provide a substitute that would be an alternative dispute resolution procedure in lieu of tort litigation. It's a proposal to basically move back to the General Patton days. In fact, I think that was very much, obviously, in the minds of the drafters because what happened is each of these provisions that we have in here moves in that direction.

    Thus, as to the provision banning third-party payer suits except for subrogation which the industry knows it can't be done, you can't bring 100,000 separate cases. What does this do to the court? Class actions are banned. Even consolidations are banned. All of the things that have happened in the third wave that have gotten us away from the General Patton era that have brought the tobacco industry to the table are to be rolled back here. Punitive damages, even for the existing pool not only of actual claimants, which are, you know, only a few hundred, but of potential claimants, people who have been injured by decades of smoking and decades of misbehavior by the industry, are barred.

    Claims against law firms, as well as the Tobacco Institute and the Council for Tobacco Institute are barred. We're getting a tremendous amount of information out here about the fact that the law firms, several of the defense law firms, were not only defending their clients but in there participating in the conspiracy, running the conspiracy. They're immunized. Claims against the parents—even when the so-called subsidiary has negative value or small value, the parents are immunized, and recoveries greater than $1 million a year are also eliminated.

    Now, there's been this $2 to $5 billion, a figure, in the settlement deal, has been referred to as a pot of money, a pool of money. That's not what it is. If you read it, it's a cap. The present pool of money is about $100 billion. It's the shareholder value of the tobacco companies. That's what's presently at risk. What we're talking about is capping it, beginning at $2 billion and working up to $5 billion.
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    Well, what does this do in terms of types of claims? It wipes out or, essentially, expropriates claims of third-party payers, including Blue Cross/Blue Shield of every State besides Minnesota that's suing, and other insurers, the Taft-Hartley Multi-Employer Heath and Welfare plans—they've filed cases in 28 States, class actions where it's classes of these plans because there are 2,500 of these plans around the country. They're doubly barred; they're barred by class actions and by the third-party reimbursement. Also gone are corporate employers, cities and counties, parties entitled to contribution, parties who can't afford to sue individually, non-smokers with ETS-caused diseases, unless they're represented by Ron Motley, who I think can do it. That's the one starting next Monday. Current and former smokers requiring medical monitoring, and most smokers and their families with smoking-caused diseases are, as a practical matter, gone as well.

    I talked to the plaintiff's lawyer who brought those three cases in Florida, I talked to him yesterday. He said he wanted to testify to tell you people that when the—if all of the other cases are barred and the focus is just on the individual cases, General Patton will ride again, and, also, that the elimination of punitive damages makes it very difficult to bring these cases as a practical matter.

    In closing, there are various reasons why these proposed immunities are quite improper. First of all, they're totally undeserved. The industry has behaved outrageously, addicted and killed millions of people, and it hasn't yet stopped. This is very clear. It's not necessary—the industry, according to Professor Harris of MIT, could raise $30 to $35 billion a year if they priced it to maximize income, rather than $2 to $5 billion a year, and the total cost for health care and lost wages is over $100 billion a year. It sets an a fortiori precedent for every other industry. It doesn't belong in a package with public health and child protection measures, and it would be literally scandalous if it were enacted because the only argument for enacting this is that the industry has sufficiently contributed, has sufficient control over Congress, that if Congress—if anybody wants to have any good measures passed, they have to deal with the industry so that the industry will authorize its representatives in Congress to go along with it. That's the argument that's made——
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    Mr. HYDE. Excuse me. The industry will authorize its representatives in Congress. Is that what you said?

    Mr. DAYNARD. Mr. Chairman, that's what I've heard. That's all of the——

    Mr. HYDE. Well, that's what you said. That's just what you said.

    Mr. DAYNARD. That is—that, Mr. Chairman, is——

    Mr. HYDE. Could you name some of the——

    Mr. DAYNARD [continuing]. What some have told me.

    Mr. HYDE. Could you——

    Mr. DAYNARD. My—let me just—I don't believe it. I don't believe it. Let me say——

    Mr. HYDE. Oh.

    Mr. DAYNARD [continuing]. I do not believe it. I believe that Congress can do the right thing. I think Congress is not beholden to the tobacco industry. I think Congress can do the job that I think all of you want to do which is to protect the public health and protect the American people without having to have the approval, the say-so of the tobacco industry.
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    [The prepared statement of Mr. Daynard follows:]



    On August 13, 1997 I co-authored a paper, ''Changes to the Civil Justice System Under the Proposed Tobacco Settlement'', which set out my basic critique of the proposed changes to the civil justice system in Title VIII of the June 20 ''Global Settlement'' agreement. Two weeks later I presented a paper at the 10th World Conference on Tobacco or Health, entitled ''Litigation by States Against the Tobacco Industry,'' which outlines the history of tobacco litigation, and the potential effect of the proposed legislation on the cases then pending. (Both papers are appended to the present testimony.)

    Briefly, my argument was that, while the ''global settlement'' agreement was a tremendous achievement in terms of demonstrating the industry s own perception both of its vulnerability to the claims being made against it and of the reasonableness of public health provisions that the industry had been fighting for years, the proposed changes to the civil justice system were entirely improper and should not be enacted into law. These changes would have stymied the ability of the tort system to exact compensation for injured smokers, nonsmokers, and third-party payers. They also would have hampered legal efforts to deter further tobacco industry misconduct and discourage other industries from following its example. Finally, the proposed changes to the tort system would have made it impossible to produce public accountability, through discovery and public trials, of this devious and incredibly destructive industry.
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    This prepared testimony is intended to bring both earlier papers up to date, by detailing some of the post-June-20 public health accomplishments made possible by litigation which would have been ''settled'' or prohibited by the June 20 proposal. The essential context for considering these accomplishments is the ''practical'' argument made by proponents of the deal that achieving them would be impossible in the absence of national legislation.

    First, the proponents of the deal argued that the tobacco industry would never settle individual cases. On the contrary, five major cases have been settled since June 20.

 The State of Mississippi obtained $3.6 billion over 25 years (the same period and rate of payment used in the ''global settlement'' calculations). The state also obtained a ''most favored nation'' clause, giving it the benefit of any more favorable deals that the industry may later agree to: this has already provided Mississippi with large dividends.

 Next, the State of Florida settled for $11.3 billion, its share under the deal, as well as its own ''most favored nation'' clause. Florida also obtained a ban on cigarette advertising on billboards and some other places and industry cooperation in banning cigarette vending machines (both highly featured benefits of the ''global settlement''). Furthermore, under the Florida settlement the industry must pay $200 million over two years for a campaign to discourage youth smoking. Extrapolated onto a national scale (since Florida has only about 5% of the nation's population), this industry-funded campaign is four times the size of the counter-advertising campaign ($500 million/year) contemplated in the ''global settlement''.

 Most recently, the State of Texas settled for $15.3 billion, well above its share under the national deal. This financial sweetening (and any other new concessions Texas has obtained) will automatically redound to Mississippi and Florida's benefit as well.
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 Additionally, the industry settled the first, generic phase of the Broin case, a national class action on behalf of airline flight attendants injured by environmental tobacco smoke. The settlement provides for

     a $300 million research foundation to improve detection techniques for tobacco-caused diseases (a benefit not contemplated in the ''global settlement'');

     favorable changes in the burden of proof and waiver of the statutes of limitations for the second, individualized phase of the case;

     and the industry's agreement to support national legislation barring smoking on any flight taking off or landing in the United States.

 Finally, R.J. Reynolds Tobacco Co. settled the injunctive phase of the Mangini case, agreeing to

     permanently bury Joe Camel (another major benefit promised by the ''global settlement''),

     pay twelve California cities $9 million for a no-holds-barred counter-advertising campaign, and

     release to the public internal industry documents that turned out to be proof that it had deliberately targeted kids.
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    Ongoing litigation since June 20 has also produced important public information detailing how the tobacco industry has succeeded in creating and sustaining the epidemic of nicotine abuse. In addition to the disclosures about R.J. Reynolds' youth marketing campaign, discovery in the Minnesota state case led to the House Commerce Committee subpoenaing, obtaining, and then releasing details of how the industry s lawyers orchestrated its decades-long disinformation campaign. It is questionable whether this information would have been released, or released so promptly, had the disclosure/nondisclosure provisions in the proposed deal been enacted.

    Lawsuits filed since June 20, which would have been barred by the agreement, have graphically demonstrated the range of tobacco victims whose interests were not represented at the negotiating table. Most of the more than two dozen cases filed by multi-employer union-management health and welfare funds, seeking reimbursement for five decades of medical expenses paid on behalf of blue collar workers with tobacco-caused diseases, were filed after the June 9 cut-off in the settlement agreement. These cases would have been doubly barred by the deal, since they are both class actions (on behalf of all such funds within a given state) and assert non-subrogation reimbursement claims. Several asbestos companies, and the Manville Settlement Trust representing the interests of people injured by the synergistic effects of asbestos and tobacco products, have sued the tobacco industry for its contribution to the synergistically-caused diseases. The Manville Settlement Trust (set up to distribute the assets of the bankrupt Johns Manville asbestos company) presently has only enough assets to pay the beneficiaries 10% of their damages: collecting the tobacco industry's share could mean that the victims would receive 30% of their total damages from the two industries combined.

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    Other cases have been filed or planned since June 20 that would have been barred by the proposed national settlement. Most of these seek punitive damages, the viability of which was confirmed by the California Supreme Court's recent decision affirming the punitive damage award in Horowitz v. Lorillard Tobacco Co. More cases are likely to be filed against tobacco industry law firms, based in part on the House Commerce Committee documents revealing their role in the industry's disinformation campaign. Restaurant workers and other occupational groups exposed to environmental tobacco smoke are considering actions against the tobacco industry, modeled after the successful Broin flight attendant case. And a Memphis, Tennessee court has recently permitted consolidation of several cases pending against the industry. All of these perfectly reasonable claims and actions would have been forbidden under the ''global settlement''.

    Finally, the combination of the post-June-20 legal developments, including case settlements, new types of cases and claimants, and document revelations, has greatly increased the amount of money which ''practical'' observers expect the tobacco industry will eventually to have to pay, from the 62 cents/pack estimated effect of the ''global settlement'' (after several years), to the $1.50 to $2.00/pack no-strings-attached tax now being discussed. Price increases, of course, provide dramatic public health benefits through decreasing youth smoking. There is every reason to expect that, absent the civil justice ''reforms'' contemplated by the ''global settlement'', continued litigation pressure will push cigarette prices up to the ''monopoly price'', which is estimated to be $2.25/pack or more above the current price.

    Tobacco litigation is the engine that pushed the industry to make the concessions contained in the June 20 settlement agreement. Tobacco litigation is also the engine that, just in the seven months that have passed since that agreement, has pushed the industry to make important public health concessions that go well beyond the agreement. With every passing month the engine gets stronger, with more cases filed and more settlements reached. Tobacco litigation is on the verge of forcing the industry to divulge its secrets, face judgment for its misdeeds, compensate its victims, fund effective counter-advertising campaigns, and halt its most destructive practices. For Congress to disable the tobacco litigation engine now, on the pretext that doing so is the necessary political price for enacting effective tobacco control legislation, would be both tragic and scandalous. Neither the public health nor victims of the industry's misdeeds would benefit from derailing the engine.
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Changes to the Civil Justice System Under the Proposed Tobacco Settlement


    This working paper analyzes changes to the civil justice system in Title VIII of the proposed tobacco Settlement. After more than thirty years of litigation, the current civil justice system is finally forcing the tobacco industry to face the real prospect of being held liable for its misdeeds and the injuries caused by its products. Consequently, the current system is now more likely than ever to achieve some levels of deterrence, compensation, and basic justice with respect to tobacco claims.

    However, Title VIII would substantially halt this progress because it contains a unique set of procedural and substantive rules that would tilt the playing field decisively back in the tobacco industry's direction. It would ban punitive damages for claims involving past conduct, erect annual caps on compensation, and bar the most promising and innovative legal actions against the industry. Moreover, Title VIII purports to ''settle'' cases of plaintiffs who were not represented in the negotiating process.

    As discussed below, each of these provisions runs counter to the basic goals of tort law. Accordingly, tinkering with the civil justice system has no legitimate place in the formulation of national tobacco control policy.


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    Tort law furthers the public interest by compensating injured parties, deterring harmful behavior, and exposing misconduct. When a jury punishes an irresponsible corporation for its misconduct, it not only deters future misbehavior but also delivers the accountability that justice frequently demands.

    In the case of tobacco, the importance of these goals is magnified by the unparalleled amount of harm and culpability at issue. Each year, more than 410,000 individuals die from tobacco-related diseases. Moreover, for decades the tobacco industry lied about the dangerous and addictive properties of its product.


    Until recently, the civil justice system did not appear to hold much hope for victims of tobacco-related diseases. During the first wave of tobacco litigation (1954–1973), plaintiffs were hampered by the paucity of medical studies establishing the link between tobacco and disease. By the second wave (1983–1992), the evidence of causation was incontrovertible but plaintiffs fared little better. The industry pursued a ''scorched earth'' litigation strategy designed to spend its opponents into the ground. As one attorney representing R.J. Reynolds Tobacco Company at the time explained,

  [t]he aggressive posture we have taken regarding depositions and discovery in general continues to make these cases extremely burdensome and expensive for plaintiffs' lawyers. . . . To paraphrase General Patton, the way we won these cases was not by spending all of [R.J. Reynolds'] money, but by making the other son of a bitch spend all his.

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(See Haines v. Liggett Group, Inc., 814 F. Supp. 414, 421 (D.N.J. 1993).) Given the tobacco industry's enormous financial resources, this strategy seldom failed.

    More recently, however, plaintiffs' attorneys have begun using existing tools of the civil justice system to level the playing field. By filing class actions on behalf of tens of thousands of victims, these attorneys are now able to marshal their limited resources more efficiently. Similarly, new suits filed by third-parties to recoup medical costs—e.g., the attorneys general suits to obtain Medicaid reimbursement—circumvent the industry's financial advantage by litigating thousands of cases of death and disease in a single trial. Moreover, these third-party payor suits possess another advantage: the tobacco industry cannot shift the focus of the jury from its own misconduct to an allegedly blameworthy smoker.

    Although it has taken some time, these innovative types of lawsuits are now on the verge of reaping results. The first-ever tobacco class action trial is currently underway. Jury selection has begun in Florida's multi-billion dollar Medicaid reimbursement suit, and other states' cases are soon to follow. Moreover, individual cases and class actions—each with the potential for damages in the nine- or ten-figure range—are scheduled for the reminder of this year. R.J. Reynolds Tobacco Company recently informed shareholders that there are now 448 tobacco-related cases pending against it or its affiliates—more than double the number of cases in 1996. In light of this third wave of litigation, tobacco stock prices reflect a heavy discount for the possibility of bankruptcy.

    These new developments indicate that any changes in the civil justice system would have real and potentially severe consequences for tobacco liability litigants.

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    Several provisions in Title VIII would cause a dramatic reversal of the trend emerging under the current civil justice system. This section analyzes the effects of four proposed changes in Title VIII:

 Ban on punitive damages for claims based on past misconduct ( B1);

 Annual caps on damages for all cases, with 80 percent of future judgments/settlements credited toward the industry's proposed annual payments under the settlement ( B9,C1);

 Elimination of the most innovative and promising actions against the industry—including class actions, consolidations ( B.2, C.1), third-party payor suits not based on subrogation ( B5(c)), and claims against industry attorneys ( B5); and

 Legislative settlement of claims belonging to plaintiffs not represented in the negotiating process.

As discussed below, each of these proposed changes would thwart the fundamental policy goals of tort law. Barring punitive damages for claims based on past misconduct would offend common notions of justice and would reduce the prospects of adequate compensation for plaintiffs. The proposed annual caps for all damages would not only hamper timely compensation but also eviscerate any deterrent to future industry misconduct. Eliminating class actions and non-subrogation third-party claims would return tobacco litigation to the dark ages—where the industry won by outspending its opponents. Finally, the settlement claims belonging to others appears incompatible with accepted notions of fairness and justice.
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A. Barring Punitive Damages for Past Misconduct Offends Justice and Blocks Adequate Compensation

    Title VIII grants the tobacco industry complete immunity from any punitive damages for its past misconduct. Although paragraph B1 claims to include some measure of punishment ''as part of overall settlement'', this claim seems flatly inconsistent with Title VI D., which provides that all payments are ''ordinary and necessary business expenses'', and that no part of any payment under the agreement ''is either in settlement of an actual or potential liability for a fine or penalty (civil or criminal). . . .''

    Moreover, the reason that punitive damages generally serve as effective punishment is that they are awarded above and beyond the full compensation for actual injuries. The proposed settlement award of $368.5 billion over 25 years does not even begin to approach full compensation for the estimated $2.5 trillion ($100 billion times 25 years) in health care costs and lost productivity caused by tobacco products. Accordingly, the proposed Settlement award cannot be construed as containing any punitive damages whatsoever.

1. Insulating the Industry from Punishment for Past Conduct Offends Justice

    As a general principle of justice, wrongdoers ought to be held accountable for their actions. This principle is especially important where, as with the tobacco industry, the wrongs were committed willfully and knowingly. Punitive damages are an effective vehicle for effectuating this principle.

    Nevertheless, there are extraordinary occasions when amnesty from punishment for past misdeeds is justified by some notion of the greater good. In South Africa, for example, negotiators set up a limited amnesty for human rights violations in order to facilitate the historic transition from apartheid to democracy. It is doubtful that this is such an extraordinary occasion. However, before policymakers even consider immunizing from punishment an industry that has for more than 40 years recklessly caused millions of deaths, the industry should do three things: (1) admit its wrongdoing; (2) apologize for that wrongdoing; and (3) cease that wrongdoing. Unfortunately, the tobacco industry has not fulfilled these basic conditions.
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    (1) Admission: People are normally not forgiven for deeds that they refuse to admit they have done. Unlike the 1997 Liggett settlement, in which CEO Bennett LeBow made a variety of crucial admissions, the tobacco industry signatories to the proposed Settlement make no admissions at all, though they accede to unconditional warnings on their product packages. Indeed, at the time of the Settlement the industry signatories issued a press release that included the following paragraph:

  In order to achieve a resolution in the public interest, the tobacco companies have agreed to support, subject to approval by our boards of directors, a package which includes certain legislative and regulatory provisions with which we do not necessarily agree. Nevertheless, the companies are willing to accept legislation incorporating these provisions in the interest of reaching an overall resolution of the important issues facing the industry and the nation.

This press release simply underlines the absence of any admissions in the Settlement agreement itself, despite the impression a superficial reading of that agreement might produce. The companies obviously wish to remain free to continue to dispute the accuracy of the proposed label warnings, e.g. that ''cigarettes are addictive'' and that ''tobacco smoke causes fatal lung disease in non-smokers.'' This is further demonstrated by the fact that, following the settlement, a tobacco industry attorney would not admit to a congressional panel that cigarettes are addictive.

    (2) Apology: Forgiveness generally requires contrition. There is not here. ''Forgive me, father, for Bennett LeBow his sinned,'' is no substitute.
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    (3) Stop doing it: An absolute precondition for any amnesty program is that the party seeking forgiveness, or even just forgetting, has ceased and abandoned the behavior for which amnesty is sought. The behavior of the industry subsequent to the June 20 Settlement announcement indicates that it has not ceased and abandoned the behavior in question. For example, while R.J. Reynolds abandoned its ''Joe Camel'' campaign, it replaced it with a ''heroin chic'' model with a ''come hither'' look that is at least as appealing to adolescent males. The National Smokers Alliance, which was set up and funded by Philip Morris, intensified its vilification campaign against Dr. Stanton Glantz, a prominent tobacco control researcher, for the purpose of getting communities considering restaurant smoking bans to reject his finding in a 1994 study that local smoking bans do not decrease restaurant sales.

    The industry's attitude toward abstinence from misbehavior is epitomized by a story told me by a professor at another university, who had been hired to give congressional testimony by a tobacco industry attorney working at a Washington, D.C. law firm. The professor was initially reluctant, and asked the attorney, ''Don't you fellows ever worry about the Nuremberg trials?'' The attorney responded that they did indeed think about Nuremberg, but that there was a difference: ''By the time of Nuremberg, the Nazis had stopped doing it.''

    Moreover, even if the tobacco industry ceases its misconduct in the United States, it clearly intends to continue its business as usual around the rest of the globe. Its products will continue to hook millions of teenagers in Europe, Asia, and Africa, and eventually kill them. This nation cannot afford to embarrass itself before other countries by granting amnesty to an industry that continues to spread death and disease within their borders.

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2. Barring Punitive Damages Hampers Adequate Compensation

    There are two reasons Title VIII's elimination of punitive damages for past misconduct will minimize the compensation victims receive. First, absent the possibility of punitive damages, few rational attorneys will invest large resources to bring individual cases against it.

    Second, the removal of punitive damages weakens the plaintiff's negotiating strength considerably. This is a critical consideration since approximately ninety percent of civil cases are settled without a trial. Under the current civil justice system, the threat of double or treble damages might induce tobacco industry defendants to offer settlement amounts that approximate the actual injuries sustained by victims. However, without this threat, actual injuries will be discounted by the probability of success at trial, and victims will receive a mere fraction for their suffering.

    There is no reason for Congress to meddle with the existing bargaining strength of private parties in litigation. Barring punitive damages significantly and unjustifiably shifts bargaining power to the industry.

B. The Annual Cap on Damages Destroys Deterrence and Denies Adequate Compensation.

1. Destruction of Deterrence

    Although the proposed Settlement technically permits punitive damages for actions based on future conduct, the cap on damages removes the deterrent value such damages normally hold. That is because Title VIII B.9 allows the industry to deduct 80 percent of any damages it pays from the amount it would otherwise owe under the Settlement.
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    Title VIII B.9 caps the industry's annual liability at an amount which begins at $2 billion and reaches $5 billion after nine years. However, given the 80 percent deduction, the industry's exposure to liability is initially only $400 million, and then eventually $1 billion. Thus, the cap guarantees that so long as they can obtain more than the present value of $1 billion annually in terms of benefits from a pattern of misdeeds, they need not take the future harm from their behavior into account.

    Even worse, awards or settlements for actual damages might exceed the $2- to $5 billion annual caps. with actual damage awards exceeding total exposure to liability, the tobacco industry would have little reason to be deterred by the prospect of any additional punitive damages.

    It is true that the damage caps are only for annual payment purposes, and that additional liability is rolled over into subsequent years. However, this roll-over does little to restore the deterrent effect of any punitive damages for future misconduct. Assuming annual caps are reached each year, the rolled-over liability is only paid out at a rate of $1 million per year ( B.9). Moreover, existing non-subrogation third-party payor plaintiffs are treated as one individual for purposes of the cap. (Id.) These conditions create a substantial possibility that the industry would not actually pay the punitive portion of any current damage award for a decade or more. This would provide no deterrent value, especially since ''[e]xcess rolls over without interest.'' (Id.)

2. Reducing Compensation

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    The graduated nature of the annual damages cap creates a potential bottleneck that would prevent adequate compensation for many victims. Due to the placement of warnings on cigarettes in 1969, plaintiffs who began smoking prior to that year have substantially stronger cases against the tobacco industry. The vast bulk of these plaintiffs are likely to file suit in the next few years because their actions could be otherwise barred by statutes of limitations. Placing a lower cap during the initial years is likely to delay compensation for a significant number of these plaintiffs.

3. No Justification for Proposed Caps

    Moreover, the proposed caps do not come close to the annual toll of death and disease wrought by tobacco products. The tobacco industry causes $50 billion/year in health care costs in the U.S., and another $50 billion in lost wages. While the industry could not produce that much money on an ongoing basis, Dr. Jeffrey Harris has estimated that, by raising prices about $2.25/pack, it could afford about $32 billion/year—or about 32 cents on the dollar. By capping damages at $5 billion/year, the industry is paying a maximum of 5 cents on the dollar. There is no justification for denying victims compensation that the industry can afford to pay.

C. Eliminating the Most Innovative and Promising Procedures Would Return the Industry to its Previous Invulnerability and Violate Due Process

1. Restoring Industry Invulnerability

    Title VIII B. contains many changes in the normal procedural rules currently applied by state courts in tobacco and other cases. These changes apply only to tobacco litigation, and all have the purpose and effect of making litigation against tobacco companies inordinately expensive and generally impractical. (Indeed, on the only litigation issue where public health advocates have sought Congress' aid—correcting the Supreme Court's misreading, in the 1992 Cipollone v. Liggett Group, Inc. case, of the legislative intent of the 1969 amendments to Federal Cigarette Labeling and Advertising Act, to find an intent to preempt some legal theories in tort litigation—paragraph B.3. of the agreement explicitly preserves this misreading.)
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    Paragraph B.2. requires ''individual trials only.'' It expressly bars all of the procedural techniques which courts have developed over the past 20 years to make toxic torts cases triable at a reasonable cost and without interminable delays, and expressly bars all courts from developing any novel techniques for this purpose. The only possible purpose of this provision is to make it impossible for plaintiffs' attorneys to bring, or state courts to process, cases in an efficient and cost-effective manner.

    Paragraph B.2. specifically bars not only class actions but also ''joinder, aggregations, consolidations, extrapolations, and other devices.'' Thus, if a judge has five cases against Philip Morris before her, and they all present similar issues, and it would save the parties and the taxpayers hundreds of thousands of dollars to try the cases together, she cannot do it, or the case will be removed from her court to federal court. This procedural barrier would permit the industry to return to its strategy of attrition a la General Patton. (See Part II, supra.)

    Of course, this provision also bars class actions. A case like Broin, the flight attendant environmental tobacco smoke case currently in trial in Miami, could not as a practical matter be brought on an individual case basis: the plaintiff's attorney would have to present most of the same witnesses, and prepare to depose, cross-examine, and rebut the same defendant's witnesses, in an individual case as in the generic portion of a class action. Few if any lawyers with the talents necessary to win such a case would devote half a year's time and hundreds of thousands of dollars for the eventual prospect of one-third of an individual recovery. Thus, the restaurant workers and bartenders, who will continue to be exposed to secondhand smoke under the ETS provisions of the proposed Settlement, would have no practical remedy.
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    Paragraph B.5.b., limiting permissible plaintiffs, bars new third-party payor (and similar) claims not based on subrogation. It is understood on all sides that these cases cannot practicably be brought if restricted to subrogation. Thus, there will be no more cases like the Minnesota Blue Cross/Blue Shield case, nor the union multi-employer health and welfare fund cases, nor cases on behalf of governmental bodies like cities and counties.

    Together with paragraph 2, paragraph 5.b. destroys for all time most of the engines which brought the tobacco companies to the table. This, in turn, ruins the potential for adequate compensation, deterrence, and basic justice in tobacco litigation.

2. Implications for Procedural Justice

    Eliminating these innovative procedures also thwarts the central principles which currently guide the federal courts. Rule 1 of the Federal Rules of Civil Procedure provides that the rules ''shall be construed to secure the just, speedy, and inexpensive determination of every action.'' The only possible reason for barring class actions, consolidations, and third-party payor claims is to eliminate the only efficient means for resolving tobacco litigation.

    While Congress can override Federal procedural rules, it cannot repeal the simple and universally accepted demands of procedural justice which underlie these rules. In fact, considerations of due process might bar Congress from banning class actions and consolidations in tobacco cases. True, Congress does have the constitutional power to make sweeping substantive changes, at least as long as it also provides an adequate substitute for relief (which is not even being proposed). This is what Congress did when it eliminated workplace injury torts and created the workers' compensation scheme. However, it does not follow from this that Congress may also alter procedure for the sole purpose of making access to justice for tobacco victims unnecessarily slow and expensive.
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    Moreover, the mere fact that Congress might be able to preempt all tort claims by tobacco victims under the commerce clause does not give it the ''lesser'' power to ''preserve'' these claims while imposing insurmountable procedural hurdles. Although the Constitution allows Congress to curtail litigants' substantive rights, the realities of the political process makes such alterations rare. In the current political climate, it is highly unlikely that Congress would ban all future substantive claims against the tobacco industry. Due process does not permit Congress to achieve the same result through subtle procedural alterations less subject to public scrutiny. For this and other reasons, litigants' rights to procedural due process are protected by stronger constitutional safeguards than for ''substantive due process'' claims. As the Supreme Court pointed out in Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532 (1985), ''The categories of substance and procedure are distinct. Were the rule otherwise, the [Due Process] Clause would be reduced to a mere tautology.''

D. Settling Claims of Parties Not Represented at the Negotiating Table

    Title VII A.I. ''legislatively settle[s]'' all ''[p]resent Attorney General actions (or similar actions brought by or on behalf of any governmental entity), parens patriae and class actions.'' However, some of the plaintiffs who have brought such claims were not included in the negotiations which produced the proposed Settlement. These include the 60,000 flight attendants whose class action is currently on trial in Florida, the class action on behalf of Florida's smokers who have contracted tobacco-caused diseases (scheduled for the Fall of 1997), the class actions that were filed on behalf of union multi-employer health and welfare funds after June 7, 1997, as well as the non-signatory attorneys general, and municipalities that had filed ''similar actions.'' Under the proposed Settlement, their cases would be involuntarily ''abated'' or ''aborted,'' and with no quid pro quo to boot. Congress may or may not have the raw constitutional power to do this depending on whether the Supreme Court would apply dicta from its earlier cases suggesting that a fair substitute remedy would be required. But doing so would be unprecedented . . . and unprincipled.
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    The Supreme Court recently addressed an analogous situation in Amchem Products, Inc. v. Windsor, 1997 U.S. LEXIS 4032; 138 L. Ed. 2d 689 (1997). In Amchem, the Supreme Court threw out class action settlement which purported to bind all asbestos victims who had not yet filed suit. The class included exposed individuals who were asymptomatic, as well as those currently suffering from asbestosis or mesothelioma. The Court concluded that the diverse plaintiff interests involved required separate subclasses with separate representation. Justice Ginsburg stated, ''The settling parties, in sum, achieved a global compromise with no structural assurance of fair and adequate representation for the diverse groups and individuals affected.'' (Slip opinion, p.25, June 25, 1997).

    The Amchem decision does not restrict the powers of Congress, but its principle is universal: the structural assurance of adequate representation in the settlement of claims. Notwithstanding the influence of special interest money, Congress ordinarily operates in a manner that guarantees this structural assurance. Members of Congress independently assess the worthiness of legislation on its merits.

    However, many proponents of the proposed Settlement are now insisting that Congress must enact Title VIII ''as is'' because it is part of a complete deal struck by private parties in litigation. But this rationale runs afoul of the representational principle raised in Amchem. Many categories of tobacco victims were not present at the table, and will get nothing from the proposed settlement (other than the public health benefits, such as they are, which they would share with all other citizens). These victims include dying smokers, families of sick, dying, or dead smokers, nonsmokers afflicted with ETS-caused diseases, smokers or nonsmokers burned in cigarette-caused fires, local governments, union health and welfare funds, and doubtless many more.
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    Policymakers should exercise independent judgment on all aspects of the proposed Settlement and determine for each class of tobacco victim whether justification exists for hobbling their right to judicial redress. There is no substantive or procedural justification for aborting the claims of certain classes of victims.


    Even if all current parties were represented, changing the rules of the civil justice system would not be an appropriate topic for settlement negotiations between litigants. Nor is it fair for Congress to change those rules just as plaintiffs are on the verge of obtaining relief.

    Moreover, changing the civil justice system for the exclusive benefit of the tobacco industry is nothing short of obscene. The fact that procedural changes for the primary benefit of any industry could enter the mainstream political discourse underscores the disturbing power of special interests in American politics.

    Yet, in the context of tobacco, such considerations are doubly disturbing. The tobacco industry and its products kill more than 400,000 Americans, and hook 1,000,000 children and teenagers, each year. Furthermore, its pattern of lies and deceit are unparalleled in the annals of corporate misconduct. As one Federal judge remarked, ''despite some rising pretenders, the tobacco industry may be the king of concealment and disinformation.'' (Haines v. Liggett Group, Inc., 140 F.R.D. 681 (D. N.J. 1992). Moreover, it is not as if the tobacco industry needs special protection. As Dr. Harris' economic analysis indicates, the industry would survive liability at levels substantially beyond the limits set by the proposed Settlement.
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    If such an industry can demand and obtain congressional relief from legal accountability for its actions and for the effects of its products, every other industry will have a powerful case for similar relief.

    Some have contended that the obscenity of such special interest procedural changes is somehow lessened by the regulatory proposals in other parts of the proposed Settlement. To the contrary: the notion that the tobacco industry can insist upon stripping away parts of the civil justice system in exchange for permitting ''their'' congressmen to support regulatory measures is an abhorrent standard for legislation in a civilized society.


    The changes proposed in Title VIII of the tobacco Settlement run counter to the purposes of the civil justice system and ought to be rejected. Perhaps such changes would have been inconsequential in decades past since the tobacco industry appeared invulnerable to civil litigation. That is no longer the case. Class actions and third party payor suits, as well as the possibility of punitive damages have leveled the playing field, and now the civil justice system appears ready to deliver. Thus, if Congress enacts Title VIII, what will be lost are not mere abstract rights but the first real chance to achieve compensation, deterrence, and basic justice with respect to tobacco.

    This conclusion is not without its practical considerations. Some observers have suggested that the proposed Settlement cannot pass through Congress without the provisions in Title VIII. Indeed, tobacco industry spokesmen have described removing its elimination of punitive damages as a deal-breaker. The question is whether Members of Congress will allow the tobacco industry to set the parameters of the debate, or exercise independent judgment on public policy.
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    However, even if the proposed settlement is rejected, indeed especially if the proposed settlement is rejected, the concessions which the attorneys general extracted from the industry constitute unique and probably irreversible contributions to the exponential curve of tobacco control achievements. Thus, the Mississippi settlement, which would probably not have happened without the financial framework provided by the proposed settlement, reverses a 40 year tobacco industry policy of never settling, and certainly never paying the plaintiffs' attorneys' expenses. The $5 billion annual damages cap, misunderstood as a $5 billion damages fund, persuaded the California legislature to repeal the ''napkin deal'' which had barred individual tobacco litigation in that state. The concessions on package label warnings, as well as on other provisions, are likely to weaken the persuasive power of industry representatives as they oppose similar state and local regulations.

    The paradox is that the settlement agreement itself may have helped changed the nature of what is possible in tobacco control, so that what might have appeared in the spring of 1997 to be an attractive deal seems quite unacceptable by the summer.


Litigation by States Against the Tobacco Industry(see footnote 15)

    By late June, 1997, 39 of the 50 states in the U.S. had sued the tobacco industry, seeking reimbursement of the medical expenses they had paid for their indigent citizens, as well as orders requiring the industry to stop lying and stop targeting children and teenagers. On June 20, 1997, representatives of most of these states, together with private attorneys who had brought class actions against the tobacco industry, reached a tentative settlement with the industry. Under the agreement, the industry would pay $368.5 billion over the first 25 years, with an additional $15 billion per year, adjusted for inflation, thereafter. As part of the settlement, the industry would also consent to a variety of tobacco control measures long sought by public health advocates. The agreement is contingent, however, on Congress enacting legislation making it harder to regulate or sue the industry in the future.
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    While many public health advocates are skeptical about the merits of the proposed settlement, it is nonetheless clear that the agreement demonstrates the power of tobacco litigation, especially by states, to force major concessions from the tobacco industry.

    What I want to discuss today is, first, how we arrived at this point in the United States; second, exactly where litigation in the U.S. stands today; third, the likely effects of the proposed settlement; and, finally, what this all means in terms of the possibilities for tobacco litigation in the rest of the world.


    Briefly, it wasn't easy. There have been three waves of tobacco litigation in the U.S. Both the first wave (1950's and 1960's) and the second wave (1980's and early 1990's) were made up entirely of individual cases, brought by smokers or their families, seeking compensation for their losses and their suffering resulting from tobacco-caused diseases. These first two waves never reached the shore, largely because they were unable to get past three barriers which the tobacco industry erected. The first barrier was the ''personal responsibility,'' or ''blame the victim,'' defense, which goes something like this: anyone stupid enough to believe us when we tell them that smoking our products will not cause disease, deserves to get the diseases that our products cause. The next barrier was financial and strategic: the tobacco industry poured disproportionate legal resources into the litigation, burying the plaintiffs' lawyers in legal papers and ancillary legal proceedings. In the words of an RJ Reynolds lawyer, ''the way we won the cases, to paraphrase Gen. Patton, is not by spending all of Reynolds' money, but by making the other son-of-a-bitch spend all of his.'' The final barrier consisted of a series of inhospitable judicial rulings, perhaps reflecting the judges' concern that, with hundreds of thousands of new tobacco victims each year, to allow them justice would simply overwhelm the courts.
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    The third, and current, wave of tobacco litigation began in the spring of 1994. It was initiated by the February 1994 announcement by Dr. David Kessler that the Food and Drug Administration was considering classifying nicotine and cigarettes as drugs. Part of his reasoning was that he had learned from tobacco industry documents discovered in the second-wave Cipollone case that the industry itself thought of nicotine and cigarettes in just these terms. Three days later the ABC television network broadcast the results of an investigation which led it to conclude that the industry was actually manipulating the amount of nicotine in cigarettes, presumably for the purpose of keeping its customers hooked. Later that spring, millions of people around the world watched tobacco executives swear at televised congressional hearings that they didn't believe nicotine was addictive, while at the same time leaked internal industry documents and the testimony of former industry scientists were proving the contrary. Suddenly, many of the people who previously had dismissed tobacco litigation on the basis that the smoker had chosen his own poison began to consider the possibility that tobacco companies were villains and smokers their victims.

    This change in public understanding of the relationship between the tobacco industry and its customers, this ''paradigm shift'' from ''blaming the smokers'' to ''the tobacco industry as corporate drug dealers,'' encouraged lawyers and public officials to consider ways to make tobacco companies pay for the harm they cause. Some lawyers worked out ways to bring the old-style individual lawsuits more efficiently and inexpensively, so that the industry's tremendous advantage in legal resources and firepower would no longer determine the results. They sought court orders providing for prompt trials, allowing several cases to be heard at the same time (''consolidations''), and for the possibility of obtaining ''punitive damages'' if they could convince a jury that the industry had behaved in a grossly improper fashion. Other lawyers joined together to file ''class actions,'' cases in which one or only a few named plaintiffs filed suit on behalf of all other people ''similarly situated.'' The prospects of winning a multi-billion dollar damage award for the class members, and of sharing in an award of attorneys fees proportional to those damages, induced plaintiffs' attorneys to pool their resources, enabling them to fight complex procedural battles with the industry without being outgunned.
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    But the most important legal development was the decision by public officials, principally State attorneys general, working with private attorneys, to sue tobacco companies for the damages they caused to the government itself. In the United States, State and local governments pay for the medical expenses of their poorest citizens through a program known as ''Medicaid.'' Studies have shown that around 6 or 7% of these expenses are for treating cigarette-caused diseases. In most States, that amounts to a burden of at least $100 million per year which the industry and its products have imposed on the state's taxpayers.

    The lawyers for the States developed a number of legal theories for requiring the companies to reimburse the States for these expenses. Some were based on the thought that the companies' misbehavior and their unreasonably dangerous products were responsible for cigarette-caused diseases, and hence for the expense of treating them. Since the States had paid money that the companies were morally and legally obligated to pay, the companies had been ''unjustly enriched'' as the States' expense, and the States were entitled to reimbursement. A variant of this treated the states' Medicaid funds like bystanders injured in an automobile accident: the defendants, in this case the tobacco industry, should have known that their reckless behavior would cause economic injury not just to their direct victims, here the smokers, but to the Medicaid funds as well.

    Another legal approach noted that the tobacco companies have violated various statutes that were designed to control corporate behavior generally. In the U.S., the anti-trust laws prohibit anti-competitive conduct such as agreeing to raise prices or, as with the tobacco companies, to refrain from doing research on the dangers of their current products or to develop and market safer ones. Similarly, consumer protection laws prohibit ''unfair or deceptive'' commercial practices. In most States these laws gave the state ''standing'' to sue to recover its own losses.
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    As the cases progressed, the states' lawyers began to realize that their damage claims were not limited by the losses that the States themselves had suffered. The states, after all, represent not only their own interests but those of their citizens as well. Both anti-trust and consumer protection laws frequently permit the State to sue as ''parens patriae,'' on behalf of all of their citizens who were victimized by the unlawful practice. The citizens' losses may include the price they paid for cigarettes, on the theory that the industry's unfair and deceptive practices tricked them into becoming addicted consumers.

    The latest legal theory to enter these cases is that the industry and its various organizations constitute a ''Racketeer-Influenced Corrupt Organization'' under either the federal RICO statute or a similar State RICO statute. These statutes were passed to control narcotic drug traffickers, who made huge profits from selling addictive drugs and used them to infiltrate and purchase otherwise legitimate businesses. Sound familiar? In addition to criminal sanctions, the RICO statutes provide a large range of civil remedies, including confiscation of the profits that the defendants had made through their illegal schemes.

    Finally, in all 39 of the State cases, the State has sought from the tobacco industry not just money but also specific changes in behavior (''equitable relief''). Court orders requiring the end of the infamous Joe Camel and of other marketing campaigns aimed at children and teenagers, the dissolution of the fraudulent Council for Tobacco Research, the public disclosure of internal industry files documenting their scientific research and marketing strategies, and the abandonment of lying as the industry's basic public relations strategy, are among the relief which these state cases demand.

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    In the field of tobacco litigation, much more has been accomplished in the past three years than in the forty previous years. In terms of numbers of U.S. cases pending, the expansion of litigation has been exponential. For example, one company, the R.J. Reynolds Tobacco Company, recently reported that there were 68 cases of all sorts pending against it in July 1995; 203 cases in July 1996; and 448 cases as of August 7, 1997. Class actions are now pending on behalf of most U.S. smokers, seeking tobacco industry funding of trust funds to pay for assistance in quitting and ongoing monitoring of the smokers' medical condition. There are also class actions on behalf of smokers who have contracted tobacco-caused diseases, as well as the class action currently on trial in Miami, Florida on behalf of 60,000 non-smoking flight attendants.

    As to the state suits against the industry, there were 3 cases on file by the end of 1994, 5 by the end of 1995, 17 by the end of 1996, and 39 by June 20, 1997. Furthermore, about 15 cities and counties have also sued the tobacco industry, making legal claims similar to those being asserted by the States. And, in the last few months, class actions have been filed in 20 States on behalf of hundreds of labor-management health and welfare funds seeking reimbursement for the tobacco-caused health care costs that they have been paying for their members.

    These quantitative changes have been accompanied by qualitative changes, including in the reception which courts are giving to the plaintiffs' legal claims. Despite strenuous efforts by the tobacco companies, none of the State cases has been dismissed.

    The industry has defended these cases by asserting that, while states are free to sue for reimbursement of their Medicaid payments, they have to do so under the doctrine of ''subrogation,'' which puts the State in the legal ''shoes'' of the Medicaid recipient. If the industry were right, the state would have to show, as to each Medicaid recipient for whose expenses it was seeking reimbursement, the brand which that recipient smoked, the exact cause of that recipient's disease, and the proper apportionment of responsibility between the recipient and the cigarette manufacturer for the recipient's beginning and continuing to smoke. The states, on the other hand, would like to proceed on the basis of epidemiological and other statistical data, both because that would lead to more accurate estimates of their total tobacco-caused expenses, and because doing it the industry's way, under the subrogation doctrine, would cost the states more than they could possibly recover.
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    Fortunately, the states have won this argument each time the defendants have made it, at least with respect to some of the claims being asserted in these cases. Thus, it appears likely that the states will be able to prove their anti-trust, consumer protection, and RICO allegations using statistical data. Courts have felt, however, that the subrogation procedure is the proper one for ''bystander''-type claims, and judicial opinions have differed as to whether unjust enrichment claims are appropriate at all.

    Furthermore, the courts all seem receptive to the states' ''equitable'' claims, those seeking court orders changing industry practices. While we do not yet know which unfair, deceptive, or anti-competitive industry practices the courts would be willing to prohibit, at least the courts are willing to listen to evidence of industry misbehavior and to explore the practical and legal possibilities for stopping it.

    This new receptiveness of U.S. courts to claims against the tobacco industry, and especially to the innovative State cases, is due in part to the fact that many of the new plaintiffs, such as states, cities, and union-management health and welfare funds, unlike the smoker-plaintiffs, cannot be blamed for choosing to smoke in the face of public health warnings. It may also be due in part to a sense by the judges that the flood of tobacco cases is now inevitable, so they might as well turn their attentions to dealing with it efficiently. But it is also due importantly to the paradigm shift I discussed earlier, the fact that judges, along with the public generally, now view the tobacco companies as outlaws that need to be controlled, and punished.

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    One effect of the June 20, 1997, agreement has been totally positive. In early July, on the eve of the first trial ever of a state case against the tobacco industry, the industry reached on unconditional settlement with the State of Mississippi worth $3.6 billion over 25 years. This figure, which was four times the amount Mississippi had been seeking for its past damages, was based on the schedule of payments that had been negotiated as part of the proposed national settlement. The industry also agreed to reimburse the state's lawyers for up to $12.5 million in expenses, plus an additional $2.5 million for the State's own expenses, and to pay additional attorneys' fees in amounts to be determined by a panel of arbitrators.

    What Mississippi had asked for and did not receive in the settlement of its case were agreements by the industry to stop marketing to children, disclose its internal documents, or any of the other tobacco control measures included in the proposed national settlement. This allows the proponents of the national settlement to argue that even if all States were to settle with the industry under the same, favorable, financial terms, the public health benefits promised by the national settlement would still not be achieved. However, the State of Florida, which is scheduled to begin its trial against the industry in September, signaled that it will not settle its case unless the industry also agrees to convert many of the proposed public health measures in the national settlement into legally binding commitments. This was, in fact, achieved and the industry agreed to remove all tobacco billboards and transit advertising, along with vending machines from the State, and release hundreds of incriminating internal documents as a requirement of the August 28, 1997 settlement ending Florida's litigation.

    By its actions of settling Mississippi's and Florida's cases, the industry has abandoned its 40-year-old strategy of winning its cases by spending the other party into submission. The strategy finally failed because the State, and the wealthy attorneys who were litigating its case, were able to respond effectively to all of the industry's legal maneuvers without fear of running out of money. But this binding settlement, for four times the amount originally sought, will likely serve as a magnet for plaintiffs' attorneys, encouraging them to bring suit on behalf of the countless other victims of the tobacco industry—unless the proposed national settlement is enacted into law.
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    From the perspective of tobacco control in the U.S., the proposed national settlement is a ''riverboat gamble.'' As the American Medical Association noted in its analysis of the settlement, it would largely destroy the litigation engines that have brought the tobacco companies to the point where their fear of bankruptcy is motivating their behavior. All pending class actions would be ''settled,'' including classes not represented at the negotiating table, and no new class actions would be permitted.

    All of the state cases, along with the cases brought by cities and counties, would be ''settled,'' despite the fact that the attorney general of Minnesota, who is scheduled to go to trial next January, is objecting vociferously, and the cities and counties will get nothing from the deal. Even more important, no cases filed after June 9, 1997 on behalf of any entity seeking reimbursement for having paid medical expenses of smokers will be permitted to proceed on any basis other than subrogation—which we know, as a practical matter, means they cannot proceed at all. Thus, other private medical insurance plans will not be able to follow the example of Blue Cross and Blue Shield of Minnesota, which joined with the state in suing the industry, and most of the cases brought by labor-management health and welfare funds would have to be dropped. Nor could the federal government sue the industry for the huge tobacco-caused medical expenses that it pays on behalf of elderly citizens (the ''Medicare'' program), military personnel, or veterans.

    Theoretically, suits on behalf of individual smokers, or of ETS-afflicted nonsmokers, could continue to be brought. But the industry's overwhelming strategic advantage in these cases, epitomized in the General Patton memo, would be restored. The efficiencies obtained by combining these cases into classes, or even trying together smaller groups of similar individual cases, are prohibited. Attorneys representing existing smokers may not seek punitive damages. As a practical matter, there would be little incentive for the few law firms that have the resources to match the tobacco industry in court to devote these resources to pursuing individual cases, each of limited value.
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    Finally, just in case the tobacco industry miscalculated the dampening effect that the settlement would have on lawsuits against it, the proposed settlement also includes a future annual cap that rises from $2 billion per year initially to $5 billion after 6 years. Since the agreement provides that the industry can deduct 80% of its future liability costs from the other amounts it would owe under the settlement, its actual exposure ranges from $400 million to $1 billion annually. At a maximum of about 5 cents per cigarette pack sold, this effectively eliminates any residual deterrent effect that tobacco litigation could have on future industry misbehavior.

    The riverboat gamble, then, is that the public health gains from the other provisions in the proposed settlement would more than make up for the near-total destruction of litigation in the U.S. as a tobacco control strategy.


    Basically, the news is all good. The incriminating documents and testimony coming out of the U.S. tobacco cases generally concern transnational tobacco companies, including Philip Morris, BAT, and R.J. Reynolds. Many of these documents are currently available for use in any case anywhere in the world, and more will soon become available.

    With worldwide media attention on the revelations of industry misconduct coming out of the U.S. tobacco litigation, the paradigm shift in the public understanding of the relationship between the transnational tobacco companies and their customers, begun in the U.S., is spreading. As in the U.S., judges elsewhere who used to see the issue as one of personal choice by smokers are likely to be increasingly open to reconceptualizing the issue as one of industry misconduct. As the U.S. experience with the first two waves of tobacco litigation demonstrated, judges and juries in the U.S. were hardly more receptive to tobacco litigation than judges elsewhere so long as they believed that it was all the smokers fault. With the spread of the new paradigm, receptiveness to tobacco litigation should also spread.
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    The willingness of the industry to spend $368.5 billion to settle and terminate cases in the U.S. which it recently insisted were worthless has to improve the credibility of current and future cases throughout the world. Furthermore, the willingness of the industry to agree as part of the proposed settlement to a series of public health measures which the industry had successfully fought for years should encourage tobacco control advocates throughout the world to put tobacco litigation near the top of its list of strategies for achieving a wide range of public health goals.


    Northeastern University School of Law has a four year grant of approximately $890,848 from the National Cancer Institute (NCI) to study ''Legal Intervention to Reduce Tobacco Use'' from 8/15/95–5/31/99. Professor Daynard serves as the Principal Investigator under the grant and the Tobacco Control Resource Center (TCRC) is a subcontractor. TCRC will receive $94,814 under the NCI subcontract for the 1998 fiscal year, in addition to receiving $33,479.27 for the 1997 fiscal year and $43,107.32 for the 1996 fiscal year.

    Mr. HYDE. Thank you very much, Professor. Your time has expired.

    Professor Rabin.

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    Mr. RABIN. Thank you, Mr. Chairman. I greatly appreciate the opportunity to testify on the civil liability provisions of the tobacco settlement proposal. In the time allotted to me, I would like to offer a very brief comment on the history of the litigation prior to the current tort activity in the courts. Then, I will address two questions of particular interest at this juncture in time. First, what are the prospects for the future absent the restrictions in the settlement plan? And second, how would the situation be likely to differ if the provisions in the plan were adopted?

    The earlier history breaks down into two waves of litigation between 1954 and 1992. The overriding theme throughout these four decades was superior lawyering skills and resources on the industry side. From the outset, the industry retained top corporate law firms and instructed them to spare no expense in handling the cases. By contrast, the tobacco plaintiffs were represented by solo or small firm practitioners who were in over their heads. They simply could not cope with the pre-trial litigation costs and delays associated with voluminous defense motion strategies and deposition-taking.

    As a consequence, the vast majority of the case filing, about 150 or so in each wave, vanished without a trace, never making it to the courthouse door. In the handful of cases that made it to trial, plaintiffs encountered unsympathetic juries that were responsive to the defense arguments that the plaintiffs wouldn't have stopped smoking even if they had more information and that the plaintiffs assumed the risk of harm once that health information became available. Plaintiffs also faced judges who defined product warranties and duties to warn very narrowly in that period.

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    Finally, after the Cigarette Labeling Act was passed in the mid-1960s, the lower courts, and eventually the Supreme Court in 1992, held that the warnings required by that statute preempted any greater duty to warn under State tort law. In 1992, the picture looked bleak for tobacco tort litigants; nearly 40 years of litigation had failed to yield a single successful final outcome.

    Nonetheless, by 1994, only 2 years later, the tobacco litigation had experienced a remarkable rebirth. Three factors were critical: first, the Supreme Court in its preemption opinion had left open the possibility of plaintiffs suing on a fraud theory; second, there had been much publicized revelations of industry concealment of health information that might support a fraud theory; and third, there was a new appreciation of the possibility of class action litigation.

    The result was the nationwide Federal class action on behalf of addicted smokers, Castano, and State court class actions, including a second-hand smoke class action on behalf of flight attendants. Far more sophisticated plaintiffs' lawyers with far greater litigation resources at their command had joined the fray.

    Where do things stand now and what are the prospects for the future absent the proposed settlement? These recent developments have not led to instantaneous success in the courts. The picture is, in fact, mixed. The nationwide Castano class was decertified but a number of State-based class actions have been filed. Their success in overcoming procedural obstacles is uncertain. The flight attendants' second-hand smoke suit was settled but under a cloud of criticism. Individual cases have continued to be brought, relying now on the industry documents, but while one succeeded before a Florida jury, others have subsequently been lost. And then there's the State health reimbursement litigation, of course, which I won't go into here, where the future is similarly uncertain.
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    But, the critical point is that while the tort theories have weaknesses, particularly the reliance and freedom of choice defenses, these available defenses are not certain to keep cases from getting to juries. And, with the burgeoning evidence of a pattern of egregious, covert industry conduct, there is a definite, even if less than certain, prospect of a jury not just rejecting the defenses but awarding very substantial damages including punitive damages. Most ominous of all from the industry perspective is the prospect of juries taking this pro-plaintiff turn in cases involving not just individual plaintiffs but classes of claimants.

    The settlement proposal would eliminate much of this uncertainty to the benefit of the industry. To begin with, class actions would be eliminated. These cases with their huge potential multiplier effect underscore the high-risk tort environment I've just described. In addition, no punitive damages would be allowed for conduct prior to enactment of the legislation. This would greatly reduce incentives to sue in the individual litigation that remains available under the settlement plan. Also, there would be an annual cap on both individual awards and on aggregate industry payments, again greatly reducing the uncertainty the industry faces and, at the same time, possibly capping compensation awards at substantially lower sums that would otherwise be realized.

    In sum, whether this package of tort limitations is a worthwhile tradeoff from a societal perspective depends, of course, on whether one views a tradeoff as necessary at all from the perspectives of fairness, economics, or public health. Tort liability is clearly only one factor, even if it's an important one, in assessing the merits of this proposal.

    Thank you.
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    [The prepared statement of Mr. Rabin follows:]



    In order to understand fully the current status of civil liability for tobacco-related disease, and the likely consequences of the tobacco settlement proposal, a brief historical overview of the first four decades of the litigation (1954–92) is useful. This period, consisting of two waves of litigation, 1954–65 and 1983–92, is notable for the consistent lack of success experienced by tobacco disease claimants in the tort system. A dominant theme was the inability of the plaintiffs' attorneys, generally solo practitioners, to match the superior resources and skills of the tobacco defense lawyers. As a consequence, few cases proceeded beyond the pretrial stage, and in the handful that did get to the courthouse, judges interpreted products liability principles narrowly and juries were sympathetic to defense arguments of freedom of choice. The period culminated in a 1992 Supreme Court decision preempting negligent failure to warn claims as long as the tobacco companies complied with the Federal cigarette labeling act.

    The Court did, however, leave room for fraud claims (as well as design defect suits), and as internal industry documents began to emerge that suggested a pattern of concealment of information related to the addictive properties of nicotine, plaintiffs' lawyers—correspondingly encouraged by contemporaneous signs that courts might be receptive to mass tort class action litigation—launched a third wave of tort suits. Although individual tort claims continue to be filed, and in fact in one recent instance resulted in a singular plaintiff's award, the most recent wave of litigation has been characterized by collective actions (including second-hand smoke claims and health care reimbursement suits).
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    It remains unclear whether these actions will succeed in large numbers. But along with the individual suits, they create unprecedented risk for the industry because of the bad light cast by the continuing revelations from industry documents that could be construed by juries as egregious misconduct. If this were to happen, a breakthrough in the individual and/or collective claims could lead to catastrophic loss for the industry.

    The settlement proposals would seriously diminish the industry's uncertainty about the future course of the litigation by, among other things: (1) creating immunity from class action liability; (2) barring punitive damages for misconduct occurring before the date of the legislation, and (3) capping the annual total and individual liability payments for which the industry might be held responsible. Presumably, the industry should be afforded this assurance against catastrophic loss only if the trade-offs in public health benefits derived from other portions of the settlement proposal are substantial and the fairness concerns of the public are satisfied.


    Mr. Chairman and members of the committee: I greatly appreciate the opportunity to testify on the civil liability provisions of the tobacco settlement proposal. The proposal's provisions on tort liability are a critical portion of a multifaceted document that raises a wide array of public policy considerations. As a torts professor who has written in this area and followed it closely in recent years, I hope that my comments will be of use to you in your deliberations. I will begin by briefly surveying the origins of tobacco tort litigation, describing two waves of lawsuits between the mid-1950s and the early 1990s. I will then turn to the current wave of tobacco litigation, and indicate the path it is likely to take in the future under two alternative scenarios: (1) without adoption of the current proposal, and (2) with adoption of the current proposal.
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I. THE FIRST WAVE, 1954–65

    At first glance, the filing of tort claims against the tobacco industry just after mid-century appears to be something of an anomaly. Smoking was at an all-time high of popularity, as attested to by such mainstays of popular culture as the movies—in which, the most popular film stars seemed always to have a cigarette as their companion—and mass advertising, where celebrities from all walks of life (sports, entertainment, the professions) endorsed cigarettes in magazines and on billboards. At the same time, products liability law was still relatively dormant. It was not until the mid-1960s that products litigation began a dramatic expansion, beginning with a series of landmark California supreme court decisions and the enactment of Section 402A of the Restatement Second of Torts.

    But tort law is a very sensitive barometer of new societal developments, and in 1953 the Readers Digest and other mass circulation journals ran prominent accounts of the scientific studies linking smoking to lung cancer, which had just begun to appear in technical medical journals. These popular accounts were widely read, and were sufficiently traumatic to the general public to cause a major cancer scare, which in turn caused the first decrease in U.S. per capita smoking in the twentieth century. And, in 1954, the new awareness also led to the first tobacco tort claim being filed.

    In the ensuing decade, somewhere between 100–150 claims were filed. But by 1964, when the last of these claims was closed, not a single instance of success by tort plaintiffs had been recorded. What accounted for this unbroken line of failures?

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    The principal factor was the vast difference in the resources that the two sides to the controversies could bring to bear. From the earliest cases, the pre-trial phase of tobacco tort litigation turned out to be both time-consuming and expensive. Experts needed to be found who would testify on scientific issues; fact witnesses were numerous, and had to withstand extensive pre-trial interrogation (via deposition-taking); documentary evidence had to be gathered; and so forth.

    From the time that the first suit was filed, the tobacco industry retained the most skilled and sophisticated corporate law firms, and instructed them to spare absolutely no expense and give no thought to settling in handling the tobacco tort suits. Through pre-trial motions and discovery procedures that capitalized on every opportunity for delay and expense, the defense side made the cases an enormously costly undertaking. On the other side were the plaintiffs' attorneys, most of whom—in this early litigation—were either solo or small-firm practitioners. Moreover, the cases were brought, as is standard, on a contingent fee basis—which meant that the extensive pre-trial litigation costs were borne by the plaintiff and his or her attorney with no fee at all for the lawyer unless the lawsuit was won.

    Under these circumstances, in one case after another, a plaintiff's attorney would start off with high hopes and a sense of moral indignation, only to find after a short while that the case was impossible to sustain financially. Thus, the vast majority of these first wave cases (all but about a dozen) vanished without a trace, without ever making it to trial. The plaintiffs and their lawyers simply ran out of resources to sustain the lawsuits.

    In those few cases that did make it to court, plaintiffs realized no greater success. The main theories employed were warranty and failure to warn. Unfortunately for the plaintiffs, they were ahead of their time on both counts—legal arguments they raised that would be viewed sympathetically a generation later were met with hostility in the late 1950s and early 1960s. On the warranty side, courts still viewed the paradigm breach case as one in which the product failed to function in the expected manner—a product failure generally referred to as a manufacturing defect, where the unit of the product that causes injury does not perform like all other units of the product. The courts had yet to accept the notion that breach of warranty might extend to a product that was performing in precisely the manner expected and intended, but that was nonetheless inherently dangerous.
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    In pursuing the other theory, failure to provide an adequate warning, plaintiffs argued that the tobacco industry had an affirmative obligation to be aware of the health risks of its product and to provide warnings to that effect, even before such information became available to the general public. Once again, however, this argument—which would be generally accepted by the 1970s—entailed a more far-reaching approach than the courts were yet prepared to adopt; specifically, a definition of foreseeability that imposed affirmative obligations on a manufacturer to discover product risks.

    Finally, in the very few cases where courts did not dispose of the responsibility question as a matter of law, juries showed no sympathy for the plaintiffs' claims, concluding that there was no detrimental reliance by the smokers on defendants' product representations. The period closed, then, on a note of deep frustration from the perspective of the tobacco-related disease victim—sufficiently deep frustration to preclude any further tobacco tort claims for almost twenty years—underscored by the adoption of a requirement in the new Section 402A of the Restatement Second of Torts (1964) that strict liability claims for product injuries be based on risks that were not ''common knowledge'' such as, among other enumerated illustrations, the risks of tobacco (see Section 402A comment i).


    By the early 1980s, there were new grounds for optimism on the plaintiffs' side that a breakthrough might finally occur in the tobacco litigation. To begin with, products liability law had changed dramatically since the early 1960s, and become much more favorable to injury victims. The state courts across the country had followed the lead of California and the Restatement, subscribing to the principle of strict liability in defective products cases. While it was not entirely clear how broad a definition was to be given to ''strict liability,'' the underlying rationale of enterprise liability was adopted with enthusiasm in most quarters. That rationale was based on one or both of two premises: (1) defendants were in the best position to spread the costs of accidents widely, and (2) defendants were in the best position to discover and reduce the incidence of risks. Each of these rationales seemed to call for extensive responsibility on the part of product manufacturers.
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    In addition to the growing dominance of this ideology, by the early 1980s there were case law developments that might have served as a sign of encouragement to potential tobacco plaintiffs' lawyers. There had been a breakthrough in the asbestos litigation, including landmark cases adopting a definition of foreseeability that created affirmative obligations on the part of product manufacturers to discover and warn against risks. There had been cases subscribing to the position that risk-utility analysis of the basic design features of ''inessential'' consumer products was appropriate. And there had been a cluster of newly-developing mass tort cases, of which asbestos was one example, in which courts had shown a willingness to enter repeated liability awards against an industry when its product caused widespread harm. Finally, there was recent adoption in virtually every state of comparative negligence—abandoning the traditional bar on any recovery to a plaintiff who was even slightly negligent—which meant that a tobacco plaintiff might recover partial damage even if a jury regarded both parties as being at fault.

    Despite all these favorable signs, however, in the period between 1983 and 1992 another 100–150 cases were brought, and, once again, none succeeded. As before, the first line of defense by the industry was to overwhelm the plaintiffs in the pre-trial phase of the case by relying on every possible procedural and evidence-gathering stratagem available to make the case too costly for the opposing attorney to withstand. All of the favorable doctrinal developments of the preceding two decades obviously were only of potential advantage to the plaintiff if the case made it to trial, and, once again, this proved to be infeasible for most tobacco claimants given their limited resources.

    In the few cases where the plaintiffs did make it to the courthouse, they now faced two new defenses that were not yet available to the industry in the earlier round of tobacco litigation. First, the industry argued, without conceding the risks of smoking, that even if such risks existed the plaintiffs were aware of them after more than twenty years of constant publicity in the mass media, along with the warnings the industry was obliged to put on cigarette packages and advertisements—in other words, that plaintiffs assumed the risk. This argument had great force with juries, which continued to show little sympathy for smokers' compensation claims. In some of the cases, plaintiffs attempted to respond by arguing that tobacco was addictive, and as a consequence that they had no freedom of choice in continuing to smoke. In reply, the tobacco industry argued that among ever-smokers one of two had in fact quit smoking—and, indeed, virtually every juror in this period knew someone who was an ex-smoker. Thus, the addiction claim proved to be of no avail.
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    The second defense presented by the industry was a more technical one; specifically, that the claims of failure to provide an adequate warning, based on state tort law, were preempted by the Federal cigarette labeling act that had been passed in 1964. Because the statute made no explicit reference to preemptive intent, the courts of appeals struggled with the issue of whether the tort claims could survive the defense throughout the second wave of litigation. Finally, in 1992 the U.S. Supreme Court decided the question, holding that for negligent failure to warn claims arising after 1964 (when the warning legislation was passed), the statute did indeed have a preemptive effect. Only if the plaintiff could prove conscious misrepresentation or deceit on the part of the industry could the preemption defense be overcome. [Cipollone v. Liggett Group, Inc., 505 U.S. 504 (1992)]

    Cipollone did not appear to leave much of an opening for litigation against the industry. Conscious misrepresentation or deceit is very difficult to prove. Moreover, an element in such a claim is plaintiff's reliance on the misrepresentation—an argument that plaintiffs had experienced no success in making before juries from the very earliest days of the tobacco litigation.

    In summary, it appeared that the industry had succeeded in focusing the inquiry in tobacco cases on the plaintiffs' behavior rather than its own, and beyond this, now had the additional lever of arguing that inadequate warning claims were preempted by the Federal warning legislation. As the second wave came to an end, the situation looked bleak for tobacco claimants. (For a more detailed historical treatment of the tobacco tort litigation, I am submitting a copy of my article, ''A Sociolegal History of the Tobacco Tort Litigation, 44 Stanford Law Review 853–78 (1992).)
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    If one might have expected a lengthy hiatus before a new wave of tobacco litigation was to emerge, that certainly turned out to be anything but the case. What explains the rise of yet another set of challenges to the industry after such a short period of time? Two converging phenomena require discussion.

    In the spring of 1994, the tobacco industry was rocked by a succession of revelations from internal industry documents that had never been made public before. A disgruntled former paralegal assistant who had been discharged by one of the law firms representing Brown & Williamson Tobacco Co. removed private documents from the law firm's files, and sent them to a number of major media outlets and to key Congressional representatives. These documents were soon on the front pages of every U.S. newspaper. Congressional hearings were called, and the commissioner of the F.D.A. announced that he would be considering the possibility of regulatory action, including treating tobacco products as prescription drugs. The documents revealed a lengthy history of internal communications in which the industry appeared to acknowledge the addictive properties of nicotine, discussed and rejected the prospect of making their internal studies public, and terminated other studies that appeared likely to prove embarrassing. At the same time, information became public suggesting the possibility that the industry had manipulated the nicotine content in cigarettes in a fashion that at least arguably was intended to enhance the addictive capacity of its product.

    All of this appeared against the backdrop of striking developments in the general area of mass toxic tort litigation. More specifically, in mass toxic cases involving products like asbestos and breast implants, the courts appeared to be sympathetic to the prospects of class action litigation to resolve at least some questions instead of requiring that each individual case be decided separately on its own merits.
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    Once again, tort law proved to be a sensitive barometer of sociopolitical developments. Plaintiffs' lawyers observed the new and embarrassing revelations about industry suppression of information on the addictive character of nicotine—suppression that might be fashioned into a claim of fraud or deceitful misrepresentation on the part of the industry—and put these revelations together with their new-found success in the class action area to file collective actions against the industry, rather than individual claims, for the first time.

    The most prominent of these was Castano v. American Tobacco Co., a class action filed in Federal district court in New Orleans on behalf of all individuals addicted to tobacco, a class that potentially numbered in the tens of millions. Unlike the cases in the first two waves, Castano was brought by some of the most prominent, and successful, personal injury lawyers. Indeed, some sixty personal injury firms contributed $100,000 each to an initial ''war chest,'' and it seemed clear that the defense would not have the capability of wearing down the plaintiffs through the sheer burden of litigation costs as they had in the past.

    In an interesting variant, a Florida State court certified a class of airline attendants in a ''second-hand smoke'' case. Here, the claim was that the attendants were exposed to smoking by passengers while working in sealed airline cabins, and as a consequence developed smoking-related illnesses. On the merits, this case appeared stronger, in a sense, because the industry could not use the freedom of choice defense against this plaintiff class. On the other hand, the case was clearly weaker on causation—there were (and are) no workplace epidemiological studies comparable to the data on direct health effects of tobacco on smokers.
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    In another striking new collective claims development—not directly based on tort principles—a number of states sued the tobacco industry, seeking reimbursements for health care expenditures, particularly on behalf of indigent disease victims, under governmental welfare programs. In all of these state initiated cases, private personal injury lawyers were engaged as co-counsel—often the same lawyers involved in the major ongoing private class action litigation—to play a leading role.

    These third-wave cases were novel. Never before had the tobacco companies been subjected to class actions involving collective damage claims that could potentially threaten the very existence of the industry. After an initial surge of publicity, however, the litigation picture became much less clear. Castano was eventually de-certified as a nationwide class action, after which the tobacco plaintiffs' lawyers filed state-based class action suits in a number of States. The likely success of those suits remains highly uncertain at this time—in large part, because of the burden of satisfying Federal Rule 23 requirements, a civil procedure topic that is beyond my discussion here of the tort aspects of the tobacco litigation. The airlines attendants' suit was recently settled, but has come under heavy criticism—and collateral attack in court—for failing to provide any direct compensation to plaintiffs. In view of the causation issues, it is an uncertain precedent for other occupational groups, in any event. The first three state health care reimbursement suits have recently settled (a fourth, Minnesota, is currently in trial), but it is difficult to discern whether those outcomes reflect the relative strengths of the claims or an effort to create greater momentum towards a global settlement.

    And what of the individual litigation, in this new era of collective action? Only a handful of cases have gone to trial (and still none has been settled). In the most widely-noted of the lot, a Florida jury awarded a smoker $750,000 in compensatory damages in a case tried on an addiction theory and relying on some of the newly-unearthed revelations about allegedly deceitful industry conduct. But in two subsequent Florida cases brought by the same attorney, relying on essentially the same trial strategy, the jury found for the defendant. Nor have there been individual case successes elsewhere (apart from a singular claim involving a long-since abandoned asbestos filter technique).
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    Nonetheless, one can predict that, in view of the procedural uncertainties in the class action litigation, individual suits are likely to be of some prominence in the immediate future—even if class actions are not barred by Congressional adoption of an immunity provision. This raises two interrelated questions: what is the likely impact of this tort litigation if it continues unimpeded, and, conversely, how would its impact be affected by the terms of the June 1997 settlement plan?

    As indicated above, Cipollone preempted claims for negligent failure to warn, but left open the possibility of fraud actions. As industry documents continue to be released—the most recent indicating industry efforts to develop high nicotine cigarettes and to target underage smokers in advertising campaigns—the case for establishing a pattern of deceitful conduct over an extended period of years becomes ever stronger. As a defense, the industry can still argue lack of reliance (more specifically, that the plaintiff would have chosen to smoke even with the information allegedly concealed), whether the plaintiff is pursuing a traditional injury-based claim or an addiction-based claim for damages. But most judges are very unlikely to dismiss the case on lack of reliance grounds rather than sending it to a jury as a factual question. And once in the hands of a jury, the outcome is indeterminate. Certainly, as mounting evidence is available to establish a pattern of deceitful conduct on the part of the industry, the likelihood becomes ever greater that in some cases at least, large damage awards will result—with a very real prospect of major punitive damages, as well.

    Another theory—also left open by Cipollone—upon which plaintiffs might rely is design defect. Here too the industry can argue a lack-of-reliance type defense; in this instance, the smoker's knowledge of the health risks associated with the product. In addition, many States have required in other design cases that plaintiffs establish a reasonably available alternative design in this type of litigation. But once again, at least in some States, judges will be reluctant to throw out these claims as a matter of law, and a jury—hearing evidence of egregious conduct—may award substantial punitive and compensatory damages.
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    Finally, there is the prospect of individual second-hand smoke litigation. Although the causation evidence (epidemiological studies) may be somewhat attenuated, the barber, bartender, or professional card dealer who has been exposed to thirty years of steady tobacco smoke may well survive a defense motion to dismiss. And again, there is the prospect of punitive damages—this time in a suit by an ''innocent'' plaintiff.

    It is impossible, at this stage, to quantify in precise terms the magnitude of the tort litigation threat to the industry—let alone to factor in the multiplier effect if the procedural impediments to parallel class action tort litigation were to be overcome. Moreover, the situation remains dynamic—more documents will be forthcoming, and, on the other side, the industry may well decide its best interests are served in the litigation by confession of past errors and a show of contrition, with uncertain effects on jury awards of punitive damages. Suffice it to say, the tort litigation—as presently constituted—does indeed create considerable uncertainty about the industry's future financial well-being.

    How would the picture change if the litigation provisions of the June 1997 settlement plan were enacted into law? Consider the most significant provisions:

1. Class action suits are eliminated

    As I have indicated, tort theories based on claims of fraud and/or defective design are sufficiently promising—even when discounted by the prospect of smokers' knowledge-based defenses—to pose considerable uncertainty for the industry. This uncertainty is exponentially heightened by the possibility of success in even a small number of the potential class action claims. Thus, elimination of prospective class actions would greatly lessen the prospects of a catastrophic loss scenario for the industry. Correspondingly, the settlement plan would ban collective third-party payor suits (by entities such as private health care insurers) and require that these claims be brought on a subrogation theory. Third-party payor actions are almost certainly not feasible on a case-by-case basis, particularly if the payor is subject to assumed risk defenses in subrogation actions.
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2. No punitive damages for conduct prior to legislative enactment of the settlement

    This provision is potentially also of major consequence to the industry. It in effect wipes the slate clean for civil punishment of past indiscretions. And, it would greatly reduce the litigation incentives for the millions of current smokers, should they contract a tobacco-related disease, given the high degree of risk in any particular case that compensatory damages will not be awarded (and the not insubstantial litigation costs of suing).

3. Individual annual cap on recovery of $1 million (with rollover provision) if aggregate annual cap of about $5 billion in awards/settlements is exceeded

    The impact of this provision is uncertain. Once again, it creates a substantial measure of assurance for the industry against catastrophic claims success. Whether it would depress the number of future suits that would be brought is less clear—especially in light of the more substantial disincentive of no punitive damages for past misconduct. But the volume of premature deaths annually associated with smoking is so high that a major breakthrough in claims for compensatory damages, however unlikely, is a prospect that the industry would almost certainly prefer to have put to rest.

4. All addiction/dependence actions ''settled''

    This legal theory is directly linked to the claims of industry manipulation and suppression of information about the properties of nicotine. It is also less vulnerable to the defense of smoker awareness than disease-based claims. Still, evidence of addiction and of industry concealment would nonetheless be admissible in disease-based fraud and design defect cases—assuming that ''settled'' means simply that this legal theory is no longer available as the independent basis for a claim. As a consequence, it is unclear that this provision would greatly influence the course of individual tort litigation.
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5. ''Reduced risk'' evidence of newly marketed products not allowed

    Here too it is not clear that the limitation would greatly change the likelihood of tort recoveries. Many states already recognize this proscription in products cases generally. And, it is of course premised on the marketing of reduced risk products.


    These are not the only tort litigation provisions in the June 1997 settlement proposal, but they are the ones of greatest potential import in my view. The pervasive theme is greater certainty for the industry about the financial consequences of continuing tort liability. That is, of course, the trade-off the industry seeks in return for the payments and concessions they offered in other provisions of the settlement plan. In at least two instances—immunity from both class action liability and punitive damages for past indiscretions—the very real (albeit indeterminate) prospect of catastrophic loss for the industry would be virtually eliminated. And in the case of punitive damages, the immunity might well create more general disincentives to bring compensatory damage claims in the foreseeable future.

    Whether this is a worthwhile trade-off from a societal perspective depends, of course, in the first instance on whether one views a trade-off as necessary at all from the perspectives of fairness, economics or public health. If so, the follow-up inquiry is the very difficult question of precisely what benefits are derived from the settlement. These issues extend far beyond the domain of tort litigation.
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    Mr. HYDE. Thank you, Professor. If I just can inject a personal note, your history of tobacco litigation is important and very interesting. My own personal experience with tobacco involves the effort of a colleague of ours, a Democrat named Dick Durbin from Illinois, who had legislation I never thought would pass to forbid smoking on aircraft——

    Mr. RABIN. Landmark legislation, yes.

    Mr. HYDE [continuing]. And, by golly, it passed, and developing from that wedge into the culture, there has been a tremendous culture shift where it is now inappropriate. It just is not acceptable to smoke. And this shift in the culture may be the answer to our drug problem if we could ever figure a way to make the culture be as repelled——

    Mr. RABIN. Yes.

    Mr. HYDE [continuing]. By narcotics as they are by tobacco. But, it was an incredible shift in the culture and it began with little, in my experience—now, I didn't have the wide experience you've had in litigation throughout the country—but the change in the culture started with the airplanes and with a visionary member of Congress who really wanted to make a change. So, it's a fascinating sociological development, shifting the culture, which helps win the battle.

    Professor Coffee.
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    Mr. COFFEE. Thank you. Because the day is late, time is short, let me get to my bottom line quickly and then try and add qualifications as time permits. I also want to say some things that I think have somewhat been left out of this conversation, although they're implicit in what several of the other professors have been saying.

    First of all, procedure dominates substance. Unless we can design a procedural forum that provides a viable opportunity for a claimant to receive an expeditious resolution of his or her claim, nothing is going to matter, because whatever the substantive law is, these rights are not going to be exercised.

    Now, I think there is a middle ground that will work and I'll make some specific recommendations at the end of my comments and they are outlined in my memorandum. But, I frame the dilemma this way. I have two basic premises. One is that mass tort class actions covering long-term exposure to toxic substances will not be certified today, not in the Federal courts, and probably not in most State courts. They may get certified in a few State courts, but that will not provide on a national basis compensation to anything like a significant fraction of the total population out there that is looking to Congress to provide them some opportunity for a day in court. That's premise one.

    Premise two, under the settlement, individual actions, which have been rarely viable at all, are going to be much less viable, both because of the elimination of punitive damages and because of the abolition of the addiction or nicotine dependency claim, which has been the plaintiffs' favorite claim to date. I'm not saying individual cases will not be brought. I'm saying not many individual cases will be viable to the profession. The plaintiff's attorney, who lives on a contingent fee, will see this as a high risk, low profit opportunity, and he cannot make a living investing in those kinds of cases.
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    Even if there are some cases that will be brought, let me make two comments about reliance on individual actions in light of the long experience we've had with other mass torts, most notably asbestos. The cases that may get brought on an individual basis will be high-stakes cases—the person who has a fatal lung cancer. The person who will not be able to get a lawyer to represent him is the person who has emphysema, or some other injury that makes them disabled, unable to work, but these plaintiffs don't have high enough stakes—high enough damages—to attract a plaintiff's attorney on a contingent fee basis. Thus, individual actions are not going to reward certain kinds of legally meritorious claimants.

    Also, from the history of asbestos litigation, we know that if we rely upon individual claims, 70 percent of the dollars that the industry pays out tend to go in attorneys fees—either to defense counsel, or to plaintiff's attorney. Only a trickle comes through to benefit the actual injured victim.

    So what then is the optimal response? What then is the answer if class-actions look unviable and individual actions are going to be substantially discouraged? I think the best answer is one that courts are discovering in other mass-tort contexts today; and that is case aggregation through case consolidation, the use of joinder, and other consolidation procedures that are available today under the Federal rules of civil procedure. No one is asking and I'm not suggesting that these rules be enhanced; they are there already. It's just that the proposed settlement would eliminate the availability of aggregation devices and case consolidation devices.

    And I think that the industry has very little legitimate justification to do that because the industry's liability is fixed. The industry does not win or lose when the plaintiff wins or loses. The real allocation of money is between the private plaintiffs who are suing, and the States who will get the money if the private plaintiffs don't win. Where the industry's liability is fixed and it doesn't gain or lose, it's got very little legitimate interest in saying that they want to dictate the process by which cases are resolved.
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    Now, because I have already told you I don't think class actions will work, I think the answer should lie with case consolidation procedures. And I propose three things at the end of my statement. One is a kind of intermediate rule of thumb: Permit case consolidation so that individual attorneys can represent some number of plaintiffs—maybe 200, maybe 500, maybe more, but a limited number. And on that basis, they can represent an entire inventory of cases. They can afford to undertake this kind of litigation and they can afford to invest in the expert witness and costly discovery that it takes to win. And they will be able to represent not only high-stake claims, but other kinds of lesser claims within that inventory of cases. That's what's happened in the asbestos field.

    I also suggest that we do what's just been done in the flight attendant's class-action in Florida where, by agreement, the industry has agreed to shift the burden of proof on causation. Where the industry has already agreed to that kind of settlement, I think that it is feasible to talk about doing that—possibly in conjunction with the suggestion made by the Attorney General from Colorado for a Federal cause of action. If the burden of proof on causation was shifted, as the industry has already conceded in one settlement, then these smaller cases—individual or consolidated cases—become somewhat more viable and there is at least a prospect of access to justice.

    My time has run out. The rest of my proposals are in there, but I think we can learn a lot from the recent experience of other mass-torts, and they are being increasingly resolved through claims resolution facilities and aggregation devices.

    [The prepared statement of Mr. Coffee follows:]
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    My testimony will focus on four related questions, each of which proceeds initially from the language in Title VIII of the Proposed National Settlement (the ''Settlement''), which states in Paragraph A (1) that:

  1. Present Attorney General actions (or similar actions brought by or on behalf of any governmental entity), parens patriae and class actions are legislatively settled. No future prosecution of such actions. All 'addiction'/dependence claims are settled and all other personal injury claims are reserved . . . .

The intent of this provision is further amplified in Paragraph B(2) of Title VIII, which provides:

  2. Individual trials only: i.e., no class action, joinder, aggregations, consolidations, extrapolations or other devices to resolve cases other than on the basis of individual trials, without defendant's consent

  Action removable by defendant to Federal court upon receipt of application to, or order of, state court providing for trial or other procedure in violation of this provision.

There are ambiguities in this language (for example, does the phrase ''other devices to resolve cases other than on the basis of individual trials'' preclude a State or Federal court from granting summary judgment or a directed verdict for the plaintiffs?). But I will principally focus on the following larger questions:
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    (1) Would tobacco class actions have been viable in the absence of this provision under the current interpretations of Fed. P. Civ. P. 23 (or the typical state equivalent of that rule)?

    (2) In the absence of class actions, are individual actions viable? That is, will plaintiff's attorneys motivated by contingent fees take on the representation of such individual cases? In what instances? Who will not find representation?

    (3) Given that (a) the industry's liability is capped by an annual ceiling, and (b) the industry is committed to pay specified annual amounts under the Settlement, which liability appears not to be reduced in the aggregate even if individual liability is not established, does the industry have any incentive to defend individual cases? That is, even if individual cases have never succeeded in the past, will they now succeed because the industry has little economic incentive to defend cases that do not increase its net liability? If this proves to be true, what will be the impact of the industry failing to resist liability that does not affect them? Should Congress respond to these problems in any way?

    (4) What impact does the prohibition against aggregation or consolidation have? Does it impose unnecessary burdens on state courts (and, to a lesser extent, Federal courts) because duplicative cases cannot be efficiently consolidated?

    All these questions lead up to a larger question: Are there marginal respects in which Congress might modify the settlement in order to (1) make individual actions viable, (2) realize greater efficiency (or impose less burdens on the judicial system) in the processing of tobacco litigation or (3) assure greater equality of treatment among similarly situated cases? Of course, any suggestion that modifications be made will lead to predictable responses that any modification is a ''deal-breaker.'' However, this claim is made in virtually every settlement negotiation, and my testimony will only discuss relatively modest possible revisions.
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    If the Committee has heard the name of one case in this field, it was probably that of Castano v. American Tobacco Co., 84 F.3d 734 (5th Cir. 1996). In that case, the Fifth Circuit reversed certification of a proposed nationwide class action on behalf of ''nicotine dependent persons'' for a variety of reasons, but principally because such a multistate class necessarily involved applying the law of all fifty State jurisdictions. In the Fifth Circuit's judgment, the variations among the States in applicable legal standards were sufficiently significant to cause the proposed nationwide class to flunk the ''predominance'' and ''superiority'' standards under Rule 23 of the Federal Rules of Civil Procedure.(see footnote 16) Although the class complaint in Castano pleaded at least nine distinct causes of action (i.e., for (1) fraud and deceit, (2) negligent misrepresentation, (3) intentional infliction of emotional distress, (4) negligence, (5) violation of State consumer protection statutes, (6) breach of implied warranty, (7) breach of express warranty, (8) strict product liability, and (9) ''redhibition'' under the Louisiana Civil Code), it must be emphasized that Castano was itself a scaled-down class action, specially designed to avoid the industry's standard (and usually successful) ''freedom of choice'' defense. Essentially, the Castano complaint pleaded that nicotine was addictive, that the cigarette industry knew that nicotine was addictive, and yet denied it and failed to warn smokers, and manipulated nicotine levels to maintain the class in their addicted state. This styling of the complaint was intended to avoid the preemptive impact of the Federal Cigarette Labeling and Advertising Act under the Supreme Court's 1992 decision in Cipollone v. Liggett Group, 505 U.S. 504 (1992); that is, plaintiff pled that the warnings on cigarette labels did not inform consumers of the risk of addiction.
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    General agreement exists today that the Fifth Circuit's reversal of Castano has effectively implied the end of any nationwide tobacco class action for money damages (and probably for other relief as well) based on addiction or ''nicotine dependence'' (or any similar theory) given the difficulties in certifying a multistate class in a tort case. Although the law in other Circuits may be marginally more favorable to certification than in the Fifth Circuit,(see footnote 17) plaintiffs conceded the practical impossibility of a nationwide class and responded to Castano by seeking to certify ''nicotine dependent'' class actions on a State by State basis (either in Federal or State court). In principle, this enabled them in order to avoid the multi-state law problem and the consequent need for the fact finder to apply multiple legal standards to any fact situation. However, this second wave of ''mini-Castano'' litigation has met with only modest success at best to date. In Arch v. American Tobacco Company, 1997 WL 312112 (E.D.Pa. June 3, 1997), a Federal district court refused to certify a proposed Rule 23(b)(3) class action for money damages against the tobacco industry on behalf of Pennsylvania residents, finding that neither the predominance nor superiority requirements were satisfied. Later, the court did certify a class action for medical monitoring (a form of equitable relief),(see footnote 18) but ultimately it decertified even this action.(see footnote 19) The import of this extended litigation appears to be that even in class actions that are not primarily for money damages (and that therefore do not have to satisfy the stricter standards of Rule 23(b)(3)), a nicotine-dependent theory raises ''far too many individual issues to proceed on a class-wide basis.'' Id. at *7. Several other state wide classes have similarly been denied certification. See Smith v. Brown & Williamson Tobacco Corp., 174 F.R.D. 90 (W.D. Mo. 1997), aff'd 107 F.3d 873 (7th Cir. 1997); Lyons v. American Tobacco Co., 1997 U.S. Dist. LEXIS 18365 (S.D. Ala. Oct. 1, 1997).
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    The only exceptions to this generalization are decisions in State courts in New York and Florida. In Small v. Lorillard Tobacco Company, Inc., X N.Y.S.2d _, 1997 WL 810868 (N.Y. Sup. Ct. Oct. 28, 1997), a damages action was certified on behalf of all New York State residents who are nicotine dependent ''who bought those cigarettes in New York.'' However, unlike Castano, the plaintiffs in this case sought only damages for ''the money they spent in a transaction that was purportedly riddled with fraudulent activities.'' Id. at *3. In so finding, the New York court still observed:

  Undoubtedly a claim which turns on proof of actual addition would involve far too many subjective factors and present many of the same manageability concerns cited in Castano to warrant class treatment.(see footnote 20)

In short, only because the damages were ''to be measured by the cost of the cigarettes purchased, not by the harm the plaintiffs suffered from smoking'' was the court willing to certify the class. Such a class action, however, can provide only modest relief to the class members.

    Florida courts stand as the one significant exception to this pattern of judicial resistance to the certification of tobacco class actions. In R.J. Reynolds Tobacco Co. v. Engle,(see footnote 21) the trial court certified a class consisting of all United States citizens and residents who had suffered or died from diseases and medical conditions caused by their addiction to cigarettes that contained nicotine. The District Court of Appeal limited the class to all Florida citizens who otherwise met the class description, and the Florida Supreme Court denied certiorari. Florida has also certified a nationwide class of flight attendants exposed to second hand smoke,(see footnote 22) which case has now settled in a highly controversial settlement that provides no financial recovery to the class members.
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    Although the repeated willingness of Florida courts to certify tobacco class actions precludes any blanket conclusion that tobacco class actions for personal injuries will not be certified, there is still a further barrier confronting plaintiffs' attorneys willing to undertake the risk. In Amchem Products, Inc. v. Windsor, 117 S.Ct. 2231 (1997), the Supreme Court has raised major constitutional barriers to any attempt to group within one class both ''present'' and ''future'' claimants. ''Future claimants'' typically are persons who have been exposed to a toxic substance or carcinogen, some of whom will develop illness after a long (often multi-decade) latency period. While Amchem Products dealt with exposure to asbestos, the issues are almost identical in tobacco personal injury class actions. Although the Court did not formally rule on the question, it expressed doubt in Amchem Products whether adequate notice could ever be given to future claimants who have not yet developed any symptomatic illness. More generally, the Court raised ''due process'' concerns about the lack of sufficient ''cohesiveness'' in sprawling class actions, and suggested that, absent such cohesion within the class, no representative or lead plaintiff could bind absent class members to any settlement. A still unresolved possibility exists that some of the problems raised in Amchem Products can be outflanked by the use of classes certified not under Rule 23(b)(3), but under the ''limited fund'' provisions of Rule 23(b)(1)(b) or Rule 23(b)(2).(see footnote 23) Still, it is doubtful that the highly profitable and very solvent tobacco industry could successfully utilize this provision, as its assets do not seemingly constitute a limited fund.

    The fact that few courts to date have been willing to certify tobacco class actions does not mean that this pattern will persist indefinitely. In principle, Congress could also modify Rule 23 so as to lower (or raise) the barriers to class certification. This would be controversial to say the least, but it would also be possible for Congress to legislate special rules for tobacco class actions. Again, however, there are obstacles to even this approach, as the courts have increasingly ''constitutionalized'' this area. Accordingly, looking forward to the middle range future, the conclusion seems therefore justified that, even in the absence of the prohibition on class litigation contained in the Settlement, few class actions are likely to be certified that seek damages for personal injury as a result of nicotine addiction (or other smoking-related illness or injury). Those that are certified, if any, will probably be ''mini-Castano'' class actions, covering only the citizens of a single State (or employees in a limited occupational category who were exposed to second-hand smoke). In this light, class litigation is likely to produce uneven outcomes in which ''like'' cases are not treated alike and only a low percentage of potential class members will be compensated. Finally, experience with class action settlements (including the recent Broin settlement) suggests that the settlement may benefit the plaintiffs' attorneys' more than the class. In Broin, class counsel is seeking a $46 million attorneys' fee, while the class members received no financial recovery.(see footnote 24)
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    It is not difficult to find recent appellate cases permitting individual litigants to sue for tobacco-related injuries or illness on a variety of legal theories (usually strict liability and breach of implied warranty).(see footnote 25) But to date, only one case has resulted in a plaintiff's judgment (and that one resulted only in a comparatively modest $750,000 verdict, which is still on appeal).(see footnote 26) Three reasons are usually given for the industry's extraordinary rate of success in such litigation: (1) the tobacco industry's willingness to engage in costly, spare-no-expense litigation that exhausts the resources of the typical individual litigant;(see footnote 27) (2) the appeal of the industry's ''freedom of choice'' defense, which argues that individuals made a personal choice to accept the risk of smoking; and (3) the impact of Cipollone v. Liggett Group,(see footnote 28) which found the Federal Cigarette Labeling and Advertising Act, as amended in 1969, to preempt claims as of 1969 and thereafter based on a failure to warn or similar omissions.

    Others (whose crystal balls are clearer than mine) believe that juror attitudes will change as new revelations surface about nicotine ''spiking'' and manipulation. Perhaps, they are right (although my non-expert, intuitive sense is skeptical of such predictions). My focus is instead on the impact of the Settlement on individual litigation. The Settlement includes four important provisions that make individual litigation far less viable than before:

    (1) it precludes punitive damages (See Title VIII, Section B (1));
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    (2) it provides that individual judgments above $1 million must be deferred (to the extent above $1 million) if the ceiling on an individual year is reached; the excess can only be ''paid at the rate of $1 million per year, until the first year that the annual aggregate cap is not exceeded. . . .'' (See Title VIII, Section B (9));

    (3) all ''addiction/dependence'' claims are deemed settled (See Title VIII, Section A(1)), thereby denying plaintiffs their favorite current legal theory; and

    (4) all aggregation, joinder, or consolidation devices are forbidden to the extent that they seek ''to resolve cases other than on the basis of individual trials'' (See Title VIII, Section B (2)). Each of these provisions significantly either (a) reduces the expected return to the contingent-fee compensated plaintiff's attorney, or (b) increases the expected costs (by precluding economics of scale that result from aggregation).

    To understand the combined impact of these provisions, it is useful to consider a hypothetical that employs some realistic numbers: Assume a plaintiff's attorney enters into a contingent fee arrangement with a client who has a diagnosed condition of lung cancer, allegedly attributable to the client's 20 year smoking addiction. The attorney contracts to receive 33 1/3% of any recovery by the client and agrees in return to advance the reasonable expenses of the litigation. The attorney estimates that the out-of-pocket costs of the litigation will run to not less than $500,000 (for expert witnesses, discovery, motion practice and the pro-rated salaries of the attorney's secretaries and paralegals). On this basis, assuming that any recovery is at least five years off (not counting appeals), the attorney knows that any recovery of under $2 million will produce an economic loss. That is, an eventual $2 million recovery will result in the subtraction of $500,000 in expenses (for a net total of $1.5 million) and then one-third of the balance (or $500,000) will go to the attorney. But this $500,000 must compensate the attorney for several years effort, and this possible recovery must further be discounted by the over 90% probability that the attorney will not be successful (given that only one such plaintiff has won in the past).
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    These are already long odds, but the elimination of punitive damages greatly compounds the problem. The attorney must anticipate an expected recovery of $2 million in my hypothetical to accept this gamble. This $2 million figure is in reality the weighted average of the dispersion of all possible outcomes. If punitive damages are available, it is possible that there is a 10% chance of a very large (say, $50 million) recovery (which outcome has ''an expected value'' of $5 million after discounting for risk, and even less after discounting for the time value of money). In theory, this could offset the 90% chance of a defendant's verdict (which represents at least a $500,000 loss to the attorney). Depending on how we hypothesize the structure of the probability dispersion of possible outcomes, it is conceivable (if just barely) that the upside could balance the downside and give the action an expected value above the necessary cutoff point (here, $2 million). But, if the law prohibits punitive damages, the right side of this probability dispersion is simply eliminated, and now the dispersion runs from negative $500,000 to positive $2 million (the highest expected compensatory award), thus producing a weighted midpoint which may barely be positive and in any event well below the minimum acceptable return of $2 million if the plaintiff's attorney is to make a high-risk investment of the attorney's time and money in this action.

    The Settlement's deferral of any judgment over $1 million further renders the action unattractive as an economic investment to the attorney, because of the time value of money. At a 10% discount rate, a $1 million judgment deferred for a year is worth 10% less today (or only $900,000). Finally, the prohibition on multiple trials or consolidation precludes the attorney from realizing obvious economies of scale, such as by retaining an expert witness to testify at a joint trial covering ten (or one hundred cases) for the same fee. As costs are reduced in this fashion, the minimum expected individual recovery necessary for the attorney to accept the case is reduced.
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    All these factors imply that if plaintiffs' attorneys were reluctant to accept tobacco cases before the Settlement (and seldom carried to trial those cases that they did accept), they should be far more skeptical of individual tobacco cases after the Settlement. Within the four corners of this framework, this analysis seems incontestable: the expected recovery goes down; the expected costs go up, and fewer cases are predictably accepted.

    But there is a wild card that complicates analysis and makes all predictions contingent: Under the Settlement, the industry is committed to make annual ''Base Payments'', which begin at $6 billion and move up by the 9th year to $15 billion (See Title VI, Section B (3)). Under Title VIII, Section B (9), an ''annual aggregate cap'' is placed on ''judgments/settlements'' that the industry must fund equal to one-third of this amount. Thus, the industry receives a ceiling of between $2 billion and $5 billion on its annual liability for tobacco-related suits. It does not appear that any shortfall in this amount reverts to the industry or otherwise benefits it.(see footnote 29) This gives the industry a very weak incentive (at best) to defend tobacco litigation. That is, if the industry is liable for $2 billion in a given year (and no more or less), why should it expend, say, $500 million on defending these cases (even if it spent more than this amount annually in the past)? Logically, it has little economic incentive to defend cases where its liability is fixed.

    This could mean that plaintiffs will face passive defendants in the future. Indeed, state court judges could consider the industry's annual contribution a form of ''free money'' which they are at liberty to distribute. If this is perceived by plaintiffs, a heightened rate of litigation is predictable; indeed, this could supply a plausible justification for the $1 million ceiling (or rollover provision) on individual judgments, which defers the amount in excess of $1 million to future years. In this light, such a provision helps prevent any ''raid'' on the fund by aggressive plaintiffs' attorneys who will seize a disproportionate share in the absence of any opposition by defendants. Again, this analysis depends on there being no reversion to the defendants if there is a shortfall in aggregate liability below the annual ceiling, and this provision is not spelled out with adequate clarity in the Settlement.
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    If there is no incentive to defend individual tobacco suits, it becomes predictable that there will be a ''raid on the fund''. This has happened in the case of many other mass tort settlement funds (most notably the Johns Manville asbestos trust fund), whose assets were quickly depleted.(see footnote 30) Judges might even compete with one another to obtain the largest possible share of the fund for citizens in their jurisdiction. That is, judges in one state might seek to hurry the processing of cases so that their citizen plaintiffs would not be cut off by the ''annual cap'' (which would instead apply to citizens in other states).

    At this point, the industry does begin to have an understandable concern. If cases are not defended, plaintiffs may amass judgments for amounts well in excess of the annual ceiling (say $20 billion when the ceiling is $2 billion). These amounts roll-over until future years, and quickly a queue develops. This could have politically destabilizing consequences for the industry, as persons holding unsatisfied judgments might become a politically powerful constituency that would demand that Congress modify the Settlement in order to increase the fund and satisfy their judgments. To be sure, there may be constitutional problems with any attempt to enhance the fund on this retroactive basis (as to which I express no opinion), but the result is that the industry may have some incentive to defend, even though their liability is fixed. Reputational interests may also motivate the industry to defend cases (but probably not to the same extent as before). At best, there is a very unstable and uncertain equilibrium here, which makes prediction of the industry's behavior difficult

    Even if the individual actions are undertaken because the industry no longer engages in the same ''scorched earth'' level of defense as before, one should not expect that all claimants will receive representation. Contingent fee attorneys, suing on an individual client basis, are likely to represent only ''high stakes'' claimants (e.g. lung cancer patients and similar persons with injuries likely to produce high damages). Persons with lesser injuries (and hence lower valued claims) are less likely to be able to secure representation (for example, a person with serious, but non-life threatening lung incapacity, such as emphysema). From a public policy perspective, this is the one advantage of the class action: it compensates not only those with the highest valued claims, but also persons with intermediate injuries. It is unrealistic to expect that the contingent fee system will motivate plaintiffs attorneys to take on such claims, so long as their recovery is a percentage of the victim's award or settlement.
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    Under Title VIII, Section B(2), of the Settlement, all ''joinder, aggregations, consolidations, extrapolations or other devices to resolve cases other than on the basis of individual trials'' are precluded unless the defendants consent. The first question is: what legitimate interest does this provision serve? If the industry's liability is fixed (that is, it is to pay $368.5 billion, subject only to the inflation and volume adjustments under Title VI), it would not seem to have any economic self-interest in restricting how state and federal courts process cases that do not affect its total financial liability.

    In contrast, courts have a very strong interest in consolidation and similar techniques, as it enables them to efficiently handle individual cases that otherwise might overwhelm their limited logistical capacities. In particular, the prospect of mind-numbing repetition of individual cases, all involving the same factual claims, may demoralize courts (and can cause some highly qualified judges to leave the bench).

    The Manual for Complex Litigation (which is the ''bible'' for Federal judges and has been promulgated and regularly revised under the auspices of the Federal Judicial Center) today recognizes and recommends the use of ''bellwether trials.'' See MANUAL FOR COMPLEX LITIGATION, §33.27–28 (3d. ed. 1995). Under this practice, a trial (or trials) involving one or more members of a group of claimants is used to provide a basis for resolving common issues or claims. Although there are a variety of issues surrounding this practice (particularly as to how the representative cases will be selected), the Fifth Circuit recently noted in 1997 that:

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  The reasons for acceptance [of the technique] are apparent. . . . Common issues or even general liability may also be resolved in a bellwether context in appropriate cases.(see footnote 31)

    Such a procedure is, of course, precluded by the Settlement, but this bar seems an example of unnecessary overbreadth. Tobacco cases are a classic example of what is termed an ''elastic mass tort''—that is, the universe of potential claimants is neither known nor identifiable with certainty. Although individual cases have been few and rare in the past, this could change once there is a settlement fund and little obvious incentive on the part of the industry to incur expenses in defending such cases. At this point, courts have a legitimate interest in protecting their own processes and dockets, and both they and legislatures may want to devise procedures for the equitable allocation of the industry's payments. Consolidated procedures are an obvious way to prevent (or slow down) any ''raid on the fund.''

    ''Bellwether trials'' involving the extrapolation of the outcome at a single trial are only one form of sampling technique that is now in use. In a much discussed case involving asbestos claims, Cimino v. Raymark Industries, Inc.,(see footnote 32) Judge Robert Parker (now of the Fifth Circuit) faced the prospect of trying 2,298 hotly contested (but highly duplicative) damage trials involving asbestos claims. He solved the problem by using a technique known as ''stratified sampling.'' He first divided the population of 2,298 cases into five disease categories and selected random samples from each category for a total of 160 sample cases. He then held jury trials on the damages issue for each of the sample cases; then, he combined the sample verdicts to arrive at a total damage award for each case in the overall population (the sample cases got their actual jury award, not the averaged award). This procedure or related procedures have been endorsed by most recent scholarly commentary in the field.(see footnote 33) Although there has also been some criticism,(see footnote 34) the issue before the Congress is not whether to endorse any specific device, but rather whether to deny courts the ability to use any of them (even after it is determined that they comply with due process).
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    The bar in the Settlement goes well beyond simply precluding sampling techniques. It also precludes ''consolidation''—a term usually used to mean any judicial order that separately filed cases be litigated in joint proceedings for some phase (or all phases) of the litigation. Federal courts are today making increased use of consolidation, and prestigious law reform groups—such as the American Law Institute and the Federal Courts Study Committee—have recommended increased use of consolidation.(see footnote 35) By some estimates, consolidation is now an everyday judicial event. For example, the Federal Panel on Multidistrict Litigation ordered consolidation in over 39,000 civil cases during simply a fifteen month sample period ending on September 30, 1992.(see footnote 36) At the state level, mass joinder of cases is a long recognized technique which may be as frequently utilized as the class actions device.(see footnote 37)

    At the Federal level, Rule 20 of the Federal Rules of Civil Procedure allows large numbers of plaintiffs to join in a single action (if the claims to be so joined share common questions of law and fact).(see footnote 38) As an alternative to joinder, individual claims presenting common issues of law or fact may be consolidated for common treatment pursuant to Rule 42 of the Federal Rules of Civil Procedure. Actions in different courts may also be transferred for common pre-trial treatment pursuant to 28 U.S.C. §1407.

    Given the prevalence of joinder and consolidation and the interest of courts in efficient procedures, persuasive justifications for precluding all case aggregation techniques seem necessary, and here they are lacking. The usual justification is that the ability to aggregate cases gives the plaintiff's attorney extortionate leverage over the defendant. At best, this is a half truth, because, even with these techniques long available, the industry appears never to have settled either a class action (other than the earlier discussed Broin case) or a consolidated proceeding, and it has only lost one judgment to date (which remains on appeal). Although other defendants may make this ''extortion'' argument with greater sincerity, it really is a questionable proposition in any case. On a disaggregated basis, the battle between an individual plaintiff and a large corporation is equivalent to a confrontation between a single Lilliputian and Gulliver. On an aggregated basis, enough Lilliputians may well be able to overcome Gulliver, but the playing field is far from inherently equal or level in either case. The false premise used to justify a bar on aggregation is that one-to-one contests between an individual plaintiff and a large corporate defendant are somehow ''fair'' and ''equal''. Yet, if both sides must hire expensive experts and incur discovery costs, the defendants can allocate those costs across potentially thousands of cases and the plaintiff cannot—unless plaintiffs can aggregate their cases.
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    In any event, where the actual payments to be made by the defendants are fixed, defendants do not face any additional financial exposure from case aggregation. Thus, precluding such devices does not benefit them but does do a disservice to State and Federal courts whose time and resources are wasted on repetitive trials.

    Conceivably, there may be a concern that case aggregation may allow a few plaintiffs' attorneys to file and quickly settle actions on behalf of several thousand claimants and thereby ''raid the fund,'' while slower moving individual cases are processed at a slower pace. The result might be to allow the ''quick settlers'' to jump ahead of other plaintiffs and place the latter at the end of the queue (having to wait until later years if the ''annual cap'' on payments is thereby exceeded). Also, as noted earlier, the industry may fear the prospect of total judgments exceeding their agreed liability under the Settlement by some significant ratio (say, 10:1) for fear of the political pressure to re-open the Settlement in that event.

    But if this is the fear, it should not justify a total bar on case aggregation. For example, a statutory rule that not more than a specified number of cases (e.g., 200, 500, 1,000) could be consolidated or joined in any tobacco proceeding would prevent the assembly of any ''mega-group'' that would have ''extortionate'' leverage against this very strong industry. Such a consolidation ceiling (in lieu of a consolidation bar) would also permit plaintiffs' attorneys to realize some economies of scale and it would greatly relieve the logistical burdens on courts (State and Federal). Put simply, it is a realistic compromise to a problem that at most justifies only a partial remedy.

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    If past is prologue, individual actions, which were not viable in the past, will not become viable in the future, particularly in the absence of punitive damages. As just noted, however, the past may not be an accurate guide to the future, given the uncertain incentive that defendants have to defend cases that do not affect their liability.

    Against this backdrop, what intermediate options should Congress consider? I submit that three proposals are entirely practical and would not truly prejudice the tobacco defendants under this settlement:

1. Permit Consolidation and Aggregation Up to a Point

    In truth, there is little reason to bar class actions (because they do not financially prejudice defendants whose liability is fixed); however, as noted earlier tobacco class actions probably cannot be certified without a change in the law. Thus, the best compromise may be to permit case aggregation through consolidation and joinder and permit sampling techniques—but place some quantitative ceiling (whether 200 or 1,000) on the number of individuals who can be joined or otherwise grouped together as plaintiffs in any one action. Consolidation and aggregation devices would also enable individual attorneys to represent claimants whose cases did not involve high stakes claims (e.g. persons with tobacco-related disabilities, such as emphysema, but who did not have probably fatal conditions). The attorney could settle his or her entire inventory of claims with the defendant (as has happened regularly in asbestos litigation).

2. Make Individual Actions Viable By Shifting the Burden of Proof on Causation
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    This compromise has already been accepted by the industry in the Broin flight attendants Settlement and hence should not cause this Settlement to crater. The most expensive financial obstacle to plaintiffs in tobacco litigation is the need to prove causation through expensive expert testimony; this issue can also prolong the litigation and justify much costly discovery by defendants. Yet, the issue can be resolved by Congress, which can shift the burden to defendants to disprove that exposure to tobacco did not cause the plaintiff's injury. Such a step would not necessarily make individual actions viable, but by reducing the projected costs of litigation, it opens at least the possibility that individual litigation might be viable.

3. Establish a Settlement Trust Fund With Independent Trustees

    Most mass tort actions (or mass tort bankruptcies) have been resolved with a long-term settlement fund that is administered by independent trustees. The premise is that once the industry's liability is fixed, it should not control future litigation. In the normal case, the Trust Fund's trustees are instructed as to general principles and then work to protect the fund from any ''raid'' on it. Such trustees have also proven the best defense against excessive fees by plaintiffs' attorneys handling individual cases.

    Under the Settlement, the industry's liability is capped, and the industry's solvency is unquestioned. But, the prospect of something similar to a ''raid on the trust fund'' is very real. If numerous cases are filed and settled, the annual ceiling will be exceeded, and a queue will develop—with the result that claimants may wait years before receiving any recovery. Future tobacco litigation should be handled by independent trustees whose instructions should be to defend weak cases and settle strong ones, but above all to achieve expeditious resolution and avoid delay for the sake of delay. This would be a change from the current spare-no-expense style of litigation that overwhelms individual claimants. The Settlement should also provide that the cost of the trustees' defense of claims should be borne by the industry as an additional expense. Such provisions have worked in the case of a successful mass tort settlement funds (such as the Dalkon Shield) and they could work here.
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    Mr. HYDE. Thank you very much, Professor. Very helpful. And we have been discussing case consolidation among ourselves, and we'll certainly read your material with great interest.

    Our final witness, and I congratulate him for his wonderful patience, is Mr. Harold Taylor. Mr. Taylor, would you?


    Mr. TAYLOR. Excuse me, but my battery died.

    I have not received any Federal grant, contract, or subcontract in the current and preceding new Fiscal Year.

    My number one reason for being here today is to represent every person that has ever smoked—living or dead.

    I am here today, to speak for millions of victims of the tobacco industry and to oppose a settlement that would bar people like me from holding the tobacco industry accountable.

    Most of what you will hear from me today is because of my new pattern of thinking. I only allowed myself to develop this new pattern of thinking after a team of doctors cut my throat. Only after my throat was cut, was I able to beat my addiction and to stop my denial. I recently realized that when kicking a tobacco addiction, denial is much more powerful than the addiction itself.
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    I began to smoke when I was about 15 or 16. In those days Chesterfield and Lucky Strike advertisements made smoking seem cool and glamorous, and there were no warning labels. After smoking for 36 years, I developed cancer of the throat. As a result of that cancer, my larynx and vocal chords were removed. This operation left a hole in my neck. I will have this hole in my neck for as long as I live. I must endure hardship every day for as long as I live.

    You might look at me and think: well he doesn't look that bad to me. But what's really wrong with me you cannot see. My nose looks normal, but my nose is really like a theatrical prop. My nose no longer serves a purpose. I no longer have a sense of smell, and this can be dangerous. If there is ever a gas leak, I would pass out without ever smelling any gas. When I blow my nose, nothing comes out, but something does come out of the hole in my neck.

    I no longer have a sense of taste. I cannot tell the difference between a bowl of spaghetti and a bowl of beans.

    I breathe through the hole in my neck. I breathe through the hole in my neck, and this means that I will never be able to breath through my mouth or nose. I must clean the hole in my neck 20 or more times every day.

    Congress is also responsible for the annual 425,000 tobacco-related deaths. We must hold them accountable for past and future harms. This settlement will make it far more difficult for people like me to sue the tobacco industry for the harm and death it has caused.
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    For many years, medical research has proved, without a doubt, that tobacco is addictive, and that cigarettes are killers. But the tobacco industry still continued to lie to the public.

    Billions of taxpayer dollars are spent at the local, State, and Federal level each year to treat tobacco-related illnesses.

    The tobacco industry is spending millions lobbying to buy themselves a deal, and Congress must resist this dangerous influence peddling. Philip Morris, which markets the most profitable consumer product in the world, was the single largest contributor in the 1995-1996 election cycle.

    The warning on cigarette packs was a positive thing for the tobacco industry. The warning on cigarette packs was a positive thing for the tobacco industry because Congress has always allowed the tobacco industry to use this warning as a defense. The tobacco industry has known for decades that after addiction and denial sets in for a smoker, a warning like that could never deter an addicted smoker.

    I understand that under the proposed tobacco settlement, I would not be able to file a class-action, receive punitive damages, or gain access to tobacco industry documents that might help my case. I am an excellent example of why individuals like me must—I repeat, must—be allowed to keep my right to sue the tobacco industry, including the right to join my case with others who have gotten sick from cigarettes, and to sue for punitive damages.
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    I have tried several times to find a lawyer that would handle my suit against the tobacco industry. I have always been told how hard it is to sue tobacco corporations. They use their money to drag out cases for years making it too expensive for individuals like me to sue them.

    In light of how hard it has already been for me to find a lawyer, under the proposed tobacco deal, I would never be able to find a law firm to take my case. The deal would not let people bring lawsuits based on claims that they became addicted to tobacco products, even though the corporations knew nicotine was addictive.

    The number one provision for any legislation dealing with the tobacco industry must—I repeat, must—protect my rights and the rights of people like me to sue the tobacco industry under the current rules of law. This includes punitive damages. These cases must be allowed and completed in a reasonable amount of time. The tobacco industry must not be given special protections from lawsuits for all the pain and suffering they have caused.

    It is far past the time—far past the time—that Congress must stop giving in to the money of the tobacco industry, and start doing the right thing for people like me.

    [The prepared statement of Mr. Taylor follows:]


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    I have not received any federal grant, contract, or subcontract in the current and preceding two fiscal years.

    I am here today to speak for millions of victims of the tobacco industry, and to oppose a settlement that would bar people like me from holding the tobacco industry accountable. Most of what you will hear from me today is because of my new pattern of thinking. I only allowed myself to develop this new pattern of thinking after a team of doctors cut my throat. Only after my throat was cut was I able to beat my addiction, and to stop my denial. I recently realized that when kicking a tobacco addiction, denial is much more powerful than the addiction itself.

    I began to smoke when I was about 15 or 16—in those days Chesterfield and Lucky Strike advertisements made smoking seem cool and glamorous, and there were no warning labels. After smoking for 36 years, I developed cancer of the throat. As a result of that cancer, my larynx and vocal chords were removed. This operation left a hole in my neck. I will have this hole in my neck for as long as I live. I must endure hardship every day, for as long as I live.

    You might look at me and think, ''he doesn't look bad to me,'' but what you cannot see is what is really wrong with me. My nose looks normal, but my nose is really like a theatrical prop—my nose no longer serves a purpose. I no longer have a sense of smell, and this can be dangerous if there is ever a gas leak: I would pass out without ever smelling any gas. When I blow my nose, nothing comes out, but something comes out of the hole in my neck.

    I no longer have a sense of taste, I cannot tell the difference between a bowl of spaghetti and a bowl of beans. I breathe through the hole in my neck, and this means that I will never be able to breathe through my mouth or nose. I must clean the hole in my neck 20 or more times every day.
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    Congress is also responsible for the annual 425,000 tobacco-related deaths. We must hold them accountable for past and future harms—this settlement will make it far more difficult for people like me to sue the tobacco industry for the harm and death it has caused. For many years medical research has proved, without a doubt, that tobacco is addictive, and that cigarettes are killers, but the tobacco industry continued to lie to the public.

    Billions of taxpayer dollars are spent at the local, State, and Federal level each year to treat tobacco-related illnesses.

    The tobacco industry is spending millions lobbying to buy themselves a deal, and Congress must resist this dangerous influence-peddling. Philip Morris, which markets the most profitable consumer product in the entire world, was the single largest contributor in the 1995–96 election cycle.

    The warning on cigarette packs was a positive thing for the tobacco industry because Congress has always allowed the tobacco industry to use this warning as a defense. The tobacco industry has known for decades that after addiction and denial sets in for a smoker, a warning like that could not deter an addicted smoker.

    I understand that under the proposed tobacco settlement I would not be able to file a class action, receive punitive damages, or gain access to tobacco industry documents that might help my case. I am an excellent example of why individuals like me must—must—be allowed to keep my right to sue the tobacco industry, including the right to join my case with others who have gotten sick from cigarettes and to sue for punitive damages. I have tried several times to find a lawyer that would handle my suit against the tobacco industry. I have always been told how hard it is to sue tobacco corporations. They use their money to drag out cases for years, making it too expensive for individuals like me to sue them.
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    In light of how hard it has already been for me to find a lawyer, under the proposed tobacco deal I would never be able to find a law firm to take my case. The deal would not let people bring lawsuits based on claims that they became addicted to tobacco products, even though the corporations knew nicotine was addictive. The number one provision for any legislation dealing with the tobacco industry must—I repeat must—protect my rights and the rights of people like me to sue the tobacco industry under the current rules of law. This includes punitive damages. These cases must be allowed and completed in a reasonable amount of time. The tobacco industry must not be given special protections from lawsuits for all the pain and suffering they have caused.

    It is far past the time that Congress must stop giving in to the money of the tobacco lobby, and start doing the right thing for individuals like me.

    Mr. HYDE. Thank you very much, Mr. Taylor.

    And the gentleman from Pennsylvania is recognized.

    Mr. GEKAS. I thank the Chair.

    Professor Pfander—is it?

    Mr. PFANDER. That's right.

    Mr. GEKAS. Is it your understanding, as I think it is mine, that part of this agreement that has been reached of the proposed resolution—or the resolution—that we want to sanctify, has as a salient feature the ability of Congress to enact legislation to compel removal of cases of the State courts to the Federal courts? And is that a constitutional problem that you posed? I never thought it was a problem for Congress to enact statutes that would compel removal, or at least allow it.
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    Mr. PFANDER. I don't see it as a problem either. Others who have criticized the proposal have questioned whether under article 3——

    Mr. GEKAS. Oh, I see.

    Mr. PFANDER [continuing]. A Federal court would have removal jurisdiction. Because in these cases we're dealing with State-created causes of action. But my point in my written submission is that there are enough Federal issues lying around, many injected by way of defense, to support Federal defense removal if Congress were to pass an appropriate statute.

    Mr. GEKAS. And if we appended the sweet character of a money transfer to the States, we wouldn't have any problem at all. In other words, sending money there——

    Mr. PFANDER. Under the Tenth Amendment the case is——

    Mr. GEKAS [continuing]. In return for their agreement to remove cases.

    Mr. PFANDER. Well, we don't need to offer them financial incentives to accept removal. Congress has the power to simply provide for removal in the exercise of its power to control the jurisdiction of the lower Federal courts, so long as there are Federal questions presented in the litigation, as there would be. So Congress' plenary control over removal would authorize removal of these cases from State to Federal court.
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    The question is, can you impose on the States themselves the obligation to comply with a no class-action rule. That does raise Tenth Amendment problems, it seems to me. And the financial incentive is one answer to those problems. Removal may also be an answer to those problems, but the consequences for Federal court jurisdiction would be quite significant. Because if the States were reluctant to go along with a no class-action rule and went ahead with the certification of these proceedings, then removals would place a great deal of docket pressure on the lower Federal court, so the costs would come home to roost to Congress one way or another, perhaps either in the form of direct subsidies to the States to cover costs in the first instance—or what you called the sweet incentive—or payments for additional courthouses and additional judges on the back end.

    Mr. GEKAS. But you do agree that the proposed settlement contemplates easy removal.

    Mr. PFANDER. Yes, indeed.

    Mr. GEKAS. I see.

    Mr. Kazan, the proposed solution that you have for your set of clients in the asbestos victim world is to see a transfer of $35 billion from this proposed settlement to the trust fund structure for asbestos victims. Is that correct?

    Mr. KAZAN. No, it is not. We do not seek any of the money that the tobacco industry has committed to this settlement. We think that they owe us money too. We think the attorneys general went out and negotiated away our rights in return for no other benefit for us. We'd like the tobacco industry to sit down with us and negotiate a settlement with us, or we would like the opportunity to pursue our own cases and not get preempted by letting them get immunized in the proposed settlement against our claims.
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    Mr. GEKAS. Did you approach the attorneys general grouping on this point as they had been formulating their proposal over the last several months?

    Mr. KAZAN. Over the last several months, no. They made their deal in June. They did it privately. We were not invited. The only asbestos lawyers in the room—the only people in the room who knew anything about asbestos—were most of the lawyers representing the attorneys generals who also represent asbestos victims, and Mr. Koplow and his firm which have great experience in the settlement of asbestos class-actions. And none of them did anything to protect the rights of the people that I'm here speaking for today.

    Mr. HYDE. The gentleman's time has expired.

    Mr. Kazan, I wonder if you would ask your assistant to take your exhibit down.

    Mr. KAZAN. Sure.

    Mr. HYDE. I think in a courtroom, the judge would say that's over-emphasizing one item over another one.

    Mr. KAZAN. And thank you for calling Mr. Austern, the Manville Trust General Counsel and my client, ''my assistant.'' [Laughter.]

    Mr. HYDE. He does look like executive material, you're quite right. [Laughter.]
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    Mr. KAZAN. We're working on it.

    Mr. HYDE. Mr. Scott.

    Mr. SCOTT. Thank you, Mr. Chairman.

    Part of our responsibility is to look for balance, and I was wondering if anybody wanted to comment on the likelihood of a barrage of successful lawsuits actually collecting as much money as there is on the table in this agreement.

    Mr. DAYNARD. I actually think that it now looks quite likely. It certainly didn't a couple of years ago. But first of all, if the States simply go to trial, they will collect the State portion of this deal. And actually, the first two cases, Mississippi and Florida, were both based on the fractions that those States had of the overall June 20 settlement. Texas broke the curve. Texas actually got more than that, and under the most favored nation clauses, Mississippi and Florida also got the benefit of that. I assume—we have Minnesota in trial, we have 37 more States down the line—I assume the deal is simply going to get better and better, and that's just the AG cases. There are many different categories of this.

    Mr. SCOTT. What happens if somebody loses a suit along the way?

    Mr. DAYNARD. Well, they lose then. They don't do anything to ratchet it up under the most favored nation clause. The way that works is—and this is a matter of contract law—in the three settlements to date, anything more that the industry ends up paying in a later pre-verdict settlement to a State or other public government, ratchets it up, but any losses don't reduce it.
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    Mr. KAZAN. Could I add to that? Looking only at the asbestos tobacco component, we think that if we would be left alone to try our cases, the Manville case alone can state a claim for compensatory damages in excess of $25 billion. We think the tobacco industry owes a share of a total liability package for tobacco asbestos disease of up around $90 billion to $100 billion, and that's for the small asbestos component alone. I think by the time we get done, and the States get done, and the union trustee pension funds get done, we're going to be talking about a whole lot more than this $368 billion.

    Mr. SCOTT. My question wasn't what kind of judgements you could get, but whether or not they could actually be collected.

    Mr. KAZAN. I think they can. I think that there is a large asset pool and they've got a lot of years that they can pay it off over.

    Mr. SCOTT. Without a settlement, what are the chances that we can get a restriction on advertising?

    Mr. DAYNARD. I actually think it's pretty good. I may be a dissent among the professorate on this, but the Supreme Court, I think, has never seen a case quite like a case where there is really overwhelming evidence that the advertising campaigns the tobacco industry has run have, in fact, produced ever new categories of smokers, particularly of children. There was evidence, for example, that girls weren't smoking very much until the Virginia Slims campaign came in and directly correlated increases in smoking among teenage girls with that. I think you can support any kind of advertising restriction, and I'd be willing to bet that the Supreme Court would not oppose it.
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    Mr. SCOTT. Before anybody else comments, let me just throw two other questions out: anybody can consider whether or not the penalty for failing to meet the targets on teenage smoking, whether or not those penalties are sufficient; and the effect on the increase in prices, what that might have on use if the settlement is agreed to. Does anybody want to comment on either of those or the other question I asked?

    Mr. DAYNARD. Well, I think—if other people want to say something—but I'll jump in. I think, the look-back provisions deserve a lot of credit because it's the first time they were on the table. The problem with them is that they're industry-wide rather than company-by-company and, therefore, if one of the companies were to clean up its act and the other ones were to simply take up the market share among kids, after however number of years, they'd all have to pay equally. Therefore, there is no incentive for any of the companies to clean up their act under this. I think it also kicks in too late. Companies don't worry about how much they would have to pay 5 years from now, I think it needs to start kicking it in in 1 or 2 years and probably should be increased over the present numbers.

    Mr. HYDE. The gentleman's time has expired.

    The gentleman from North Carolina, Mr. Coble?

    Mr. COBLE. Mr. Chairman, there are only two impediments between now and adjournment, Ms. Jackson Lee and I, and I will not be too elongated in my questioning.

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    Mr. Coffee—it's good to have you all with us, by the way, gentlemen.

    Mr. SCOTT. Actually, three. Has the chairman asked questions yet?

    Mr. HYDE. The chairman has restrained himself most of the day because of the long witness list. I've learned that I've never learned anything while I'm talking. So if I listen, I learn. And I've learned a lot today. So, please proceed, Mr. Coble.

    Mr. COBLE. Thank you, Mr. Chairman.

    Professor Coffee, in your testimony, you indicate that there might be obstacles to legislating special rules about tobacco class-actions because, quote, ''the courts have increasingly constitutionalized this area.'' Elaborate a little on that, if you will, professor, and also explain what limitations might exist on the Congress' ability to modify the class-action rules.

    Mr. COFFEE. I think Congress has a great ability to modify class-action rules in either direction—either increasing its availability or decreasing it. The mass-tort class-action is a very young creature. It really dates back to Agent Orange in the early 1980's. We hadn't seen this kind of class-action before that point.

    What I was referring to with the constitutional dimension was the decision of the Supreme Court in 1997 in Amchem Products v. Windsor which says, to the extent something is being resolved by a plaintiff's attorney, standing up in a courtroom and saying, ''Your Honor, I represent every smoker in the United States and they consent to this settlement,'' in that kind of setting very, very high standards of what is termed adequate representation apply. It's a due process limitation because these people have not chosen their attorney. They are being, in a sense, conscripted by the attorney and the court wants to make sure that there is no conflict of interest. What was said in Amchem specifically, is that one attorney can't represent a sprawling class in which there are internal conflicts, and the attorney specifically does not seem able to represent both present claimants and future claimants. By future claimants I mean individuals who have no current illness, but predictably will suffer—some of them at least—illness over the next 20 or 30 years. There are very significant conflicts between the present and future claimants, and one attorney can't represent this kind of sprawling class-action. That's a due process objection, and to the extent the resolution is going to occur through any kind of class-action, I think that continues.
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    I have not commented though, on the ability of Congress to either eliminate or change the rules or abolish the entire cause of action. I think Congress has much more power than the parties do in individual class-action.

    Mr. COBLE. Gentlemen, you all are blessed with expertise in this area. I'm going to put a hypothetical to you. Give me your best answer based upon your expertise. Assume that the trend in tobacco litigation changes and juries begin finding in favor of plaintiffs, as they did in the asbestos cases, what would be your estimate of the level of judgments that might be forthcoming against the tobacco companies in a given year, and would you expect that the proposed $5 billion annual tort fund would be sufficient to satisfy those judgments? Granted, it's hypothetical, but say what you can in your best judgment—either of you.

    Mr. KAZAN. It's very difficult to put a dollar figure on these——

    Mr. COBLE. I realize it is.

    Mr. KAZAN. But the starting point has to be, if there were a breakthrough, or potential breakthrough, we are talking about upwards of 400,000 premature deaths a year. That's a lot of potential lawsuits, even discounting for the fact that some of the cases may at first appear to be less serious illness—involve less serious illnesses. There's huge potential here for litigation.

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    You have to add to that the fact that at present there is no bar on individual litigation, on a particular individual describing the entire course of conduct of the industry, in seeking punitive damages even though other individuals in their suits have also done so. What that means is that the industry's course of conduct, which does look worse and worse every day, could be put before a jury in a very substantial number of cases.

    It doesn't take much mathematical expertise to put those two facts together. That is, the huge number of potential cases and an unraveling course of conduct that might look seriously egregious to a jury to think that the cap could be exceeded if there were a substantial breakthrough. That is, if, in this morality play that we continue to have between individual plaintiffs and the industry, if juries begin to see the bad actor consistently as the industry rather than the individual litigator.

    Mr. HYDE. The Gentleman's time——

    Mr. COBLE. Since my time has expired——

    Mr. HYDE. Yes, it has.

    Mr. COBLE. Perhaps another day. Thank you, Mr. Chairman.

    Mr. HYDE. Thank you, sir.

    The gentlelady from Houston, Ms. Jackson Lee.

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    Ms. JACKSON LEE. Mr. Chairman, I support my colleague from North Carolina in his statement that acknowledges that this is an important proceeding and questions cannot be contained in 5 minutes. I don't know if I'll get any relief on that, but, he has made the point.

    Let me say to the professors—I believe most of you, if not all, are law professors—that I am gratified that I am not sitting in that classroom of yesteryear listening to you ask me questions. I now have you, maybe, in the palm of my hand. But this is a serious matter, and I thank you for your presentation. Mr. Taylor, let me thank you for your courage and the insight that you have provided us. May I ask what State you are from, sir.

    Mr. TAYLOR. New York.

    Ms. JACKSON LEE. And are you still trying to secure counsel.

    Mr. TAYLOR. Yes, but it's almost a hopeless case.

    Ms. JACKSON LEE. Thank you very much.

    Let me ask the gentlemen if they would answer these two questions. I chair the Congressional Children's Caucus, a group of members who have gathered to promote children as a part of the national agenda and emphasize issues pertaining to children.

    Mr. Kazan, I note, and have empathy for, your involvment with the asbestos question. So I'm going to ask a broad question for everyone to answer. One, what is the relief that you need immediately so that the asbestos victims can be included and that ultimately the monies wind up to be more reputable in terms of recovery for them—expanded beyond pennies? And to the gentlemen here, how does this present settlement, as it is postured, help or hurt children and people like Mr. Taylor? And I yield to the gentlemen. Professor Coffee.
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    Mr. COFFEE. I think your question got to aggregation, was that the last part of it?

    Ms. JACKSON LEE. Help or hurt children and Mr. Taylor. How does the present negotiated posture of the tobacco settlement help or hurt those constituencies—an injured party here, children prospectively?

    Mr. COFFEE. I think it is desirable. I think the most important part of the settlement are the public health provisions and the strong penalties if teenage smoking is not reduced. That is the carrot that may justify some of the civil liability provisions, which by themselves are not attractive, because they are restricting liability. They may be justified by the carrot over in the public health area. I am one of those who might like to see somewhat more of a penalty if the target goals are not met, but I think that there is merit in that public health part of the settlement.

    Ms. JACKSON LEE. Professor, this is an injured party, Mr. Taylor, he's already hurt.

    Mr. RABIN. Sure, yes. Just following up on what Professor Coffee said, there is the question of severability here, which is the basic question of whether, in order to protect children with something like the provision under discussion, that is requiring the industry to ratchet back—to pay penalties if there isn't a decrease in youth smoking on an annual basis—whether it is necessary to trade off for that. I mean, if Congress really does consider that to be at the core of the tobacco problem, why do the liability provisions have to be tied to it?
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    Ms. JACKSON LEE. Why isn't that just the right thing to do?

    Mr. RABIN. Why isn't it the right thing to do? I agree.

    Ms. JACKSON LEE. Mr. Taylor's problem, how is he helped or hurt. He's an injured existing person.

    Mr. RABIN. Yes, Mr. Taylor's problem, it seems to me, his individual problem would be compromised by the settlement. He is much more likely, I think, to be able to find a lawyer—in the near future—if he can bring a case in which the industry's past course of conduct can be part of the litigation so there's the incentive of a punitive damage award, than he would be under the settlement which would eliminate that prospect of a punitive damage award.

    Ms. JACKSON LEE. I hate to cut you off. I want to get the other gentlemen—Professor Daynard.

    Mr. DAYNARD. Yes, well as I responded to the question of the chairman before, I think it's, in fact, improper, though it came in this package. I think we've now untied the package and I think it's simply improper to combine the good—though they could be made better and hopefully they will be made better—pro-public health parts of this proposal with the protection for the industry, which the industry in no way deserves. The other kinds of things that are being proposed are belated. In other words, as has been mentioned here, it required a shift in consciousness, as Chairman Hyde put it, for Congress and the Nation really to mobilize on this. These are all public health measures that should be taken that stand, you know, sort of in a crying need of being adopted on their own merits, and there's no reason why there should be any diminution in Mr. Taylor's chance of getting a day in court, or anybody else's chance of getting a day in court, in return for Congress doing the right thing on this.
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    Ms. JACKSON LEE. Mr. Kazan.

    Mr. KAZAN. Let me give you a real world answer to this question about Mr. Taylor. Under the tobacco settlement, he has no claim—zero, nothing. He will never get a nickel. That's the real world, practical answer.

    With respect to your question addressed to me, what we would prefer, first of all, is that the tobacco folks come and sit down and talk with us. Because we know if the tobacco industry told Mr. Koplow to negotiate a settlement, he and I would get it done in less than a week. Barring that, what we need is that this settlement first of all, not destroy the right of third-party payers like the Manville Trust and the other asbestos industry components from pursuing their claims, and that it not implement any of these anti-consolidation, anti-aggregation procedures that are in there, so that we can continue in the existing litigation system to pursue our claims to their logical end.

    Ms. JACKSON LEE. Thank you. Professor Pfander.

    Mr. PFANDER. I agree that the changes proposed in the settlement won't enhance the cause of Mr. Taylor, although that is somewhat outside the scope of what I testified on—the constitutional issues.

    Mr. HYDE. The gentlelady's time has expired.

    Ms. JACKSON LEE. Thank you very much.
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    Mr. HYDE. The gentleman from Tennessee, Mr. Jenkins, Bill Jenkins.

    Mr. JENKINS. Thank you, Mr. Chairman. I'm sorry I missed part of this testimony, and I'm sure if I repeat questions that you'll call it to my attention, here. But I'd like to ask these gentlemen, if they've not been asked—this entire panel is, they are all law professors, or associated with a college?

    Mr. HYDE. Mr. Taylor is a citizen who is a victim of tobacco.

    Mr. JENKINS. Mr. Taylor.

    Mr. HYDE. Professor, professor, professor, lawyer—practicing lawyer.

    Mr. JENKINS. Well, I'd just like to ask the panel what——

    Mr. KAZAN. I'm just a real lawyer, not a professor.

    Mr. JENKINS. In the year that I've been in the Congress, I'm thoroughly convinced that we are a Nation that wants less lawsuits, or fewer lawsuits. What are the prospects for the future, now that we're into this situation, to see this spread rapidly to other industries where you have a similar situation—you have a product that causes damages, ultimately society has to bear the cost? Are we going to see waves of lawsuits against alcohol, against, possibly, fast foods? What does this bring to the future for us?
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    Mr. DAYNARD. With respect, Congressman, I believe, and I certainly hope, that there is no other industry that has the record of misbehavior, and the record that's just coming out of misbehavior, that the tobacco industry does. When I said tobacco industry, of course I don't mean the farmers. Nobody has ever talked about—and I've been party to probably many, if not most, discussions about strategy on the plaintiffs' side in tobacco litigation—nobody's ever talked about suing the farmers. They're not at fault. It's essentially five companies and their law firms and some advertising and PR firms that have really been at the core of this conspiracy. If a similar thing were happening in another industry—if it turned out that fast foods were addictive and the companies knew it and they hid it, and they lied about it, and they lied about the affects, and it was killing 400,000 of our citizens—then those folks should be liable. I don't think that's the case.

    Mr. JENKINS. Excuse me, you're talking about behavior now, but ultimately, is not the aim of a lawsuit to collect damage? So you're not going to sit here and tell us that other products don't cause damage, are you?

    Mr. DAYNARD. No, but to win a lawsuit, you need to show something more than the product causes damages. You either have to show the product is unreasonably dangerous, or that the defendants did something wrong. And as a practical matter, you have to show that the defendants did something very wrong. And I think that really—and I hope that really is the line. I hope there aren't others. I know a lot about the tobacco industry, I don't know as much about other industries. I sure hope that other industries have not behaved in a similar way.

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    Mr. JENKINS. Well, if we—when we have this fund, one witness this morning spoke about unfairness, but if we have this fund and we have the knowledge of this fund in the minds of all prospective jurors across this country, are we not—I don't know that we have a situation like it in our law—are we not pointing jurors to verdicts in favor of plaintiffs once the knowledge of this fund is there? And how are courts going to instruct jurors to not be influenced by the presence of this fund to pay their verdicts?

    Mr. COFFEE. Could I respond to that, partly. Because——

    Mr. JENKINS. Yes, sir.

    Mr. COFFEE. That would be a prejudice if liability was unlimited. Where liability is set at a level—$368 million and on an annual basis of $2 billion to $5 billion—that money is going to be paid to someone other than the industry in either case. It's really a contest between whether the States get the money under the settlement, or whether this claimant gets the money. The tobacco manufactures are not prejudiced even if jurors are influenced in that manner.

    I agree with your point that there can be some change in the perception of jurors. We've seen that in things like the asbestos tort settlements—Johns Mansfield and the like—where there was a kind of raid on the fund because of a sense that this had become free money. It doesn't prejudice the manufacturers. It may produce problems in terms of inequitable distribution as competitions could develop between different States or different courts to see who can get to the fund first. That's why we need some overall controls. And that's why I think we do need to have things like a special kind of set of trustees who will set up ground rules for the defense and prosecution of these cases. Where the industry's liability is abolished or limited, the control of this kind of litigation probably should be in the hands of independent trustees running a settlement trust, and that's what's been done in many other kinds of mass torts.
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    Mr. JENKINS. Thank you. And thank you, Mr. Chairman; I see a red light.

    Mr. HYDE. Well, good for you.

    Professor Rabin is compelled to say something.

    Mr. RABIN. I was just going to add one word on your first question. We're living in a high litigation society. I don't need to tell you that. And I'm not sure in terms of the prospective liability of the alcohol industry or the fast food industry that what happens in the case of tobacco is all that critical. We're living in a society where there now is going to be mass tort litigation over phen-fen, the diet drug, that's already developing; where carpal-tunnel syndrome is on the brink of leading to mass litigation. There's just, as Chairman Hyde said earlier, there's a change in the social and cultural consciousness of the public. It's not just with respect to tobacco, it's with respect to rights generally. And I think the whole picture of the potential liability of alcohol and fast food, which I think is distinguishable from both tobacco and phen-fen, it isn't linked to what happens in the tobacco area alone.

    Mr. HYDE. If I could just venture a comment on what Professor Rabin has said, if your prediction is accurate, and I tend to think it is, we're going to have an explosion of litigation. And the courts already are having trouble coping with what they have. And there may have to be legislative solutions, rather than to run the string out in courtroom after courtroom after courtroom, because there are other things besides tort liability cases and class-actions that require adjudication. But fast food, alcohol, anything you can name, I'm sure a theory can be developed and even scientifically supported that will impose liability—or seek to impose liability—on somebody. And as this momentum begins to develop, the courts can't institutionally cope with it. And we've got to be thinking of that too.
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    So this legislation may be a precursor to other legislation. But it boggles the mind to think of the parameters of what we're talking about.

    Well, I want to thank every one of you. Believe me, you've invested a lot of time, but it has not been wasted. Every one of your statements will be read, and read thoroughly, by the staffs and ourselves when it's possible. You've made an impact, you've made a contribution to a tough problem. And we thank you very much.

    And you, Mr. Taylor, especially. We won't forget you.

    Mr. TAYLOR. Thank you.

    Mr. HYDE. Thank you.

    [Whereupon, at 3:20 p.m., the committee adjourned.]


Material Submitted for the Hearing


    Mr. Chairman, I first want to thank you for holding this important hearing on the landmark tobacco settlement negotiated between the States' attorneys general and the tobacco manufacturers. The efforts, ideas, negotiations and compromises reached between the groups is an important first step to reaching the most important goal, the goal which we must never lose sight of while drafting legislation—the reduction and eventual termination of youth smoking.
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    Soon, I will be introducing legislation that goes a long way to achieving this goal. My bill, called the ''Stop Kids From Smoking Act'', will make it illegal for any establishment that allows children under the age of eighteen to have a vending machine on its premises. If children are unable to buy tobacco, it makes it significantly harder for them to start smoking it.

    Without question, ending youth smoking is of the utmost importance to me. However, I will not support legislation that accomplishes this but does not also impose severe liability on the industry that self-admittedly targeted young children for smoking for decades, got them hooked, and which has led the state and federal government to dole out billions of dollars in health care treatments. I am not entirely convinced that the proposed settlement does this, and I am eager to hear the testimony of the participants and question them on several issues.

    I believe the agreement contains many groundbreaking and worthwhile provisions. For example, like my bill, the settlement bans vending machines. In addition, the look-back provisions which provide for penalties up to $2 billion a year if teen smoking does not decrease by sixty percent in the next ten years is a great way to motivate the manufacturers to stop our young people from smoking because it hits them where it hurts the most—their pocketbook. The $1.5 billion that is set aside for free cessation programs for those who already smoke will help those who have already fallen victim to tobacco marketing before they experience serious health consequences.

    I am fully aware that the tobacco manufacturers would not have agreed to these provisions, and many others in the settlement, if they were not getting something substantial in return. However, we cannot overlook every person who has a legitimate claim for a past or present ailment caused by tobacco, and their ability to recover. I, like many of my colleagues who sit on this distinguished committee, am an attorney by trade. I know that the likelihood of an attorney taking on the tobacco industry on the behalf of only one individual, one claim—no matter how worthy it may be—is extremely minute if there is no chance at recovering punitive damages and no chance of joining plaintiffs and claims together. The time and effort necessary for this type of lawsuit simply is not economically feasible for most attorneys. All of the money in the world is not going to matter if the people deserving of it cannot get a judgement in court.
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    Again, I would like to thank the chairman for holding this important hearing and all of the witnesses for coming. I look forward to your testimony.


House of Representatives,
Committee on the Judiciary,
Washington, DC, February 12, 1998.
Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
Washington, DC.

    DEAR CHAIRMAN HYDE: I write to request that the following three written statements be submitted into the final hearing record for the February 5, 1998 Judiciary Full Committee Hearing on the civil liability provisions of the proposed tobacco settlement:

1. Paper entitled, ''What Constitutional Principles Should Guide a Tobacco Settlement?'' by Erwin Chemerinsky, Professor at the University of Southern California Law School;

2. Press release submitted by Dr. Alfred Munzer of the American Lung Association;

3. Written testimony of Robert J. Connerton, Esq., on behalf of the Coalition For Workers' Health Care Funds.

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John Conyers, Jr.,
Ranking Minority Member.

What Constitutional Principles Should Guide a Tobacco Settlement?

(By Erwin Chemerinsky(see footnote 39)

    I have been asked to prepare a memorandum that discusses the constitutional principles that should guide a possible tobacco settlement. My primary focus, therefore, is not in assessing the constitutionality of the proposed Global Tobacco Agreement. Rather, I seek to identify the constitutional principles that should be used to assess this or any other attempt to settle the tobacco litigation. The proposed Agreement is discussed briefly as an illustration of the application of these principles, but a full analysis of its constitutionality would require a much longer analysis.

    As discussed below, I believe that five principles are most important. First, equal access to the courts must be preserved. Second, all injured individuals and entities should have an opportunity for recovery of their injuries. Third, to the greatest extent possible, any law should be prospective, not retroactive, in its application. Fourth, principles of separation of powers should be observed in that Congress should not direct the outcome of litigation in the Federal courts. Fifth, principles of federalism should be observed in that Congress should not control procedures followed in state courts and that federalization of traditional state tort claims raises serious Tenth Amendment concerns.
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    This memorandum does not address First Amendment principles that should be considered in a tobacco settlement. This memo considers the constitutionality of restrictions on recovery and not the constitutionality of laws limiting tobacco advertising.

1. Equal access to the courts must be preserved.

    The Supreme Court has spoken of ''the fundamental constitutional right of access to the courts.'' Bounds v. Smith, 430 U.S. 817, 828 (1977). The Court long has said that the right to be heard in court is an essential aspect of due process. For example, in Windsor v. McVeigh, in 1876, the Court spoke of the right to be heard as a principle which ''lies at the foundation of all well-ordered systems of jurisprudences and is ''founded in the first principles of natural justice.'' 93 U.S. 274, 277, 280 (1876). See also Hovey v. Elliot, 167 U.S. 409, 417 (1897).

    Additionally, the Court has held that discrimination among people as to access to the courts is subjected to strict scrutiny under equal protection. The Court has quoted the Magna Charta, ''To no one will we sell, to no one will we refuse, or delay, right or justice. . . . No free man shall be taken or imprisoned, or . . . upon him nor send upon him, but by the lawful judgment of his peers or by the law of the land.'' Griffin v. Illinois, 351 U.S. 12, 16–17 (1956). The Court has said that ''[i]n this tradition, our own constitutional guaranties of due process and equal protection both call for procedures in criminal trials which allow no invidious discriminations between persons and different groups of persons.'' Id. at 17.

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    In the civil context, the Court has declared: ''[T]he Fourteenth Amendment's Due Process Clause has been interpreted as preventing the States from denying potential litigants use of established adjudicatory procedures when such an action would be the equivalent of denying them an opportunity to be heard upon their claimed rights.'' Logan v. Zimmerman Brush Co., 455 U.S. at 429–30 (citations omitted).

    A tobacco settlement that pays one class of potential litigants, while precluding another class of potential litigants from gaining recovery, would be inconsistent with the basic principle of equal access to the courts. The tobacco companies certainly can settle with any individuals or entities that have claims against it. However, the settlement should not be implemented in a law that has the effect of barring others from gaining recovery.

    For example, I believe that there is a strong argument that the Tobacco Agreement denies equal protection to the Multiemployer Health and Welfare Funds. At this stage, there are two major classes of litigants bringing non-subrogated claims: state governments, for health costs they have incurred, and the Multiemployer Health and Welfare Funds, likewise for the costs that they have incurred. The Tobacco Agreement would provide a substantial payment to the former and completely preclude the latter from recovering. (Agreement, §VIII(A)(2).) This is discrimination and arguably a denial of equal protection.

    Other aspects of the Tobacco Agreement also can be challenged on this basis. For example, third-party payors who filed claims before June 9, 1997, can bring claims based on other than subrogation; those who had not filed claims by this date are precluded from doing so. (Agreement, §VII.A.2). This can be challenged as denying equal protection to the latter group.
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    Perhaps most powerfully, all other litigants with all other types of claims can use the procedural devices of class action suits and joinder, but not those who have claims against tobacco companies. (Agreement, §VII.B.2). Those with such claims are discriminated against and the reality is that the prohibition of the procedural devices will preclude recovery.

2. All injured individuals and entities should have an opportunity for recovery for their injuries.

    Those who have already suffered injuries and have claims against tobacco companies should not be denied recovery. These claims are a property interest and to preclude recovery is thus to take property without just compensation or due process.

    The Supreme Court long has recognized that a claim for recovery for injuries is a property interest and that a government action depriving a person of such a claim must meet the test of the due process clause and be accompanied by just compensation. The Supreme Court has declared: ''[A] cause of action is a species of property protected by the Fourteenth Amendment's Due Process Clause.'' Logan v. Zimmerman Brush Co., 455 U.S. 422, 428 (1982). In Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950), held that terminating claims of possible beneficiaries of a trust required notice and a hearing because the claims were property protected under the due process clause.

    In Logan v. Zimmerman Brush Co., the Supreme Court said: ''The Court traditionally has held that the Due Process Clauses protect civil litigants who seek recourse in the courts, either as defendants hoping to protect their property or as plaintiffs attempting to redress grievances.'' 455 U.S. at 429. In Logan, an employee claimed that he was terminated from his job because of a physical disability. He challenged his firing through the proper State administrative agency, but the agency negligently failed to hold a hearing within the statutorily prescribed time limit. The employer secured a dismissal of the plaintiff's claim with prejudice. The Court concluded that the dismissal denied the defendant a property interest without due process.
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    The Court emphasized that under well-established law, a property interest exists where an individual has an ''entitlement'' grounded in State law. Id. at 430; Board of Regents v. Roth, 408 U.S. 564, 576–578 (1972). The argument is that State law has created an entitlement in providing a reasonable expectation for tort law recovery for injuries. Indeed, in Martinez v. California, 444 U.S. 277, 281–282 (1980), the Court accepted that ''arguably'' a State tort claim is a ''species of 'property' protected by the due process clause.'' As the Court concluded in Logan: ''As our decisions have emphasized time and again, the Due Process Clause grants the aggrieved party the opportunity to present his case and have its merits fairly judged.'' 455 U.S. at 433.

    Lower courts, too, have recognized a property interest in claims for recovery of injuries. The Ninth Circuit, for example, has stated: ''There is no question that claims for compensation are property interests that cannot be taken for public use without just compensation.'' In re Aircrash in Bali. Indonesia, 684 F.2d 1301, 1312 n.10 (9th Cir. 1980).

    Most troubling, therefore, would be any Federal law, implementing a tobacco settlement, that precluded recovery for injured individuals or entities. For example, in light of this principle, the Global Tobacco Agreement deprives individuals of property in denying their ability to recover for injuries by virtue of the cap on damages, the preclusion of punitive damages, and the prohibition of procedural devices (class actions and joinder) that can be shown to be necessary for recovery.

    This is not to imply that the government cannot change liability rules. The Supreme Court has expressed that ''[n]o person has a vested interest in any rule of law, entitling him to insist that it shall remain unchanged for his benefit.'' New York Central Railroad Co. v. White, 243 U.S. 188, 198 (1917). New York Central Railroad concerned the Workmen's Compensation Law of New York which, in part, arguably interfered with an employee's right to receive compensation proportionate to the damages actually suffered. Id. at 196. The Court responded that the legislature possessed the ability to change the law. The Court explained, ''If the employer is no longer able to recover as much as before in case of being injured through the employer's negligence, he is entitled to moderate compensation in all cases of injury, and has a certain and speedy remedy without the difficulty and expense of establishing negligence or proving the amount of the damages.'' Id. at 201.
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    The major recent case supporting this view is Duke Power v. Carolina Environmental Study Group. Inc., 438 U.S. 59 (1978), which involved provisions of the Price-Anderson Act. The relevant part of the Act limits the aggregate liability of a utility for a single accident at a nuclear power plant to $560 million. The challengers argued that the limitation on liability violated due process because the due process clause ''protect[s] them against arbitrary governmental action adversely affecting their property rights and that the Price-Anderson Act . . . constitutes such arbitrary action.'' Id. at 69.

    The Supreme Court stressed the ''need for the imposition of a statutory limit on liability to encourage private industry participation and . . . stimulat[e] the involvement of private enterprise in the production of electric energy through the use of atomic power.'' 438 U.S. at 84. The Court concluded that ''limiting liability is an acceptable method for Congress to utilize in encouraging the private development of electric energy by atomic power.'' Id. at 86.

    The Court then addressed the due process objection to the limitation of liability: ''that it fails to provide those injured by a nuclear accident with a satisfactory quid pro quo for the common-law rights of recovery which the Act abrogates.'' Id. at 87–88. The Court said: ''Our cases have clearly established that '[a] person has no property, no vested interest, in any rules of common law.' . . . The Constitution does not forbid the creation of new rights, or the abolition of old ones recognized by the common law, to attain a permissible legislative object . . . despite the fact that 'otherwise settled expectations' may be upset thereby.'' Id. at 88 n.32. The Court said that the Act ''provides a reasonable, prompt, and equitable mechanism for compensating victims.'' Id. at 93.
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    However, on close examination these cases do not undercut the proposition that a federal law implementing a tobacco settlement should not deny injured individuals and entities recovery. First, the laws challenged in New York Central Railroad and Duke Power precluded hypothetical future claims. This is very different from retroactively barring claims for already incurred injuries. There is an obvious difference between the plaintiffs in Duke Power who were objecting to being possibly denied compensation for an accident at some future time and those who already have tort causes of action against tobacco companies.

    Second, in the earlier cases there were more important legislative goals than would be achieved by barring tobacco claims through a settlement. For example, the Price-Anderson Act sought to encourage the development of nuclear power which was seen as necessary for the generation of electrical energy. No such public interest is served by precluding those with claims against the tobacco companies from recovering for their injuries.

    Third, there is a crucial distinction between limiting recovery and precluding it. In New York Central Railroad, the Court stressed the remaining availability of recovery; the Court spoke of a ''certain and speedy remedy'' through an alternative system. In Duke Power, monetary remedies were available and it was pure conjecture whether any person ever would be denied recovery. A tobacco settlement that would bar recovery for already injured individuals or entities would be inherently different and likely unconstitutional.

3. To the greatest extent possible, any law should be prospective, not retroactive, in its application.
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    Retroactive laws are inherently unfair. Justice Scalia has observed that retroactive laws are contrary to ''fundamental notions of justice'' and ''violate the principle that the legal effect of conduct should ordinarily be assessed under the law that existed when the conduct took place.'' Kaiser Aluminum Corp. v. Bonjourno, 494 U.S. 827, 865 (1990) (Scalia, J., dissenting). Therefore, to the greatest extent possible, any law implementing a tobacco settlement should be prospective in its application.

    It is inevitable, however, that there will be some retroactive effects to any tobacco settlement. Undoubtedly, a tobacco settlement will impose some limits on recovery by some who already have incurred injuries. The Supreme Court has not precluded all retroactive civil laws. In Usery v. Turner Elkhorn Mining Company, 428 U.S. 1 (1976), the Court said that retroactive civil laws violate due process if they are not rationally related to a legitimate government purpose. In Usery, the Court upheld a federal law that provided benefits to victims of black lung disease and that imposed some of these costs on mine owners. Even though the law created retroactive financial liability it was upheld as constitutional.

    A distinction, however, can be drawn between retroactive imposition of liability to ensure recoveries for injured individuals, as in Usery, and a tobacco settlement's retroactive preclusion of liability which would bar recovery for injured individuals. Retroactive legislation to ensure compensation is different from retroactive legislation, such as a law to implement a tobacco settlement which would deny compensation to tort victims.

    The conclusion is that, to the greatest extent possible, a tobacco settlement should apply prospectively, not retroactively. For instance, the law should apply to future suits and not to claims already filed. The more significant the retroactive application, the graver the constitutional problem.
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    The proposed Global Tobacco Agreement is troubling because there are many ways in which it would have retroactive effects. The Agreement would end all pending class action suits and litigation where there is a joinder of claims. In other words, even though the suits were properly filed in Sederal or State court, the Agreement would terminate the actions. Additionally, the Agreement would prevent third-party payers from bring suits for non-subrogated claims, even though liabilities already had been incurred, except for actions filed before June 9, 1997. The Agreement would wipe out any claims for punitive damages, even if for injuries already inflicted. Likewise, the Agreement would wipe out already incurred claims against defendants other than the tobacco manufacturers. Additionally, the Agreement would place a cap on recoveries for already incurred injuries.

4. Principles of separation of powers should be observed in that Congress should not direct the outcome of litigation in the Federal courts.

    The Supreme Court has held that it violates separation of powers for Congress to direct the rulings in Federal courts. Similarly, Congress should not intentionally manipulate procedural devices to control the ability of the judiciary to award relief to particular litigants. The objection is that this precludes the judiciary from carrying out its constitutionally assigned task of providing remedies to those whose rights have been infringed. Long ago, in United States v. Hudson and Goodwin, 11 U.S. (7 Cranch) 32 (1812), the Supreme Court declared that Federal courts have the inherent power to structure their tasks. The Court stated: ''Upon formation by any political body, an implied power to preserve its own existence and promote the end and object of its creation, necessarily results to it. . . . Certain implied powers must necessarily result to our Courts of justice from the nature of the institution.'' Id. at 33.
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    In Chambers v. NASCO, 501 U.S. 32 (1991), the Court upheld the inherent power of the Federal courts to impose sanctions, apart from any statutes or rules that might authorize such relief. The Court explained that such ''powers are governed not by rule or statute but by the control necessarily vested in courts to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.'' Id. at 43–44 (citations omitted).

    Although Congress certain can control procedures in Federal courts, it cannot do so in a manner to decide the outcome of particular cases; that usurps the judicial function and violates separation of powers. United States v. Klein, 80 U.S. (13 Wall.) 128 (1872), is strong authority that Congress cannot change procedures in an effort to direct particular substantive results. Klein arose during Reconstruction. In 1863, Congress adopted a statute providing that individuals whose property was seized during the Civil War could recover the property, or compensation for it, upon proof that they had not offered aid or comfort to the enemy during the war. The Supreme Court subsequently held that a presidential pardon fulfilled the statutory requirement of demonstrating that an individual was not a supporter of the rebellion. United States v. Padelford, 76 U.S. (9 Wall.) 531 (1869).

    In response to this decision and frequent pardons issued by the President, Congress quickly adopted a statute providing that a pardon was inadmissible as evidence in a claim for return of seized property. Moreover, the statute provided that a pardon, without an express disclaimer of guilt, was proof that the person aided the rebellion and would deny the federal courts jurisdiction over the claims. The statute declared that upon ''proof of such pardon . . . the jurisdiction of the court in the case shall cease, and the court shall forthwith dismiss the suit of such claimant.'' 92 Stat. 2076.
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    The Supreme Court held that the statute was unconstitutional. While acknowledging Congress' power to create exceptions and regulations to the Court's appellate jurisdiction, the Supreme Court said that Congress cannot direct the results in particular cases. The Court stated:

  ''It seems to us that this is not an exercise of the acknowledged power of Congress to make exceptions and prescribe regulations to the appellate power. . . . What is this but to prescribe a rule for the decision of a cause in a particular way?. . . . Can we do so without allowing one party to the controversy to decide it in its own favor? Can we do so without allowing that the legislature may prescribe rules of decision to the judicial department in the cases pending before it? . . . . We think not. . . . We must think that Congress has inadvertently passed the limit which separates the legislative power from the judicial power.'' 80 U.S. at 146–47.

    The language in Klein can be directly applied to any tobacco settlement that would attempt to limit class action suits or joinder in future tobacco litigation. It would be the ''legislature prescrib[ing] rules of decision to the judicial department in the cases pending before it.'' It thus would transgress ''the limit which separates the legislative power from the judicial power.''

    In light of this principle, the proposed Tobacco Agreement interferes with the ability of the judiciary to perform its constitutionally assigned function of remedying violations of rights. The preclusion of class action suits and joinder and the bar against future non-subrogated claims keeps the judiciary from carrying out its tasks. Similarly, Congress essentially has assumed the judicial function by deciding all of the tobacco litigation in the form of approving a settlement that gives a huge award to one class of litigants and bars recovery by another.
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    There is no constitutional requirement that class action suits exist or that joinder of claims be allowed. These are procedural devices created by the Federal Rules of Civil Procedure. The argument, however, is that Congress cannot preclude them in one type of cases so as to direct the outcome of that litigation. That is exactly what Congress is doing if it approves the Tobacco Agreement: changing procedures in federal courts to control the results in particular cases.

5. Principles of federalism should be observed in that Congress should not control procedures followed in State courts.

    In the 1990s, the Supreme Court has revived federalism as a significant limit on Congressional authority. See Printz v. United States, 117 S.Ct. 2365 (1997); United States v. Lopez, 115 S.Ct. 1624 (1995); New York v. United States, 505 U.S. 144 (1992). A tobacco settlement must be consistent with federalism both in allowing states to control their own procedures and in respecting the tradition of state control of tort law.

    First, Congress cannot control State procedural law. Congress certainly has the authority to make federal jurisdiction exclusive in any area where it has the authority to legislate, as it has done in copyright and patent litigation. 28 U.S.C. §1338. Likewise, Congress has the power to preempt state law and make Federal law exclusive in any field where it has constitutional power to act. However, if Congress allows concurrent litigation in state courts, Congress cannot constitutionally control procedures in state court. States are able to conduct their judicial proceedings however they see fit, so long as they are in accord with the United States Constitution.
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    The Supreme Court recently has invalidated federal laws that regulate state governments as violating the Tenth Amendment. See Printz v. United States, 117 S.Ct. 2365 (1997); New York v. United States, 505 U.S. 144 (1992). In New York v. United States, the Court declared: ''In the end, the [Constitutional] Convention opted for a Constitution on which Congress would exercise legislative authority over individuals rather than over States. . . . In providing for a stronger central government, therefore, the Framers explicitly chose a constitution that confers upon Congress the power to regulate individuals, not States.'' 505 U.S. at 165–66.

    For example, the proposed Tobacco Agreement violates this principle because it precludes State courts from using devices such as class action and joinder. Specifically, the Agreement says that if such mechanisms are used in State court, the case is automatically removable to Federal court. Section VII.B.2 states: ''Action removable by defendant in Federal court upon receipt of application to, or order of, State court providing for trial or other procedure in violation of this provision.''

    Controlling procedures in state courts, such as by precluding class action suits and joinder of claims in state court puts a substantial burden on state judiciaries. Each claim would have to be tried individually and the tremendous efficiency gains of class actions and joinder would be lost. Printz v. United States expressly limited the ability of Congress to place burdens on state governments, especially without providing compensation.

    Additionally, tort remedies traditionally have been the province of State governments and state courts. The federalization of tort law, such as would occur for tobacco litigation under the proposed Agreement, would raise serious federalism concerns.
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    My goal in this memorandum was not to analyze in depth the constitutionality of the proposed Global Tobacco Agreement. Rather, I sought to identify constitutional principles that should be followed in any law implement a tobacco settlement. A constitutionally permissible tobacco settlement is certainly possible. However, it must be carefully structured to comply with the basic principles discussed in this memo.


[From the American Lung Association]Voters Back $2 Per Pack Cigarette Tax, Oppose ''Special'' Tobacco Protections, Survey Finds

    WASHINGTON, DC, February 5, 1998.—American voters strongly back an even more aggressive cigarette tax than the one endorsed by President Clinton, according to a new national survey by the American Lung Association and its medical section, the American Thoracic Society.

    At the same time, the survey found the public decisively rejects the notion of giving the tobacco industry ''special protection from lawsuits'' as part of any comprehensive ''settlement.''

    The survey, by Lake Sosin Snell Perry & Associates, found that by an overwhelming 60 percent to 36 percent majority, the public favors ''increasing the tax on a pack of cigarettes by $2.00 to deter children from smoking and to fund health programs.'' A slightly larger 63 percent to 33 percent majority favored the increased tax when it was characterized as a ''health fee.'' Clinton has endorsed the idea of a $1.50 per pack tax, phased in over 10 years. John Garrison, managing director of the American Lung Association, noted that the President's new budget ''appears to hinge'' on passing a new tobacco tax or fee of this size.
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    ''Our survey shows the public is willing to go much farther to deter children from smoking and to fund health programs,'' said Garrison. ''It also shows the public does not want the tobacco companies to dictate the terms of an agreement in Congress.''

    Respondents also opposed by 55 percent to 32 percent any settlement that ''would give the tobacco companies special protection from lawsuits to recover damages for past and future behavior.'' Opinion was roughly evenly split when the issue was characterized as ''whether the tobacco settlement should limit lawsuits to recover damages from tobacco companies for past and future behavior.''

    The survey was released today as Alfred Munzer, M.D., testified for the American Lung Association at a congressional hearing on the question of legal immunity for tobacco companies.

    Munzer, a pulmonary physician and past president of the Lung Association, noted that the survey began before recent revelations that confirmed the creators of Joe Camel have deliberately targeted young children. Since the survey was completed, Munzer added, additional damaging disclosures about industry practices have begun to emerge from Minnesota's tobacco lawsuit.

    ''With each gruesome discovery about the industry conspiracy to target children and manipulate nicotine levels to hook unsuspecting smokers, public support has dropped for giving the industry any special protection,'' Munzer said.

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    The pollsters also found that:

 The issue of a cigarette tax or fee could become a potent issue in the upcoming congressional elections. ''People are willing to vote this issue at the ballot box,'' the pollsters noted in a memo. More than one-third of voters (35 percent) say they will be more likely to vote for a candidate for Congress who supports a $1.50 increase in the cigarette tax, while only 16 percent would be ''less likely to vote for this candidate.''

 Voters split on where they would like to see revenue from the increased cigarette tax spent. Thirty-one percent would like to see the revenue used for children's health care, while 28 percent favor spending on education. Only five percent say the money should go to the States.

 If tobacco companies fail to reduce teen smoking by 60 percent in ten years, voters are willing to impose a stiff penalty on the companies. Forty-six percent of voters would want a penalty of $1.00 a pack (32 percent) or higher (14 percent).

 Nearly seven out of ten voters (69 percent) agree that the rules that apply to marketing tobacco to children in the United States also should apply to marketing to children in other countries.

    The survey of 1,000 likely adult voters was conducted January 13–15, 1998. The margin of error is +/–3.1 percent. Complete survey results are available from the American Lung Association.

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    The American Lung Association has been fighting lung disease for more than 90 years. With the generous support of the public and the help of our volunteers, we have seen many advances against lung disease. However, our work is not finished. As we look forward to our second century, we will continue to strive to make breathing easier for everyone. Along with our medical section, the American Thoracic Society, we provide programs of education, community service, advocacy, and research. The American Lung Association's activities are supported by donations to Christmas Seals and other voluntary contributions. You may obtain additional information via our America Online site, keyword: ALA, or Web site at http://www.lungusa org.


[From Lake Sosin Snell Perry & Associates, Inc.]


To: American Lung Association/American Thoracic Society

From: Celinda Lake, Alysia Snell, and Victoria Sneed, Lake Sosin Snell Perry & Associates

Subject: Findings from a national poll(see footnote 40)

Date: January 22, 1998
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    At least six out of ten voters favor increasing the cigarette tax to deter children from smoking and to fund health programs whether it is by $1.50 (64 percent favor, 32 percent oppose) or $2.00 (60 percent favor, 36 percent oppose). However, those strongly in favor of the tax drops slightly from 55 percent strongly favor for $1.50 to 48 percent strongly favor for $2.00.

    Whether it is called a tax or a health fee, voters continue to support raising the price of cigarettes. Sixty-five percent favor imposing a health fee of $1.50 on a pack of cigarettes to deter children from smoking and to fund health programs (30 percent oppose) and 63 percent favor (33 percent oppose) imposing a health fee of $2.00. In contrast to when it is called a tax, intensity remains strong for both $1.50 (57 percent strongly favor) and $2.00 (54 percent strongly favor).

    Women prove slightly more favorable toward an increased tax than men with a seven point difference when the tax is $1.50 and a ten point difference when the tax is $2.00. However, when phrased as a health fee, the gap between the sexes is cut in half, with a four point margin for the $1.50 fee and a three point margin for the $2.00 fee.

Table 2

    Voters under thirty are more favorable when it is called a tax, while voters ages 30 to 49 are more favorable when it is called a health fee, and the language does not appear to matter to voters over 50 with this group being just as supportive whether it is called a tax or health fee.

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    Support for increased taxes cuts across party lines and remains remarkably robust even for taxes of $2.00. Sixty-five percent of Democrats, 62 percent of Independents, and 64 percent of Republicans favor a $1.50 tax increase on a pack of cigarettes. When the tax is $2.00 support drops slightly, but there is still strong majority support across parties (61 percent of Democrats, 59 percent of Independents, and 59 percent of Republicans).

    Support across party lines is slightly higher when framed as a health fee. Sixty-nine percent of Democrats, 63 percent of Independents, and 67 percent of Republicans favor imposing a $1.50 health fee, while 66 percent of Democrats, and 63 percent each of Independents and Republicans favor imposing a $2.00 health fee.

    Regionally, the Northeast is the only area which seems sensitive to the language used. Residents in the Northeast are more supportive of imposing a health fee, but even when phrased as an increased cigarette tax more than six out of ten favor the tax of either $1.50 or $2.00. Surprisingly, even in the South there is strong support for an increased tax of either $1.50 (66 percent favor) or $2.00 (62 percent) or for imposing a health fee of $1.50 (66 percent) or $2.00 (65 percent).

    Even a third of current smokers favor either a tax or fee no matter the amount. Past smokers are most favorable towards a $1.50 cigarette tax, while non-smokers are more favorable when the increase is phrased as a health fee.

    Younger women, retired women, college educated women, younger college educated voters, younger Democrats, residents in the Northeast, and non-smokers are the most favorable towards an increase in the price of cigarettes.
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    Voters ages 40 to 49, younger men, non-college educated men, Independent men, Republican men, and younger Republicans come out more opposed to increasing the cost of cigarettes but even a majority of these groups support an increase.

    People are willing to vote this issue at the ballot box. Over a third of voters (35 percent) say they will be more likely to vote for a candidate for Congress who supports a $1.50 increase in the cigarette tax and 45 percent say it will have no effect on their vote decision. Only 16 percent say they will be less likely to vote for this candidate.

    Voters who are more likely to base their vote decision on this issue are younger voters under 30 (+31 point margin—39 percent more likely, 8 percent less likely), younger women (24 points), homemakers (+29 points), college graduates (+28 points), younger college educated voters (+38 points), African Americans (+27 points), Hispanics (+28 points), Democratic men (+30), younger Democrats (+34 points), voters in the Northeast (+24 points), previous smokers (+26 points), and non-smokers (+34 points).

    The only group who would be influenced in a negative direction are current smokers (–16 points—17 percent more likely, 33 percent less likely) who make up 24 percent of voters.(see footnote 41)

    Democrats say they are more likely to support this candidate (41 percent more likely, 16 percent less likely, 41 percent no difference). Independents (31 percent more likely, 20 percent less likely, 45 percent no difference) and Republicans are also more likely to support this candidate (33 percent more likely, 13 percent less likely, 51 percent no difference).
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    Voters split on where they would like to see revenue from the increased cigarette tax go. Thirty-one percent would like to see the revenue go towards children's health care and education (28 percent). This is followed by medical research (21 percent), Medicare (18 percent), and child care (16 percent). Nine percent say it should go to smoking prevention and only five percent say it should go to the states.

    Nearly every demographic subgroup put children's health care and education at the top of their lists.

    A plurality of voters (44 percent) agree that Congress should not pass the tobacco settlement if it gives tobacco companies special protections. Nearly a third (31 percent) agree that the benefits which would result from the current proposed settlement would outweigh whatever compromises that have been made with the companies.

    Every demographic subgroup comes down on the side of Congress not giving in to the tobacco companies, rather than believing the benefits of the settlement outweigh the concessions.

    The sentiment that Congress should not give in to the tobacco companies crosses party lines. Forty-eight percent of Democrats, 40 percent of Independents, and 42 percent of Republicans come down on this side of the argument (29 percent, 32 percent, 35 percent respectively for the other side). Even smokers side with Congress not giving in (39 percent to 32 percent).

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  Some people/other people say the tobacco settlement is a comprehensive plan which will protect our children, improve public health, and dramatically change the culture and the conduct of the nation's tobacco companies. They say the benefits which would result from the current proposed settlement would outweigh whatever compromises that have been made with the companies.

  Some people/other people say Congress should not pass the tobacco settlement if it gives tobacco companies special protections like immunity from liability for past and future misconduct by the tobacco companies, if it makes the penalty payments that tobacco companies have to pay tax deductible, and if it spreads the tobacco companies penalty payments over 25 years.


    Voters split on whether the tobacco settlement should limit lawsuits to recover damages from tobacco companies for past and future behavior (46 percent favor, 30 percent strongly to 44 percent oppose, 33 percent strongly oppose).

    When using this innocuous language younger men, older women, homemakers, older college educated voters, Independent men, Republican women, younger Independents and Republicans, residents in the Northeast and Midwest, and current smokers come out somewhat more opposed to this provision.

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    However, when couched as giving the tobacco companies special protection from lawsuits to recover damages for past and future behavior, voters across the board come out strongly opposed to the provision (55 percent oppose, 40 percent strongly oppose to 32 percent favor, 22 percent strongly favor). No demographic subgroup comes out in favor of this provision. Opposition to this provision crosses party lines with 62 percent of Independents, 54 percent of Democrats, and 53 percent of Republicans opposed.

    If tobacco companies fail to reduce teen smoking by 60 percent in ten years, voters are willing to impose a stiff penalty on the companies. Forty-six percent of voters would want to see a penalty of $1.00 (32 percent) or higher (14 percent). Six percent would impose an eight cents per pack penalty and eight percent would impose a 50 cents per pack penalty. Only 28 percent would impose no penalty on the tobacco companies and 11 percent say they are unsure.

    Every demographic subgroup comes out solidly on the side of imposing some penalty on the tobacco companies, except for current smokers who give a slight edge to not imposing a penalty (41 percent penalty, 46 percent no penalty).

    Voters who are most favorable towards a $1.00 per pack or higher penalty tend to be younger voters under 30 (53 percent), younger women (52 percent), college educated women (55 percent), younger college educated voters (57 percent), Republican women (48 percent), younger Democrats (55 percent), younger Republicans (51 percent), residents in the Northeast (51 percent), and non-smokers (55 percent).

    Nearly seven out of ten voters (69 percent) agree that the rules which apply to marketing tobacco to children in the U.S. should apply to marketing tobacco to children in other countries. In fact, a strong majority (59 percent) strongly agree with this statement.
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    A strong majority of every demographic subgroup strongly agrees that the same rules should apply, including 52 percent of current smokers. This issue also crosses party lines with 73 percent of Democrats, 68 percent of Independents, and 68 percent of Republicans agreeing with this statement.


Split Sample A: Rotate

    Do you favor or oppose increasing the tax on a pack of cigarettes by $1.50 to deter children from smoking and to fund health programs? (If favor/oppose, Ask: Is that strongly/not so strongly favor/oppose?)

Table 3

    Do you favor or oppose increasing the tax on a pack of cigarettes by $2.00 to deter children from smoking and to fund health programs? (If favor/oppose, Ask: Is that strongly/not so strongly favor/oppose?)

Table 4

Split Sample B: Rotate

    Do you favor or oppose imposing a health fee of $1.50 on a pack of cigarettes to deter children from smoking and to fund health programs? (If favor/oppose, Ask: Is that strongly/not so strongly favor/oppose?)
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Table 5

    Do you favor or oppose imposing a health fee of $2.00 on a pack of cigarettes to deter children from smoking and to fund health programs? (If favor/oppose, Ask: Is that strongly/not so strongly favor/oppose?)

Table 6

Resume Asking All

    Would you be more or less likely to vote for a candidate for Congress who supported a $1.50 increase in the cigarette tax or would it have no real effect? (If more/less likely, Ask: Is that much
more/less or somewhat more/less?)

Table 7

    Some people have given different areas where they would like to spend the revenue from an increased cigarette tax. Of the following, please tell me the one or two areas you would most like to see the revenue go.

Read and Rotate (Accept Up To Two Responses)

Table 8

    Last year, the States' attorneys general and the tobacco industry proposed a settlement of state lawsuits which now awaits Congressional action.

    Which of the following statements comes closer to your point of view?
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    [Some people/other people] say the tobacco settlement is a comprehensive plan which will protect our children, improve public health, and dramatically change the culture and the conduct of the nation's tobacco companies. They say the benefits which would result from the current proposed settlement would outweigh whatever compromises that have been made with the companies.

    [Some people/other people] say Congress should not pass the tobacco settlement if it gives tobacco companies special protections like immunity from liability for past and future misconduct by the tobacco companies, if it makes the penalty payments that tobacco companies have to pay tax deductible, and if it spreads the tobacco companies penalty payments over 25 years.

    Which statement comes closer to your point of view?

Table 9

Split Sample A

    In return for increased taxes and penalties, one provision of the tobacco settlement would limit lawsuits to recover damages from tobacco companies for past and future behavior. Do you favor or oppose this provision? (If favor/oppose, Ask: Is that strongly/not so strongly?)

Table 10

Split Sample B
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    In return for increased taxes and penalties, one provision of the tobacco settlement would give the tobacco companies special protection from lawsuits to recover damages for past and future behavior. Do you favor or oppose this provision? (If favor/oppose, Ask: Is that strongly/not so strongly?)

Table 11

Resume Asking All

    The tobacco settlement proposes to reduce teen smoking by 60 percent in ten years. What do you think the penalty should be if the tobacco companies fail to reduce children's smoking by this amount—(Rotate) 8 cents per pack, 50 cents per pack, $1.00 per pack—or don't you think there should be a penalty?

Table 12

    Do you agree or disagree that the rules which apply to marketing tobacco to children in the U.S. should apply to marketing tobacco to children in other countries? (If agree/disagree, Ask: Is that strongly/not so strongly?)

Table 13


Coalition for Workers' Health Care Funds,

Washington, DC, February 3, 1998.

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Hon. HENRY J. HYDE, Chairman,
House Judiciary Committee,
Washington, DC.

Hon. JOHN CONYERS, JR., Ranking Member,
House Judiciary Committee,
Washington, DC.

    DEAR GENTLEMEN: On behalf of the Coalition for Workers' Health Care Funds, I would like to request that the attached written testimony be included in the record of your February 5 hearing on the ''Civil Liability Aspects of the Tobacco Settlement.''

    The Coalition has brought class action lawsuits in 27 States on behalf of union-sponsored, multiemployer labor-management health and welfare funds against the tobacco companies seeking reimbursement for the health care costs incurred as a result of tobacco-related diseases. The civil liability provisions of the proposed tobacco settlement would extinguish unfairly these lawsuits.

    Our law firm is the national counsel for the plaintiffs in these class action lawsuits and is coordinating the suits with local counsel representing the individual health trust funds.

    Thank you for your cooperation in this matter.

    With every good wish,
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David L. Mallino,

Partner and Director of Government Affairs.



Prepared Statement of Robert J. Connerton, Esq., Connerton & Ray, on Behalf of the Coalition for Workers' Health Care Funds

    Mr. Chairman and Members of the Committee, my name is Robert Connerton and I am Senior Partner of Connerton & Ray, a labor law firm in Washington D.C. Our firm represents the Coalition of Workers' Health Care Funds. I want to thank you for providing us with this opportunity of submitting testimony on this important issue.

    The Coalition for Workers' Health Care Funds is a grouping of more than 2,500 multiemployer ''Taft-Hartley'' union sponsored health care funds in the 50 states, the District of Columbia and Puerto Rico.

    These funds provide health care coverage to more than 33 million Americans: workers, retirees and their dependents. For the most part these are blue-collar workers typically in building or construction trades. Most often the employment is both itinerant and temporary in nature. Money to operate the funds is collectively bargained which means that each dollar spent treating a tobacco-related disease is a dollar that would have gone into a workers' paycheck or benefits package.
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    To date constituent funds in 29 states have filed class action lawsuits against the tobacco industry. These suits are closely patterned after the suits filed by the attorneys general of 40 states. The purpose is to recoup monies spent paying medical claims for tobacco-related diseases such as heart disease, lung and throat cancers and emphysema.

    The Taft-Hartley funds each year spend an average of 10% ($3.3 billion) of their claims dollars on tobacco-related diseases.

    The reason these expenditures are so high is that the tobacco industry has intentionally targeted our workers, just as they have targeted the youth of America. In our case the result has been calamitous.

    U.S. Public Health Service statistics show that our workers smoke at a rate that is double that of the national average and four times that of white-collar professionals. Fully 40% of their children have taken up smoking by the time the reach the age of 18.

    Further, our members consume more cigarettes than smokers any other segment of society. Tragically, theirs is the only part of American society in which smoking rates have not declined over the last two decades. In fact, in the last five years, they have begun to increase. Sadly these statistics are amply reflected in the national mortality tables.

    One of the main goals of the suits filed by the funds is to garner money to pay for the creation and implementation of smoking cessation and prevention programs to be administered at the local level and aimed at family groups to curb smoking by both adults and teens.
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    The filing of our suits is not opportunistic. In 1974, Congress enacted the Employee Retirement Income and Security Act (ERISA) which placed our trust funds and their trustees directly under the regulatory control of the Department of Labor and the Internal Revenue Service. ERISA codified the fiduciary obligation of trustees mandating that, as a matter of federal law, trustees must engage in such legal actions as necessary to secure or obtain funds for the benefit of the workers participants whenever legally possible and feasible.

    Thus, these trusteed funds are actually required by law to pursue the tobacco industry for reimbursement for past, present and future expenditures to pay for medical costs resulting from the use of tobacco products which have burdened and will continue to burden these trusts.

    And so, one can see, that these workers' funds are at the very heart of the tobacco problem that plagues our nation.

    For that reason we are unalterably opposed to any tobacco settlement legislation that provides the tobacco industry with immunity from class action and other lawsuits.

    Recent events have demonstrated clearly that the tobacco industry is not entitled to immunity from liability lawsuits:

  Release of the Reynolds and Philip Morris papers showing Big Tobacco cold bloodedly targeting kids as young as 12 years old.

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  Release of sealed documents showing tobacco industry lawyers illegally throwing the cloak of attorney-client privilege over scientific studies which demonstrated that smoking is addictive, causes cancer and early death.

  The public declarations by Dr. C. Everett Koop and Dr. David A. Kessler strongly opposing the granting of lawsuit immunity to the tobacco industry on the grounds that ''immunity is a public health issue''.

  The ruling by a federal judge in Seattle certifying that the union health fund class action lawsuit against the tobacco industry constitutes a legitimate class of plaintiffs.

  The start of the Minnesota trial against the tobacco industry that promises to produce thousands more secret documents that Attorney General Hubert H. Humphrey III has called ''smoking howitzers''.

Bliley Hearings

    At the recent hearings before the House Committee on Commerce we saw the CEO of a major tobacco company look a congressional committee in the eye and tell Congress that he ''cannot agree to any legislation that does not contain the limited common-sense civil liability protections'' in the deal the tobacco companies struck last summer with the attorneys general.

    Since when do company executives get to tell Congress what kind of legislation they can and cannot ''agree to''?

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    Particularly on the same day when it is revealed their advertising and promotional strategies targeted children as young as age 12.

    And on the same day the Justice Department began yet another criminal grand jury investigation into the tobacco industry—this time an antitrust probe looking into allegations they conspired to fix the wholesale price of tobacco (thus beggaring the tobacco farmers upon whose labor they depend for supplies of the product they sell).

    The immunity they seek is not limited—it is sweeping and would permit them to continue their evil ways unabated for another 30–50 years.

Smoking Cessation and Prevention Programs

    Unlike the States, every penny awarded to our funds will go to pay for health claims and smoking cessation and reduction programs. This is required under Federal law.

    We are working to create and implement a nationwide smoking prevention and cessation program aimed directly to our family groups with a particular focus on teenagers.

    The Taft-Hartley funds have a long and distinguished history in the realm of workplace safety and public health programs.

    Working with the public health community and appropriate agencies of the federal government we have, over the years, created and implement programs dealing with the problems facing workers exposed to asbestos, lead and asphalt as well as a wide variety of workplace safety programs in the building and construction industry.
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    These programs have been carefully crafted, often made specific to one single job site and, most important of all, they have been successful.

    We are confident that, using the same formula, we can achieve success in the area of smoking cessation and prevention in the family circles of our constituency.

    Mr. Chairman we are outraged that an industry that makes its money by selling poison that sends 420,000 Americans, many of them our members, to an early grave; and plots vigorously to ensnare both our workers and the flower of our youth as grist for their mill, should seek to insulate itself from the justice that every American has a right to seek by conspiring to prevent us from pursuing our law suits.

    Surely Mr. Chairman:

  If any segment of American society has a legitimate grievance against the tobacco industry, it is our workers;

  If any segment of American society has a right to go into court to seek justice as a result of its treatment at the hands of this industry, it is our funds;

  If any segment of American society has demonstrated its dedication to the health and safety problems of working men and women, and their families, it is our funds; and

  If any segment of American society has a proven track record when it comes to producing effective solutions to workers' health and safety problems, it is our funds.
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    President Clinton, in his announcement from the oval office last year on the tobacco settlement proposal, said he wanted to see those who have suffered most from the ravages of tobacco included among those seated at the table when an accord was reached.

    Clearly this means us. We fully agree with the five principles the President enunciated and we stand ready, willing and able to join with those of you in the Congress who will refashion this fatally flawed proposal. And we want to make sure that the President's vow to protect the livelihood of the tobacco farmers extends to those workers employed in the tobacco industry.

    Once again Mr. Chairman, on behalf of the 33 million working men and women who depend upon these health care funds, I want to thank you for allowing us this opportunity to submit this testimony for the record.


Prepared Statement of Bradford C. Oelman, Vice President, Corporate Relations, Owens-Corning Fiberglas Corporation

    Owens Corning appreciates this opportunity to provide a statement for the hearing record on: (1) the unique problems posed to parties involved in the asbestos litigation by prior tobacco company behavior and the proposed national tobacco settlement; and (2) a joint proposal to address these problems by victims of asbestos and tobacco, labor unions with asbestos victims as members, asbestos settlement trusts, and corporate asbestos defendants.
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    Owens Corning is a world leader in high performance glass fiber composites and building materials, with 1997 sales of nearly $4.4 billion. The company employs 21,500 people worldwide.

    An unprecedented coalition of tobacco/asbestos victims, labor unions, asbestos trusts, and asbestos defendants (such as Owens Corning) proposes establishment of a ''Tobacco Asbestos Trust'' (TAT) as a vital element of any tobacco legislation. The coalition proposal is reflected in testimony by Steven Kazan before the House Judiciary Committee as a mechanism through which asbestos victims would receive fair and timely compensation for smoking-inducted harm.

    Under the proposal, individual tobacco/asbestos claimants would release the tobacco companies from liability if they opt to receive payments from the TAT. The asbestos defendants and trusts would give up their lawsuits against tobacco companies. The proposal is motivated by the inability of the tort system, already burdened under a backlog of hundreds of thousands of asbestos cases, to deliver timely and complete relief to most asbestos victims for smoking caused harm.

    The coalition effort brings together the principal players in the longrunning asbestos litigation crisis and calls on tobacco companies to assume responsibility for the undeniable linkage between smoking and exposure to asbestos. According to the Surgeon General, asbestos workers who smoked more than a pack a day and were exposed to asbestos are 87 times more likely to die of lung cancer than the general non-smoking public, and 8 times more likely than other smokers not exposed to asbestos. There is no group of Americans for whom tobacco is a more lethal product. It is imperative for any tobacco legislation to include provisions for payment to tobacco/asbestos victims.
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In testimony before the committee, Mr. Steven Kazan, one of the country's leading asbestos plaintiffs' lawyers, predicted that ''our soon-to-be largest mass tort . . . tobacco . . . is about to be infused into virtually every case that makes up our current largest mass tort . . . asbestos. The enormous asbestos-case backlog is like a bus stuck on the tracks, and the onrushing tobacco litigation will cause an unparalleled litigation train wreck.''

    In the past, asbestos manufacturers and asbestos trusts have paid claims to tobacco/asbestos victims suffering from lung cancer and other diseases caused by the combined effects of asbestos and tobacco. On the other hand, the tobacco companies have never paid one dime. This is ironic since the asbestos manufacturers removed virtually all of their product from the market twenty-five years ago and tobacco companies are still going strong.

    Owens Corning believes that the asbestos industry has for too long paid billions of dollars for damages caused by smoking. In fact, at least fifteen former manufactures of asbestos-containing products, constituting seventy percent of the market share for such products, have been driven into bankruptcy. It is time for Congress to make tobacco companies pay their share to asbestos victims by establishing a ''Tobacco Asbestos Trust'' to help tobacco/asbestos victims and their families.

    This view is shared by certain labor organizations. Elihu Leifer, a lawyer representing the International Association of Heat & Frost Insulators & Asbestos Workers, stated, ''Thousands of our members who smoked have died as a result of the deadly combination of tobacco smoke and occupational exposure to asbestos products. While the litigation alternative must remain available to tobacco/asbestos victims who choose to seek their redress by means of judicial forum, an infusion of substantial additional funds from the tobacco companies would have the practical effect of reducing, in a major way, the number of new cases that would be filed in the future. We are hopeful that a just resolution of this problem can be found which will spare our members the need to commence another massive set of lawsuits over the next few decades.''
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    The coalition consists of the Alliance for a Fair Tobacco Settlement (representing asbestos manufacturers and asbestos trusts) working in conjunction with victims organizations and unions to ensure that tobacco legislation provides equitable compensation for asbestos workers who smoked and were stricken with lung cancer and other related diseases. As a member of the Alliance, Owens Corning commends the analysis and proposals contained in Mr. Kazan's testimony to the Committee's consideration.


U.S. Department of Justice,
Office of Legislative Affairs,
Washington, DC, June 11, 1998.

Hon. HENRY J. HYDE, Chairman
Committee on the Judiciary,
U.S. House of Representatives,
Washington, DC.

    DEAR MR. CHAIRMAN: At your request, we have enclosed responses to questions posed following the appearance of Mr. David W. Ogden, Counselor to the Attorney General, before your Committee on February 5, 1998. The subject of the hearing was civil liability aspects of the proposed tobacco settlement.

    Please let us know if we may be of additional assistance in connection with this matter. The Office of Management and Budget has advised that there is no objection from the standpoint of the Administration's program to the presentation of this response.
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L. Anthony Sutin,
Acting Assistant Attorney General.


Answers to Questions for David W. Ogden, Esq., Counselor to the Attorney General, Department of Justice

Congressman Coble

    Mr. Ogden, you state in response to a question from Rep. Frank that ''there are large advantages to having a resolution in which the tobacco companies are involved. For one thing, one of the key objectives here is changing the way they do business, changing their marketing practices, changing their whole approach. A key element in that is their involvement in the solution. A second important feature of it is that whatever we craft in the way of reform is, as the FDA regulations are, potentially subject to litigation that would tie them up.''

    Question 1. Please describe in more detail the benefits you see from the enactment of legislation, in which the tobacco companies are involved.

    Answer. The benefits of voluntary tobacco company cooperation in the reform of the tobacco industry are many. One of the President's five goals is to change how the tobacco companies do business. The industry's active participation in that effort should be encouraged. Moreover, such participation will advance the principal goal of reducing youth smoking. Although increasing the price of a pack of cigarettes and restricting minors' access to tobacco products and tobacco product advertising will reduce youth smoking significantly, other, voluntary efforts by the tobacco industry, if sufficiently strong and implemented in an effective manner, have the potential to reduce youth smoking even more. Finally, even litigation that is ultimately not meritorious can delay implementation of legislation for years. Because thousands of young people begin the road to addiction and disease every day, it is crucial to avoid such delay if possible.
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    In addition, we note that some advertising restrictions that go beyond the narrowly tailored FDA regulations present significant additional constitutional concerns. We believe, however, that legislation could be crafted, consistent with the Constitution, in which manufacturers could agree to comply with restrictions that go beyond the FDA regulation in exchange for certain benefits.

    Although a novel question, we do not believe that the ''unconstitutional conditions'' doctrine requires a contrary conclusion. Pursuant to the ''unconstitutional conditions'' doctrine, the Supreme Court has struck down certain governmental attempts to condition benefits, such as Federal funding, on a recipient's compliance with restrictions on fully protected expressive activities that could not have been imposed directly. See, e.g., F.C.C. v. League of Women Voters, 468 U.S. 364 (1984). However, none of those rulings concerned limitations on commercial speech, and there are strong grounds for distinguishing these rulings in this context. Thus, although a provision that included the additional advertising restrictions as terms in a consensual contract could be subject to First Amendment challenge (perhaps by third parties), a properly structured provision of this type should survive constitutional review. For example, we believe that courts should uphold a Federal law that offered manufacturers the option of complying with them in order to receive special protections from liability.

    Question 2. Do you agree with those who believe that certain of the proposed settlement's advertising restriction such as the complete ban on outdoor advertising or the ban on the use of human images in any advertising, would be constitutionally suspect under the First Amendment? What further benefits from the tobacco company involvement do you envision?
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    Answer. As I testified, the Department believes that the government may restrict the advertising of tobacco products, which may not lawfully be sold to persons under the age of 18, in order to serve its wholly legitimate and compelling interest in curtailing minors' demand for and use of tobacco products. Restrictions that are carefully drawn to reduce minors' exposure to tobacco advertising may be imposed directly by Federal law against the tobacco industry, and thus the Department believes that the FDA's current restrictions on tobacco advertising are fully consistent with the First Amendment.

    To the extent that the contemplated legislation would include advertising restrictions that go beyond the FDA's regulations in ways that are not narrowly drawn to reduce youth tobacco use, the legislation would raise significant constitutional concerns that are not presented by the FDA regulation. As noted above, however, we believe that legislation could be crafted, consistent with the Constitution, in which manufacturers could agree to comply with restrictions that go beyond the FDA regulation in exchange for certain benefits.

Congressman Inglis

    Question 1. Do you believe that the public health objectives outlined by the President can be achieved in the absence of a universal settlement passed by Congress? And in the absence of a universal settlement, will these objectives be achieved for every State? Will states share on an equitable basis in any recovery outside of a universal settlement passed by Congress?

    Answer. The Administration believes that its public health objectives and the President's five goals can be achieved only through passage of comprehensive, federal tobacco legislation. Absent Federal legislation, states will be left to the uncertainties of litigation to achieve monetary recoveries from tobacco companies. Such litigation may result in different results from State-to-State, including different prices for tobacco products, different regulations on youth access, and conflicting regulations on advertising and marketing. Critical to the achievement of the president's goals is the establishment of national standards, programs and policies to reduce youth smoking nationwide. Only through comprehensive national legislation will these goals be achieved.
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    Question 2. Has the administration considered the means by which it would seek to achieve its public health objectives if a universal settlement is not enacted by Congress? Furthermore, what affirmative steps would the administration pursue to protect farmers in South Carolina and elsewhere that would obviously be impacted by any federal regulation of tobacco in the absence of a settlement?

    Answer. The administration believes that its public health objectives can be fully achieved only through enactment of comprehensive tobacco legislation. If this cannot be achieved with the agreement of the tobacco industry, the administration is prepared to seek comprehensive legislation without their agreement. With respect to the protection of tobacco farmers, the President has made clear that he will support comprehensive legislation only if it protects farmers affected by the Federal regulation of tobacco.


Wachtell, Lipton, Rosen & Katz,
New York, NY, April 10, 1998.

Hon. HENRY J. HYDE, Chairman,
U.S. House of Representatives,
Committee on the Judiciary,
Washington, DC.

Re: Response to Inquiries of Members of Committee on the
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    DEAR CHAIRMAN HYDE: I am enclosing responses to the inquiries of Representatives Inglis, Jenkins and Conyers that you forwarded to me by your letter dated March 13, 1998. Where a question calls for specific factual data, the response relates only to my client, Philip Morris Incorporated (''PM USA''); if you or other Members of the Committee would like additional responses from any of the other tobacco companies, please let me know and I will be happy to so advise their counsel. Otherwise, the responses have been prepared as responses by all of the companies that are parties to the settlement. Thus, unless otherwise expressly indicated, they reflect a joint industry response rather than the response of only one company or a personal response by me.

    We continue to be available at your convenience for further discussion or clarification of the information provided here.

Very truly yours,



Responses of Meyer G. Koplow to Inquiries of Members of the Committee on the Judiciary

Inquiries Submitted by Representative Inglis
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    Question 1. What do you think would be accomplished by continuing litigation of these state cases?

    Answer. Instead of providing the benefits of the Proposed Resolution, a continuation of the State cases would have three potential outcomes, none of which is attractive from a public interest standpoint. First, juries could continue—as they have in the past—to believe that people in this nation have long been aware of the risks presented by tobacco products, and thus continue to find for the industry for that reason. In this event the States (other than the three States that have settled their cases) will recover nothing; the status quo would be preserved. Second, the industry could win most but not all of the cases, resulting in inequitable treatment on a large scale. A few States might recover billions of dollars, while the remainder would get nothing. Finally, initial successes by a few States could drive the current companies into bankruptcy, which likewise would not serve the public interest. Instead of paying hundreds of billions of dollars to benefit the public nationwide, the far more limited amount of money that the industry could marshal immediately would be directed to the few States that got to the courthouse first.

    None of these outcomes would satisfactorily resolve the issues presented by products that millions of adults will still want to use, that give rise to the employment of hundreds of thousands of people in this country, and that form a significant portion of the nation's economy. It would indeed do the public little good for the current tobacco manufacturers to agree to increased governmental regulation, advertising restrictions and the making of enormous monetary payments, only for those manufacturers to be driven out of business by, for example, a series of State lawsuits (or private class actions). It is widely accepted that tobacco products will in the future continue to be sold and used in this country. It would not benefit the public for the current tobacco manufacturers who have entered into the proposed settlement to be replaced either or both by (1) illegal and wholly unregulated blackmarket production and sales (with the attendant public health and law-enforcement consequences); or (2) by foreign companies (with the attendant consequences to domestic growers and workers and to the American economy as a whole). Only a comprehensive settlement of all State cases can achieve the necessary resolution of these issues.
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    Question 2. If our goal is to change industry behavior and to protect public health, how is this best achieved? I mean, if we truly want to reduce the appeal of smoking, can't restrictions on advertising be achieved only through voluntary means which the industry has agreed to undertake under the settlement?

    Answer. We believe that the best approach to addressing the public health issues associated with the use of tobacco products is the truly comprehensive approach reflected in the June 20 Proposed Resolution. Inasmuch as no one can be certain as to which measures are going to have the greatest impact on underage tobacco use, the Resolution incorporates virtually every idea that has been advanced to combat underage use. It combines severe advertising and marketing restrictions for participating manufacturers; FDA authority over virtually every aspect of the tobacco industry's operations; mandatory reductions in youth tobacco use supported by no-fault ''look-back'' provisions with teeth; unprecedented payments by the tobacco industry in perpetuity; stringent restrictions on smoking in public buildings; the disclosure of millions of industry documents; and limited civil liability protections.

    You are correct that many of the most significant provisions of the Proposed Resolution—including the wide array of advertising and marketing restrictions and the imposition of no-fault ''look-back'' surcharges—would violate the tobacco companies' constitutional rights if imposed without their consent. As First Amendment lawyer Floyd Abrams recently testified before the Senate Judiciary Committee, a statute unilaterally imposing such restrictions on the tobacco industry would be ''destined to be held unconstitutional.'' Nevertheless, the participating manufacturers are willing to waive their constitutional rights with respect to these elements of the settlement if that waiver is in the context of an overall resolution that provides the industry with a degree of predictability and certainty in its ongoing operations, and, by extension, helps ensure that there will be a source in the future for the enormous payments called for by the settlement.
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    Question 3. Some states have only lately decided to pursue litigation with the tobacco industry. As a matter of equity, how do we best ensure that all States can recoup costs they have incurred that are attributable to smoking? While the industry might settle the claims of some states, isn't it possible that other cases will go to trial? And isn't it also possible that some states whose cases go to trial might also lose?

    Answer. As noted in the response to Question 1 above, the only way to ensure that all States are treated equitably, and that the intended public health benefits of the settlement are achieved, is through enactment of legislation embodying the negotiated provisions of the Proposed Resolution. It is certainly possible that a number of the State lawsuits would not be settled and instead would go to trial, where the result could well be that a number of States would lose. (Indeed, even at the pre-trial stage, a number of States, including Maryland, Iowa and Arizona, have had most of their claims against the industry dismissed.) Moreover, it is not likely that the tobacco industry would be able to enter into settlements with all of the States absent such legislation, even if it were otherwise inclined to do so.

    Question 4. It is my understanding that a certain portion of the monies received under the settlement will be allocated to education programs, cessation programs and other public health initiatives. If a settlement is not passed, is there any way to ensure that any monies recovered by the states are allocated for these purposes?

    Answer. It is correct that the State Attorneys General have recommended, as part of the Proposed Resolution, that substantial monies be allocated to national programs and initiatives such as those referenced by the question. Absent the enactment of federal legislation embodying these recommendations, there is no assurance whatsoever that any monies recovered by the States will be allocated to those programs and initiatives. Indeed, any monies recovered by individual States—and there is no guarantee that any State will recover any money—would almost certainly be spent on programs only within those States, and thus no national effort would be funded to address the issues associated with tobacco use.
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    Question 5. I understand that this hearing is focusing on the civil liability provisions of the proposed settlement, but I would like to get your input on the following. I come from South Carolina which has historically been a major tobacco producer. Will the tobacco farmers in my home state fare better if we do or do not pass a tobacco settlement this Congress?

    Answer. We believe that tobacco farmers will fare better if Congress enacts legislation embodying the terms of the Proposed Resolution. Although we project that domestic sales of cigarettes will decline in the next several years if such legislation is passed, the declines in purchases of American leaf will certainly be less than if American manufacturers are put at a disadvantage to foreign manufacturers who use far less American leaf. This disadvantage will occur if American manufacturers take on greatly increased costs through State settlements or judgments and foreign manufacturers thereafter enjoy a huge cost advantage in the U.S. because they have not been sued by the States. The Proposed Resolution was designed to obviate this problem and thereby help U.S. growers.

    American tobacco manufacturers—and thus American growers—would likewise be placed at a devastating competitive disadvantage if legislation such as that recently voted out of the Senate Commerce Committee is enacted. Senator McCain's bill attempts to ''globalize'' U.S. law applying the bill's advertising and marketing restrictions to U.S. companies worldwide, virtually guaranteeing that all overseas sales will be uncompetitive, and thus likely eliminating immediately a third of U.S. tobacco leaf production. In addition, the McCain bill imposes a series of extraordinarily onerous bureaucratic requirements—such as bonding, permit and labeling requirements—that further destroy the ability of U.S. companies to compete overseas. Given that these provisions do not and cannot apply to foreign manufacturers overseas, they will only serve to shift the overseas tobacco business to foreign manufacturers (many of which are owned by foreign governments), thereby severely injuring America's tobacco growers.
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    PM USA, for its part, intends to continue to maximize its use of U.S. tobacco in its future operations. Moreover, the U.S. manufacturers are very sensitive to the circumstances of America's tobacco farmers and to the challenges that the Proposed Resolution presents them, and are working with Congress and members of the farm communities to address these issues.

Inquiry Submitted by Representative Jenkins

    Question. We heard from an administration witness at the February 5th hearing. I understand that the administration was involved in the negotiation of the proposed agreement. Who was involved from the Administration and what role did they play?

    Answer. During the course of the negotiations leading to the Proposed Resolution, various of the parties at the negotiating table, including the State attorneys general, the class action plaintiffs' lawyers, the public health representative and the industry representative, regularly apprised the designated White House representative, Bruce Lindsey, of the progress of the negotiations, including details of the parties' negotiating positions. The White House at various times suggested ways to bridge the parties' differences and advised as to positions it would not accept.

    The White House was more involved in some areas and less in others. For example, the issue of civil liability relief for the industry was a frequent topic of discussion between the parties and the White House. For a period of time, the industry's position that it would not settle without a resolution of all claims for punitive damages based on the industry's past actions stood in the way of a resolution. In a last-ditch effort to resolve the differences on this issue, the White House advanced the suggestion that the industry increase its payments under the settlement from $308.5 billion to $368.5 billion, with the additional $60 billion to be earmarked as additional payment for the resolution of punitive damage claims against the industry. The White House indicated that if the industry would increase the number in the deal to $368.5 billion and the attorneys general would accept it, the White House could issue a press release after the announcement of the deal indicating that it had reviewed the punitive damages provisions of the Proposed Resolution and, although the remainder of the resolution would require White House review, the White House viewed the resolution of the punitive damages issue as reasonable.
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    The White House was also directly involved in working out the schedule by which industry payments would ramp up to a maximum level of $15 billion per year, the amount and schedule of payments that would be devoted to a public health trust fund to support research into diseases associated with tobacco use, and the amount of funds that would be expected to go to the States. The White House also articulated the position that the White House would support the States keeping the federal portion of any sums that could be characterized as Medicaid recoveries, provided that any such amount be used for children's health care.

    The White House's participation and assistance to the parties was, in my estimation, critical to the ultimate ability of the parties to agree on the terms of the Proposed Resolution, and the parties came to rely on positions articulated by the White House in determining ultimately to enter into the agreement.

Inquiries Submitted by Representative Conyers

    Question 1. In order for the committee to more properly assess the desirability of providing liability protections to the tobacco industry and designating a specific dollar payment by the tobacco industry in lieu of punitive damages for past misconduct, please provide me with copies of all documents concerning (1) the marketing of tobacco products to African-Americans, Hispanics, and other minorities; (2) the marketing of tobacco products to youth; (3) any knowledge by the tobacco industry and its representatives concerning the addictive or health effects of tobacco products; and (4) any documents concerning the arrangements between any members of the tobacco industry and film makers concerning the use of tobacco products in films.
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    In order to fully respond to this question, please contact your client Phillip [sic] Morris as well as representatives of other members of the tobacco industry. Provide me with copies of all of the above regardless of whether any such documents may have been previously released or made available to the public and please provide an accompanying index. To the extent you are unwilling to provide any of the above due to a claim of privilege or other rationale, please describe the general nature of the document along with a statement of the privilege or other claim. Also, if any privilege is asserted, please provide me with a statement of whether Phillip [sic] Morris and the tobacco industry would assert such claim in response to a congressional subpoena, and the legal rationale for such a claim (e.g. whether it is grounded in the U.S. Constitution, the Federal Rules of Procedure, or other legal basis).

    Answer. The Proposed Resolution followed intensive litigation against the tobacco companies by the States of Mississippi, Florida, Texas and Minnesota, numerous other States, various counties and municipalities, as well as numerous private plaintiffs. Over the past few years, numerous governmental entities, aided by experienced, aggressive private plaintiffs' counsel, have pursued unprecedented document discovery into almost every aspect of the tobacco industry's operations. To date, these governmental entities have amassed in excess of 33 million pages of internal corporate memoranda, correspondence, research reports, marketing studies and financial and scientific data dating back, in many instances, more than fifty years.

    Subjects covered by these produced documents span a wide range of topics, including, among many others:

 internal company research, as well as outside-sponsored research, into the health effects of tobacco products;
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 research into what chemicals or chemical compounds are found in cigarette smoke;

 research into issues of nicotine ''addiction,'' ''dependence,'' ''reinforcement'' or ''habituation'';

 research into why people use tobacco products, and the role of nicotine in tobacco use;

 current and historical marketing research and marketing and promotional practices;

 internal company memoranda and correspondence relating to smoking and health;

 toxicological testing of various cigarette ingredients;

 internal company efforts to reduce or eliminate certain chemicals in tobacco smoke that had been identified by public health authorities as possible causes of disease;

 information concerning the cultivation, blending and processing of tobacco, and the manufacture of ''blend components'' such as reconstituted tobacco and expanded tobacco;

 design specifications, flavor formulas and detailed ingredient information for each cigarette brand sold in the United States;

 the tobacco companies' sponsorship of, and relationship to, the Council for Tobacco Research and the Tobacco Institute; and
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 the tobacco companies' 1968–1979 participation in the Department of Health, Education and Welfare/National Institutes of Health/National Cancer Institute's ''Tobacco Working Group''—a project in which representatives of the federal government and the tobacco industry worked together to explore possible designs for ''less hazardous'' cigarettes, including, among other things, cigarettes with lower levels of tar but relatively higher levels of nicotine.

    The scale of this document production—most of which is located in a Minnesota document depository that, because of a recent request by the tobacco industry, will be opened to the public on April 13, 1998—is without precedent in American civil litigation. In addition, in order to facilitate both Congress' and the public's consideration of the proposed Federal tobacco litigation, PM USA and each of the other tobacco companies have begun making available now all of the produced, nonprivileged documents in the Minnesota depository (except for a limited number of highly sensitive trade secret materials and documents containing personal and third-party information)—in full text, printable anywhere by anyone, on Internet websites created and maintained by each of the companies.

    Each of the companies has already completed putting onto its website the first (and likely most significant) installment of documents from the Minnesota depository—namely, the vast majority of those documents that were ''selected'' or ''taken'' for use at deposition or trial by lawyers representing the State of Minnesota (i.e., documents considered most important by the lawyers suing the tobacco companies). I am advised that the balance of the documents from the depository not selected by the Minnesota plaintiffs will soon be added to these websites. Beyond this, a massive testimonial record has been compiled at trial in the Minnesota action (some eight weeks of trial testimony to date). This testimonial record is likewise largely publicly available and addresses certain of the subjects noted above.
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    The industry websites are equipped with searchable indices to aid Congress and the public in identifying documents on key subjects, including many of the topics referenced in the question. If your staff would like any assistance using these indices, please let me know and we will endeavor to help. Beyond these electronic indices, there are available now additional indices covering all of the documents produced into the Minnesota depository (including those not selected or taken by the lawyers representing Minnesota). We are likewise happy to assist your staff in obtaining those indices and explaining how they are organized.

    In sum, there is a wealth of information covering nearly every aspect of PM USA's (and, I am advised, the other companies') operations and conduct dating back to 1945. That information is already, or will shortly be, available to Congress in various forms. These materials, moreover, have been combed through by numerous government lawyers and private plaintiffs' lawyers—all of whom had every incentive to discover and distill the evidence that they consider most damaging to the tobacco industry.

    Given these existing public sources of information about the industry's past activities, PM USA believes that there is no need or justification for Congress to take the unprecedented step of invading the confidentiality of attorney-client communications and attorney trial preparation by demanding privileged or attorney work product communications. Were Congress to disregard privileges and protections uniformly observed by our Nation's Federal and State courts and compel the companies to make public thousands of privileged communications—including thousands of privileged communications that have been ruled to be privileged by courts—Congress' abrogation of privilege would set a nightmarish precedent that could, and doubtless would, be extended to numerous other legislative settings.
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    Any such Congressional renunciation of the attorney-client privilege and attorney work product doctrine would ignore every safeguard the courts have erected to protect the privacy of attorney-client confidences, and would amount to nothing less than a repeal of the attorney-client privilege. To illustrate: In United States v. Zolin, 491 U.S. 554 (1989), the Supreme Court ruled that before a court may review privileged documents in camera, the court must find ''prima facie'' evidence that the documents or communications to be reviewed contain evidence of an ongoing crime or fraud. Id. at 572. This is a stringent, protective standard. Before a judge may even review privileged confidences in the privacy of his or her own judicial chambers (to say nothing of releasing them to the public), the judge must first find ''probable cause'' to believe that the specific communications were undertaken to further a crime or fraud. So sacred are the confidences between client and lawyer that courts will not intrude upon them unless there is demonstrated probable cause for doing so.

    Some may urge Congress to disregard these privacy interests. Yet, even if Congress had the power retroactively to invade the confidences between attorney and client, doctor and patient, or priest and penitent (and it is by no means clear that Congress has such power), it would be unfair—and profoundly disruptive to our entire legal system—for Congress to take such a drastic step. The confidences between lawyers and their clients (like those between doctors and patients, or priests and penitents) are not only made with every expectation of privacy, they are in fact induced by the promise of privacy. As more than a century of American law makes clear, it has long been the avowed purpose of the attorney-client privilege to, in the words of the Supreme Court, ''encourage full and frank communication between attorneys and their clients'' (Upjohn v. United States, 449 U.S. 383, 389 (1981) (emphasis added)), ''free from the consequences or apprehension of disclosure'' (Hunt v. Blackburn, 128 U.S. 464, 470 (1888)). The privilege is thus intended to, and does, induce clients to entrust sensitive information to their lawyers free from the apprehension that their confidences will be violated. Indeed, this is the ''stuff'' of attorney-client confidences: of lawful, proper, judicially protected attorney-client consultations that serve the interests of justice by encouraging candor between clients and their lawyers, compliance with the requirements of law, and informed, responsible advocacy before courts and other forums. If Congress were to strip away that expectation of privacy after-the-fact—i.e., after individuals and companies have relied on these centuries-old assurances of confidentiality—the result would be as unfair, and quite likely as unconstitutional, as inducing someone to give testimony by a grant of immunity and then revoking the immunity once the witness tells all.
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    Beyond this, any such Congressional disregard of long-settled privileges would establish a perilous precedent for all future legislative deliberations. Once there is a precedent—and an appetite—for disregarding attorney-client confidences in connection with the consideration of legislation, there will surely be demands for such disclosures whenever it suits a political purpose to make them. The privilege will quickly become a dead letter—a pledge of privacy on which no one could reasonably rely for fear that, after confiding in one's lawyer, any privilege could be stripped away without due process or appropriate judicial review.

    For all of these reasons, PM USA (and, I am advised, the other tobacco companies) must continue to assert attorney-client privilege and work product protection with respect to a very modest percentage of documents.

    As the Committee no doubt appreciates, such privileges cannot be asserted and waived at whim; a privilege holder must take reasonable steps to preserve the confidentiality asserted to be privileged under pain of losing that privilege permanently. PM USA's (and the other companies') claims of privilege with respect to the Minnesota case and other pending cases are set forth in detailed privilege logs, and these logs will be made publicly available as part of the public opening of the Minnesota depository. The specific privileges asserted are described on these logs on a document-by-document basis, and the companies must stand by their claims of privilege pending appropriate determinations by the courts. We are not in a position to ''waive'' what we believe to be lawful, appropriate privileges—nor do we think it would be appropriate or proper for Congress to ''trump'' the courts' adjudication of these privileges by some legislatively compelled abrogation of privilege.

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    Question 2. Please provide any calculations or research the tobacco industry may have performed concerning the likely dollar requirements of persons and entities injured by tobacco products.

    Answer. Based on PM USA's search as of today of documents produced in the Minnesota Attorney General lawsuit, as well as inquiries of internal sources where we believe that any responsive documents would reside, PM USA has not located any documents reflecting any internal calculations intended to estimate the total damages it could be asked to pay in connection with all litigation brought or anticipated by persons and entities claiming to be injured by tobacco products.

    Question 3a. Please state the tobacco industry's reaction to the following proposal, previously discussed or raised at the February 5th hearing: Retaining punitive damage claims with respect to claims based on facts not disclosed by the tobacco industry to Congress.

    Answer. The settlement of punitive damages for past conduct is necessary to avoid the possibility of a few plaintiffs receiving a punitive damages windfall to the detriment of others with similar claims. In return, under the Proposed Resolution the industry will pay in excess of $60 billion in settlement of punitive damages claims—an amount that likely dwarfs the total amount of all punitive damages paid in all cases in this nation since its founding; and an amount that certainly dwarfs the total punitive awards assessed against the tobacco industry to date: zero. This result is all the more in the public interest because the payments will go to a governmental public health trust to benefit the public at large and to other public uses—and not, as would punitive damages awards in litigation, into the hands of a limited number of successful plaintiffs and their attorneys.
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    In light of this, there is simply no logical justification for jeopardizing the ability of plaintiffs to collect, or for jeopardizing the funds that the industry will otherwise pay to the federal and state governments for the public good, so that a limited number of plaintiffs and their attorneys might seek and obtain a punitive damage recovery above and beyond full compensation (which itself can already include payment for pain and suffering). Moreover, enacting a rule that would allow punitive damage claims ''with respect to claims based on facts not disclosed by the tobacco industry to Congress'' would only serve needlessly to complicate and prolong tobacco litigation, further diverting resources away from compensation and to litigation. Cases would bog down over issues such as whether a fact had been disclosed to Congress; whether the claim was ''based on'' such facts; whether the ''undisclosed'' facts alone would have to be sufficient to meet the standard for awarding punitive damages, or whether additional ''disclosed'' facts could also be considered; and so on. In addition, such a rule would exacerbate the already arbitrary nature of punitive damages, resulting in the availability of such damages based neither on the extent of injury to the plaintiff nor the gravity of the alleged wrongful conduct, but rather on the happenstance of whether the underlying fact could be characterized as having not been disclosed to Congress.

  Question 3b. Please state the tobacco industry's reaction to the following proposal, previously discussed or raised at the February 5th hearing: Rather than barring all class action and aggregation devices, a statutory rule that not more than a specified number of cases could be consolidated or joined for a tobacco case (e.g., 200, 500, or 1,000).

    Answer. The prohibition on class action and other aggregation devices—including a bar to consolidations of the numbers of cases referenced in the question—is fundamental to an ongoing process for the fair and equitable distribution of the funds that are made available under the settlement. The class action limitation simply embodies the predominant Federal caselaw holding that class treatment is not appropriate for these individual personal injury claims, and makes it certain that this rule will be applied uniformly and consistently across the country. It makes no sense to permit local courts to develop different rules on this point which would advantage some local plaintiffs to the inevitable disadvantage of others. Class actions against the tobacco industry lump together many persons having different diseases and different claims with respect to their reliance on alleged industry misconduct, and increase the potential for awards to plaintiffs with vastly different merits to their claims. This result would defeat the goal of treating all claimants fairly and uniformly, and would also defeat the Federal government's interest—and the public's interest—in equitable distribution of the settlement funds and the use of surplus funds for public purposes. Moreover, these unfortunate results would not be mitigated by limiting the size of the class to hundreds or thousands of claimants.
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    In addition, this is not an area in which litigants must proceed on an aggregated basis in order to prosecute their claims effectively or to persuade lawyers to pursue their claims. Unlike cases where persons with small individual claims must band together in order to make litigation more cost effective, the damages sought in individual cases brought against the tobacco industry have been quite large. Many individual tobacco cases have been brought in the past decade alone, thereby proving that lawyers are available and willing to take such cases. And this is so even prior to implementation of the provisions of the Proposed Resolution designed to increase the feasibility of individual litigation: including a recognition that claims of individual litigants may be aggregated for purposes of discovery and other pre-trial proceedings to allow sharing of expenses; and a requirement that the industry deposit most of its existing and future documents on an ongoing basis in a centrally located, publicly accessible depository to reduce substantially the expense of discovery in litigation against the industry.

  Question 3c. Please state the tobacco industry's reaction to the following proposal, previously discussed or raised at the February 5th hearing: Make individual actions viable by shifting the burden of proof on causation so that defendants are required to disprove that exposure to tobacco did not cause plaintiff's injury.

    Answer. It is an ancient and fundamental tenet of American tort law that a plaintiff suing a defendant must show by a preponderance of the evidence that the defendant caused the plaintiff's injury. This is the standard that our system has long recognized is fairest to all of the parties involved. If a tobacco-related claim has merit, the plaintiff bringing the claim should be able to—and, in fairness, should be required to—prove that that is the case. Otherwise, an important safeguard against nonmeritorious claims would be lost, thereby diverting to the defense of such claims funds that otherwise could be made available to compensate valid claims. Moreover, the premise of proposals to shift the burden of proof in tobacco cases—that it has somehow been ''unfair'' that the tobacco industry has prevailed in most of the traditional smoking and health cases brought to trial to date—is an insult to the intelligence of all Americans serving on juries that have, as a matter of their own common sense and notions of fairness, concluded that smokers are well aware of the risks associated with tobacco and have not been deceived by the industry. In addition, as noted above, the Proposed Resolution itself includes procedural provisions designed to facilitate individual cases, such as aggregation of cases for purposes of discovery and other pre-trial proceedings, and the establishment of centrally located, publicly accessible document depository to reduce substantially discovery costs.
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  Question 3d. Please state the tobacco industry's reaction to the following proposal, previously discussed or raised at the February 5th hearing: Establish a settlement trust fund (modeled on the Dalkon Shield and asbestos cases) to handle future tobacco litigation with independent trustees in order to make sure that weak cases are defended and strong cases are settled, and to achieve an overall expeditious resolution. A related proposal would create a second trust to pay smoking/asbestos claims funded by a $35 billion payment.

    Answer. The billions of dollars per year made available (in perpetuity) under the Proposed Resolution to pay future tobacco-related claims—particularly in combination with the settlement's comprehensive resolution of class actions and past punitive damage claims—constitute an enormous and virtually guaranteed compensation fund. Thus, unlike in the Dalkon Shield and asbestos contexts, where the defendant manufacturers were either in or near bankruptcy and there was no comprehensive settlement, under the Proposed Resolution the tobacco companies would remain financially viable while being required to make available unprecedented sums to pay tobacco claims. There is thus no need to establish a trust fund to secure the availability of funds for such claims.

  Question 3e. Please state the tobacco industry's reaction to the following proposal, previously discussed or raised at the February 5th hearing: Since the purported premise of the June 20 proposal is to provide for overall fairness and uniformity, a proposal to alter those state laws, such as Texas and New Jersey, where it is inordinately difficult to bring a tobacco claim by an individual to create a more level playing field with other state laws.

    Answer. The premise of the question—that in some States it is somehow ''inordinately difficult'' to bring a tobacco claim—is, in our opinion, erroneous. Indeed, we believe that in certain States it is, if anything, perhaps too ''easy'' to bring such claims. In any event, in the negotiations that resulted in the Proposed Resolution the State Attorneys General found it important to preserve varying state substantive laws relevant to claims against the tobacco companies, and thus the settlement reflects those local variations. In addition, it should be noted once again that the Proposed Resolution also includes features specifically designed to make it easier and less expensive to bring individual claims against the industry, such as permitting the aggregation of cases for discovery and other pre-trial purposes and the creation of a massive, centralized document depository.
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  Question 3f. Please provide us with a statement of the total annual litigation expense (incurred by Phillip [sic] Morris and the other participating companies individually and for the industry as a whole) in defending any and all product liability and other tobacco-related liability and regulatory litigation brought or threatened in the United States over the last ten years, broken down by year.

    Answer. Pending claims against PM USA related to tobacco products generally fall within three categories: (i) smoking and health cases alleging personal injury brought on behalf of individual plaintiffs; (ii) smoking and health cases alleging personal injury and purporting to be brought on behalf of a class of individual plaintiffs; and (iii) health care cost recovery cases, including class actions, brought by state and local governments, unions, Federal and State taxpayers, Native American tribes and others seeking reimbursement for health care expenditures allegedly caused by tobacco use. PM USA has incurred substantial costs defending these cases and participating in the other litigation referenced by the question. For example, PM USA's costs for review and production of documents alone in the Minnesota Attorney General action at one point amounted to in excess of one million dollars per week. PM USA hopes that it can be appreciated that the detailed accounting of such costs solicited by the question would contain confidential proprietary business information, and regrets that it cannot provide it for that reason.

    It is important to note in this regard that, if Congress enacts legislation embodying the terms of the Proposed Resolution, it is unclear to what extent, if any, the tobacco industry's litigation costs will decrease. There are several reasons for this. First and most important, individual suits would continue and, indeed, might become even more common in light of the up to $5 billion per year allocated under the Proposed Resolution toward the satisfaction of any judgments arising out of such claims. The number of such claims already increased substantially in 1997 (the year the Proposed Resolution was announced); at the end of 1997, there were approximately 375 such cases filed and served, as compared with 185 as of the end of 1996. In addition, although class actions and state and local government claims would be legislatively settled as part of the Proposed Resolution, other health cost recovery cases could be brought on a subrogated basis. Finally, the tobacco industry would be obligated to pay up to $500 million per year in attorneys' fees of counsel who have represented the States and other litigants whose cases would be settled by comprehensive legislation.
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State of Colorado Department of Law,
Office of the Attorney General,
Denver, CO, May 1, 1998.

Hon. HENRY J. HYDE, Chairman,
Committee on the Judiciary,
Washington, DC.

    DEAR REPRESENTATIVE HYDE: Enclosed you will find a copy of the answers to questions submitted after my testimony before the Committee on the Judiciary on February 5 regarding ''The Civil Liability Portions of the Proposed Tobacco Settlement.'' I understand that my written responses to the questions by the committee members will become a part of the permanent hearing records.

    I also would like to express my sincere gratitude for the opportunity to appear before the Committee on the Judiciary on behalf of Colorado's interest in the ongoing tobacco litigation.

    If you have any further questions, please feel free to contact me.


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GALE A. NORTON, Attorney General.


Questions for Hon. Gale Norton, Attorney General, State of Colorado

Congressman Inglis

    Question. What do you think would be accomplished by continued litigation of these state cases?

    Answer. Continued litigation will likely see some victories and some losses for states. Litigation alone will not bring about industry-wide reformation of conduct. Because results will differ from state to state the future regulatory scheme for industry will likely vary as well, making reductions in teen smoking more difficult to achieve.

    No court can grant the restrictions on advertising that the states and public health groups have sought. Importantly, as the states rack up court victories against the industry, there is likely to be more litigation, whether from classes of plaintiffs, local or county governments, or insurance companies. The increasing litigation and awards of damages may weaken the industry, force it into bankruptcy, and deprive many individuals of their right to redress. Later-filing, or non-filing states and individuals are at risk in ever being able to recover damages from the industry. Further, bankruptcy would render much of the discovery the states have gathered against the industry worthless, because the entities responsible for the documents would no longer exist.
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    The better answer is to arrive at a settlement with all parties, preserving some form of recovery and redress for all aggrieved parties, rather than letting only a few ''up in front'' collect before the rest can do so.

    Question. If our goal is to change industry behavior and to protect public health, how is this best achieved? I mean, if we truly want to reduce the appeal of smoking, can't restrictions on advertising be achieved only through voluntary means which the industry has agreed to undertake under the settlement?

    Answer. Accomplishing the goals of changing industry behavior and protecting public health can best be accomplished by implementing a comprehensive settlement. Only with industry cooperation, set forth in a written, enforceable agreement, can we get the restrictions on advertising and the reformation of industry conduct that we seek.

    Question. Some states have only lately decided to pursue litigation with the tobacco industry. As a matter of equity, how do we best ensure that all states can recoup costs they have incurred that are attributable to smoking? While the industry might settle the claims of some states, isn't it possible that other cases will go to trial? And isn't it also possible that some states whose cases go to trial might also lose?

    Answer. A comprehensive national settlement that provides guaranteed recovery for the States in exchange for their state-based causes of action would provide the best means of an equitable recovery for all States. Given this equitable outcome, along with the other aspects of a national settlement—aspects which are beyond the power of any state or Federal court to grant—I believe that the overwhelming majority of states would choose to settle their cases. It is possible that some states would refuse to settle their cases and would continue on to trial. If there is no national settlement, litigating states will go to trial and non-litigating States will get nothing. For those states that go to court, recovery will depend on differences in State law, resources available to fund litigation, the adequacy of evidence, the preferences of juries, the continued solvency of the tobacco companies and a variety of similar factors. As with any litigation, the outcomes cannot be predicted with certainty. Some states may win. Others may lose.
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    Question. I understand that this hearing is focusing on the civil liability provisions of the proposed settlement, but I would like to get your input on the following. I come from South Carolina which has historically been a major tobacco producer. Will the tobacco farmers in my home State fare better if we do not pass a tobacco settlement this Congress?

    Answer. The short answer to your question is no. There are, of course, some qualifications. Congressional passage of a national tobacco settlement will do much to restore certainty to the market and protect the interests of tobacco farmers, but only a national settlement that does not ban nicotine, drive the industry out of business, or permit foreign growers and manufacturers to take over the market in the United States. If there is substantial uncertainty in the market, farmers will face reduced prices for their products. A ban on nicotine, or an industry-wide bankruptcy or collapse would result in no market for the farmers' products. Finally, legislation that stimulates creation of a black market would result in a damaging shift in business away from our shores to foreign farmers and manufacturers with fewer moral or legal compunctions to act as responsible corporate citizens.

    In the absence of a national settlement, there will continue to be uncertainty in the market. This uncertainty exists because the possibility at least one major manufacturer of industry-wide bankruptcy is real. As I stated above, bankruptcy would be detrimental to the tobacco farmers of South Carolina, and elsewhere in the United States. A wait as short as until next session could have significant detrimental impact on the farmers of South Carolina.

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Congressman Jenkins

    Question. We heard from an administration witness at the February 5th hearing. I understand that the administration was involved in the negotiation of the proposed agreement. Who was involved from the Administration and what role did they play?

    Answer. I was not directly involved in discussions with the White House, but understand both Bruce Reed and Bruce Lindsey had numerous discussions with the negotiators.

Congressman Bryant

    Question. Dr. Daynard stated: ''I think [Congress] can support any kind of advertising restrictions [it] want[s], and I'd be willing to bet that the Supreme Court would uphold it.'' Do you agree with Professor Daynard? Please describe the risks inherent in the approach suggested by Professor Daynard.

    Answer. With all respect to Dr. Daynard, we fundamentally disagree about the First Amendment and the jurisprudence surrounding it. Our Federal government is one of limited powers, enumerated in the Articles of the Constitution. Moreover, the Bill of Rights exists to protect the rights of individuals—including for-profit corporations—against the power of the government. Of the Bill of Rights, the First Amendment, guaranteeing freedom of speech, is the perhaps the most cherished and protected of all the amendments to the Constitution. It does not matter that the speech in question is commercial speech. Neither Congress nor the courts of the United States may impose restrictions on the tobacco industry's free exercise of its rights, absent non-content-based restrictions, such as to verify truth in advertising.
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    I believe that Dr. Daynard's views on Congress' powers are incorrect and unwise. Contrary to Dr. Daynard, I believe that the Federal courts will strike down legislation infringing too far upon the tobacco industry's commercial speech rights and we will be left with no restrictions in place. Indeed, Dr. Daynard's approach would lead to costly and unnecessary litigation. Moreover, such improvident legislation would likely result in an additional precedent from the Supreme Court further restricting the scope of Congress' authority to legislate. This precedent likely would implicate Congress' powers under the Commerce Clause, as well as the First, Fifth, and Tenth Amendments.

    The far wiser solution is to place the advertising restrictions in a contract with the industry. Doing so assures that the industry will comply with the restrictions, and eliminates the possibility of any successful court challenges to the restrictions based upon the First Amendment.

    Question. Do you agree with those who contend that, under the proposed settlement, it will be difficult for individual plaintiffs to find good contingency fee lawyers? In general, how would individual litigation against the tobacco industry under the proposed settlement differ from the conduct (presuming there is no legislation) of the hundreds of individual lawsuits that are currently pending against the tobacco industry?

    Answer. I do not agree that it will be difficult for individual plaintiffs to obtain good contingent fee lawyers. Those who have argued otherwise have based their assertions upon the provisions of the June 20th agreement abolishing punitive damages and class action suits. The provision on punitive damages is far less harmful than the critics would have you believe, given that over thirty states already have significant limits on this form of damages.
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    Moreover, the limitation on class actions is more of a perceived intrusion on individuals' rights to recovery, rather than a practical one. Class actions are not an appropriate means of resolving nationwide litigation with a wide range of plaintiffs, with vastly different injuries, and vastly different remedies for their injuries. Even when the law allows class actions, they often are inappropriate because they unfairly benefit those with accrued claims, at the expense of those whose claims have yet to mature. Since no one class action suit can include all injured parties, there will be an inevitable ''race to the courthouse,'' to the detriment of later-arriving parties. Further, class members have little or no say in the management of their cases. Finally, resolution of class actions does not necessarily mean that members of the class will see much, if any, recovery.

    Colorado limits tort claims against the State to a maximum recovery of $150,000 per injured individual, including attorneys fees. This is a far lower number than contemplated in any tobacco legislation, but I have never heard that any shortage of available attorneys exists here in Colorado.

    Question. You stated that you expect that individual litigation against the tobacco industry would become ''more routine'' and ''cost effective'' if the proposed settlement were enacted. Please detail how the terms of the proposed settlement would aid in making individual litigation more routine and cost effective. How significant an impact do you envision in this regard?

    Answer. The main reason why I think that individual litigation against the tobacco industry would become ''more routine'' and ''cost effective'' is the document depository and the accompanying agreements with respect to the document depository. With the document depository, all documents from all manufacturers will be available to anyone who wants them. These documents will be available on the internet, and likely will be also be in CD ROM format. I envision that the trial lawyers will work together through various associations to identify the pertinent documents for individual litigation. Once identified, even solo practitioners with limited resources will be able to represent victims of smoking, because they will have the facts and documents easily at hand.
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    It is true that the industry often has hidden behind ''attorney client'' privilege to protect the most damaging documents from disclosure. Under the June 20th agreement and proposed legislation implementing it, there would tremendous pressure on the industry to abandon such sham privilege assertions. Moreover, I anticipate that many within the public health and trial lawyers communities would vigorously pursue privilege assertions in court. All Americans would benefit as a result of their efforts to keep the industry honest and release further documents for use in prosecuting tobacco injury litigation.

    Finally, I note one overlooked aspect of the document depository. Under the terms of the June 20th agreement, the industry would agree not to challenge the authenticity of depository documents used in litigation against a tobacco product manufacturer. This would save much time and effort for the courts, as well as the parties.


American Lung Association,
Washington, DC, April 13, 1998.

Chairman, Committee on the Judiciary,
U.S. House of Representatives,
Washington, DC.

    DEAR CHAIRMAN HYDE: Thank you for the opportunity to testify before the Judiciary Committee on the civil liability portions of the proposed tobacco settlement.
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    I am pleased to provide the enclosed answers to Mr. Inglis' questions.

    Thank you for the opportunity to share this response. The American Lung Association looks forward to continuing to work with the Judiciary Committee on this issue.

Alfred Munzer, M.D.


Responses of Alfred Munzer, M.D., to Questions From Congressman Inglis

    Question 1. What do you think would be accomplished by continued litigation of these state cases?

    Answer. Continued litigation would accomplish many things. First, it will result in the disclosure of thousands upon thousands of potentially damaging documents which might never see the light of day in any other manner. Also, as was proven in Mississippi, Florida and Texas, states can achieve important public health benefits from settlements in state courts.

    Question 2. If our goal is to change industry behavior and to protect public health, how is this best achieved? I mean, if we truly want to reduce the appeal of smoking, can't restrictions on advertising be achieved only through voluntary means which the industry has agreed to undertake under the settlement?
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    Answer. Obviously, the industry cannot be trusted. The recent announcement by the tobacco industry that it was walking away from the June 1997 settlement demonstrates clearly that we must legislate strong advertising restrictions to reduce the appeal of smoking to our children. Misleading and deceptive advertising is not protected by the Constitution. The FDA currently has the authority to regulate tobacco marketing and advertising.

    Question 3. Some states have only lately decided to pursue litigation with the tobacco industry. As a matter of equity, how do we best ensure that all states can recoup costs they have incurred that are attributable to smoking? While the industry might settle the claims of some States, isn't it possible that other cases will go to trial? And isn't it also possible that some states whose cases go to trial might also lose?

    Answer. We support continued litigation at the state level. The American Lung Association will support national legislation as long as it does not offer special protections, like immunity, to the tobacco industry. Our position is clear in that we favor a national tobacco policy built on the report of the Koop-Kessler Commission. We support legislation introduced by Senator Kent Conrad and Representative Vic Fazio which will provide equity to the states, by settling the cases at the State's option, without granting special legal protections to the tobacco industry.

    Question 4. It is my understanding that a certain portion of the monies receive (sic) under the settlement will be allocated to education programs, cessation programs and other public health initiatives. If a settlement is not passed, is there any way to ensure that any monies recovered by the state are allocated to these purposes.
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    Answer. If Congress enacts legislation like the Conrad-Fazio measure, funds will be allocated to the states for this important public health work. One of our guiding principles for measuring tobacco legislation is that it ''Expand education, counter-advertising, research, cessation and treatment by dedicating tobacco tax revenues to health.'' We believe that Congress should increase tobacco excise taxes by at least $1.50 per pack immediately to reduce youth smoking and provide revenue for state and federal anti-smoking programs.

    Question 5. I understand that this hearing is focusing on the civil liability provisions of the proposed settlement, but I would like to get your input on the following. I come from South Carolina which has historically been a major tobacco producer. Will the tobacco farmer in my home state fare better if we do or do not pass a tobacco settlement this Congress?

    Answer. The June 20, 1997 settlement ignored tobacco farmers and communities. We do not believe tobacco farmers and communities should suffer. Another of our principles is: ''Address the needs of tobacco farmers and workers.'' The Conrad-Fazio legislation would provide funding to assist tobacco communities adjust to reduced demand. Tobacco farmers will benefit if Congress passes sound tobacco control legislation including assistance to farmers and their communities.


State of Minnesota,
Office of the Attorney General,
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St. Paul, MN, March 31, 1998.

Chairman, Committee on the Judiciary,
U.S. House of Representatives,
Washington, DC.

    DEAR CHAIRMAN HYDE: Please accept the following as answers to the questions posed by Rep. Inglis, as requested in your letter of March 13, 1998:

    Question 1. What do you think would be accomplished by continued litigation of these state cases?

    Answer. Four years ago when I brought the Nation's first lawsuit to enforce consumer protection and antitrust laws against the tobacco industry, I set three main goals for my lawsuit: getting out the truth; achieving just compensation for the past damages suffered by Minnesota; and forcing major changes in the way the tobacco companies do business, especially those changes necessary to dramatically reduce tobacco use by children. By enforcing our State laws we are well on our way to accomplishing the first of these goals, not just for Minnesota but for all litigants and public policy makers. Indeed, just last week the Minnesota Supreme Court ruled that the industry must turn over an additional 39,000 previously secret documents. The issue going forward is therefore whether the States and their citizens will be more likely to achieve just compensation and major industry reform through continued state lawsuits or through federal legislation. In my view, good legislation could accomplish more than continuing State lawsuits; but bad legislation would be worse than none at all.
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    I have spoken and written at length about the pros and cons of various proposals for federal law. In the present context I want to stress a few key points about these goals:

    First, with respect to ''just compensation,'' it is critical to remember that this includes recoupment of both past damages for industry lawbreaking and future payments to offset the cost of tobacco use. The Minnesota lawsuit, for example, is intended only to recover the State's past damages—the economic harm accumulated to date from the tobacco companies' misconduct. These past damages are logically and factually different than the future monies the States will pay because of the continuing consequences of the industry's 40 years of conspiracy and deception. Yet pending federal legislation does not make the critical conceptual distinction between these very different elements of damage.

    An appropriate and fair resolution in the context of Federal legislation would be to require the tobacco companies to make a large up-front payment and make that payment available to participating states only to satisfy damages incurred to date. States should be able to opt into or remain out of this past damages pool without regard to their participation in any future stream of payments intended to offset the continuing costs of tobacco. In this regard I must say that I do not believe the States can constitutionally be compelled to surrender their rights to collect debts and punish wrongdoers in their own state courts. It seems very likely to me that a Federal ''settlement'' that attempts to deprive states of significant rights will be challenged as unconstitutional, and will ultimately be invalidated.

    Second, on the question of major industry reform, it is clear that Congress is in the best position to require the needed sweeping changes in the way tobacco is produced and sold. Indeed, in a very limited number of areas—FDA regulations and manufacturing standards, for example—it may make sense for Congress to be the exclusive regulator of the tobacco industry. States, through litigation, cannot set new standards for the industry as quickly or surely as Congress. But Congressional action will be in the larger public interest only if it does not come at too high a price. If Congress gives the tobacco companies special liability protections, or too broadly preempts state action, the price will be too high, and the American public will ultimately be better off allowing our justice system to impose on the tobacco companies the natural consequences of their past misconduct.
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    Question 2. If our goal is to change industry behavior and to protect public health, how is this best achieved? . . . If we truly want to reduce the appeal of smoking, can't restrictions on advertising be achieved only through voluntary means which the industry has agreed to undertake under the settlement?

    Answer. As I noted in my previous answer, Congress is in the best position to cause sweeping changes in industry behavior, in furtherance of the public health. But we need changes not just to reduce the ''appeal'' of smoking, but to reduce the actual incidence and health consequences of smoking. This is not just a semantic difference. There is no doubt in my mind that the cigarette companies have a three-part plan to distract public policy makers by focusing the debate on regulation of advertising and other appeal/demand factors instead of outcome-based standards for reducing the consequences of smoking.

    Part one of the plan is to portray advertising and marketing restrictions as a panacea for reducing youth smoking, in the hope that Congress will enact detailed, command and control regulations. Why would the companies want such regulations? Clearly, because when it comes to advertising, marketing and other ways of manipulating demand, the cigarette companies have the home field advantage. On that field they have outsmarted would-be regulators at every historical turn, and will do so again if Congress relies exclusively on command and control advertising regulation, rather than on outcome-based performance standards, such as stiff penalties based on the incidence of youth smoking.

    Part two of the plan is to convince Congress that advertising and marketing restrictions are not only the keys to success but would be unconstitutional unless the tobacco companies consent to them. Because then the companies have something of value—consent to regulations—that they can trade for something they want—unprecedented civil liability protections. Of course this argument is wrong. The Supreme Court has said that commercial speech such as advertising may in fact be regulated if the speech concerns an unlawful activity or is misleading, the government's interest in regulating the speech is substantial, the restriction directly advances the governmental interest, and the restriction is not overbroad. Central Hudson Gas & Electric Corp. v. Public Service Commission, 447 U.S. 557, 563–64 (1980). The kind of tobacco advertising restrictions under discussion are reasonably calculated to prevent the unlawful sales and use of tobacco products to children. This is clearly not just a ''substantial'' but a compelling governmental purpose. Or, to switch from the language of constitutional law to the language of common sense: There is nothing in the First Amendment to protect advertising which addicts children and kills 400,000 Americans each year.
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    Finally, after trading worthless consent for valuable immunity, the third part of the companies' plan is to cross their fingers and watch while third parties—advertisers or front groups—challenge the restrictions anyway.

    Question 3. Some States have only lately decided to pursue litigation with the tobacco industry. As a matter of equity, how do we best ensure that all states can recoup costs they have incurred that are attributable to smoking? While the industry might settle the claims of some states, isn't it possible that other cases will go to trial? And isn't it also possible that some States whose cases go to trial might also lose?

    Answer. As I said in my previous answer, Congress is in the best position to establish certain aspects of national tobacco policy. It would be reasonable for Congress to ensure that payments intended to offset the future costs of tobacco use are fairly distributed to the States. It would also be reasonable for Congress to permit States to either pursue their past damages in court or opt into a fair portion of a lump sum payment. However, if litigating States are forced to drop all their claims in order to get their fair share of future damages, or if the federal legislation fails in some other major respect, then the price is too great and the litigation, for all its uncertainty, should be allowed to go forward. This is particularly so if the price is immunity for tobacco manufacturers. We don't give such wide immunity to law abiding companies which make heart valves, or other products which save people. Why should we give it to companies who have committed fraud and conspiracy for 40 years and whose products only kill people?

    Question 4. It is my understanding that a certain portion of the monies received under the settlement will be allocated to education programs, cessation programs and other public health initiatives. If a settlement is not passed, is there any way to ensure that any monies recovered by the state are allocated for these purposes?
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    Answer. Without Federal legislation, Congress will have no way to ensure that monies recovered by the States will go to any particular purposes. But please remember that the States, acting in the interests of their own citizens, not Congress, have brought us to the brink of a permanent solution to the devastation caused by the deadly, addictive cigarette the tobacco industry has marketed to our children. I believe the States will continue to act in the interests of the health of their citizens and devote significant settlement resources to control and cessation programs intelligently designed to meet local needs. The States do not need a federal bureaucracy, or inflexible mandates to do the right thing.

    It is also important to remember that Congress does not need a global tobacco settlement to raise and appropriate revenues for the very worthy causes you detail in your question. Congress could enact a $1.50 per pack cigarette fee now to pay for such programs. It could enact strong lookback penalties now to pay for such programs. It can do so at any time, and without any concessions to the tobacco companies.

    Question 5. I understand that this hearing is focusing on the civil liability provisions of the proposed settlement, but I would like to get your input on the following. I come from South Carolina which has historically been a major tobacco producer. Will the tobacco farmers in my home state fare better if we do or do not pass a tobacco settlement this Congress?

    Answer. I see this really as a question of proper federal policy moving into a future where the demand for tobacco will very likely decline. Congress could rationally decide to let the free market forces of supply and demand govern the future of tobacco production. If, instead, Congress chooses to subsidize, and perhaps hasten, tobacco farmers' transition to more socially beneficial crops, it does not need to do so in the context of a ''settlement.''
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    Thank you for the opportunity to answer the Committee's questions.

Best regards,

Hubert H. Humphrey III,
Attorney General.


Kazan, McClain, Edises, Simon & Abrams,
Oakland, CA, March 31, 1998.

Hon. HENRY HYDE, Chairman,
House of Representatives,
Committee on the Judiciary,
Washington, DC.

    DEAR CHAIRMAN HYDE: Thank you for your letter of March 13, 1998, inviting me to respond in writing to some specific questions, which you were kind enough to forward for my review. Enclosed herewith are the written answers you requested.

Very truly yours,

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Responses of Steven Kazan to Questions From Congressmen Chabot and Conyers

Congressman Chabot

    Question 1. You testified that Manville alone can state a claim for compensatory damages in excess of $25 billion against the tobacco industry. Please provide a detailed description and accounting of the components of that $25 billion.

    Answer. To date (February 28, 1998), the Manville Trust has paid 171,776 Trust beneficiaries $1,763,601,744, and ''owes'' the unpaid 90% of the payments of claims liquidated pursuant to the Trust Distribution Process—$8,294,129,368. This means that the cases on which only 10% were paid were valued at approximately $9.2 billion. Since approximately 160,000 cases were covered by this amount, the average case value was approximately $57,500. In addition, there are approximately 150,000 unsettled Trust claims that have been given a disease category higher than zero in our initial matrix review, and at the same average value ($57,500) the total value will be $8.625 billion, of which the trust can, again, only pay 10%. We expect to receive an additional 350,000 claims between now and the year 2049, with the vast majority of these claims expected to be filed prior to 2015. Assuming the same per case value, the full value of these cases will be somewhat in excess of $20 billion with the trust able to pay, again, 10%, or about $2 billion. In summary, we have now paid or ''owe'' over $10 billion and our pending and to-be-received claims total nearly 500,000 with a full value estimated to be in excess of $28 billion. Our assets are $2.6 billion, and all of that will be paid to claimants (less administrative costs of approximately $8 million per year). Thus, assuming no increase in the 10% pro rata distribution, we will pay an addition $2.6 billion and will ''owe'' an additional $23 billion, for a total paid and owed at Trust termination of just over $38 billion. The Trust will have paid something in excess of $4 billion, leaving a shortfall of approximately $34 billion. There can be no legitimate dispute that tobacco has in fact caused the majority of the injuries whether measured in number or value for which the Trust is and will be obligated. We believe that tobacco share is in the range of 75% to 80% which is the origin of the $25 billion liability mentioned in my testimony.
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    Question 2a. It is my understanding that most asbestos claims have been settled, not litigated. If that is true, have claimants assigned their claim for compensation due to tobacco exposure to the asbestos companies or trusts?

    Answer. It is true that most asbestos claims have been settled in litigation and not tried to verdict and judgment. Typically, the asbestos companies and trusts did not receive formal assignments of plaintiffs' claims against tobacco companies. The asbestos companies are suing to recover amounts that they have paid, whether pursuant to judgment or settlement, which may fairly be attributed to tobacco's shared causation. The Manville Trust's civil complaint filed against seven tobacco companies seeks reimbursement for the Trust's expenditures made to pay claimants for the tobacco portion of their injuries. Whether these claimants have independent causes of action against tobacco companies is irrelevant with respect to a consideration of the merits of the Trust's lawsuit. The specific causes of action enumerated in the Trust's complaint are for unjust enrichment and restitution, contribution, indemnity, unfair competition, and punitive damages. Even if Trust claimants had already sued tobacco companies for their tobacco-related injuries, the Trust's causes of action would not be barred or in any way affected by such lawsuits.

    Question 2b. If claimants have not so assigned their claims, don't the claimants retain their claims?

    Answer. Trust claimants retain any claims they may have against tobacco interests. Claimants against asbestos defendants in the tort system similarly retain their claims, except when they have proceeded to judgment against an asbestos defendant and have recovered damages based upon joint and several liability for the entire injury, since the asbestos defendants would have paid for tobacco's share in those cases, or when they have settled, to the extent that the settling defendants have paid tobacco's share.
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    Question 2c. If the claimants have retained their claims, how are the asbestos companies or trusts entitled to a claim from tobacco companies? Don't the laws in most, if not all, states preclude a contribution claim from a settling tortfeasor?

    Answer. While some states bar a contribution claim by a settling tortfeasor, some do not. In California, where Owens Corning and Fibreboard have brought their claim for contribution and indemnity, a settling tortfeasor may pursue a claim for comparative or total indemnity, under principles set forth in American Motorcycles Ass'n. v. Superior Court, 20 Cal.3d 578, 146 Cal.Rptr. 182, 578 P.2d 899 (1978), against a nonsettling tortfeasor. Mullin Lumber Co. v. Chandler, 185 Cal.App.3d 1127, 230 Cal.Rptr. 122 (1986); Tatum v. Armor Elevator Co., Inc., 203 Cal.App.3d 1315, 250 Cal.Rptr. 775 (1988).

    The Manville Trust has brought its claim in the court under whose supervision it operates, in New York State. Section 15–108(c) of New York's General Obligations Law precludes a settling tortfeasor from asserting claims for contribution against the plaintiff to whom the settlement payment is made. The Trust is not a ''tortfeasor,'' so the statute's contribution bar does not apply. Moreover, as made clear by the authorities interpreting Section 15–108, the statute's primary goal is to facilitate settlement. See, e.g., Mitchell v. New York Hosp. 61 N.Y. 2d 208 (N.Y. 1984). Clearly, permitting the Trust to collect contribution from the tobacco defendants would only enhance its ability to settle large numbers of claims in an equitable and efficient manner. Thus, even if there were any ambiguity as to whether the Trust might be considered a ''tortfeasor'' for purposes of Section 15–108, it would, nonetheless, be appropriate for a court to interpret the statute in such a way as to permit the Trust to pursue its claims.
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    Finally, New York's Court of Appeals has made clear that the contribution bar does not apply in the case of a postjudgment settlement. See, Rock v. Reed-Prentice Div. Of Package Mach. Co., 39 N.Y.2d 34 (N.Y. 1976); see also Orsini v. Kugel, 9 F.3d 1042 (2nd Cir. 1993). The Trust's obligations to its beneficiaries arise pursuant to the Trust Distribution Process approved of by the United State District Court for the Eastern District of New York (the same Court in which the Trust's law suit against the tobacco companies is pending) in its final judgment approving the settlement of Findley v. Falise, 878 F.Supp. 473 (E.D.N.Y. 1995); aff'd, 78 F.3d 764 (2nd Cir. 1996), and thus fall within this exception to Section 15–108. For each of these reasons, the Trust's contribution claims are not barred by New York's General Obligations Law Section 15–108.

    Question 3. Did the asbestos companies and trusts assert claims against tobacco companies prior to the announcement of the June 20, 1997 Proposed Resolution?

    Answer. No. The irony is that just as the tobacco companies were forced to begin the process of disclosing the very information which would have prompted such suits in years past, they negotiated a settlement embodied in the June 20, 1997 Proposed Resolution which would effectively forbid such claims in the future.

Congressman Conyers

    Question 1. If the June 20 settlement was to be signed into law, what would the impact be on the average working American who had smoked and been exposed to asbestos? Would it affect their likelihood of receiving proper health care? What is the typical income and financial status of these individuals?
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    Answer. (a) The June 20 settlement would, for all practical purposes, destroy any hope that the average working American would otherwise have to recover full compensation for damages and injuries caused either by asbestos or tobacco or the combination of asbestos and tobacco. This average working American would never get a dime from a tobacco company and would continue to receive grossly inadequate compensation from asbestos defendants and trusts. For reasons set out in more detail in my Statement of February 5. 1998 asbestos trusts pay only pennies on the dollar on behalf of the 70% of asbestos manufacturers in bankruptcy, and the remaining solvent defendants do not have sufficient available assets to promptly pay fair value for the claims presented against them.

    (b) While the general problems of the American health care system are beyond the scope of this response, it is certainly true that failure to receive adequate compensation from either asbestos or tobacco companies would adversely affect the resources and funds available to injured workers. Those who were employed by the federal government would, of course, be able to seek payment through the Federal Employees Compensation Act and pass the burdens of their lost earnings and medical expenses on to the taxpayers throughout the country. Those employed in private industry would be able to seek minimal compensation for such losses from their employers through local workers' compensation systems, providing those employers were the ones responsible for the asbestos exposure and are still existing, solvent, and reachable, which oftentimes they are not.

    (c) The overwhelming majority of individuals suffering from the combined effects of tobacco and asbestos exposure are ordinary working-class Americans. While some have moved on into relatively high paying professional careers after early asbestos exposure, most have spent their entire work lives in the shipbuilding and construction trades. Typically, those fortunate enough to work at union pay scales have done reasonably well, particularly in the building trades in recent years. Many others, however, had their asbestos exposure at minimum wage or other low paying jobs and are particularly seriously affected by the financial impact of tobacco and asbestos disease, which tends to dramatically reduce income while at the same time it dramatically increases the cost of medical and attendant care.
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    Question 2. Please elaborate on the legal theory that the settling asbestos trusts and manufacturers are basing their third party payer lawsuits against the tobacco industry.

    Answer. In addition to the information provided above in answer to Congressman Chabot's Question 2, I would summarize the legal theories as based upon traditional common law and statutory grounds of contribution, indemnity, restitution, unfair competition, spoliation of evidence, and declaratory relief. Contributions and indemnity claims proceed on the basis that asbestos companies paid claims for which tobacco companies were wholly or partially responsible. Restitution lies, because the asbestos companies and trusts satisfied a legal duty owed by the tobacco companies, permitting them to retain monies that should have been devoted to compensating victims of exposure to tobacco and asbestos. Unfair competition claims arise under statutes proscribing a broad range of unfair and fraudulent conduct. To the extent that essential proof has been concealed or unavailable when needed, the tobacco companies are guilty of spoliation of evidence. To avoid proving over and over in the cases that are sure to come the responsibility of the tobacco companies for various diseases, declaratory relief is in order.

    Two basic points support these claims. One, much of the harm for which asbestos companies and trusts were sued was in fact caused by tobacco, but asbestos companies and trusts paid for it under principles of joint and several liability. Two, the tobacco companies, by concealing and distorting the underlying facts about smoking and health, and by abusing the litigation process when they were sued, escaped from paying their share at the time the claims were settled or tried. The tobacco companies now argue that the asbestos companies and trusts must plead and prove the indemnity and other claims through individualized proof of liability and damages for each of the hundreds of thousands of single asbestos claims, one by one. The asbestos companies and trusts respond that the time for such individualized proof was when the underlying claims were settled or adjudicated. The tobacco companies were absent when those events occurred because they engineered it that way. They cannot now complain when the cases against them proceed on an aggregated basis. To the extent that necessary proof is lacking, or impractical, that is because the tobacco companies engaged in spoliation of evidence.
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To: Henry Hyde, Chairman, House Judiciary Committee.

From: James E. Pfander, Professor,(see footnote 42) University of Illinois College of Law.

Re: testimony Regarding Global Tobacco Settlement.

Date: March 31, 1998.


    I am pleased to respond to the follow-up question from Representative Conyers, which reads as follows:

  In your view, would there be any serious constitutional issue presented if Congress were to subpoena all of the documents the tobacco industry claims are privileged or competitively sensitive? If so, describe the nature of the constitutional issue and your views regarding its likely resolution.

    In brief, I believe that a subpoena of the kind proposed might raise questions under the Fifth Amendment's takings clause; the Sixth Amendment's guarantee of assistance of counsel; and the doctrine of separation of powers. I will describe these issues below.
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    Although Congress undoubtedly enjoys broad investigative powers as well as the power to subpoena witnesses and documents and to hold witnesses in contempt for failure to comply with such subpoenas, Congress must exercise these powers within constitutional limits. Accordingly, the Supreme Court has held that individuals may raise constitutional objections to a congressional subpoena and may contest the imposition of contempt sanctions for failure to comply. For example, the Court has held that the Fifth Amendment privilege against self-incrimination applies to testimony before Congress. See Quinn v. United States, 349 U.S. 155, 162 (1955). It has suggested, in more far-reaching decisions of somewhat uncertain scope, that individuals may enjoy a First Amendment associational freedom to decline to testify about current associations, compare Gibson v. Florida Legislative Investigation Committee, 372 U.S. 539, 547 (1963) (holding that First Amendment protected NAACP membership records from legislative investigation and disclosure) with Barenblatt v. United States, 360 U.S. 109, 127–29 (1959), and a Fourth Amendment right to freedom from unreasonable searches and seizures. See McPhaul v. United States, 364 U.S. 372 (1960).


    Despite the apparent inapplicability of the Fifth Amendment's prohibition of compelled self-incrimination,(see footnote 43) the proposed subpoena might implicate the Fifth Amendment's ban on takings of property without payment of just compensation. The tobacco companies may claim a property interest in the documents that they have withheld from production on trade secrecy grounds. The Supreme Court has ruled that trade secrets constitute a form of property to which the Takings clause of the Fifth Amendment applies. See Ruckelhaus v. Monsanto Co., 467 U.S. 986, 1001–03 (1984) (holding that commercial data/trade secrets were a form of property protected by the Takings Clause). To the extent that the subpoena contemplated by Rep. Conyers would envision the ultimate release of any responsive documents to the public, it would appear that the tobacco industry may assert that the release and the subpoena leading to it would constitute a violation of the Takings Clause.
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    In evaluating the claim under the Takings Clause, the Committee may wish to keep several points in mind. First, subpoena of the documents, standing alone, would not necessarily constitute a release of the documents to the public and an invasion of any property interest in them. If the House Judiciary Committee had a provision for the confidential, or executive-session review of such documents, then it would be difficult to argue that the simple act of compelled production constituted a compensable taking. Second, even to the extent that it contemplates a public release of documents, Congress might certainly take the position that the tobacco industry can obtain compensation for any taking by applying for the payment of such in litigation before the Court of Federal Claims. The availability of such a forum for the adjudication of the industry's claim for damages might thus permit Congress to argue against the judicial erection of any threshold injunctive barrier to its review and release of the documents on Fifth Amendment grounds. Needless to say, Congress and the Committee would want to evaluate the potential costs, in terms of subsequent litigation, that such a release might impose on the United States.


    The proposed subpoena might implicate the right of the tobacco industry to effective assistance of counsel under the Sixth Amendment by threatening the disclosure of materials protected by the attorney-client privilege. As the Committee knows, the attorney-client privilege shields confidential communications between lawyer and client from compelled disclosure in court and does so in order to foster a relationship of trust and confidence. The Supreme Court has taken a fairly broad view of what constitutes material shielded by the privilege, see Upjhon Co. v. United States, 449 U.S. 383 (1981), but it has yet to hold that the Constitution itself creates or undergirds the privilege in question. Most decisions including Upjohn address the attorney-client privilege as a matter of common law, and few if any consider the extent to which the privilege attaches to documents and testimony subpoenaed under the authority of Congress. Compare United States v. Keeney, 111 F. Supp. 233 (D.D.C. 1953) (assuming applicability of attorney-client privilege to congressional subpoena), rev'd on other grounds, 218 F.2d 843 (D.C. Cir. 1954) with Stewart v. Blaine, 1 MacArthur 453 (D.D.C. 1874) (assuming the contrary).
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    Despite the dearth of authority on point, one can fashion a plausible argument that the Sixth Amendment incorporates the elements of the attorney-client privilege and makes them applicable to congressional subpoenas on terms similar to those that would govern judicial subpoenas. To be sure, the Sixth Amendment speaks of the right to assistance of counsel in criminal prosecutions and does not expressly recognize a right to counsel in civil matters, let alone before a congressional committee. But the language of the Fifth Amendment self-incrimination clause contains a similar reference to criminal matters and has long been seen as applicable to coerced testimony before Congress that may have collateral criminal consequences in other settings. To the extent that a congressional subpoena threatens to pierce the attorney-client privilege, then, it could be viewed as implicating or diminishing the right of the tobacco industry to the effective assistance of counsel elsewhere. Courts widely hold that the attorney-client privilege continues to apply robustly to documents within its scope, even after the proceeding that gave rise to the confidential discussions has ended.

    Members of Congress have from time to time taken the view that the attorney-client privilege does not apply to congressional investigations. See Telford Taylor, GRAND INQUEST: THE STORY OF CONGRESSIONAL INVESTIGATIONS 237–38 (1955) (reciting examples from 1934 and 1873). One can, moreover, marshal some fairly persuasive history to support the claim that Congress enjoys an inherent or common law right to investigate and to determine for itself the applicability of any privileges and to impose punishment for contempts. See Anderson v. Dunn, 19 U.S. (6 Wheat.) 204 (1821). That said, the modern trend has been toward the assimilation of the power of congressional investigation within the framework of law. See Watkins v. United States, 354 U.S. 178 (1957). In recent years, Congress has tended to rely upon the statutory contempt provision, see 2 U.S.C. §192, rather than its own common law contempt powers, and has tended to withdraw from battles over the attorney-client privilege, rather than to insist flatly on the inapplicability of the privilege to its proceedings. See generally Note, Jonathan P. Rich, The Attorney-Client Privilege in Congressional Investigations, 88 Colum. L. Rev. 145, 145–46 (1988) (noting that Brendon Sullivan successfully invoked the attorney-client privilege on behalf of Oliver North and that Congress avoided the question in the Marcos investigation by finding that the privilege did not apply to the documents in question); James Hamilton, THE POWER TO PROBE 244 (1976) (Sen. Ervin's Watergate committee adjudicated claims of attorney-client privilege and, on finding the privilege inapplicable, ordered the witness to testify). Even if the court ultimately refused to view the Sixth Amendment as incorporating core features of the attorney-client privilege, the caution demonstrated in these recent battles over the privilege no doubt reflects Congress' awareness that the Federal courts may well refuse to give effect to contempt sanctions predicated on a witness' refusal to disclose confidential attorney-client communications.
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    On occasion, the Court has suggested that some limits may apply to the power of Congress simply to conduct an investigation in an area more properly the subject of judicial exploration. See e.g., Kilbourn v. Thompson, 103 U.S. 168 (1881) (Congress may not inquire into a real estate pool; such an inquiry was judicial in nature and sought to inquire into Kilbourn's personal affairs). Yet modern cases have taken an exceedingly limited view of this claim of judicial investigative primacy. See Hutcheson v. United States, 369 U.S. 599 (1962); McGrain v. Dougherty, 273 U.S. 135 (1927); Sinclair v. United States, 279 U.S. 263 (1929). To the extent that this separation-of-powers limit survives, it does so in dicta to the effect that Congress lacks power to expose the activities of individuals merely for the sake of exposure without justification in terms of the functions of Congress. See Watkins v. United States, 354 U.S. 178, 200 (1957). Congress can work around such limits by articulating a legitimate legislative purpose in support of its investigation. Here, the need to explore the issues surrounding the global tobacco settlement no doubt provides ample justification for a broad-gauged inquiry into the tobacco industry and the terms of the proposed settlement. That said, it may prove more difficult to defend a subpoena that directly targets documents withheld from production in the civil discovery process on attorney-client and trade secrecy grounds. Such a subpoena might be portrayed as one that sought to disclose for the sake of disclosure, rather than as one that sought to develop information pertinent to an ongoing investigation. Cf. Sinclair v. United States, 279 U.S. 263, 295 (1929).

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    Ultimately, the claim by Congress of a right to pursue its own independent investigation into the tobacco industry traces to its status as a coequal branch of government. If the House Judiciary Committee were inclined to consider a subpoena to the industry that encompassed its trade secret and attorney-client documents, it may wish to consider whether to conduct a particularized assessment of the industry's claims of secrecy and privilege (an assessment that might prove rather burdensome). If Congress were to formulate doctrines of attorney-client privilege and trade secrecy and apply those doctrines to the claims of the industry, its disposition would enjoy a stronger claim to judicial deference than a sweeping rejection of privileges that would otherwise apply in Federal court. In other words (and in keeping with the judicial origins of congressional investigations) Congress might do well to ''adjudicate'' the privilege claims of the tobacco industry, rather than simply disregard them. In the course of making such determinations, Congress could certainly consider the possible application of a broad array of exceptions to the privilege, including the exception for communications that further criminal or fraudulent activity (the so-called crime-fraud exception) and the exception for communications as to which the privilege has been waived through prior disclosure, among others.


Northeastern University School of Law,
Boston, MA, March 31, 1998.

Chairman, Committee on the Judiciary,
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House of Representatives,
Washington, DC.

    THE HONORABLE HENRY J. HYDE: Thank you for the opportunity to respond to the committee's questions. Congressman Inglis wrote ''the proposed settlement contains many restrictions on the industry's ability to advertise that if enacted by Congress, in my opinion, would violate the First Amendment. The settlement is structured in such a way as to achieve these restrictions through consent agreements between the states and the tobacco companies, thus making congressional action unnecessary. In your response to a question from Rep. Scott, you indicated that the Supreme Court would uphold any advertising restrictions if Congress passed them, Were Congress to ban the use of outdoor advertising and ban the use of human or cartoon images in other advertising, would such advertising be defensible as ''narrowly tailored'' and would such restrictions pass a strict scrutiny review by the Court? Along those same lines, haven't many constitutional scholars argued that the restrictions sought by the FDA violate the First Amendment?''


    I do not wish to be interpreted as suggesting that the Supreme Court would uphold ''any'' tobacco advertising restriction. Tobacco advertising can be regulated but the regulations must conform to the four-part commercial speech test set forth by the Supreme Court in Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n 447 U.S. 328 (1980). First, the speech must qualify for constitutional protection (e.g. cannot be obscene or fraudulent). Second, the restriction must further a substantial State interest (most State interests are substantial, but the court will look at the actual interest, not just the asserted state interest). Third, the restriction must directly and materially advance the government interest. Fourth, there must be a reasonable fit between the method chosen and the State interest. It need not be the least restrictive alternative, but it must be ''sufficiently tailored to its goal.'' Rubin v. Coors Brewing Co., 115 S.Ct. 1585, 1593 (1995). The legislation would need to directly and materially advance the government's purpose of preventing the tobacco industry from targeting children and be no more extensive than necessary.
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    The commercial speech doctrine requires the court to examine commercial speech restrictions using intermediate scrutiny, not strict scrutiny. The legislation would not need to pass a strict scrutiny review.

    The current Congressional advertising restrictions and the FDA rule are constitutional. Central Hudson requires that the government regulation materially and directly advance the government interest and that the restriction be no more extensive than necessary. The FDA performed a thorough, meticulous review of the social science evidence which shows that the restrictions will directly and materially advance the government interest in preventing children from being enticed by tobacco advertising to try a dangerous product. The current congressional restrictions will directly advance the government interest because the research shows that advertising is an important factor in a child's decision to begin using tobacco products. See e.g., Pierce et al., Smoking Initiation by Adolescent Girls, 1944 Through 1988: An Association with Targeted Advertising, 271 JAMA 608 (1994).

    The congressional proposals and the FDA regulation materially advance the government interest because the advertising restrictions will significantly reduce the number of children who would try tobacco products. See FDA Regulations Restricting the Sale and Distribution of Cigarettes and Smokeless Tobacco to Protect Children and Adolescents, Federal Register Vol. 61 page 44475. Since the FDA published its final rule in August 1996, additional information from tobacco industry files that have been released during litigation as well as from social science studies has proven beyond contradiction that the industry targeted children through its advertising and promotion and that these activities were effective in achieving their intended goal of increasing cigarette consumption by our youth.
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    The ''narrowly tailored'' test in the commercial speech context requires that the legislation be no more extensive than necessary. This is not to be confused with the ''least restrictive alternative'' test that is employed in cases of strict scrutiny by the courts. Meetings this lesser standard is possible with a carefully crafted statute. The proposed restrictions are no more extensive than necessary because they limit advertising in forums where parents are unable to protect children from viewing such advertising. This includes outdoor advertising and advertising using cartoon and human figures. The FDA regulations also restrict color advertising in magazines with at least 15% youth readership (e.g., Sports Illustrated). The restrictions would allow color advertising in other magazines and would permit the aptly named ''tombstone advertising'' (black text only on a white background). These limited restrictions would still allow the tobacco industry to place color advertising of its products in magazines and newspapers with a mostly adult readership (e.g., time, Newsweek, daily newspapers) and would allow tombstone style tobacco advertising in other forums. The tobacco industry would still have many ways to reach its alleged target audience of adult smokers, but without putting our children at risk of being enticed into using a deadly and addictive product.

    In commercial speech cases the Supreme Court takes a very practical, fact-specific approach to deciding the case before it. There is overwhelming evidence of the industry's predatory behavior in regard to targeting children with its advertising. The industry performed extensive studies of the most effective method of advertising to reach children in the twelve to seventeen year old age group. In addition, a recent decision of Judge FitzPatrick in the Minnesota case referred to a document which showed the industry studied the response of five year old children to tobacco advertising campaigns. Under these circumstances, Congress will be given broad latitude in regulating tobacco advertising and the FDA rule, the June 20 Attorneys General Agreement and proposed tombstone advertising restrictions are all safely within that latitude.
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    The Supreme Court will also used a fact-based analysis to distinguish this regulation from the alleged threat to other advertisers. In 44 Liquormart, Inc., v. Rhode Island, 116 S.Ct. 1495 (1996), the Supreme Court looked closely at the facts of the case and the logic of the Rhode Island government in the restrictions it imposed on liquor price advertising. The Court considered that the Rhode Island restriction was a total prohibition and that there was no logical reason why banning speech regarding price was going to reduce liquor consumption. Furthermore, the Court was aware of the concern that the legislature had been captured by one group of economic competitors (small liquor stores that could not otherwise compete in price wars) and that the law was then drafted at the expense of the disfavored economic competitor (larger liquor chains). See Liquormart, 116 S.Ct. at fn 4, citing the dissent in Rhode Island Liquor Stores Assn. v. Evening Call Pub. Co., 497 A.2d 331, 342 (R.I. 1985) which ''suggested that the advertising ban was motivated, at least in part, by an interest in protecting small retailers from price competition.''

    The Fourth Circuit Court of Appeals, the highest court to rule on tobacco advertising restrictions, has twice upheld Baltimore's limitation on tobacco advertising. Although the current legislative proposals regarding advertising regulations have a national scope, the legal analysis and the social science underpinnings of the FDA regulations are similar to the Forth Circuit's analysis in the Baltimore case. The Fourth Circuit noted several differences between the liquor price advertising restriction in Liquormart and the limited restrictions in the Baltimore ordinance. Liquormart dealt with a total ban on speech directed to adults and the Supreme Court held that there was not a close enough tie between the government's goals and its methods. The Fourth Circuit in Penn Advertising, by contrast, held that the Baltimore ordinance was a partial restriction of speech which targeted children. The court also held there was a close connection between the government's goals of preventing teen participation in illegal transactions and the limited speech restriction.
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    It is important to note that the Fourth Circuit reaffirmed its decision in Penn Advertising after the Supreme Court had asked it to review the decision in light of 44 Liquormart. The Fourth Circuit specifically stated ''[w]e have read the opinion in 44 Liquormart and have considered its impact on the judgment in this case . . . we conclude that 44 Liquormart does not require us to change our decision in this case.'' Penn Advertising of Baltimore v. Mayor and City Council of Baltimore, 101 F.3d 332, 333 (1996). The Supreme Court refused to hear the appeal of the Fourth Circuit's ruling by the billboard company.

    It is important to note that Federal District Judge Osteen, who struck down the FDA advertising regulations, did so because he found the FDA did not have statutory authority under the Medical Devices Act. The judge never reached the First Amendment issues. If Congress passes tobacco advertising restrictions it would remove the issue of statutory authority that Judge Osteen found problematic.


    I agree with Congressman Inglis to the extent that advertising restrictions included in existing consent decrees between the States and the tobacco industry would be enforceable between those parties without further action by Congress. The separate agreements reached by Mississippi, Florida and Texas with the tobacco industry are enforceable already. Similar settlements reached in the future would also be enforceable. Ironically, congressional action granting the industry any measure of protection from the normal consequences of the civil justice system in exchange for ''voluntarily'' accepting restrictions on advertising raises ''unconstitutional conditions'' doctrine problems for those settlements. Although the government may grant benefits to parties (here, immunity for the tobacco companies), the government may not condition the availability or access to those benefits upon the relinquishment of constitutional rights (voluntarily waiving what the industry perceives as its First Amendment rights). Spieser v. Randall, 357 U.S. 513 (1958). The legislative history is already rife with comments regarding giving the industry a ''quid pro quo'' and making a ''deal.''
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    If Congress has the constitutional authority to restrict tobacco advertising it need not bargain away injured plaintiff's rights to compensation from the industry. If Congress does not have constitutional authority, then receiving the industry's permission will not insulate the restriction from challenge under the unconstitutional conditions doctrine. The benefit of the bargain to the government would be to buy peace based on the promise by the major tobacco companies not to challenge the First Amendment restrictions. But there are many other parties who have standing to bring suit including billboard companies (such as Penn Advertising, the plaintiff in the Baltimore billboard case), advertising agencies (such as Coyne-Beahm, the first plaintiff in the FDA challenge), small tobacco companies and convenience store owners. A successful challenge could conceivably result in the entire advertising restriction section being found unconstitutional. This would lead to the worst of both worlds: industry immunity and no advertising restrictions.


    The FDA rule and the June 20 agreement are good starting points for the discussion of tobacco advertising restrictions. But the industry is already slipping through the loopholes in the FDA rule and the June 20 Attorney General agreement. Recent tobacco industry advertising shows, for example, cute anthropomorphic cigarettes, and cleverly positioned chili peppers that resemble a pair of lips smoking a cigarette (see Tobacco Ads Seek Glamour Without Camels, Cowboys, Wall Street Journal, B1 2/20/98).

    As a policy matter, Congress must strengthen the tobacco advertising restrictions and incorporate a tombstone advertising restriction (black type on a white background). The SEC tombstone advertising restrictions have survived for over 60 years. There would still be many alternate channels for the tobacco industry to communicate with its adult customers on all the issues of interest to a consumer, including price, quality, taste, tar and nicotine levels. The restriction would limit the tobacco industry from employing the type of advertising that is most attractive to children.
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    I would be happy to provide additional comments and answers to any further committee inquiries.

Richard A. Daynard, Professor of Law,
Northeastern University School of Law.








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Serial No. 74

Printed for the use of the Committee on the Judiciary

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402

HENRY J. HYDE, Illinois, Chairman
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
BOB INGLIS, South Carolina
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ED BRYANT, Tennessee
BOB BARR, Georgia

JOHN CONYERS, Jr., Michigan
BARNEY FRANK, Massachusetts
HOWARD L. BERMAN, California
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
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THOMAS E. MOONEY, Chief of Staff-General Counsel
JULIAN EPSTEIN, Minority Staff Director


    February 5, 1998


    Hyde, Hon. Henry J., a Representative in Congress from the State of Illinois, and Chairman, Committee on the Judiciary


    Coffee, John, Jr., Professor, Columbia University School of Law

    Daynard, Richard A., Professor, Tobacco Control Resources Center, Northeastern University Law School

    Kazan, Steven, Esq., Founder, Senior Partner, Kazan, McClain, Edises, Simon and Abrams

    Koplow, Meyer G., Esq., Attorney, Wachtell, Lipton, Rosen and Katz
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    Munzer, Alfred, M.D., Former President of the American Lung Association

    Norton, Hon. Gale, Attorney General, State of Colorado

    Ogden, David W., Counselor to the Attorney General, Department of Justice

    Pfander, James, Professor, the University of Illinois College of Law

    Rabin, Robert L., Professor, Stanford University Law School

    Strand, Scott, Deputy Counsel to Minnesota Attorney General

    Taylor, Harold, tobacco-related throat cancer victim


    Coffee, John, Jr., Professor, Columbia University School of Law: Prepared statement

    Coble, Hon. Howard, a Representative in Congress From the State of North Carolina: Prepared statement

    Daynard, Richard A., Professor, Tobacco Control Resources Center, Northeastern University Law School: Prepared statement
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    Humphrey, Hubert III, Attorney General, State of Minnesota: Prepared statement

    Jackson Lee, Hon. Sheila, a Representative in Congress From the State of Texas: Prepared statement

    Kazan, Steven, Esq., Founder, Senior Partner, Kazan, McClain, Edises, Simon and Abrams: Prepared statement

    Koplow, Meyer G., Esq., Attorney, Wachtell, Lipton, Rosen and Katz: Prepared statement

    Munzer, Alfred, M.D., Former President of the American Lung Association: Prepared statement

    Norton, Hon. Gale, Attorney General, State of Colorado: Prepared statement

    Ogden, David W., Counselor to the Attorney General, Department of Justice: Prepared statement

    Pfander, James, Professor, the University of Illinois College of Law: Prepared statement

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    Rabin, Robert L., Professor, Stanford University Law School: Prepared statement

    Taylor, Harold, tobacco-related throat cancer victim: Prepared statement


    Material submitted for the hearing

(Footnote 1 return)
Subrogation is the legal doctrine upon which a third party who has paid another person's health-care or other expenses ''stands in the shoes'' of that person's legal claims regarding those expenses.

(Footnote 2 return)
Nor is there a requirement that legislation restricting lawsuits provide a ''quid pro quo'' or replacement source of recovery. In Duke Power, although not finally resolving the question, the Supreme Court expressed substantial doubt whether such legislation needs to contain a ''reasonably just substitute for the common law or state tort law remedies it replaces.'' 438 U.S. at 88. And other cases—including an older Supreme Court case cited with approval in Duke Power—have upheld statutes not providing any substitute for an eliminated cause of action. Silver v. Silver, 280 U.S. 117 (1919); Boyd v. Bulala, 877 F.2d 1191, 1197 n.6 (4th Cir. 1989); In re TMI, 89 F.3d 1106, 1113 (3d Cir. 1996); Austin v. City of Bisbee, 855 F.2d 1429, 1435–36 (9th Cir. 1988); Ducharme v. Merrill-National Laboratories, 574 F.2d 1307, 1309–10 (5th Cir. 1978); Carr v. United States, 422 F.2d 1007, 1010 (4th Cir. 1970).
In any event, a comprehensive tobacco resolution clearly would provide enormous substitute benefits for those whose lawsuits might potentially be affected—such as tens of billions of dollars for medical research, industry-funded cessation programs, comprehensive regulation and oversight of the manufacture and safety of tobacco products, massive payments to fund public health and public assistance programs, and establishment of the tobacco document depository and a streamlined process for contesting claims of privilege. Given that—and given that the proposed resolution would preserve individuals' rights to bring lawsuits seeking compensation—it is clear that the restrictions fall within Congress's powers.

(Footnote 3 return)
The courts' power to ratify a national settlement is limited by, among other things, a requirement that claimants who are subject to the settlement but who are not personally before the court be adequately represented by class representatives whose interests are aligned with those of the absent claimants. (The Supreme Court determined that this requirement was not satisfied in Amchem Products.) The Supreme Court has squarely held, however, that legislative power is not limited by such a requirement, and that conflicts of interest among different groups in the legislative process do not provide a basis for challenging legislative enactments. See Bi-Metallic Investment Co. v. Board of Equalization of Colorado, 239 U.S. 441, 445 (1915) (Holmes, J.); Logan v. Zimmerman Brush Co., 455 U.S. 422, 432–33 (1982).

(Footnote 4 return)
The views expressed in this statement are my own; I do not appear on behalf of any party and do not have any information regarding grants or contracts to disclose. Thanks to my colleague Ron Rotunda for his comments on a draft of this statement.

(Footnote 5 return)
See also Dice v. Akron, C. & Y. RR., 342 U.S. 359 (1952) (state court must apply Federal preference for jury determination in suit to enforce federal rights under FELA).

(Footnote 6 return)
The acceptance of this duty of reasonable accommodation makes it more difficult to accept uncritically the claim that Congress must take the state courts as it finds them. See Charles Alan Wright, The Law of Federal Courts 291 (5th ed. 1994) (describing claim by Justice Felix Frankfurter in 1944 that Congress takes the state courts as it finds them; finding it ''very doubtful'' that a similar claim would be made today).

(Footnote 7 return)
See Ronald D. Rotunda, The Doctrine of Conditional Preemption and Other Limitations on Tenth Amendment Restrictions, 132 U. Pa. L. Rev. 289 (1984).

(Footnote 8 return)
The relevant portion of NY–US suggests that congressional use of partial preemption to secure state compliance with federal initiatives applies only where Congress otherwise has ample regulatory authority under the commerce clause. The ban the class-action and other consolidated litigation appears to satisfy this test.

(Footnote 9 return)
Congress might wish to consider the extent to which it means to incorporate existing drafts of the relevant rules or to incorporate the rules as they evolve over time in the hands of the outside experts and scholars. At one time, such an incorporation of future changes might have been seen as presenting a problem of unconstitutional delegation, but more recent cases appear to support the viability of such an approach. Compare Cooley v. Board of Wardens, 53 U.S. (12 How.) 299 (1851) (Congress may incorporate existing state law but not future state enactments) with United States v. Sharpnack, 355 U.S. 286 (1958) (upholding the application of a federal act incorporating subsequently enacted state law). Of course, the incorporation of future State laws presents a different question from the incorporation of future changes in model rules and uniform laws.

(Footnote 10 return)
In a variety of instances, the Court has upheld the power of Congress to divide up litigation and provide for the resolution of certain issues in certain settings and to make those dispositions binding before other courts on other matters. See Yakus v. United States, 321 U.S. 414 (1944) (upholding the power of Congress to provide for the determination of the legality of a Federal regulation in an expedited administrative proceeding and to make that determination binding in a subsequent criminal proceeding); Bowles v. Willingham, 321 U.S. 503 (1944) (holding that Congress may authorize administrative determination of the validity of a regulation and exclude that issue from a civil action to compel compliance with the regulation).

(Footnote 11 return)
The Supreme Court applied a demanding injury-in-fact standard in Lujan in part to protect the executive branch of government from congressional attempts to create what the Court saw as intrusive judicial oversight. See Lujan, 504 U.S. at 577 (Scalia, J.) (expressing concern that broad citizen-suit provisions would permit Congress to transfer to the courts the President's power and duty to ''take care'' that the laws be faithfully executed). Such separation-of-powers concerns do not arise in the case of litigation over document disclosure by the tobacco industry.

(Footnote 12 return)
See, American Tobacco Company, et al. v. Florida, et al., 697 So.2d 1249 (Fla. Dist. Ct. of App. 1997); Mealey's Litigation Reports, August 11, 1997, Vol. 11, No. 7.

(Footnote 13 return)
See, e.g., Los Angeles Times, December 20, 1985, Part 1, p.4.

(Footnote 14 return)
See S. 1415, Sec. 602(e)(1)(c). (The proposed settlement was codified in S. 1415, introduced by Senator McCain for purposes of discussion and without endorsement.)

(Footnote 15 return)
A presentation to the 10th World Conference on Tobacco or Health in Beijing, China: August 26, 1997 by Richard A. Daynard, J.D., Ph.D., Professor of Law, Northeastern University, and publisher of Tobacco on Trial.

(Footnote 16 return)
Fed. R. Civ. P. 23(a) specifies four tests that must be satisfied in all class actions: numerosity, commonality, typicality and adequacy of representation. In addition, class actions that are principally for money damages must be certified under rule 23(b)(3), which imposes certain additional standards, including that the ''questions of law and fact common to the members of the class predominate over any questions affecting only individual members'' and that the court find that ''a class action is superior to other available methods for the fair and efficient adjudication of the controversy.''

(Footnote 17 return)
See, for example, Valentino v. Carter Wallace, Inc., 97 F.3d 1227 (9th Cir. 1996). However, decisions in the Sixth and Seventh Circuits seem similarly hostile to nationwide classes in mass tort cases involving exposure. See In re Rhone Poulenc Rorer, Inc., 51 F.3d 1293 (7th Cir. 1995); In re American Medical Systems Inc., 75 F.3d 1069 (6th Cir. 1996).

(Footnote 18 return)
See Barnes v. American Tobacco Company, 1997 WL 550650 (E.D. Pa. August 22, 1997).

(Footnote 19 return)
See Barnes v. American Tobacco Company, 1997 WL 643607 (E.D. Pa. Oct. 17, 1997).

(Footnote 20 return)
Id. at *3.

(Footnote 21 return)
672 So.2d 39 (Fla. Dist. Ct. App. 1996), cert. denied 682 So. 2d 1100 (Fla. 1996).

(Footnote 22 return)
Broin v. Philip Morris Co., 641 So.2d 888 (Fla. Dist. Ct. App. 1994).

(Footnote 23 return)
The certification of a nationwide class under Rule 23(b)(2) was rejected in Walker v. Liggett Group, 175 F.R.D. 226 (S.D. W. Va. 1997) on the ground that the adequacy of representation standard could not be satisfied where the class included both present and future claimants. However, see In re Asbestos Litigation, X F.3d X (5th Cir. January 27, 1998). (upholding use of ''limited fund'' certification).

(Footnote 24 return)
See Weinstein, ''Suit Threatens Smoking Accord,'' Los Angeles Times, January 6, 1998 at p. 16 (discussing challenge by Public Citizen, a law reform organization, to this settlement).

(Footnote 25 return)
See, e.g., Witherspoon v. Philip Morris, 964 F. Supp. 455 (D.D.C.1997). (upholding several causes of action asserted by an individual plaintiff against tobacco industry defendants).

(Footnote 26 return)
See Ravo, ''Smoker's Suit Brings Award of $750,000 in Florida,'' N.Y. Times, August 10, 1996, Section 1 at p.8.

(Footnote 27 return)
See Rabin, A Sociolegal History of The Tobacco Tort Litigation, 44 Stan. L. Rev. 853 (1992).

(Footnote 28 return)
505 U.S. 504 (1992). The Court also, however, held that state claims based on intentional fraud or misrepresentation, express warranty, or conspiracy were not preempted.

(Footnote 29 return)
The Settlement could certainly be clearer on this point.

(Footnote 30 return)
One of the few exceptions to this generalization is the Dalkon Shield Claimants Trust Fund, which has survived intact, in part because of close regulation of attorneys' fees. There has been, however, a constant battle between the fund and various plaintiffs attorneys (who have received ''fees in excess of $90 million''). See In re A. H. Robins Company, Inc., 86 F.3d 364 (4th Cir. 1996). One of the most notable and indeed glaring omissions in the Settlement is the failure to establish any form of Settlement Fund with trustees who are instructed as to how to resolve tobacco litigation.

(Footnote 31 return)
See In re Chevron U.S.A., Inc., 109 F.3d 1016, 1019 (5th Cir. 1997) (reversing use of particular procedure there employed on other grounds). That the actual procedure used in Chevron was reversed shows that federal courts do monitor this area with care and thus that there is little need for a prophylactic ban on all sampling procedures.

(Footnote 32 return)
751 F. Supp. 649 (E.D. Tex. 1990). For a similar procedure using a bellwether-like technique, see Hilao v. Estate of Marcus, 103 F.3d 767 (9th Cir. 1996) (upholding the procedure).

(Footnote 33 return)
For representative articles, see Bone, Statistical Adjudication: Rights, Justice, and Utility in a World of Process Scarcity, 46 Vand. L.Rev. 561 (1993); Saks and Blanck, Justice Improved: The Unrecognized Benefits of Aggregation and Sampling in the Trial of Mass Torts, 44 Stan. L. Rev. 815 (1992).

(Footnote 34 return)
See Redish, Procedural Due Process And Aggregation Devices in Mass Tort Litigation, 63 Def. Couns. J. 18 (1996). In In re Rhone Poulenc Rorer, Inc., 51 F3d 1293 (7th Cir. 1995), Judge Posner raised a constitutionalissue where multiple injuries might be used (the first to determine liability and the second to determine damages). Where the second jury is permitted in any way to reconsider the first jury's findings, he suggested that this would violate the Seventh Amendment. This issue has been the subject of some debate, but it is possible in my judgment to design a procedure under which the second jury is not permitted to re-examine the bellwether jury's findings.

(Footnote 35 return)
For an excellent overview, see Steinman, The Effects of Case Consolidation on the Procedural Rights of Litigants: What They Are, What They Might Be?, 42 U.C.L.A. L. Rev. 717 (1995); see also Marcus, Confronting the Consolidation Conundrum, 1995 Brigham Young L. Rev. 879.

(Footnote 36 return)
See Steinman, supra note 20, at 717 n.1.

(Footnote 37 return)
See Misko and Goodrich, Managing Complex Litigation: Class Actions and Mass Torts, 48 Baylor L. Rev. 1001 (1996).

(Footnote 38 return)
See Freeman v. Olin Corp., Civ. Act. No. CV–80–PT5057–N.E. (N.D. Ala. 1983) (allowing joinder of 1,178 individual plaintiffs under Rule 20).

(Footnote 39 return)
Sydney M. Irmas Professor of Law and Political Science, University of Southern California. I am grateful to Nancy Morgan and Melissa Pifko for their excellent research assistance.

(Footnote 40 return)
The survey reached 1,000 adults 18 years or older nationwide who indicated they are registered to vote. The survey was conducted between January 13–15, 1998 and the margin of error is +/–3.1%.

(Footnote 41 return)
Voters who tend to be smokers are lesser educated voters (31 percent), non-college educated men (30 percent), younger non-college educated voters (34 percent), Hispanics (32 percent), Independents (29 percent), younger Independents (34 percent), and residents in the West North Central states (29 percent) and East South Central states (38 percent).

(Footnote 42 return)
In my previous testimony before the House Judiciary Committee, dated February 5, 1998, I had no information to disclose, pursuant to House Rules, regarding any government contract. After submitting that testimony, I entered into a contract (effective March 2, 1998) with the government of the United States, USCA 88034, through the Administrative Office of the United States Courts, to provide consultant services to the Federal-State Jurisdiction Committee of the Judicial Conference of the United States. I am providing this testimony as a follow-up to my earlier testimony of February 5; the views expressed herein are my own and do not reflect those of the Judicial Conference of the United States, the Federal-State Jurisdiction Committee, or the Administrative Office of the United States Courts.

(Footnote 43 return)
The contemplated subpoena does not implicate the Fifth Amendment privilege against self-incrimination. For some time now, the Supreme Court has held that the privilege applies only to natural persons and not to corporate entities. See Bellis v. United States, 417 U.S. 85 (1974); Hale v. Henkel, 201 U.S. 43 (1906). Even where the act of producing corporate documents may tend to incriminate individuals, the Court has refused to find a violation of the privilege against self-incrimination. See Braswell v. United States, 487 U.S. 99 (1988). So although individual employees of the tobacco industry might invoke a privilege against self-incrimination with respect to compelled oral testimony before the Committee, it does not appear that the contemplated subpoena of corporate records would implicate the privilege. See McPhaul v. United States, 364 U.S. 372, 380 (1960).