Chapter 32, Part 1

By Frank Tursi, Susan E. White and Steve McQuilkin
JOURNAL REPORTERS
© 1999 Winston-Salem Journal

Mike Moore nervously searched the hotel conference room for the guests of honor. There, in a corner, surrounded by their attorneys, were Steven Goldstone of RJR Nabisco and Geoffrey Bible of Philip Morris. The chief executives made eye contact with the Mississippi attorney general and waited for him to approach. It was April 3, 1997 -- a day Moore wouldn't forget.

Mike Moore, the attorney general of Mississippi, filed the first state lawsuit against the tobacco industry in 1994. (AP Photo)

His heart racing, Moore quickly surveyed the room, which was beginning to fill with some of his fellow attorneys.

Phil Carlton, a corporate lawyer from North Carolina and the tobacco industry's point man, took a deep breath and offered Bible and Goldstone some last-minute advice. ''Go in and convince them of your sincerity because these people are skeptical that you mean business.''

Carlton couldn't help but be a little nervous, too. Barely three days had passed since Moore had demanded to see the CEOs. ''I want to see the whites of their eyes -- the tobacco CEOs -- I want you to produce them,'' Moore said. ''If you can bring the CEOs of Philip Morris and RJR to a meeting, and they say the industry is sincere in wanting peace, we'll take it from there.''

Much had happened in the three years since Moore had become the first attorney general to sue the tobacco industry. The lawsuit, filed in May 1994, sought to recover the Medicaid money Mississippi had spent to care for poor people with smoking-related illnesses. The case had helped launch the so-called ''third wave'' of tobacco litigation, inspired other states to follow suit and ultimately brought the tobacco industry to the table to discuss a national settlement.

It seemed almost anticlimactic to hold the first day of these historic talks in a drab conference room at the Sheraton Hotel in Crystal City, Va. But Moore wasn't concerned about the surroundings. His goal at the moment was to walk across the room and introduce himself to the tobacco executives.

''I didn't know if I would be upset with them. . . . I just didn't know,'' Moore recalled. ''But I think it was genuine, just like two generals in the middle of a war coming together going, `OK, I'm here representing my army, and you're here representing your army. Let's see if we can sit down and genuinely try to work this thing out so we don't have to go back out here and continue shooting' .''

The R.J. Reynolds Tobacco Co. was once the largest cigarette company in the United States with a powerhouse of best-selling brands: Winston, Salem and Camel. But times changed, and as the case against smoking became more pronounced in the 1960s, RJR failed to adapt to the marketplace. Its rivals would eventually rush past it, and RJR's efforts to catch up would have a profound impact on the company and the cigarette industry.

Still, Moore refused to be too hopeful. He had evidence he believed proved that the industry couldn't be trusted. His legal team had collected a mountain of internal documents showing that the companies had known for years about the danger of smoking and yet covered it up. The team also had talked to former industry employees who said they were ordered to destroy documents and research that tobacco executives considered damaging.

It was the kind of stuff that made for a good suspense novel and enticed juries to render guilty verdicts. But Moore and Richard ''Dickie'' Scruggs, the Mississippi lawyer advising Moore, knew that there were no guarantees. They also doubted whether Mississippi's novel lawsuit and others like it would stand up in court. But the fact that the tobacco executives were willing to talk about a settlement showed that the other side was having its own doubts.

''The industry is united in its desire to find a fair and comprehensive solution,'' said Bible, who spoke first. ''We want fundamental change. Philip Morris does not want kids to smoke, and we are prepared to find effective and sensible ways to accomplish that. We want to get out of confrontation and into cooperation.''

Moore was impressed with Bible's directness, though the statement contrasted with everything that he had said publicly about a settlement. Bible usually made it pretty clear that Philip Morris would fight as long as necessary.

Goldstone, on the other hand, seemed almost enthusiastic about an agreement. An attorney for RJR in the 1980s, Goldstone returned to the company in October 1995 as president and was named CEO two months later. He assumed control as political and legal pressures were mounting against Reynolds and the other cigarette makers. By 1996, nearly 250 smoking lawsuits were pending against Reynolds, an almost threefold increase in 10 years. Though the tobacco companies had spent the past 40 years battling plaintiffs in courtrooms, Goldstone wasn't interested in doing more of the same.

''It's silly to be in a state of siege, spending half your day fighting people,'' Goldstone told his former law-firm colleagues after joining RJR. ''Nobody wants to ban cigarettes. We ought to be able to have rules and play by them.''

Goldstone liked to play hardball, but he was also a realist. Lawsuits against the cigarette companies were just bad for business. They drove down RJR Nabisco's stock and eroded the industry's reputation. Domestically, RJR's market share continued to decline. By 1996, it was at 24.5 percent, down from 29.6 percent in 1992. The domestic tobacco company's operating earnings fell from $2.2 billion to $1.4 billion over the same time.

Overall, the companies -- primarily RJR and Philip Morris -- were spending hundreds of millions of dollars a year on outside lawyers to defend the industry. Legally, the companies were unbeatable, but the prospect of facing 50 state lawsuits was a serious threat. Chances were that one would eventually win. Goldstone didn't like the odds. In March 1996, he spoke to The Financial Times of London about the possibility of a settlement.

''I don't know of a way, but I do know that it isn't the kind of thing that the tobacco industry would try to obstruct, because we know that litigation is not good for our companies,'' he said. The news shook those inside and outside the industry, in part because no other tobacco executive had made such a bold public statement. Goldstone never spoke with his fellow CEOs before making the statement, but he was certain they felt as he did. Industry insiders such as Frank Colby, the former head of RJR's scientific library, still believe that Goldstone went too far.

''Many of the scientists in the industry have now swallowed the establishment (point of view on smoking and health). It's absolute medical insanity, and it's only possible because Goldstone agrees with the establishment,'' Colby said. ''I call him Mr. Tombstone. . . . Anyone who agrees that smoking is guilty has no moral right to occupy even a medium-level position in a tobacco company. It's completely immoral.''

In the April 1997 meeting with the states' attorneys general, Goldstone reaffirmed the need for a national settlement. But the industry's interests could not be ignored, he added. ''As long as you realize that this is a legitimate product for adults, we are willing to reform,'' he assured Moore. ''Please hear us out.''

The plea seemed sincere, Moore thought, but he needed to set a few things straight with the CEOs. The states weren't going to be pushed around and certain demands were non-negotiable. ''We want a reduction in teen smoking,'' Moore said emphatically. ''We want the public health to change. We want you to tell the truth.''

Taking the Offensive

Moore's boldness wasn't surprising. As Mississippi's lead prosecutor, he had a reputation for being tough on crime and drugs. But his disdain for the tobacco industry ran deep. ''I believe they're the most corrupt and evil corporate animal that has ever been created in this country's history,'' he said. ''They make a drug, and they sell it knowing that it's addictive. They market it to our children, who they know will become addicts, and they know that they will die from . . . a tobacco-related disease.''

As the father of a young son, Moore was particularly disturbed with the tobacco companies' marketing. He believed that advertising, such as RJR's Joe Camel, was created to attract teen-age smokers. ''They had to have children because if kids didn't start smoking, the tobacco companies would go out of business.''

Most smokers usually started before 18 and continued to smoke throughout their lives. As adult smokers, many died from smoking-related illnesses, some 420,000 annually, according to the Centers for Disease Control in Atlanta. Most states spent millions of dollars each year treating sick smokers. Of the 500,000 people on Medicaid in Mississippi in 1993, 200,000 had tobacco-related illnesses.

The numbers were astounding. Michael T. Lewis, a lawyer in Clarksdale, Miss., and a college buddy of Moore's, could only imagine how much money the state would save on health care if people didn't smoke. Lewis had recently watched his secretary's mother die of heart disease. The state had spent almost $1 million on the woman, who was forced to go on Medicaid shortly before her death.

Somebody had to be held responsible for the lives lost to tobacco-related illnesses, Lewis thought. In 1993, he suggested to Moore that he sue the tobacco industry to get back some of the money Mississippi had spent treating sick smokers. Lewis knew the industry's legal history. Time and again, cigarette lawyers had successfully argued that smokers' lawsuits were worthless because there was no conclusive proof that smoking caused the plaintiffs' illnesses. Even if judges and juries were skeptical, they usually believed that the plaintiffs knew the risks.

The only way to beat the industry was to get rid of the individual plaintiff, which is what Mississippi's Medicaid lawsuit did. In this case, the state was presented as the injured party suing for the financial harm it had suffered. After about a year's research, Moore filed a lawsuit in the Chancery Court of Jackson County, which usually handled divorce actions and child-custody cases. The advantage, Moore knew, was that cases there were handled by a single judge and never went before a jury.

News of Mississippi's unique lawsuit launched a media frenzy, with Moore in the center. Newspapers, magazines and TV shows stumbled over one another to interview the handsome Southern prosecutor with the thick black hair and rich Mississippi twang. Moore was portrayed as the quintessential David to the tobacco industry's Goliath.

As usual, the industry's lawyers reacted coolly. If federal and state legislators had a problem with the tobacco industry, they argued, why didn't they just ban cigarettes? The case was nothing more than a publicity stunt, and Moore was its head hound. ''Do you know what AG stands for?'' asked Daniel Donahue, the deputy general counsel for Reynolds Tobacco. ''Aspiring governor.''

Moore had expected such attacks. But he hadn't anticipated the lack of support from his home state. Mississippi's legislature had refused to finance a lawsuit, which was expected to cost at least $5 million. Mississippi Gov. Kirk Fordice even sued Moore to try to stop the lawsuit. It didn't work.

The trial judge and the state Supreme Court rejected arguments to dismiss Mississippi's lawsuit. Moore also eventually got the money he needed, mainly from Scruggs and Ron Motley, a lawyer in Charleston, S.C. Both had gotten rich suing the asbestos industry and with several other lawyers agreed to finance Mississippi's case.

Moore and Scruggs had been friends since law school at the University of Mississippi. They had first teamed up in 1988, when Moore hired his buddy to represent Mississippi in recovering money from the asbestos industry. Scruggs was given the title of special assistant attorney general and helped the state recover more than $20 million while he pocketed a contingency fee of at least $5 million.

Moore believed in his case but didn't want to fight the industry alone. After all, the cigarette companies had spent years attacking plaintiffs with a battalion of lawyers. Getting other states to join the fight would be difficult, primarily because no one wanted to take on an industry that had yet to pay a dime in damages. But Moore refused to give up, convinced that the industry would not want to fight 50 lawsuits in 50 states.

Three months after Mississippi filed its case, Minnesota sued. Like Moore, Hubert ''Skip'' Humphrey III, Minnesota's attorney general, believed that it was time for the tobacco companies to pay for the harm they had caused. Humphrey liked the idea of a state lawsuit, but he wanted to take a different approach. In August 1994, Humphrey and Minnesota Blue Cross/Blue Shield filed a joint lawsuit against the industry, claiming that the companies violated antitrust laws for failing to disclose that tobacco was addictive. The strategy was unprecedented.

In February 1995, Florida filed its case, assisted in part by a unique law slipped in during a midnight legislative session. The law virtually killed the tobacco industry's defense and said that if Florida sued, the companies would be banned in court from blaming smokers for their health problems.

Industry lawyers could do little but stand aside and watch.

''We have never believed, and I still don't believe, that those cases were well founded on the law or on the facts,'' said Charles Blixt, an executive vice president and general counsel at RJR. ''Unfortunately, what happened is the organized plaintiffs' bar, the anti-smoking industry and the political arm of the states' governments all coalesced into this huge assault on the industry. And those three forces combined resulted in the misapplication of the law and in many cases made new law that we've come to characterize as the `tobacco exception' to the American legal system. There were rulings that I continue to believe were completely egregious. They were unfair and unfounded. They allowed the anti-smoking industry and the organized plaintiffs' contingency fee lawyers to control the agenda on these things.''

• Coming Tuesday: Breaking Tobacco's Back