graphic
News > Companies
Tobacco firms in accord?
November 6, 2000: 6:15 p.m. ET

Lorillard, Liggett discuss $8 billion punitive-damages settlement
graphic
graphic graphic
graphic
NEW YORK (CNNfn) - Two major tobacco companies, Lorillard Tobacco and Liggett Group, are negotiating a possible $8 billion accord that would settle punitive-damage claims against them in nearly a dozen lawsuits pending in federal court in New York, a source familiar with the situation confirmed to CNNfn Monday.

The proposed deal, first reported by the Wall Street Journal and the New York Times over the weekend, is viewed as a legal gambit by Lorillard and Liggett to ward off payment of any punitive-damage awards now pending against them in other courts.

Lorillard, a unit of New York-based Loews Corp. (LTR: Research, Estimates), and Liggett, a unit of Vector Group Ltd. (VGR: Research, Estimates) of Miami, were expected to announce the settlement as early as Monday, according to people involved on both sides of the talks, the Wall Street Journal reported. Both companies declined comment to CNNfn.

However, as of Monday evening, no settlement had been announced. A source close to the situation told CNNfn.com that as of late Monday afternoon, the talks were "not moving as swiftly" and "were not as enthusiastic" as they were over the weekend.

It was unclear if the talks ran into trouble because of a separate decision announced Monday in which a Florida judge upheld a jury's record-setting damage award in a sick smokers lawsuit, rejecting tobacco industry requests to reduce the damage amount and conduct a new trial. In July, a Florida state jury ordered the nation's top five cigarette makers to pay $144.87 billion in punitive damages. Cigarette companies are appealing the verdict.

The decision by Florida Circuit Judge Robert Kaye comes on the same day he received a federal judge's decision rejecting federal jurisdiction for the case and sending the matter back to him. Tobacco companies had tried to move the case to a federal court, believing they would get a more sympathetic hearing there than in Florida's state appeals court.

The two cigarette makers would apparently be on their own in settlement efforts. On Monday R.J. Reynolds Tobacco Co. (RJR: Research, Estimates) issued a statement that it was appealing the federal judge's most recent decision, and stating that it would is still confident that the class of plaintiffs will ultimately be decertified, even if the case stays in state court.

The RJR path is close to that of No. 1 cigarette maker Philip Morris Cos. Inc. (MO: Research, Estimates), maker of the best-selling Marlboro brand, which Sunday issued a statement saying it would continue to "vigorously oppose" all efforts to certify a national class action lawsuit dealing with smoking and health, regardless of other tobacco companies' positions.

"Recent reports that Lorillard Tobacco Company may seek certification of such a class in a novel attempt to resolve punitive damage issues in a nationwide settlement will have no effect on Philip Morris's staunch opposition to the use of class actions in smoking and health cases," the company said.

Lorillard and Liggett broke ranks with the rest of the industry after the Florida verdict over the summer, and in September entered discussions with plaintiffs' lawyers preparing 10 multibillion-dollar class-action suits before U.S. District Judge Jack B. Weinstein in Brooklyn, according to the Wall Street Journal

According to the Journal, terms for the proposed Lorillard and Liggett settlement call for the payment amount to be paid over 30 years, with Lorillard, the nation's fourth-largest tobacco company, paying the lion's share -- $7.5 billion, the Journal said. Liggett, the smallest U.S. tobacco firm, would pay $500 million.

Under the proposed settlement, the money would be used to underwrite a national public health trust to pay for smoking-cessation initiatives, medical monitoring and medical care for sick smokers, although the precise details have not been worked out, the Journal said, citing a participant in the negotiations.

  graphic WHY DO THE DEAL?  
    The proposed deal is part of a legal gambit by Lorillard and Liggett to shield themselves from paying any part of the $144.87 billion punitive-damage award handed down against the nation's top five cigarette makers by a Florida state court jury last July, according to published reports.
   
New York Judge Weinstein, who has a history of pushing parties to the table to negotiate settlements of mass-injury claims, is considering whether to consolidate all the suits into a single giant case. If all of these lawsuits are settled, that could conceivably end all major litigation against the tobacco industry, the Journal said.

The lawsuits include a national class action on behalf of all heavy smokers with lung cancer, as well as suits by health insurers, asbestos-injury trust funds and union health funds that have paid sick smokers' medical expenses and are demanding reimbursement, the Journal said. That would include the Florida case.

However, the recent decision to send the Florida case back to the state appellate level could complicate a potential settlement with Lorillard and Liggett. The Florida court's move, announced late last week, could make it difficult for Judge Weinstein to take federal jurisdiction over the case.

Smuggling charges

Separately on Monday, the European Commission filed a lawsuit in U.S. federal court accusing New York-based Philip Morris and Winston-Salem, N.C.-based R.J. Reynolds Tobacco Co. of smuggling tobacco into Europe. The commission, the executive arm of the European Union, wants compensation for financial losses it says the EU incurred as a result of the alleged smuggling.

Tobacco stocks traded mixed Monday. Loews shares gained $1.13 to $86.81, while Vector Group stock picked up 69 cents to $14. Shares of Philip Morris, a component of the Dow Jones industrial average, slipped 13 cents to $34.88. RJR lost 38 cents to $34.63, and British American Tobacco Corp. (BTI: Research, Estimates), parent of Brown & Williamson, edged up 13 cents to $14.63.

-- Reuters contributed to this report graphic

-- from staff and wire reports

  RELATED STORIES

EU sues U.S. tobacco firms - Nov. 6, 2000

Big Tobacco ready to deal? - Sept. 7, 2000

Tobacco -- up in smoke? - July 14, 2000

  RELATED SITES

Lorillard

Liggett


Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney




graphic