Issue Date: May 11, 2004
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The cost of the 1998 billion-dollar tobacco-settlement agreement has been put
at approximately $246 billion for the first 25 years, or an average of $10
billion annually. To get to this windfall a number of states went so far as to
change their laws of civil procedure to tap into the wealth of a politically
incorrect group: the U.S. tobacco manufacturers, a worldwide, economy-building
industry that goes back to the English colonies of North America and the Native
Americans before that.
What the manifoldly mendacious states attorneys general (AGs) did in the 1990s
was announce that, for the good of the people, they were suing the cigarette
manufacturers to recover Medicaid expenses to pay for smoking-related illnesses
and fund smoking-cessation programs. Within five years most of the money the
states were receiving from the tobacco settlement was defraying their general
budget costs that had nothing to do with tobacco. The plaintiffs' lawyers who
cooked up the deal, meanwhile, had received their billions from the settlement.
Former Massachusetts attorney general Scott Harshbarger made antitobacco efforts
a prominent theme of his administration, and he was the fifth AG to file suit
against the tobacco companies. The main reason Harshbarger gave for the lawsuit
was to fund smoking-cessation programs. But although Massachusetts soon received
$689 million from the manufacturers (excluding the tax on packs), it virtually
shut down its celebrated tobacco-control program, say antismoking activists,
cutting the funding. According to the Boston Herald, it was funded at $48
million at its height, an amount that quickly fell to $5.7 million, with the
program exhausting its annual stipends. Massachusetts now uses less than 1
percent of its tobacco money for tobacco-prevention programs. Much of the
tobacco-settlement money in the Bay State is paying for budget expenses
unrelated to tobacco.
Other venues that misused the funds include Los Angeles, where, according to the
American Medical Association, former mayor Richard Riordan planned to use $100
million in tobacco-settlement funds to deal with lawsuits involving police
corruption. In one year the tobacco state of Virginia spent about $15.5 million
of these funds to cover its budget deficit. By 2001 just six states, according
to the U.S. Centers for Disease Control and Prevention, were spending enough
money on antitobacco programs to be effective, despite the fact that many of the
states received hundreds of millions of dollars from the settlement for that
purpose.
In 1997 former surgeon general C. Everett Koop commented for CNN on the tobacco
companies and the master settlement, declaring: "It's a big concern for all
those of us who worked three decades with the tobacco industry and find you
can't trust them. I am sure they will take every effort they can to find
loopholes." But as it developed, the states were even more untrustworthy than
the demonized tobacco companies.
The government already was taking plenty from the tobacco companies to care for
the casualties of tobacco use. In 1999, Alabama Attorney General Bill Pryor said
that a study by Harvard Law School professor Kip Viscusi "proved that
cigarette-tax collections more than offset the cost to government for treating
tobacco-related illnesses." He explained that "The main objective of the tobacco
lawsuits was to raise revenue. Using lawsuits to raise revenue is far easier
than raising taxes the old-fashioned way. This method bypasses the need for
representatives of the voters to approve the tax. It shifts the awesome powers
of the legislative bodies - commercial regulation, taxation, appropriation and
the power to change law - to the judicial branch of government."
Although Alabama was not actively involved in the tobacco-settlement agreement,
the manufacturers funded a trust to compensate adversely affected venues that
grow tobacco, which include that state, North Carolina, Virginia and others.
As a result, some states have gone so far as to take money from the tobacco
settlement - funds that are supposed to fight tobacco use and addiction - and
put it toward growing tobacco or into the tobacco companies themselves.
According to one published report, the tobacco state of North Carolina spent
almost three-quarters of its settlement money on tobacco marketing and
production, although some was used to help farmers adjust to growing other
crops. One tobacco farmer received $25,000 to help pay for curing bins he
installed in 2001. The state used $43 million on items such as constructing a
tobacco auction house and $15,000 for a video of the history of the crop.
Critics consider it likely that much of the rest of the $4.6 billion North
Carolina was expected to receive within 25 years also would help the blindsided
tobacco interests, in direct opposition to the declared purposes of the suit.
And according to a March 2002 study by the Washington-based Investor
Responsibility Research Center (IRRC), tobacco-settlement money even has been
used by states to purchase tobacco stocks. "Texas, Connecticut, New Mexico,
North Carolina, North Dakota, Utah and West Virginia are among the states which
invested a portion of their tobacco-settlement proceeds in tobacco companies.
Much of these state investments ended up in index funds, tracking indexes like
the S&P 500, which have tobacco-company representation. For each dollar invested
in such funds, usually only about a penny goes into tobacco stocks. But given
the huge size of the settlement pool, it still adds up to tens of millions of
dollars flowing back into the tobacco industry."
Doug Cogan of the IRRC estimates that by late 2001 about $11 million had been
invested in tobacco securities by Texas, and Utah soon had almost $600,000 in
Philip Morris Companies Inc., Loews Corp. and UST Inc. "Of the 33 states
investing tobacco-settlement proceeds, at least 16 have no restrictions on
investing in tobacco companies," the report states.
And remember this was done by means designed to circumvent long-established law.
According to Robert A. Levy of Washington's libertarian Cato Institute, Florida,
Maryland and Vermont specifically changed their laws to allow for a successful
lawsuit against the tobacco manufacturers. The rest of the states asked the
judges to ignore common law and pretend the law had indeed been changed. The
trick was that higher courts never had to rule on the constitutionality of what
amounted to passage of both bills of attainder and ex post facto laws, illegal
under the Constitution, because the whole agreement was settled out of court.
"During the past 40 years," Levy states in a 1997 study, "not a single smoker
received a single dollar of damages from tobacco companies as juries repeatedly
concluded that smokers are responsible for their own behavior and their own
losses." Yet under the new laws, "If a smoker happens to be a Medicaid
recipient, individual responsibility is out the window," he notes. "The same
tobacco company selling the same person the same product that results in the
same injury is, magically, liable, not to the smoker but to the state. By
legislative fiat, liability hinges on a smoker's Medicaid status, a fortuity
totally unrelated to any misdeeds of the industry."
What this means is that, for example, if a person injures himself skiing, the
ski manufacturer would not be liable for his medical expenses. But under the
changed laws, if the skier was on Medicaid and everything else stayed the same,
the manufacturer then would be liable for his medical expenses.
"And it gets worse," Levy's study points out. "The state is not even required to
show that a particular party was harmed by his use of tobacco. Instead,
causation may be proven by statistics alone (later ruled unconstitutional by the
Florida Supreme Court). The act originally provided that Florida was not
required to identify the individual recipients of Medicaid payments; instead,
the state could seek recovery for all recipients, anonymously, as a group. One
would think that the industry could at least investigate whether patients
suffering from 'smoking-related illnesses' ever smoked. Wrong. Incredibly, the
industry will be allowed to depose only 25 of 400,000 claimants. These lawsuits
retroactively eradicate settled doctrine and deny due process to an industry
singled out for its deep pockets and public image, not its legal culpability."
So according to Florida law while it was suing the manufacturers, the man who
broke his leg and sues the ski manufacturers, for example, does not have to
prove he ever skied at all or show what type of ski he used.
Ordinarily, a link has to be established between a manufacturer's conduct and
the injured person's health problems. This settlement resulted in the states
receiving damages for some Medicaid recipients when their injuries were caused
by other means. And remember this, critics note, if the government can
circumvent the Constitution to do this to Big Tobacco, it can do the same to
anyone it decides to demonize. And it can get worse, much worse.
So why did the tobacco companies agree to an unconstitutional and expensive
settlement? Levy has an answer for that too. "Not even the tobacco companies are
big losers," he states. "Even though the four companies have to raise their
prices to fund the settlement, they are guaranteed a virtual monopoly. Any new
or existing tobacco companies not party to the settlement would have to put up
damages for 25 years to guard against the possibility they might be later sued
by the states. In effect, a highly competitive industry has been transformed
into a cartel. So now we have these barriers to entry, a blatant violation of
the antitrust laws."
Something for everyone, you see.
John Pike is a contributing writer for Insight magazine.
All comments my article generated that I could find.
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Insight on the News - National
Issue: 5/11/04
States Burning Up Litigation Funds
By John Pike
The cost of the 1998 billion-dollar tobacco-settlement agreement has been put at
approximately $246 billion for the first 25 years, or an average of $10 billion
annually. To get to this windfall a number of states went so far as to change
their laws of civil procedure to tap into the wealth of a politically incorrect
group: the U.S. tobacco manufacturers, a worldwide, economy-building industry
that goes back to the English colonies of North America and the Native Americans
before that.
What the manifoldly mendacious states attorneys general (AGs) did in the 1990s
was announce that, for the good of the people, they were suing the cigarette
manufacturers to recover Medicaid expenses to pay for smoking-related illnesses
and fund smoking-cessation programs. Within five years most of the money the
states were receiving from the tobacco settlement was defraying their general
budget costs that had nothing to do with tobacco. The plaintiffs' lawyers who
cooked up the deal, meanwhile, had received their billions from the settlement.
Former Massachusetts attorney general Scott Harshbarger made antitobacco efforts
a prominent theme of his administration, and he was the fifth AG to file suit
against the tobacco companies. The main reason Harshbarger gave for the lawsuit
was to fund smoking-cessation programs. But although Massachusetts soon received
$689 million from the manufacturers (excluding the tax on packs), it virtually
shut down its celebrated tobacco-control program, say antismoking activists,
cutting the funding. According to the Boston Herald, it was funded at $48
million at its height, an amount that quickly fell to $5.7 million, with the
program exhausting its annual stipends. Massachusetts now uses less than 1
percent of its tobacco money for tobacco-prevention programs. Much of the
tobacco-settlement money in the Bay State is paying for budget expenses
unrelated to tobacco.
Other venues that misused the funds include Los Angeles, where, according to the
American Medical Association, former mayor Richard Riordan planned to use $100
million in tobacco-settlement funds to deal with lawsuits involving police
corruption. In one year the tobacco state of Virginia spent about $15.5 million
of these funds to cover its budget deficit. By 2001 just six states, according
to the U.S. Centers for Disease Control and Prevention, were spending enough
money on antitobacco programs to be effective, despite the fact that many of the
states received hundreds of millions of dollars from the settlement for that
purpose.
In 1997 former surgeon general C. Everett Koop commented for CNN on the tobacco
companies and the master settlement, declaring: "It's a big concern for all
those of us who worked three decades with the tobacco industry and find you
can't trust them. I am sure they will take every effort they can to find
loopholes." But as it developed, the states were even more untrustworthy than
the demonized tobacco companies.
The government already was taking plenty from the tobacco companies to care for
the casualties of tobacco use. In 1999, Alabama Attorney General Bill Pryor said
that a study by Harvard Law School professor Kip Viscusi "proved that
cigarette-tax collections more than offset the cost to government for treating
tobacco-related illnesses." He explained that "The main objective of the tobacco
lawsuits was to raise revenue. Using lawsuits to raise revenue is far easier
than raising taxes the old-fashioned way. This method bypasses the need for
representatives of the voters to approve the tax. It shifts the awesome powers
of the legislative bodies - commercial regulation, taxation, appropriation and
the power to change law - to the judicial branch of government."
Although Alabama was not actively involved in the tobacco-settlement agreement,
the manufacturers funded a trust to compensate adversely affected venues that
grow tobacco, which include that state, North Carolina, Virginia and others.
As a result, some states have gone so far as to take money from the tobacco
settlement - funds that are supposed to fight tobacco use and addiction - and
put it toward growing tobacco or into the tobacco companies themselves.
According to one published report, the tobacco state of North Carolina spent
almost three-quarters of its settlement money on tobacco marketing and
production, although some was used to help farmers adjust to growing other
crops. One tobacco farmer received $25,000 to help pay for curing bins he
installed in 2001. The state used $43 million on items such as constructing a
tobacco auction house and $15,000 for a video of the history of the crop.
Critics consider it likely that much of the rest of the $4.6 billion North
Carolina was expected to receive within 25 years also would help the blindsided
tobacco interests, in direct opposition to the declared purposes of the suit.
And according to a March 2002 study by the Washington-based Investor
Responsibility Research Center (IRRC), tobacco-settlement money even has been
used by states to purchase tobacco stocks. "Texas, Connecticut, New Mexico,
North Carolina, North Dakota, Utah and West Virginia are among the states which
invested a portion of their tobacco-settlement proceeds in tobacco companies.
Much of these state investments ended up in index funds, tracking indexes like
the S&P 500, which have tobacco-company representation. For each dollar invested
in such funds, usually only about a penny goes into tobacco stocks. But given
the huge size of the settlement pool, it still adds up to tens of millions of
dollars flowing back into the tobacco industry."
Doug Cogan of the IRRC estimates that by late 2001 about $11 million had been
invested in tobacco securities by Texas, and Utah soon had almost $600,000 in
Philip Morris Companies Inc., Loews Corp. and UST Inc. "Of the 33 states
investing tobacco-settlement proceeds, at least 16 have no restrictions on
investing in tobacco companies," the report states.
And remember this was done by means designed to circumvent long-established law.
According to Robert A. Levy of Washington's libertarian Cato Institute, Florida,
Maryland and Vermont specifically changed their laws to allow for a successful
lawsuit against the tobacco manufacturers. The rest of the states asked the
judges to ignore common law and pretend the law had indeed been changed. The
trick was that higher courts never had to rule on the constitutionality of what
amounted to passage of both bills of attainder and ex post facto laws, illegal
under the Constitution, because the whole agreement was settled out of court.
"During the past 40 years," Levy states in a 1997 study, "not a single smoker
received a single dollar of damages from tobacco companies as juries repeatedly
concluded that smokers are responsible for their own behavior and their own
losses." Yet under the new laws, "If a smoker happens to be a Medicaid
recipient, individual responsibility is out the window," he notes. "The same
tobacco company selling the same person the same product that results in the
same injury is, magically, liable, not to the smoker but to the state. By
legislative fiat, liability hinges on a smoker's Medicaid status, a fortuity
totally unrelated to any misdeeds of the industry."
What this means is that, for example, if a person injures himself skiing, the
ski manufacturer would not be liable for his medical expenses. But under the
changed laws, if the skier was on Medicaid and everything else stayed the same,
the manufacturer then would be liable for his medical expenses.
"And it gets worse," Levy's study points out. "The state is not even required to
show that a particular party was harmed by his use of tobacco. Instead,
causation may be proven by statistics alone (later ruled unconstitutional by the
Florida Supreme Court). The act originally provided that Florida was not
required to identify the individual recipients of Medicaid payments; instead,
the state could seek recovery for all recipients, anonymously, as a group. One
would think that the industry could at least investigate whether patients
suffering from 'smoking-related illnesses' ever smoked. Wrong. Incredibly, the
industry will be allowed to depose only 25 of 400,000 claimants. These lawsuits
retroactively eradicate settled doctrine and deny due process to an industry
singled out for its deep pockets and public image, not its legal culpability."
So according to Florida law while it was suing the manufacturers, the man who
broke his leg and sues the ski manufacturers, for example, does not have to
prove he ever skied at all or show what type of ski he used.
Ordinarily, a link has to be established between a manufacturer's conduct and
the injured person's health problems. This settlement resulted in the states
receiving damages for some Medicaid recipients when their injuries were caused
by other means. And remember this, critics note, if the government can
circumvent the Constitution to do this to Big Tobacco, it can do the same to
anyone it decides to demonize. And it can get worse, much worse.
So why did the tobacco companies agree to an unconstitutional and expensive
settlement? Levy has an answer for that too. "Not even the tobacco companies are
big losers," he states. "Even though the four companies have to raise their
prices to fund the settlement, they are guaranteed a virtual monopoly. Any new
or existing tobacco companies not party to the settlement would have to put up
damages for 25 years to guard against the possibility they might be later sued
by the states. In effect, a highly competitive industry has been transformed
into a cartel. So now we have these barriers to entry, a blatant violation of
the antitrust laws."
Something for everyone, you see.
John Pike is a contributing writer for Insight magazine.
