Legal Affairs – Tobacco Lawsuits: Taxing the Victims To Enrich Their Lawyers

National Journal

After slamming big tobacco with an unprecedented $145 billion in punitive damages in a class action brought on behalf of sick smokers in Florida, jurors said their goal had been to punish the industry for its sins and "send a strong message for all companies in America that they can’t fraudulently represent anything to the public," in the words of the foreman, Leighton Finegan. He added: "For the past 50 years these companies have lied, hidden information, and burned documents, and that makes me angry."

Angry to the tune of one-seventh of a trillion dollars. But the jurors (as well as the judge) are deluding themselves if they think that they have punished anyone for all those lies, even if the award survives on appeal (an unlikely scenario). And the only "message" is that our liability system has become deeply irrational. What else to call it when six unrepresentative jurors from one city can vent their anger by seeking to expropriate an entire industry-one that most Americans think should not have to pay sick smokers anything?

The big lies on which the vast, perverse edifice of tobacco litigation (and much other litigation) has been erected are the notions that large damage awards punish corporate wrongdoers-thereby "sending a message" that will spur businesses to behave-and compensate their victims.

Not one wrongdoer (or other human being) has ever been significantly impoverished or otherwise punished by a tobacco lawsuit. And not one ever will be, even if the industry is driven into bankruptcy. (Another unlikely scenario, now that the biggest stakeholders in big tobacco’s survival and profitability are the 50 state governments.) Rather, the mass of litigation brought by smokers, states, the Clinton Administration, and others quite clearly operates not as punishment, but as a national tax that no representative body has ever voted to impose. This tax falls primarily upon big tobacco’s supposed victims and secondarily upon the rest of us.

If you want to see who is being punished, don’t look at the tobacco companies, which can’t be punished. Don’t look at the top executives-most of them dead, retired, or moved on to other fields-who made their fortunes orchestrating deceptive campaigns to minimize the risks and addictiveness of smoking. (None of them are being sued, or prosecuted.) Look instead at the mostly low-level workers who cluster outside big-city office buildings sucking in nicotine hits. The vast majority will never see a dime in compensation. But thanks to tobacco lawsuits, they (and all other smokers) are already paying an average of $2.81 for a pack of coffin nails-a 37 percent increase since November 1998.

That’s expensive enough to pinch millions of low-income nicotine addicts. But it’s unclear whether even doubling or tripling current prices (a real possibility) would save many teenagers from becoming addicted in the first place. After all, teens don’t have much trouble getting illegal drugs, which are costlier than tobacco will ever be.

If you want to see who benefits from these lawsuits, don’t look at sick smokers, who-with a minuscule, random handful of exceptions-will pay far more in higher cigarette prices than they will ever recover in compensation. Look, instead, at the folks who sponsor and support the litigation: the very, very rich lawyers who rake in many billions in fees; their allies in the "public interest" groups who get much of the publicity and some of the money; the public officials/plaintiffs, who reap revenues, campaign contributions, and publicity; and even some of the judges and jurors, who love being queens for a day.

"This is one of the great shell games of the modern era," in the words of professor Lester Brickman of Benjamin N. Cardozo School of Law. "This is shifting money from your left pocket to your right pocket, with the lawyers collecting a transit fee of 10, 20, or 30 percent."

It’s easy to miss the forest that is tobacco litigation for all the trees, such as the fact that hundreds of thousands of people die from smoking-related illnesses each year; that 3,000 teenagers start smoking every day; that a bunch of tobacco moguls (now dead, or very old) supposedly conspired at a meeting 47 years ago to conceal evidence that smoking causes disease; that such deceptions continued for decades; that big tobacco used deceptive advertising (although smoking has long been notoriously dangerous) to hook new smokers; that millions are addicted (although millions have quit); and so on.

All true. All reason enough to condemn the tobacco industry-along with the federal government for fattening its coffers with tobacco taxes while subsidizing the cultivation, sale, and use of this dangerous product. And the state governments. And the military, for promoting smoking by its personnel. And Hollywood, for glamorizing smoking. And others.

But although tobacco lawsuits did some good years ago by unearthing proof of the companies’ deceptions and forcing them to stop advertising to teenagers, lawsuits now do bad guys virtually no harm and smokers very little good. We cannot punish a tobacco company-any more than we can punish a ham sandwich-and it is idiotic for our legal system to pretend that we can. Tobacco companies are inanimate corporations. Taking money from them will not punish the high-level malefactors who are no longer there, as is typical in the once-rare but rapidly proliferating species of lawsuit that seeks money for possible misconduct that is decades old. Although corporate liability for recent misconduct may indirectly affect top executives and create economic incentives to avoid future misconduct, the deterrent value dissipates to the vanishing point when a company’s punishment comes years and years after the misconduct.

The way to punish misconduct by executives is to sue them personally or prosecute them criminally. But plaintiffs’ attorneys rarely go after individuals, because corporations have more money and fewer legal defenses. And the Clinton Justice Department has been unable to make a criminal case against a single top tobacco executive-not even the seven who famously testified in 1994 that nicotine was not "addictive," while playing Clintonesque word games about what addictive means.

Are we punishing big tobacco’s stockholders for owning shares in socially irresponsible companies? Not really. Sure, all the litigation over the past few years has depressed tobacco stocks. But large institutions that invest the pension funds and the other assets of millions of ordinary Americans hold most tobacco-company stocks. And like wealthy individuals, they keep only small percentages of their diversified portfolios in any one industry. So at worst, they would suffer only modest losses, which would be spread through much of the population.

And remember, after the tobacco companies had agreed in 1998 to pay $246 billion over 25 years to "reimburse" the 50 states for their smoking-related medical expenditures, their stocks rose. The reason: This was a pretty good deal for the companies, albeit a lousy deal for smokers.

Not only did the five largest tobacco companies pass on the costs to smokers through price increases, they also ingeniously crafted the deal to protect themselves from competition, to prevent discounters and foreign producers from increasing their tiny market shares, and to fix prices. Walter Olson explained how it works in Reason magazine:

"The word for this process is cartelization, and the irony is that had cigarette executives met privately among themselves to raise prices, freeze market shares, confine small competitors to minor allocations on the fringe of the market, and penalize defectors and new entrants, they could have been sent to prison as antitrust violators-quite possibly by the very same attorneys general who sued them in this case…. This way it’s all legal."

No wonder big tobacco agreed to reward the states’ contingent-fee lawyers with $500 million a year in "fees," payable in perpetuity. The settlement’s bottom line, Olson adds, "is that smokers pay generously, while the other parties get cut in to a sweetheart deal: State governments quietly turn the same tobacco companies they publicly vilify into captive milch cows for future spending, the attorneys general grab political credit, and the companies get protected from competition. And, not at all by happenstance, the private lawyers who served as middlemen will reap a vast fortune, probably tens of billions of dollars, in what are being called fees."

Public health groups defend this massive rip-off by stressing that higher cigarette prices and the 1998 settlement’s advertising curbs hold down teen smoking. Whether this is true remains to be seen. Even if it is, there is a far more legitimate, and less expensive, way to achieve the same goal. It’s called Congress.