’98 Tobacco Settlement

April 13, 2016

By Allison Torres Burtka

November 1998 marked a pivotal moment in the history of cigarettes in the United States. Forty-six states and the four largest tobacco companies reached a landmark settlement that brought sweeping changes to cigarette manufacturers’ practices—and to rates of smoking. Since the settlement, cigarette smoking rates in the United States have been cut nearly in half.

These 46 states, along with the District of Columbia and five U.S. territories, partnered with private lawyers and sued the manufacturers, seeking compensation for costs they incurred in treating smoking-related illnesses. They and the four companies—Philip Morris, Lorillard, Brown & Williamson, and R.J. Reynolds—reached what is known as the tobacco Master Settlement Agreement (MSA); dozens of other manufacturers have since signed on. The four states that did not take part in the MSA—Florida, Minnesota, Mississippi, and Texas—reached separate settlements with the companies. The settlements release the manufacturers from liability to the states for health care costs caused by smoking. However, people’s lawsuits against the manufacturers for injuries caused by smoking are entirely separate from the MSA and can still be pursued.

Through the MSA, the companies agreed to make annual payments in perpetuity to the settling states and to overhaul some of their business practices. The payments are calculated for each state and each year; overall, they were estimated to be $206 billion for the first 25 years.

“The payments to the states forced the companies to raise cigarette prices,” said Richard Daynard, chair of the Tobacco Products Liability Project, part of the Public Health Advocacy Institute at the Northeastern University School of Law. “This reduced smoking rates, especially among teens.” The high school smoking rate declined even further than the overall smoking rate: It went from 36.4 percent in 1997 to 15.7 percent in 2013—a 57 percent reduction, according to the Centers for Disease Control and Prevention (CDC).

The payments were also used to establish and fund the American Legacy Foundation, a public health organization that works to reduce smoking. Now called the Truth Initiative, the organization spreads its tobacco prevention message through its “truth” counter-marketing campaign.

The MSA permanently bans the tobacco company signatories from certain advertising, marketing, and promotion practices. They cannot use cartoons, including Joe Camel, or other methods of targeting youth. They are barred from advertising on billboards and in public transit, and the MSA prohibited most brand-name event sponsorships.

The MSA also succeeded in bringing to light the depths of the industry’s efforts to deceive the public. The litigation, discovery, and disclosure leading up to the MSA and the four other states’ settlements “exposed what those of us in tobacco control had long known but couldn’t prove about the tobacco industry’s deception,” said Paul Billings, senior vice president of advocacy at the American Lung Association. This included the companies’ “cynical targeting of children and minorities and coarse language about their customers.”

An archive of 14 million tobacco industry documents offers a close look at the companies’ advertising, marketing, manufacturing, research, and political activities. The archive is publicly accessible through the website Truth Tobacco Industry Documents, and it includes documents that were key to the litigation that resulted in the MSA. Some documents show how the manufacturers specifically targeted young people, women, blacks, Hispanics, and members of the military, for example.

“Perhaps the greatest benefits of the litigation and the resulting MSA are the declining youth and adult smoking rates in the country,” said Vermont Attorney General William Sorrell, who was involved in the MSA negotiations in 1998. “Since few adults begin to smoke, the reductions in youth smoking rates should enhance public health for many, many decades, if not beyond. Other benefits include the permanent prohibitions on marketing to youth and on making unsubstantiated health claims about tobacco products,” he said.

The MSA caused “the erosion of the industry’s credibility with the public,” Billings said. He also noted that the effort began with “a handful of states, attorneys, and firms that really did take on a powerful foe.” Before that, the tobacco industry had been undefeated, he said. “Were it not for that partnership, I don’t think the settlement would have happened. That’s the legacy of the civil justice system—the ability to take on the most powerful.”

“It was the first time the civil justice system had stepped in and picked up where the legislature had failed,” said Joe Rice, who served as lead private counsel for 26 of the jurisdictions. “The tobacco litigation showed that the civil justice system is a vital piece of our society.” Rice is a founding member of Motley Rice and practices law in the firm’s Mt. Pleasant, S.C., office.

REMAINING CHALLENGES

Although the MSA has accomplished important goals, it has its limitations.

Funding. Only a fraction of the payments states receive are spent on tobacco control projects, which frustrates antismoking advocates. The funds were not designated to go directly to tobacco control programs, so the state departments of treasury determine how the funds are spent. Facing budget crises, all the states have used some of this revenue to meet other needs.

The annual report “Broken Promises to Our Children: A State-by-State Look at the 1998 State Tobacco Settlement 17 Years Later,” from the Truth Initiative and other organizations, found in December 2015 that the “states are spending only a miniscule portion of their tobacco revenues to fight tobacco use.” In fiscal year 2016, “the states will collect $25.8 billion in revenue from the tobacco settlement and tobacco taxes. But they will spend only 1.8 percent of it—$468 million—on programs to prevent kids from smoking and help smokers quit,” the report says, noting that this amount is “a small fraction” of what the CDC recommends.

“I believe politics and competing budgetary demands have prompted too many of the states to make poor decisions on wise use of the MSA funds,” Sorrell noted.

“There was a wide range of views among the AGs [attorneys general] about how far they could go to specifically allocate funds for specific uses,” Rice said. Some of them were actively involved with their governors to ensure that some of the funds were directed to tobacco control programs and public health, and “others felt it was a legislative function to appropriate all the money and did not support directing the funds,” he explained.

After the settlement, some states’ attorneys general (AGs) worked to “institutionalize tobacco knowledge” in their offices, so that their efforts could continue as people left office over the years, but others didn’t have that foresight, Rice said.

Could the settlement have gone further to ensure that more of the revenue went to tobacco control programs? Rice said, “If we’d gone much further, we could have had a separation of powers disagreement and may have needed legislative approval of the settlement”— which would have complicated the process further.

Ongoing Litigation. State AGs continue to spend significant time and resources on ongoing issues with the MSA, including disputes about interpreting, implementing, and enforcing its terms.

The process to determine payments to each state each year is complicated. It includes an adjustment based on whether participating manufacturers (MSA signatories) lost market share to non-participating manufacturers (tobacco companies that have not signed on to the MSA). In the 2014 sales year, for example, the non-participating manufacturers had 6.45% of the market share. States must take certain steps related to this adjustment if they are to maintain their MSA payments.

States have been embroiled in litigation over the manufacturers’ violations of the MSA’s payment provisions and its marketing restrictions. By 2009, the National Association of Attorneys General estimated that the lawsuits states filed against companies for MSA violations had resulted in states recovering $277 million.

One example of a marketing violation involved matchbooks emblazoned with R.J. Reynolds brands. The MSA prohibits the manufacturers from distributing merchandise that displays their brand names. The Ohio AG sued, and the Ohio Supreme Court held in 2004 that these matchbooks violated that prohibition and enjoined R.J. Reynolds from distributing them. Other litigation involving the MSA has involved manufacturers filing for bankruptcy, as well as manufacturers challenging the MSA on constitutional and antitrust grounds.

Adaptability. Some of the tobacco products becoming popular today didn’t exist in 1998, so the MSA doesn’t address them. The same is true for some methods of advertising, such as through the Internet and social media.

“The same kind of egregious marketing that has largely been eliminated for cigarette marketing” is continuing with other products like e-cigarettes and hookah, Billings said. Restrictions on celebrity endorsements and sponsored events for cigarettes do not extend to these newer products.

INDIVIDUAL LITIGATION

Meanwhile, for decades, individual and class action personal injury lawsuits have been making their way through the courts, with varying degrees of success. “Private tobacco litigation is continuing, with particular vigor in Florida (implementing the Engle class action case) and in Massachusetts (where we’re bringing cases following the Supreme Judicial Court’s landmark Evans case, permitting the manufacturers to be held liable in strict liability),” Daynard noted. (For more information on individual cases, click here.)

These private lawsuits “tend to bolster the case that Big Tobacco flat-out lied. The deception was off the charts,” said Bryte Johnson, Connecticut government relations director at the American Cancer Society Cancer Action Network, Inc.

Rice noted that these lawsuits face a challenge that the MSA avoided. “The individual cases still have the same issue they’ve had for 30 years: choice,” meaning that jurors often are unwilling to hold manufacturers accountable when smokers can choose whether or not to smoke.

“The publicity surrounding the AG cases and the private lawsuits—and especially the reams of incriminating documents obtained in discovery—has made the tobacco industry a pariah,” Daynard said. “This has made it much harder for them to effectively resist cigarette tax increases, clean indoor air legislation, and other tobacco control measures.”

THE BATTLE CONTINUES

Smoking rates have dropped, but smoking still causes about one out of every five deaths in the United States. Each year, smoking kills more than 480,000 Americans, according to the “Broken Promises” report.

“A major challenge is reminding state and federal decision-makers that addiction to tobacco and the resulting illnesses and premature deaths remain the greatest avoidable public health challenges we face today,” Sorrell said. “Tobacco is not yesterday’s problem.”

Johnson agreed. “Thirty-nine towns in Connecticut have smaller populations than the number of people who will die in Connecticut this year” from smoking-related illness, he said.

The Family Smoking Prevention and Tobacco Control Act, signed into law in 2009, gave the U.S. Food and Drug Administration the authority to regulate the manufacturing, marketing, and sale of tobacco products. It also restricted how tobacco companies can market to youth, and it banned flavored cigarettes (other than menthol). Public health advocates say flavored cigarettes, with candy-like flavors such as vanilla and cherry, were “starter” products aimed at getting young people addicted.

Some states also continue to deal with other problems such as illegal cigarette trafficking—which occurs when cigarettes are bought on tribal reservations, from overseas, or in states with low taxes, for example, and then are sold in states with high cigarette taxes.

Together, higher taxes on tobacco products, strong prevention and education programs, health insurance coverage for tobacco cessation, and smoke-free laws “drive down tobacco use, and states without strong policies have higher tobacco use rates,” Billings said.

About half the states now have comprehensive smoke-free laws that protect people from secondhand smoke, and smoking is allowed in fewer places than it was in 1998. Some states, municipalities, and organizations have prohibited smoking in outdoor spaces (such as college campuses that are smoke free indoors and outdoors) and in private vehicles. Still, some municipalities that want aggressive smoking bans run into conflict with their states when the state regulation is not as restrictive.

The MSA has not eradicated smoking, but its contribution to reducing smoking and harnessing the civil justice system to rein in unscrupulous corporate behavior is remarkable. Daynard pointed out that together, the MSA companies’ payments to the states, the advertising restrictions, and the funding of the Truth Initiative “have saved lives and will save many more.”

“The MSA is not perfect, but it has greatly enhanced public health in this country. Attorneys general and various public health organizations deserve much credit for bringing about changes that almost certainly would not have been accomplished through legislative means,” Sorrell said.