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Tobacco Liability [1]

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care costs by, among other things, starting come up with a credible calculation of how smoking-cessation programs. much it would have saved. The courts in Florida, Pennsylvania Some states didn't even file antitrust and California, however, found that argu- claims. "We came to the conclusion that it ment a stretch. Any losses suffered by the was a marginal claim," says Gordon Allen, health funds, these courts ruled, are too Iowa's assistant attorney general. remote from the industry's alleged wrong- Stripped of its Medicaid-recoupment ful conduct to support a claim for direct claims. Iowa now is banking on a state Continued From First Page damages. The only way for the unions to statute banning unfair-trade practices. If losses derive from injuries to individual recover. these courts ruled. is to prove Iowa can prove that the industry concealed smokers, not directly to the state. case by case that they paid benefits to in- from consumers what it knew about the The only way Iowa can proceed, the dividual members who got sick from health risks of smoking, it may be entitled court concluded, is to prove its damages smoking because of tobacco-industry to reimbursement for cigarette sales in the case by case, standing in the shoes of in- wrongdoing. state. That amount could exceed what the jured Medicaid recipients who received Robert J. Connerton, a Washington, state would have recovered under its Med- health benefits. That effectively guts D.C., lawyer representing a group of union icaid claim, Mr. Allen says. Iowa's Medicaid claim by bogging it down health funds, says some judges will proba- But consumer-fraud claims, too, pose in a hopeless backlog of individual trials. bly be more receptive to its claims than difficult legal questions, some experts say. Two other state judges, in Maryland others. "If you look at it collectively, we Even if states can prove consumers were and Washington, relied on that reasoning feel very good about our cases." he says, defrauded. they face the daunting task of in throwing out those states' Medicaid adding: "You don't get into a world war determining how much consumers are claims last year. So did a federal judge in and not take casualties." owed. The states hope to use statistical Birmingham, Ala., who in March rejected Now-Tougher Cases models and sales records. that city's attempt to recover employee medical expenses linked to smoking. The upshot for several states and But the tobacco industry has a different unions is that their suits have been re- idea: Force the states to go case by case, The reasoning was the crucial factor in duced to secondary claims that some ex- transaction by transaction. the first state supreme-court decision fa- voring the industry. In 1996, Minnesota's perts say will be extremely hard to prove. high court rejected an effort by Blue Cross These include allegations that the industry and Blue Shield of Minnesota to recover its conspired not to develop a safe cigarette in payments to sick smokers. That decision is violation of antitrust laws and violated con- expected to be cited by the industry to fend sumer-fraud statutes by concealing the off suits filed recently by 43 Blue health risks of smoking and marketing to Cross/Blue Shield insurers nationwide. minors. Both sets of laws were designed to A huge verdict in California's Medicaid protect and compensate consumers and suit, meanwhile, seems less likely now for companies, not state governments. On other reasons. In March, a judge ruled that those grounds alone, judges have rejected the populous state can seek damages only state and union antitrust claims in Michi- for its health-care costs dating from June gan, Texas, California and New York. 1997, when a state law giving the tobacco Washington state, which is scheduled to industry protection from certain lawsuits go to trial in September without its Medic- was repealed. aid claim, contends that it suffered billions Setting Precedents of dollars in damages because the indus- try's alleged conspiracy to keep a safe cig- The Iowa ruling is considered the most arette off the market increased the number significant involving the state claims, how- of sick smokers who landed on its Medicaid ever, because it can be cited as a state- rolls. supreme-court precedent elsewhere. Al- "Our experts have basically taken a ready, the Illinois state judge who last No- look at the drop-off, recently, in cigarette vember declined to dismiss that state's consumption and posited that, if safer Medicaid claim is reconsidering it in view products had been introduced several of the Iowa decision. decades ago, when [the tobacco compa- "I can't overemphasize the importance nies] had the ability to so, that we would of this decision," says Steven B. Rissman, have seen a marked decrease in smoking Philip Morris's senior in-house counsel. in general and a marked decrease in health "The Iowa Supreme Court decision vali- costs associated with that," says John dates what the industry has been saying Hough, Washington's senior assistant at- since the first of these Medicaid-recoup- torney general. ment claims that have been filed. If other Some antitrust experts say the matter is courts apply the law as the Iowa Supreme more complicated than that. "There are Court did, all that will remain of these too many what-ifs," says Stephen Axinn, a cases will be their shells." New York lawyer not involved in tobacco In fact, a federal court in Florida has al- litigation. Even the judge in Washington, ready cited the Iowa case in rejecting while allowing the antitrust claim to go for- claims brought by a union health fund. ward, said "the damage issues promise to Federal judges in Pennsylvania and Cali- be quite difficult." fornia used identical reasoning to throw out union lawsuits there. Legal Hurdles Like the states. the unions are seeking In addition to proving the alleged con- reimbursement for medical benefits paid spiracy, Mr. Axinn says the state will have to sick smokers. They allege that the in- to show that smokers would have switched dustry conspired to conceal what it knew to a safe cigarette (assuming one that ap- about the risks of smoking and agreed not pealed to smokers could have been devel- to develop a safe cigarette. Had the indus- oped) and that, as a result, fewer people try been forthcoming. they contend. the would have gotten sick. If it can get that unions could have minimized their health- far, he says, the state will them have to THE WALL STREET JOURNAL FRIDAY, JUNE 5, 1998

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    "ocrText": "care costs by, among other things, starting\ncome up with a credible calculation of how\nsmoking-cessation programs.\nmuch it would have saved.\nThe courts in Florida, Pennsylvania\nSome states didn't even file antitrust\nand California, however, found that argu-\nclaims. \"We came to the conclusion that it\nment a stretch. Any losses suffered by the\nwas a marginal claim,\" says Gordon Allen,\nhealth funds, these courts ruled, are too\nIowa's assistant attorney general.\nremote from the industry's alleged wrong-\nStripped of its Medicaid-recoupment\nful conduct to support a claim for direct\nclaims. Iowa now is banking on a state\nContinued From First Page\ndamages. The only way for the unions to\nstatute banning unfair-trade practices. If\nlosses derive from injuries to individual\nrecover. these courts ruled. is to prove\nIowa can prove that the industry concealed\nsmokers, not directly to the state.\ncase by case that they paid benefits to in-\nfrom consumers what it knew about the\nThe only way Iowa can proceed, the\ndividual members who got sick from\nhealth risks of smoking, it may be entitled\ncourt concluded, is to prove its damages\nsmoking because of tobacco-industry\nto reimbursement for cigarette sales in the\ncase by case, standing in the shoes of in-\nwrongdoing.\nstate. That amount could exceed what the\njured Medicaid recipients who received\nRobert J. Connerton, a Washington,\nstate would have recovered under its Med-\nhealth benefits. That effectively guts\nD.C., lawyer representing a group of union\nicaid claim, Mr. Allen says.\nIowa's Medicaid claim by bogging it down\nhealth funds, says some judges will proba-\nBut consumer-fraud claims, too, pose\nin a hopeless backlog of individual trials.\nbly be more receptive to its claims than\ndifficult legal questions, some experts say.\nTwo other state judges, in Maryland\nothers. \"If you look at it collectively, we\nEven if states can prove consumers were\nand Washington, relied on that reasoning\nfeel very good about our cases.\" he says,\ndefrauded. they face the daunting task of\nin throwing out those states' Medicaid\nadding: \"You don't get into a world war\ndetermining how much consumers are\nclaims last year. So did a federal judge in\nand not take casualties.\"\nowed. The states hope to use statistical\nBirmingham, Ala., who in March rejected\nNow-Tougher Cases\nmodels and sales records.\nthat city's attempt to recover employee\nmedical expenses linked to smoking.\nThe upshot for several states and\nBut the tobacco industry has a different\nunions is that their suits have been re-\nidea: Force the states to go case by case,\nThe reasoning was the crucial factor in\nduced to secondary claims that some ex-\ntransaction by transaction.\nthe first state supreme-court decision fa-\nvoring the industry. In 1996, Minnesota's\nperts say will be extremely hard to prove.\nhigh court rejected an effort by Blue Cross\nThese include allegations that the industry\nand Blue Shield of Minnesota to recover its\nconspired not to develop a safe cigarette in\npayments to sick smokers. That decision is\nviolation of antitrust laws and violated con-\nexpected to be cited by the industry to fend\nsumer-fraud statutes by concealing the\noff suits filed recently by 43 Blue\nhealth risks of smoking and marketing to\nCross/Blue Shield insurers nationwide.\nminors. Both sets of laws were designed to\nA huge verdict in California's Medicaid\nprotect and compensate consumers and\nsuit, meanwhile, seems less likely now for\ncompanies, not state governments. On\nother reasons. In March, a judge ruled that\nthose grounds alone, judges have rejected\nthe populous state can seek damages only\nstate and union antitrust claims in Michi-\nfor its health-care costs dating from June\ngan, Texas, California and New York.\n1997, when a state law giving the tobacco\nWashington state, which is scheduled to\nindustry protection from certain lawsuits\ngo to trial in September without its Medic-\nwas repealed.\naid claim, contends that it suffered billions\nSetting Precedents\nof dollars in damages because the indus-\ntry's alleged conspiracy to keep a safe cig-\nThe Iowa ruling is considered the most\narette off the market increased the number\nsignificant involving the state claims, how-\nof sick smokers who landed on its Medicaid\never, because it can be cited as a state-\nrolls.\nsupreme-court precedent elsewhere. Al-\n\"Our experts have basically taken a\nready, the Illinois state judge who last No-\nlook at the drop-off, recently, in cigarette\nvember declined to dismiss that state's\nconsumption and posited that, if safer\nMedicaid claim is reconsidering it in view\nproducts had been introduced several\nof the Iowa decision.\ndecades ago, when [the tobacco compa-\n\"I can't overemphasize the importance\nnies] had the ability to so, that we would\nof this decision,\" says Steven B. Rissman,\nhave seen a marked decrease in smoking\nPhilip Morris's senior in-house counsel.\nin general and a marked decrease in health\n\"The Iowa Supreme Court decision vali-\ncosts associated with that,\" says John\ndates what the industry has been saying\nHough, Washington's senior assistant at-\nsince the first of these Medicaid-recoup-\ntorney general.\nment claims that have been filed. If other\nSome antitrust experts say the matter is\ncourts apply the law as the Iowa Supreme\nmore complicated than that. \"There are\nCourt did, all that will remain of these\ntoo many what-ifs,\" says Stephen Axinn, a\ncases will be their shells.\"\nNew York lawyer not involved in tobacco\nIn fact, a federal court in Florida has al-\nlitigation. Even the judge in Washington,\nready cited the Iowa case in rejecting\nwhile allowing the antitrust claim to go for-\nclaims brought by a union health fund.\nward, said \"the damage issues promise to\nFederal judges in Pennsylvania and Cali-\nbe quite difficult.\"\nfornia used identical reasoning to throw\nout union lawsuits there.\nLegal Hurdles\nLike the states. the unions are seeking\nIn addition to proving the alleged con-\nreimbursement for medical benefits paid\nspiracy, Mr. Axinn says the state will have\nto sick smokers. They allege that the in-\nto show that smokers would have switched\ndustry conspired to conceal what it knew\nto a safe cigarette (assuming one that ap-\nabout the risks of smoking and agreed not\npealed to smokers could have been devel-\nto develop a safe cigarette. Had the indus-\noped) and that, as a result, fewer people\ntry been forthcoming. they contend. the\nwould have gotten sick. If it can get that\nunions could have minimized their health-\nfar, he says, the state will them have to\nTHE WALL STREET JOURNAL\nFRIDAY, JUNE 5, 1998"
}