Tobacco settlement Gregoire negotiated not popular with all

Attorney General Christine Gregoire is called tiger lady, the tobacco slayer, the woman who brought the cigarette industry "to its knees" for her role in negotiating a $206 billion settlement between tobacco companies and 46 states in 1998.

More than any other event in her career, the deal made Gregoire a heavyweight in Washington politics.

It's expected to deliver $4.5 billion to Washington over 25 years, with most of the money going toward health insurance for the poor. It also banned cigarette billboards and forbid cartoon ads aimed at children.

Yet six years after the paperwork was signed, a contentious debate over whether the settlement was a victory or a failure shows no sign of subsiding.

Critics, including some prominent public-health experts, say the agreement insulated tobacco companies from potentially crippling lawsuits and made the states dependent on money from cigarettes.

"The settlement agreement has been the absolute worst thing that has ever happened in tobacco control," says Michael Siegel, a physician and associate professor at the Boston University School of Public Health. "Essentially what [Gregoire] did was sign a tobacco-interest bailout."

But Gregoire also has admirers.

"Politicians often take credit for things they don't do," said Matthew Myers, head of the Washington, D.C.-based Campaign for Tobacco-free Kids. "This is a case where Chris Gregoire in fact was the most influential attorney general in the country in promoting the public-health provisions in the 1998 settlement."

Stanton Glantz, head of a tobacco-control research center at the University of California, says the nation would have been better off without a settlement. "Many people, including me, felt it was a bad idea," he says.

The critics note:

• Tobacco-stock prices shot up after the settlement, an indication that it strengthened the industry. And despite the advertising restrictions, experts say young people are still exposed to a flood of tobacco ads.

• The agreement has made states so dependent on tobacco-settlement money that attorneys general have gone to the aid of the tobacco industry in court when a jury verdict threatened industry payments to the states.

• A major piece of the settlement fought for by Gregoire — a foundation created to do national anti-tobacco advertising — is running out of money because of an obscure clause in the settlement that let tobacco companies cut off funding in 2003.

Gregoire has ridden a wave of glowing publicity for her role in forging the agreement and mentions it frequently in her campaign speeches.

It "achieved the largest settlement, it achieved holding [tobacco companies] accountable, it achieved a change in their conduct and it did achieve historic reductions in youth smoking," Gregoire said in a recent interview.

Her campaign has received more than $100,000 from attorneys on both sides of the tobacco war, including law firms that earned millions of dollars from the settlement. The lead negotiator for tobacco companies, Meyer Koplow, held a fund-raiser in New York that Gregoire attended.

William Leedom, a Seattle attorney who worked on the litigation with Gregoire, says, "She worked, I swear, 20-hour days trying to get this done. And it's been a great benefit not only to our state, but every state."

Richard Daynard, a law professor at Northeastern University in Boston who worked on tobacco litigation, also credits Gregoire for working hard on the settlement. "I think [Gregoire] did very well for the state of Washington, given the hand she had to play," he says.

But Daynard is disappointed by what the settlement achieved nationally.

"It didn't achieve much for public health, and it didn't do much to rein in the tobacco industry," he says. "Those were supposed to be the points."

Mississippi was first

Chart the states' court fight with Big Tobacco on a timeline, and Gregoire's star role comes near the end. Michael Moore's starts at the beginning.

Moore, as Mississippi's attorney general, filed the first state lawsuit against tobacco companies in May 1994. He partnered with private attorneys and sued for almost $1 billion the state said it spent treating people who became ill from smoking.

Moore envisioned other states would join the fight and force Big Tobacco into a national settlement. But at first, he says, other state attorneys general "thought I'd lost my mind." Cigarette companies had never been beaten in court. It took a year and a half for Moore to persuade four other states to join — West Virginia, Minnesota, Florida and Massachusetts.

For many other state attorneys, the tipping point came in March 1996, when Liggett, maker of L&M and Eve cigarettes and the smallest of the major tobacco companies, agreed to settle with the early states. "No [tobacco] company had settled with anybody, ever," Moore says. "That added tremendous momentum to the cause."

Liggett agreed to hand over sensitive documents and to testify in court. Shortly afterward, industry giant RJR Nabisco indicated the industry would consider settling. Over the next eight months, Washington and 13 other states joined the litigation.

Moore asked Gregoire to join the team crafting a national settlement. In early 1997, the team proposed a $368 billion deal that included large payouts to states, restrictions on tobacco advertising and regulation by the Food and Drug Administration. In return, cigarette companies would get immunity from certain lawsuits.

But the proposal required approval of Congress, where it ran into intense opposition. When it fell apart entirely the following year, Gregoire emerged as a central player.

Her office contacted Koplow, lead attorney for the tobacco companies, about settling Washington's case alone. But the industry was not eager to strike deals with individual states, particularly states such as Washington whose cases were not the most threatening.

"The Washington case was not one of the scarier cases," Koplow says. "It had what the industry considered a fairer jury pool and fairer judges."

Koplow recalls: "I said to Gregoire, 'Look, the industry is not interested in settling these cases on a one-off basis. If we could find a way to put together something that would settle either all or most of the cases, then we'd be prepared to do something.' "

Gregoire contends Washington did not have a weak case but says it was in the public's interest to have a national settlement.

"What good would it do for me to take down all the [tobacco] signs in Washington state and have them all up in Idaho?" she says.

She put together a new negotiating team to craft a states-only settlement that didn't need congressional approval.

Meanwhile, the states' bargaining position had eroded further, in part because they couldn't offer the type of immunity Congress could provide, and the industry had settled with four states that had worrisome cases, including Mississippi.

The agreement

Gregoire worked with attorneys general from California, New York, North Carolina and other states in a marathon round of meetings. She focused on health issues, such as curtailing youth-oriented cigarette advertising.

She also worked to set up an education fund, later named the American Legacy Foundation, to do national anti-smoking advertising. Gregoire is largely credited with creating the foundation, which was to be funded at about $350 million annually for at least the first few years.

An agreement between the states and the industry was announced in November 1998. Washington began receiving money from the settlement in late 1999.

Of the $729 million Washington has received since then, about $561 million has helped pay for health insurance for the poor. An additional $100 million has been earmarked for tobacco-use prevention efforts, of which $35 million has been spent.

Because of the recession, state programs, such as the Basic Health Plan (BHP), have had to cut the number of people served in recent years.

"If it wasn't for the tobacco money, I don't know what would happen to BHP," Gregoire says.

A good deal?

Gregoire contends the settlement "opened a floodgate" of civil lawsuits against tobacco companies by providing legal theories and sensitive documents not previously available. But critics say the agreement helped the industry by eliminating the cloud of uncertainty the state lawsuits represented.

Cliff Douglas, a Michigan attorney involved in tobacco litigation, says the settlement did little to help fight the industry; in fact, he says, cigarette firms often try to use the agreement as a defense.

And many observers note that after the settlement was signed, tobacco-stock prices jumped. "If this is such a big win for the people against big tobacco, why did their stock shoot up into the sky?" says Michael Horowitz, an attorney and director of Project for Civil Justice Reform at the Hudson Institute, a conservative think tank.

Philip Morris, which had been trading as low as $35 a share earlier in 1998, reached a high for the year of almost $58 a share within days of the deal being struck.

The $206 billion payout, although large, did not harm the cigarette industry, says Douglas, president of Tobacco Control Law & Policy Consulting in Ann Arbor, Mich. "All they had to do was raise prices on cigarettes and recover it."

Gregoire points to the agreement's widespread impact on advertising, noting for example that it removed cigarette ads that once appeared on New York skyscrapers. But the industry didn't stop advertising. From 1998 to 2001, the most recent year available, it raised its marketing budget to a record $11 billion. The industry is putting money into new forms of promotions, says Ronald Davis, former director of the federal Office on Smoking and Health at the Centers for Disease Control and Prevention.

The nation's youth "are still being heavily exposed," he says. "Some of the themes used in cigarette advertising are every bit as youth-oriented as they have been in the past even without Joe Camel."

Running out of money

In the meantime, the American Legacy Foundation, seen by many as a way to counter tobacco marketing with its own national anti-smoking commercials, is running out of money.

A provision of the settlement, little noted at the time, allowed the companies that settled to stop making payments if their combined share of the tobacco market dropped below 99.05 percent. Their market share did drop, and the industry made its final payment to the group's education fund last year.

"It was a huge blunder," says Glantz, the University of California researcher. "The problem of smoking and smoking-induced disease continues. The Legacy foundation is radically scaling back their activities as a result of just hitting this wall."

Gregoire says no one could have predicted the tobacco companies that settled would lose market share. Research showed it had never dropped significantly in the past.

One of the things critics of the settlement complain about most is what Glantz calls a "twisted partnership" between the industry and states now dependent on its money.

State attorneys general have come to the aid of the tobacco industry in court, Glantz and others say.

In 2003, Philip Morris lost a case in Illinois and was ordered to put up a $12 billion bond in order to appeal. Gregoire and other state attorneys argued on behalf of the tobacco company that the bond was too high and could jeopardize payments to the states.

Gregoire says the states aren't cozy with tobacco and have gone after the industry repeatedly. In the Illinois case, she says she made the right decision.

"What happens if they post a $12 billion bond and go into bankruptcy?" she says. "They don't have to make the payments any more. They win. They'd keep producing the product. They'd be off scot-free. I'm not going to let them off."

Andrew Garber: 360-943-9882 or

One of a series of articles exploring the lives and careers of the candidates for governor.

Settlement highlights

The 1998 tobacco settlement is expected to deliver $4.5 billion to Washington over 25 years, with most of the money going toward health insurance for the poor. The agreement included restrictions on the tobacco industry. Among other things, it:

Forbids the industry from targeting youth in advertising, marketing or promotions.

Bans the industry from actions aimed at starting, maintaining or increasing youth smoking.

Limits tobacco companies to only one brand-name sponsorship per year.

Prohibits sponsorship of team sports, such as baseball, football and basketball.

Bans all outdoor advertising, including billboards, signs and placards in arenas, stadiums, shopping malls and video-game arcades.

Prohibits payments to promote tobacco products in movies, television shows, theater productions or live performances.

Bans the sale of products with brand-name logos such as caps, T-shirts and backpacks.

Source: State Attorney General's Office

Where the money goes

To date, the state has received $729 million from the tobacco settlement. Here's a breakdown of how the money has been spent:

Tobacco-use prevention: $35 million.

Money set aside for future prevention efforts, but not yet spent: $65 million.

Money spent to pay debt on bonds secured by the settlement: $68 million.

Money sent to health-services account: $561 million.

Source: State Office of Financial Management