LOOK WHO'S FALLING IN LOVE WITH TORT REFORM

Form does not always follow function. Nominally the states in the 1998
tobacco settlement were plaintiffs in a lawsuit, and their lawyers were,
well, their lawyers. Yet in all but name both parties have now become
shareholders in the tobacco industry.

The settlement has no termination date, so the states can expect to keep
collecting roughly $13 billion a year forever -- or as long as people keep
smoking. Likewise, because the industry's liability for the opposing
attorneys' legal fees is capped at $500 million a year, and because an
inflation adjuster is applied to the unpaid balance, chances are good these
payments will continue forever too.

Thus, the lawyers and the states have become, in perpetuity, major
beneficiaries of tobacco revenues. In their new guise, they have suddenly
discovered the virtues of tort reform.

Just a few years ago, Bob Butterworth, Florida's attorney general, conspired
with other officials to pass a law making it impossible for tobacco
companies to defend against a Medicaid lawsuit, stripping away
tried-and-true common law defenses. The industry, bowing to political force
majeure, put a white feather in its beanie and settled for $13 billion.

Fast forward to this month, as a Miami jury plods toward a potentially huge
punitive verdict on behalf of individual smokers. Does Mr. Butterworth say,
"Yippee! Finally smokers are getting their share of justice too"?

Nope. Florida's illustrious law officer has issued a legal opinion saying
the court may not award punitive damages until it has first decided on
compensatory damages for every individual smoker in Florida -- a process
that, as Mr. Butterworth knows well, could take eons.

Meanwhile, his legislative colleagues are working the problem from another
angle, bills that would limit punitive damages or at least save the industry
from having to post a bankrupting bond (120% of any punitive award) while it
appeals.

What every state fears, of course, is that if smokers start winning large
judgments, the industry might file for Chapter 11, cutting off the luscious
flow of revenues. Within microseconds of the original settlement, these
funds were engraved in budgetary forecasts for the rest of eternity. Losing
them would provoke fiscal crisis from sea to shining sea.

Texas, for instance, stands to pick up $320 million in December and another
$535 million in January. By the best guess of bankruptcy lawyers, the states
would land near the end of the line, as "unsecured creditors." Luckily, most
of the governors have been able so far to hide behind their
tobacco-producing brethren in Virginia, Georgia, Kentucky and North
Carolina, who've taken the lead in trying to protect industry assets from
out-of-state verdicts. These efforts may be constitutionally junky, but
litigating them would at least buy time.

Even without a bankruptcy, the states have begun to worry that they're
squeezing the golden goose too hard. Price hikes have already stopped enough
people from smoking to reduce Texas's expected take by $90 million. Maybe
that's why, despite the hopes of the public health lobby, so little of the
settlement money has gone to smoking-cessation programs. The states can't
afford to have people quitting.

At the time, we warned the anti-smoking crowd they'd be sorry if they put
their imprimatur on this corrupt bargain.

"I find it interesting that lawmakers spent hours and hours looking at ways
to protect the tobacco industry, but spent no time at all studying ways to
protect kids from the dangers of smoking," the American Heart Association's
Brian Gilpin complained last week.

"It's a little schizophrenic," echoed Roger Salazar, a spokesman for the Ame
rican Cancer Society. "It goes to show you how deep the pockets of Big
Tobacco are and how much influence they have over these legislatures."

Wake up, fellas. The Medicaid lawsuits were always about the money, and
there can't be any money unless the industry remains a live, going concern.
Hence the uncanny dispatch with which the political class has taken up tort
reform.

In Georgia, where legislators are working to limit any bond the industry
would have to file before it could appeal a punitive judgment, Jim Martin,
Democratic chairman of the House Judiciary Committee, calls it plain old
good policy. "If there's a trial court or jury that really slams them hard
and there's an enormous verdict and they have trouble filing an appeal bond,
it requires a corporate defendant to reach a settlement prematurely," he
says. "It's a way to control what I call runaway juries."

That will be music to the ears of American business, though runaway juries
only lately became a problem for tobacco. For decades the industry prevailed
on jurors with the sensible argument that everyone knows cigarettes are bad
so smokers smoked at their own risk.

But that was before the Medicaid lawsuits pried out documents showing --
quel surprise -- that the tobacco companies weren't so dumb that they hadn't
heard of lung cancer, emphysema and heart disease. More to the point, the
juries hearing the latest smoker cases know that the states are already
collecting millions of dollars in damages and the states weren't even the
ones injured by smoking.

As a point of law, we'd be surprised if any smokers relied on the
obfuscations of the tobacco industry as a reason to smoke. But the industry
did obfuscate, and it did seek to induce people to smoke with advertising.
These pitches weren't aimed at tricking the states into insuring Medicaid
smokers, an obligation they took on with their eyes open. Smokers themselves
were the ones lied to and advertised to, and if a jury thinks the industry
should pay for that, we're not going to second-guess them.

At the risk of being persnickety, let us point out that the original
settlement had nothing to do with "justice." It was a tax increase on
smokers, enacted without the say-so of any legislature and with private
lawyers getting a big piece of the proceeds as a kind of fixer's commission
for finding a way to evade democratic accountability. The precedent stinks,
whatever you think of the tobacco industry's ethics.

Of course there is an easy way for the states to assure themselves of their
settlement revenues: Just enact a new sales tax on cigarettes. Then it won't
matter if the industry falls under the protection of a bankruptcy judge.

In fact, a Florida panel looking into ways to protect the state's settlement
revenues proposed just such a contingency tax, but legislators said "no
way." Apparently they don't want the money so bad that they're willing to
accept accountability for raising taxes on smokers.