GREGOIRE SAYS STATE, TOBACCO INDUSTRY CLOSER TO SETTLEMENT

From the impossible tangle of documents, ideological nitpickings and
subclauses that are the draft of a state settlement with the tobacco
industry, the state attorney general says there are only two
substantial issues left for the two sides to resolve.

That would bring them closer than ever to an agreement that would
likely establish a broad code of conduct for the tobacco industry and
extract from it billions of dollars as punishment.

State Attorney General Christine Gregoire and negotiators for the
tobacco industry will meet next week in New York, after a break of
more than two weeks. (One way or another, Gregoire and Big Tobacco
have been negotiating since early summer, and the price of steady
progress, Gregoire said, is that "there are times when both sides need
to recharge.")

Gregoire will not say what the final two issues are, because that
would violate rules of the settlement talks. She will only hint that
they are not hang-ups over money but are more about the future
behavior of the tobacco industry - what kinds of advertisements
tobacco companies can buy, for example, and whether those
advertisements appear to be aimed at children.

While having only two unresolved issues means a multibillion-dollar
settlement is nearer, those issues might take some time to wrestle
down.

"But I remain optimistic that we will be able to reach a settlement,"
Gregoire said. "You can't afford to make a mistake in a document like
this."

The document would be one of the largest and most complicated
settlements in history.

Meanwhile, a tobacco trial is crawling along in King County Superior
Court, on the other side of the country, with expert witnesses
dissecting cigarettes, and turncoat tobacco CEOs telling the jury that
Big Tobacco is full of liars and cheats.

Washington's lawsuit accuses the tobacco industry of conspiring to
violate antitrust laws and consumer-protection laws, manipulating
nicotine levels in cigarettes, and hiding information about how
smoking affects health. The state is seeking $2.2 billion for the cost
of treating sick smokers, but that number could double if the jury
decides to fine the industry more.

It is an awkward situation - in court, the two sides pummel and tear
at each other's arguments. In settlement talks, the sides soothe one
another with diplomacy. But it is an arrangement that seems to work.

Over the past several months, Gregoire has consistently reported
progress in the New York talks. At the beginning of this month, she
announced that Washington had reached an agreement with U.S. Tobacco,
the maker of Skoal smokeless tobacco, and a tobacco-industry group for
$2 million, leaving only such major companies as Philip Morris and
Lorrilard to continue the talks.

The $2 million was pocket change compared to the billions of dollars a
broader settlement might have cost, but some saw it as a positive sign
that the two sides eventually would work out an agreement.

In fact, tobacco companies Brown and Williamson and R.J. Reynolds,
which had dropped out of the talks, rejoined the negotiations about
the time U.S. Tobacco made its deal.

Typically, it is the trial that gets the publicity, but the settlement
talks in New York have almost relegated the courtroom to sideshow,
perhaps because so many observers think the trial probably will not go
to a jury.

"The trial really should be the focus," said John Hough, an attorney
representing the state, "because without the trial there would be no
settlement talks."

But all four other states that pressed tobacco suits settled out of
court before the juries reached verdicts.

Certainly both sides would prefer to settle. Gregoire has said a
settlement - which would have implications for more than three-dozen
other states because those states could sign on to the agreement -
would enable states to bargain for concessions a jury cannot demand,
such as limits on advertising tactics.

The tobacco industry wants a settlement because it would mean knowing,
for certain, what their costs will be. They could then bargain for
such things as immunity from other lawsuits, which a jury could not
give them.

Matthew Ebnet's phone message number is 206-515-5698. His e-mail
address is: mebnet@seattletimes.com

Checked-by: Patrick Henry