STATE SETTLES WITH 2 FIRMS IN TOBACCO LAWSUIT

Trial to continue against 9 defendants as negotiations press on

SEATTLE -- Washington state reached an out-of-court settlement Friday with
a tobacco company and a related organization, dropping claims against them
in its lawsuit seeking to collect billions of dollars in damages from the
tobacco industry.

King County Superior Court Judge George Finkle approved the settlement with
United States Tobacco Co., which markets Skoal and other smokeless tobacco
products, and the Smokeless Tobacco Council.

The lawsuit trial will continue on Monday with the remaining nine
defendants -- six tobacco companies, a public relations firm and two
tobacco industry organizations, the attorney general's office said.

"At least one of the tobacco companies has decided to be responsible and
come forward," Attorney General Christine Gregoire said from New York,
where she remains in negotiations with two of the companies for a national
settlement.

"I think that tells you just how strong the antitrust case is in Washington
state," Gregoire said.

As part of the agreement, the two defendants agreed to discontinue
billboard and transit advertisements of products, and to support efforts to
enact legislation that would ban vending machines in all but adult-only
facilities. They also agreed to support legislation to strengthen civil
penalties for sale of tobacco to minors and possession by minors.

The company also agreed to pay the state $2 million, which under the
agreement is specified to be reimbursement of legal costs rather than
damages, Gregoire said.

"They preferred we structure the agreement that way," Gregoire said.

United States Tobacco, based in Greenwich, Conn., was named in about half
of the lawsuits that have been filed by 41 states against the tobacco
industry, Gregoire said. Of the four states that have settled for about
$36.8 billion combined, United States Tobacco was not a defendant in
Minnesota's or Mississippi's cases, but was in cases in Texas and Florida.

Gregoire said Washington's settlements were modeled on those in the Texas
and Florida cases. United States Tobacco didn't pay damages in those cases,
either, she said.

"No company that's named as a defendant in litigation is ever happy, but we
entered into this agreement in a very genuine way to resolve it," company
spokesman Jonathan Atwood said.

Jim Milliman, a lawyer for Brown & Williamson Tobacco Corp., which is also
a defendant, questioned the significance of the settlements.

"If the attorney general is trying to play this up as some sort of vote of
confidence about her case, we need to put it into perspective," Milliman
said. "They have never been mentioned in this trial to date, so it's
interesting the attorney general tries to make this into a major victory."

The company and council were not mentioned during the state's opening
statements, and their lawyer didn't make an opening statement.

Meanwhile, Gregoire said she and seven other attorneys general continue to
make progress in negotiations for a national settlement with at least two
major tobacco companies, Lorillard Tobacco Co. and Philip Morris Inc.

Talks went into the wee hours Thursday, Gregoire said, and resumed early
Friday. Negotiators intended to take a break over the weekend, but would
pick up again next week, she said.

"We have about three major issues that continue to be problems at the table
where we have not been able to resolve them," Gregoire said.

She said she could not detail what those issues were, but confirmed they
include how to enforce an agreed-upon "code of conduct" with companies that
do not sign onto a proposed settlement.

"There's no question we've been able to reach an accord in a number of
issues," Gregoire said. But "all that is for naught if we can't see our way
through the remaining issues."

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Checked-by: Pat Dolan