States hiring lawyers to collect tobacco funds

Industry might seek bankruptcy protection, avoid settlement payouts

March 20, 2000|By LOS ANGELES TIMES

State attorneys general are taking the extraordinary precaution of hiring bankruptcy lawyers out of fear that a colossal damage award in a Florida class-action lawsuit could trigger a tobacco industry bankruptcy and stop the flow of settlement payments to the states.

Christine Gregoire, Washington attorney general, said a panel of attorneys general will be interviewing bankruptcy counsel tomorrow, adding that the states "have every intent of holding [cigarette makers'] feet to the fire" regarding payment obligations under $246 billion in settlements reached in 1998 with the states.

Although the tobacco industry has not said it would seek bankruptcy protection, talk of bankruptcy stems from the threat of a punitive damages award that could reach into the hundreds of billions of dollars in the Engle class-action case, which is nearing a critical phase in Dade County Circuit Court in Miami.

Industry representatives "have clearly stated to us that they are concerned about a large punitive damage award, and what that would mean to them as companies," Gregoire said.

A record-breaking damage award is widely expected, because jurors in the case have found cigarette makers guilty of lying to the public about the risks and addictive-ness of smoking. The same jury is expected to decide soon whether punitive damages should be assessed in a lump sum for an immense class of current and former Florida smokers, rather than considering their cases one at a time.

Although tobacco officials and Wall Street analysts have said they believe that the industry would have a good chance of prevailing on appeal, the companies would face the immediate problem of posting an appeal bond to cover an award that many think could reach or exceed $100 billion.

Under the law in Florida and many other states, in order to forestall collection of a judgment, the losing party is required to post a bond to cover the full amount of damages plus interest to cover the period of the appeal. And despite their enormous cash flow, cigarette makers don't have that kind of money lying around, which is triggering the bankruptcy buzz.

The stakes also are high for the states. Although health advocates have bitterly complained that few states have earmarked significant portions of settlement funds for anti-smoking efforts, a host of other new programs -- ranging from health care and public works to tax relief -- now depend on tobacco payments.

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