Tobacco company offers settlement in nicotine lawsuit

March 13, 1996
Web posted at: 6:50 p.m. EST

tobacco lawsuit

NEW YORK (CNN) -- In a stunning break with the rest of the tobacco industry, the Liggett Group, maker of Chesterfield and Eve cigarettes, said it will settle its part in a giant liability case. If approved, it would mark the first time a tobacco company has ever paid to settle a smoking-related lawsuit.

Liggett, the largest unit of Bennett LeBow's Brooke Group, said Wednesday that it has entered into an agreement to settle the Castano case -- a class-action lawsuit brought by a consortium of 60 law firms representing millions of smokers and former smokers claiming to be addicted to nicotine.

Additionally, Liggett said it's close to agreement in settlement discussions with five states. The states -- Florida, Massachusetts, Minnesota, Mississippi, and West Virginia -- are trying to recover Medicaid reimbursements for smoking-related illnesses.

Bennett LeBow

In a statement, LeBow described the settlement not as an admission of guilt, but as a prudent move amidst legal fire.

"The tobacco industry has lived for too long with the possibility of financial catastrophe from product liability lawsuits that could destroy the industry," he said. "This settlement is a fresh and prudent approach."

The proposed settlement drew tight-lipped responses from other tobacco companies Wednesday. "We remain confident in the strength of our litigation position, and we intend to fight and win all of the cases in which we are involved," Philip Morris said in a statement.

"We know nothing about the reported settlement between Liggett and certain plaintiffs lawyers, but we suspect that any such settlement would be a ploy in Mr. LeBow's effort to assume control of RJ Reynolds," Philip Morris' statement added.

RJ Reynolds backed up that contention. "Although we do not have all the facts yet and have not reviewed LeBow's proposed settlement," said the company, "We suspect it's an irresponsible and reckless ploy to influence RJR Nabisco shareholders in the proxy contest."

Liggett's proposal remains to be approved by the federal court in New Orleans. If it moves forward, Liggett would not only be the first tobacco company to pay in a smoking-related lawsuit, it would also be the first to withdraw from an industry effort to halt the FDA's attempt to impose curbs on how tobacco is marketed and sold.

Under the deal, Liggett would be released from claims in the Louisiana-based Castano case, as well as claims by a narrower statewide class action in Florida. Liggett would pay the Castano class up to 5 percent of its pretax income each year, up to a maximum of $50 million per annum, for the next 25 years. The funds would be used for smoking-cessation programs.

Other key elements in the settlement:

Beyond a ripple effect through the tobacco industry, Liggett's settlement could also affect LeBow's effort to force RJR Nabisco Holdings Corp. to immediately spin off its Nabisco Food business.

teen smoking

LeBow and investor Carl Icahn together own 5.8 percent of RJR, whose Reynolds Tobacco company is one of the five defendants in the Castano case. Other defendants are American Tobacco Co., Lorillard Tobacco Co. and Philip Morris Cos. Inc.

As part of the settlement, LeBow said people who had filed the Louisiana suit had agreed not to block a Nabisco spinoff.

"This historic settlement should also allay concerns among RJR Nabisco shareholders that a Nabisco spinoff could be enjoined," said LeBow, "which is the current Board's central objection to an immediate spinoff."

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