Cornered

by Peter Pringle

  The fraud began, said the state, with the infamous 1954 “Frank Statement” published by the tobacco companies in newspapers in virtually every city in the United States with a population of 50,000 or more. The industry statement declared, in part, “We accept an interest in people’s health as a basic responsibility, paramount to every other consideration in our business.” Minnesota alleged that the conspiracy continued when the companies learned of the addictive powers of nicotine but engaged in a “unified campaign of deceit and misrepresentation to hide this information.” As a result, the companies had been unjustly enriched because they had not paid for the damage to people’s health. Now, Minnesota declared, was payback time.

  In a second departure from the Mississippi suit, Minnesota further charged violation of the state’s antitrust law, which prohibited “unreasonable restraint of trade and commerce.” It was the industry’s suppression of research into smoking and health—in particular, its suppression of the development of a healthier cigarette—that, argued the state, “had the purpose and effect of restraining competition in the market for cigarettes.”

  Minnesota was also the only state to bring the suit jointly with its largest purchaser of health care, Blue Cross and Blue Shield. The state and Blue Cross were the two largest purchasers of health care in Minnesota. As an employer, the state provided health coverage to its 60,000 employees; Blue Cross had contracts with 12,000 doctors and clinics, 135 hospitals, and 6,000 allied health-care providers.

  The state had estimated that cigarettes killed 6,000 Minnesotans each year—out of a population of 4.5 million—and caused thousands of others to develop smoking-related diseases. The total health bill paid by the state and Blue Cross and Blue Shield was estimated at $470 million a year. Total damages sought amounted to at least $5 billion. Any monies recovered could benefit all citizens of Minnesota in the form of lower taxes, and Blue Cross would give the damage award back to the consumer in the form of lower health insurance costs because it is a nonprofit enterprise.

  In addition to reimbursement of tobacco-related health-care costs, the state also sought “an end to the forty-year conspiracy,” including the dissolution of the industry’s research and propaganda apparatus, the Council for Tobacco Research and the Tobacco Institute, and it demanded the industry open its files to the public, fund a corrective public education campaign, take steps to curb the sale of cigarettes to minors, and set up stop-smoking clinics. How long might this grand lawsuit last? “Our best guess,” said Robins, Kaplan, “is two to five years. The tobacco companies may do everything possible to drag it out.”

  * * *

  THE TOBACCO COMPANIES sent in their shock troops. At one early court hearing, no fewer than two dozen industry lawyers representing nine tobacco companies filed into the Ramsey County District Court, a splendid art deco building with a big onyx statue in the lobby of an American Indian smoking a peace pipe. The tiny courtroom of Judge Kenneth Fitzpatrick, the state judge assigned to the case, was too small to accommodate all the tobacco lawyers and they had to sit in the spectator seats. Ciresi’s team was quite comfortable on their side of the court with only six lawyers.

  Over the next few weeks, the industry sought to dismiss the suit using the same subrogation argument they had put forward in Mississippi: any claim for damages had to be brought on behalf of a smoker. By bringing the suit, the state was in effect stepping into the shoes of the smoker; the suit was really no different from a personal-injury claim and the traditional defenses of assumption of known risks should apply. The companies also claimed that Blue Cross and Blue Shield should be dismissed because they had suffered no damage: the extra costs of looking after smoking victims had been passed on to the insured in the form of higher premiums.

  It took a year for the Minnesota lawyers to defeat these efforts to dismiss the case, but before Ciresi’s team could begin the serious business of document discovery there was a small matter to clear up: BAT Industries of London claimed that it had been wrongfully named in the suit; that it was merely a holding company with only 164 employees and had no meaningful control over Brown & Williamson’s activities in the United States. Minnesota countered that BAT not only had full control of B&W but had been selling more than four million cartons of cigarettes a year through its Kentucky subsidiary.

  In the ensuing court battle, Ciresi had a special weapon—Minnesota’s “long-arm statute.” Most states have such laws to protect themselves against parent corporations that do business in their territory through wholly owned subsidiaries. If their products cause harm, the state has a chance to include the parent company in a claim.

  BAT claimed it had never manufactured, tested, designed, marketed, packaged, sold, distributed, or advertised cigarettes anywhere in the United States. Neither had it conducted research with respect to tobacco products or any other goods or products sold or intended for sale in the United States, including Minnesota. It had no offices, or even a telephone number in the state. There were no direct contacts of any kind, the BAT lawyer argued.

  Unhappily for BAT, Ciresi put Roberta Walburn on the case. The former newspaper reporter was expert at following corporate paper trails. Walburn unraveled what she would eventually describe to the court as BAT’s “attempt to engage in a corporate shell game”; distancing itself from its American subsidiary, Brown & Williamson, through a complex succession of corporate intermediaries.

  BAT Industries is a multinational corporation whose corporate pedigree goes back to James Buchanan “Buck” Duke, the founder of the modern cigarette industry. His family—the Dukes of Durham, North Carolina—had started selling snuff tobacco after the Civil War under the ingeniously misleading brand name of Pro Bono Publico. By the turn of the century, having created a cigarette monopoly in the United States with the American Tobacco Company, Duke went to England and joined forces with the Imperial Tobacco Company. In 1902, they created the British-American Tobacco Company Ltd., which became known as BATCo, or simply BAT.

  Under the merger, the companies on each side of the Atlantic agreed not to compete for the other’s domestic market and assigned brand rights to each other for home sales. Duke’s operation in the United States violated the Sherman Antitrust Act and, in 1911, the U.S. Supreme Court declared his American Tobacco Company to be an illegal monopoly. He was forced to sell his majority shareholding in BAT and cancel the trans-Atlantic covenants. BAT was thus free to conduct business all over the world and in 1927 the company bought Brown & Williamson of Louisville, Kentucky.

  Today, BAT describes itself as “the world’s most international cigarette manufacturer.” The corporate pyramid has BAT Industries at the top, followed by South Western Nominees Ltd., BATUS Holdings, Inc., BATUS Tobacco Services Inc., and Brown & Williamson Tobacco Corp. At the time Walburn did her research, in 1994, BAT was trying to buy the American Tobacco Company, which it eventually did, a year later.

  In 1993, BAT had revenues of $36 billion and sold tobacco products in more than forty-eight countries with profits of $2 billion from tobacco sales. As Walburn would observe sarcastically in court, “Not a bad feat for 164 employees.” She was able to persuade Judge Fitzpatrick that BAT had created “a fact dispute.” The Merrell Williams documents demonstrated that BAT was running tobacco and health research in England and that B&W was paying for it. Far from being a distant parent, BAT appeared to be “inextricably intertwined” with its Kentucky relative.

  For example, in 1963, the chairman of the BAT group board had ordered B&W to withhold scientific research from the U.S. Surgeon General. Later, BAT’s joint attempts with B&W to develop a “safe cigarette” had come to nothing after company lawyers had decided it would be an admission that other types of cigarettes “might be harmful.” Walburn insisted that BAT employed a heavy “hands-on” approach, which was quite enough to satisfy the Minnesota “long-arm” statute, which merely required “minimum contacts.” Such minimum contacts were said to exist wherever a nonresident defendant had “purposefully availe
d itself of the privilege of conducting activities within the jurisdiction.” Actual physical presence—an office, a phone number—was not required under the law. Walburn argued that BAT sold cigarettes in Minnesota through its wholly owned subsidiary, B&W, knowing that they would cause adverse health effects in millions of smokers and would result in increased health costs. In the end, the only way to resolve the fact dispute was through discovery of BAT’s internal files, she insisted.

  Judge Fitzpatrick agreed; discovery was needed to resolve the issue. Now, the American companies were not the only target of Ciresi’s widely cast discovery net. The second-largest international tobacco company in the world, BAT, was forced to open the special document warehouse in Guildford, south of London, and give Ciresi’s team access.

  They began their great voyage of discovery with a blanket request for all company records—the U.S. industry’s and BAT’s—on scientific research, safer cigarettes, nicotine addiction, and tests for tar and nicotine levels. For once, said Professor Daynard of Northeastern University Law School, there was a chance of finally “leveling the playing field with the companies.”

  * * *

  MUCH DEPENDED ON the judge in the case. From the beginning, the Minnesota lawyers realized there would be no snap decisions, no judicial shortcuts to an early trial in the courtroom of Judge Kenneth Fitzpatrick.

  A lifelong civil servant, he started his legal career as an assistant for then attorney general Walter Mondale, who later became a U.S. senator and then vice president under Jimmy Carter. When the Minnesota suit was filed, Fitzpatrick, who was nearing his sixtieth birthday, had been on the bench for twenty-two years. He was the state’s chief judge.

  In contrast to the spiraling demands of the lawyers on both sides, his courtroom style was conservative and cautious. As each discovery request was met with the obstructive maneuvers for which the industry had become well known, Fitzpatrick’s patience was sorely tried. Five of Fitzpatrick’s rulings were appealed, three of them on matters of discovery, and each time the arguments were more contentious than the last. All five appeals were upheld, but the pressure on the judge grew.

  Fitzpatrick’s answer was to allow the lawyers considerable latitude in making their arguments, chiding them only when absolutely necessary. “The court is not impressed with any chippy comments,” he told the lawyers when a session threatened to get out of hand. And another time, rather than reprimanding the two contestants for their increasing hostility, he said, “I would hope … that all counsel will perform with dignity and respect for each other.” He insisted that the tone of the courtroom remain serious at all times. “I assure you, throughout the entire proceeding I will not use or make any reference to the smoking gun,” he said, adding, “I find it a very unappealing pun.”

  Minnesota was lucky in one key respect, however. Fitzpatrick was a computer buff and made notes on his laptop at the bench. Convinced that computers are an integral part of complex modern litigation, he came up with two key solutions to handling the mass of paper being produced. From the start, he ruled that all motions, briefs, and submissions should be filed electronically. Second, he ordered the creation of a single document depository in Minneapolis for all U.S. company documents. The industry had wanted to set up nine different document centers in nine different parts of the country to represent the nine tobacco company defendants—a solution that would have made it far more arduous and expensive for Ciresi’s team.

  In one of his early rulings, Fitzpatrick gave the nation’s antitobacco forces what could have been a powerful weapon. He allowed other lawyers in the Third Wave access to the documents found by Minnesota—providing that the judges in their own lawsuits issued so-called protective orders similar to the one he had imposed on the Minnesota lawyers: Fitzpatrick had ruled that any document placed in the common depository was not a public document; it could not be released to the media until used as evidence in trial. The judge’s order meant that the Castano lawyers or Motley’s group or the lawyers from the other states could send their own teams to help Minnesota with the grueling task of sorting out the important documents from the mass of irrelevant paper.

  But for many months none of them came and, in the end, out of the thirty-nine states that would eventually file suit, only Connecticut and Washington lent a hand. “The rest just sat back and waited and then copied the 1 or 2 percent that we had copied,” said Roberta Walburn bitterly. Motley’s view was that Fitzpatrick’s protective order was too restrictive. In his guerrilla operation, the only good document was one you could give to the media and use to score a propaganda point. The other, perhaps overriding reason, was that none of the Southern lawyers wanted to be associated, in any way, with Ciresi’s operation.

  As it turned out, the method benefited the tobacco companies—as they had, of course, known it would. They provided the list of documents selected by Ciresi’s team from the two depositories, and the other lawyers selected what they wanted from the Minnesota list. “The tobacco companies played people’s laziness against themselves,” was how Walburn put it. “In litigation like this it’s beneficial to the plaintiffs to have different lawyers review the documents.”

  At the same time, the industry took every opportunity to make the discovery process as burdensome as possible for the plaintiffs. Documents were copied and sent out in unnumbered boxes, not in chronological order, and with the list of the documents that Ciresi’s team had selected in every possible computer format, with each tobacco company using a different word processing system. In some cases, chunks of data were missing; the plaintiffs never knew whether this was intentional, or if there were viruses on the disks. In Minnesota, Ciresi had his computer staff working seven days a week for two years to keep up with unraveling the data so that it made sense.

  Although Fitzpatrick’s order meant that none of the documents could be made public before the Minnesota trial, there was one important exception. If a document was used as an exhibit in arguing a motion in court, it was automatically public unless sealed by the judge. In this way, Ciresi’s team would make public several key documents, playing their own role in the barrage of propaganda against the industry.

  * * *

  IN MAY 1996, the Minnesota lawyers made headlines with one such document, an R. J. Reynolds research report from 1973. The memo was stamped “SECRET” and written by Claude Teague, assistant research chief at RJR. In those days, Reynolds had been wondering why Philip Morris’s Marlboro cigarettes had become so successful, eclipsing Reynolds’ most popular brand, Winston. Reynolds scientists had taken apart a Marlboro cigarette to see what it was made of. They found that while Marlboros delivered about the same amount of nicotine in the smoke as Winstons, more of the Marlboro’s nicotine was “free,” or volatile, which meant it was more easily assimilated into the bloodstream of the smoker. The reason, the RJR scientists found, was that Marlboro cigarette smoke was more alkaline than Winston’s.

  For some years (as Dr. Kessler at the FDA had discovered), the tobacco companies had known that as the pH, or acid-alkali value, of tobacco smoke increases and becomes more alkaline, an increasing proportion of the nicotine in the smoke occurs in the “free” or volatile form and is absorbed more quickly by the smoker. If the smoke is acid, the nicotine combines with acidic substances, becomes nonvolatile, and is absorbed relatively slowly by the smoker. Teague concluded in his memo that Marlboros could be “expected to show more instantaneous nicotine ‘kick’” than Winstons.

  The memo was important evidence in addiction cases, such as Castano, because it indicated manipulation of nicotine levels. Professor Daynard called the memo a “smoking gun,” using Judge Fitzpatrick’s least favorite pun. R. J. Reynolds dismissed it as preliminary research that proved to be incorrect, but it still left Philip Morris with some explaining to do.

  Ciresi’s team also focused on the possible destruction of internal files. As Roberta Walburn scanned the industry’s lists of so-called privileged documents, she became increasingly aware
that there was, as she would say, “point-blank evidence of document destruction.” In a motion to Fitzpatrick, she complained, “In a typical lawsuit even one instance of intentional document destruction is cause for alarm. In the present case, however, initial discovery has revealed an extraordinary array of evidence of destruction. Much of [it] is remarkably explicit.” Among the evidence, Walburn cited Philip Morris’s use of third parties to maintain their documents “apparently to preclude discovery.”

  Walburn even argued that some of the companies seemed to have a “pervasive philosophy” of suppressing or destroying potentially damaging documents. As an example, she said, Philip Morris had apparently taken steps to destroy documents at its biological research lab in Cologne, Germany. This facility, known as INBIFO, was once a private laboratory but had been purchased by Philip Morris in the early 1970s. Over the years, Philip Morris had used INBIFO for extensive—and sensitive—scientific research. In fact, Philip Morris had regarded the German research center as a place where, as one internal company memo put it, “we might do some of the things we are reluctant to do in this country.”

  During her review of papers produced by Philip Morris, Walburn had discovered a handwritten note, with no author or date, in the files of Thomas Osdene, the company’s director of research from 1969 to 1984, that discussed both the destruction and the unusual routing of INBIFO documents. It read:

  Ship all documents to Cologne …