Scruggs was told he was duck hunting on the Chesapeake Bay with his Louisiana buddies, Calvin Fayard and Mike St. Martin—and Tommy Boggs, a well-known Washington lobbyist for the tobacco industry. They were at a tobacco-industry playground called Tobacco Stick Lodge. Scruggs couldn’t believe what he was hearing. What was Gauthier doing spending a weekend with Boggs?
According to Gauthier, Scruggs tracked them down at the lodge, finally getting through and announcing that he was flying in to join them. (According to Scruggs, he didn’t “track down” Gauthier. “Wendell got word from the hunting lodge that I had been calling, and he called me back. I thought it was just typical Wendell.”)
“But Dicky, you can’t come down here, this is a social weekend,” Gauthier told Scruggs. In fact, there were no “talks” with Boggs, but Gauthier mischievously left open the possibility there might have been.
Exasperated, Scruggs asked when Gauthier would be back in New Orleans. “Well, I’m getting home late on Sunday. How about Monday?” They agreed to meet.
The meeting was frosty. Scruggs asked Gauthier to drop Coale’s “Three Wise Men” concept; the plan with Sears and Anderson had the cooperation of all the other parties and he didn’t want to upset it. Gauthier held his ground; whatever Scruggs was doing would not interfere with what he was doing, and since he didn’t know exactly what Scruggs was doing, he didn’t see any point in stopping the Castano group’s initiative. Scruggs quickly regrouped, suggesting that the two camps join forces. “It’ll be fifty-fifty,” Gauthier remembered him saying. “Dickie would swear to us a hundred times that it would be fifty-fifty and backed out of it every time,” Gauthier said later.
Scruggs flew back to Pascagoula. Gauthier then set up a conference call that included John Coale. According to Coale, “The call got a little heated. Scruggs said the real problem he had with the Castano group was that the attorneys general didn’t like the idea of joining forces with the Castano lawyers. They claimed their cases were stronger—and they had real, easily quantified Medicaid expenses to recoup. The Castano lawyers were only in it for the money. He mentioned Ciresi had said we were terrible people.”
This time, it was Coale’s turn to erupt. “That Ciresi. He’s a good lawyer, but as a person he’s a piece of shit,” he recalled saying.
According to Coale, Scruggs also said he was under pressure from Trent Lott to come up with a deal. “The theory was that if they could come up with something that might be acceptable to the industry, they would ram it through Congress and it would be a done deal,” said Coale. “I always thought that was extremely unrealistic because it doesn’t happen like that in the real world, other agencies would have to be involved, the FDA, the health groups, and, of course, the White House.”
* * *
NONETHELESS, from this point on the Castano team would be part of the secret talks. Relations between Scruggs, the attorneys general, and the Castano lawyers would always be tense, however. In one confrontation, the seemingly unflappable Scruggs would throw up his hands in despair and say, “We’ll do this without you.” But Coale claims he came to the rescue: “Don’t walk, Dicky, we can sort it out. I’ll deliver the boys.” He talked Scruggs into keeping the team together, but to placate the Castano lawyers they had to stage a “reconciliation.” Scruggs and Coale agreed that Moore would pretend to make a special trip to Florida to see Rodham and patch up the quarrel. They did meet but Moore was going anyway and the issue had been resolved beforehand. “The meeting was basically a showpiece,” said Coale. But it worked. The team was back together again.
Over the next few weeks and into the new year of 1997, a small group—essentially Scruggs, Moore, Coale, Russ Herman (from New Orleans), and Rodham, and occasionally Matt Myers—met at the ANA hotel in Washington. Another draft was completed. The message via Sears was that the industry was now prepared to raise the ante—$250 billion over twenty-five years—plus make concessions on marketing and basically follow the FDA rules without FDA regulation. In return, they expected full immunity from lawsuits.
In February, Mike Moore went to the White House to meet Bruce Lindsey, who, as presidential counsel, had been assigned the role of presidential liaison. Coale and Rodham were there as well. Coale recalled that Moore was “very self-assured, like he is everywhere. He was shaking hands with everyone. He’s a great politician.”
Throughout the discussions there was no direct contact with the tobacco companies. Instead, R. J. Reynolds arranged for another message carrier: J. Philip Carlton, the son of a tobacco farmer, a country lawyer, and a close friend of the key tobacco state’s governor, North Carolina’s Jim Hunt. Carlton’s appointment emphasized the increasing importance of contacts with the White House. He had helped run the gubernatorial campaign of Hargrove Bowles, father of President Clinton’s chief of staff, Erskine Bowles. The dapper Carlton, with his natty suits and pocket handkerchief, would become a fixture in the negotiations and an important referee during the final stages of the talks. A further indication of the industry’s increasing interest was the hiring of the influential Washington law firm of Liifert, Bernhard, McPherson and Hand to begin talking up the benefits of a settlement in Congress. One of the firm’s partners is George Mitchell, the former Maine senator and Democratic majority leader.
In March, the enterprise received an added boost from the second Liggett settlement. At first, Scruggs had doubts about making a second deal with LeBow. He simply didn’t think that the “privileged documents” that LeBow was now offering in return for a broader settlement could be as important as LeBow, and others, said they were. Like Gauthier, Scruggs felt there was already enough evidence against the industry. As he had said when he first looked at the Merrell Williams documents, “These guys are toast.” (As it turned out, Scruggs and Gauthier were right; the documents that were released, at least initially, did not add much to the weight of evidence.)
But Scruggs’s real concern was that Philip Morris and RJR would hear about the new negotiations with LeBow and that would affect his settlement talks. “I thought it would crater my discussions,” is how he would put it, using a bomber pilot’s term for wrecking an airfield runway. But finally, Scruggs gave in: “We decided, in the end, it was a good insurance policy that really had no downside. LeBow was willing to produce these documents; so what if they’re not great? He’s not getting much out of it—except a promise for not being burned during a national settlement.” That clause would come back to haunt LeBow and Scruggs. Essentially, LeBow wanted to make sure that in any national settlement, his tiny Liggett company would not have to pay more than he had agreed in his own settlement. Otherwise, his company would simply go bust. The clause in the second Liggett deal said the attorneys general would make their “best efforts” to ensure Liggett was not harmed. It didn’t quite turn out that way—at least as far as LeBow was concerned. But far from hindering Scruggs’s talks, the Liggett deal actually spurred them on. “It raised the level of the debate and energized Governor Hunt to get onto the White House and the president and get things moving,” Scruggs said later.
* * *
THOSE BEHIND-THE-SCENES TALKS between Scruggs, Moore, and the Castano team were about to take a decisive turn. The Castano lawyers had always been edgy about Scruggs’s control of contacts with the industry through Sears. They had suggested direct talks with the industry, but Scruggs would not hear of such a thing. All along he had insisted on no direct talks; he did not want to be in a position of asking the industry for its agreement. He preferred to keep sending them his “term sheets” and getting their reaction. His idea was that once the draft of the proposal was in good enough shape to become a bill, it should be sent directly to Congress.
But before anything went to Congress it had to be approved by the White House, and the president wanted the two sides to meet. Backed by the White House, the Castano group started to insist on meeting directly with the CEOs—to show good faith. Still, Scruggs wouldn’t budge. “Scruggs always thought he could get this
thing done next week—I suppose through his brother-in-law,” said Coale, “but if Bruce Lindsey told me we had to have direct talks with the industry, then we had to have direct talks. There was no choice. We spent two weeks trying to convince Scruggs and Moore.”
Phil Carlton also tried to persuade Moore to accept direct talks, but he said no as well. At one point, Carlton even suggested to Lindsey that if Moore couldn’t accept the talks, then he should be bypassed and they should look for another leader of the attorneys general. “There are plenty of other AGs who will come if we arrange it,” he said. Coale, who happened to be in Lindsey’s office at the time of the call, objected. Moore was the obvious, and only real leader of the attorneys general group and should not be cast aside, under any circumstances.
Finally, at the end of March, Moore agreed—on two conditions. Goldstone of RJR and Geoffrey Bible of Philip Morris had to attend the first meeting. The meeting was set for April 3. George Mitchell personally called Matt Myers to invite him to attend; the White House said he was “an essential player.” Myers agreed.
* * *
BY ACCEPTING THIS DANCE with the devil, Myers had put himself in a position of inevitable compromise. From that moment, Myers became the official negotiator for the health groups and would always claim that he had the “confidential” backing of the heart and lung associations. For a man who had once described industry leaders as lacking a “moral gyroscope,” it was not an obvious transition—especially since he had also been one of the harshest critics of earlier efforts to produce a settlement. Myers had told friends in the antitobacco movement that he was worried a deal now would be selling out to the companies—and, worse still, he said, that Scruggs had no idea what he was giving away. “Why should the tobacco industry be immune, given the harm they’ve caused?” Myers had asked then. Through the end of 1996 and the beginning of 1997, Myers was telling the White House not to be involved in a settlement—and then boasting to his colleagues about it. Suddenly, there was a pirouette.
Myers’s version is that the White House asked him to join the talks simply because he was the toughest critic. President Clinton’s people said they would have nothing to do with the deal unless he was at the table. Some of his friends found this disingenuous. “So, why didn’t he say no, not unless I have ten of my guys with me and there are free and open communications?” asked one of them. “What happened next was the original smoke-filled room and the negotiations proceeded on the understanding that Myers didn’t get to talk to anyone, but the tobacco people got to talk to anyone they wanted to,” said Dick Daynard.
“Anybody who had studied the public health agenda would have felt compelled to listen,” Myers would say later, adding that not a day would go by when he didn’t “reevaluate his position and swallow another dose of Maalox.” Myers would have one important supporter among the antitobacco forces: Michael Pertschuk, who had worked with Myers at the FTC and had been an antitobacco activist ever since. Pertschuk thought the arrangement worked well. “It’s the perfect inside-outside strategy,” he said. “While Matt is at the table, the health community is free to say: ‘We weren’t at the table. Either you add these critical elements, or we walk.’” In effect, it gave them two chances to present their views.
If he was upset about what he was doing, Myers didn’t show it. Quite the contrary, he seemed to relish his privileged access. Myers had always liked being a Washington insider—and he was good at it. “He was not a believer that there was wisdom in the grass roots, among the great unwashed outside the Beltway, and the industry played to that weakness,” said one veteran antitobacco activist who had come reluctantly to the conclusion that Myers had eventually sold out.
* * *
ONCE THE PLAYERS had been identified, the question was where to hold the meeting.
Gauthier insisted it should be in New Orleans. This was where the first lawsuit of the Third Wave had been filed; this was where the sixty plaintiffs’ lawyers had come together to launch a common attack on the industry. Phil Carlton, speaking for the industry, was ready to agree to New Orleans, but Scruggs and the other AGs wouldn’t allow it. They wanted neutral territory, preferably Washington, a place known for its deals and historic compromises. In the end, they settled for a hotel in Crystal City, Virginia, a severe, unattractive pocket of concrete offices and hotels across the Potomac from Washington and a virtual appendage of the capital’s National Airport. Goldstone and Bible liked the idea because they could fly in on corporate jets and out again as quickly as possible. This was, after all, only a ceremonial appearance.
The hotel room had a square table around which sat attorneys general from six states, including Mike Moore, Grant Woods of Arizona, Bob Butterworth of Florida, and a latecomer, Christine Gregoire of Washington state. Scruggs was with Moore, as always. Coale, Herman, Rodham, and Stan Chesley led the Castano group. Matt Myers sat on his own. On the industry side, Goldstone and Bible were accompanied by their lead lawyers: Herbert Wachtel, who represented Philip Morris and had led the company’s $10 billion libel case against ABC News, and Arthur Golden, of the New York firm of Davis, Polk & Wardwell, represented RJR. “I had to pinch myself—twice,” remembered Coale. “First because I was sitting down with the enemy, and second because this was a long way for me from drunk-driving cases in the D.C. courthouse. I think anyone who was honest with themselves had similar thoughts. It was bizarre.”
George Mitchell opened the meeting, and short speeches by Goldstone and Bible followed. They pledged to bring fundamental change to the industry’s operations and promised to discuss advertising, FDA jurisdiction, financing for antismoking programs, and tight controls on youth access to tobacco. It was mostly ceremonial, according to those present, but Mike Moore warned them that he expected results. “Don’t waste my time,” he said defiantly.
After two hours, other sessions were arranged and the meeting broke up. The negotiations became a ten-week marathon of hectic shuttling between Chicago, Dallas, New York, and Washington. They would be intense and exhausting, each side threatening on several occasions to walk out.
Even so, Bible and Goldstone would be hailed as the new breed of tobacco “deal makers,” realists who were finally prepared to admit the dangerous nature of cigarettes and take action to stop them from ravaging the public health, especially the health of American youth. But what the industry sought was financial stability. During the company’s annual meeting in Richmond, Virginia, Bible of Philip Morris had met with a group of investors and had confirmed what the companies already knew: they were very upset about the fits and starts in tobacco stocks over the past two years. While increasing steadily, stock prices had reacted violently to each news item about Third Wave lawsuits. The shareholders were especially shocked at the $12 billion drop in value of the company’s shares a few hours after the Grady Carter verdict in Jacksonville the previous August. More recently, each time word of a settlement leaked, cigarette stocks jumped. The industry could no longer ignore investor demand for the financial stability that a settlement would, in theory, bring—regardless of the price that had to be paid. Between August 1996 and May 1997, Philip Morris shares had increased over 60 percent. In the same period, BAT jumped 39 percent and RJR 43 percent. Even in a raging bull market, these figures were extraordinary. For the companies, there would be no turning back.
The talks were now on a more urgent footing—especially after some details of the April 3 meeting appeared in The Wall Street Journal. As the negotiators returned to the table, this time in Chicago, the pressure of the lawsuits was mounting on the industry. Courts were disallowing standard tobacco defenses and permitting the new legal theories behind the Medicaid suits to go ahead. In Pascagoula, the judge in Mississippi’s suit rejected the industry’s ghoulish “death benefits” defense, which claimed an “offset” for smokers dying early. Antitobacco forces continued to uncover embarrassing documents and were even beginning to break down the protective layers of legal privilege that had kept the truth about th
e tobacco enterprise from public view for so long.
By the end of April, the first Castano class action was certified in a state court in Louisiana. But the big shock for the companies was Judge Osteen’s ruling in North Carolina: the Food and Drug Administration, he found, did indeed have the power to regulate tobacco as a drug. Despite his tobacco connections, Judge Osteen rejected the industry’s arguments opposing FDA jurisdiction. He did, however, rule that the agency could not impose controls on tobacco advertising. His decision was based solely on the scope of the Food, Drug, and Cosmetic Act, which does not mention advertising controls, and not on whether the First Amendment permitted such controls.
The ruling was an unexpected triumph for the antitobacco forces. There was “no need for deals” with the industry now, said David Kessler. The FDA could do it all—and the government would fight the advertising exception. For its part, the industry focused on the judge’s denial of advertising controls, but tobacco stocks dropped sharply. Big Tobacco immediately filed an appeal.
Two weeks later, the industry had some good news. R. J. Reynolds won the second of the individual smoking cases being steered through the courts by Florida’s Woody Wilner. After a month-long trial in the same courthouse in Jacksonville where Grady Carter had won $750,000 the previous August, Woody Wilner lost the Jean Connor case. The jury found R. J. Reynolds not responsible for the lung-cancer death of Ms. Connor, who had died at age forty-nine in 1995. Her claim had been continued by her sister, Dana Raulerson, and her three adult children. Although Ron Motley was co-counsel with Wilner, they couldn’t pull off a second win—largely due, it emerged later, to the judge’s severely restrictive instructions to the jury.
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