The Fall of Big Tobacco
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  Small-Town Blow Exposed Cigarette Industry's Soft Spot

Second of three articles

By John Mintz and Ceci Connolly
Washington Post Staff Writers
Monday, March 30, 1998; Page A1

PASCAGOULA, Miss. – Dickie Scruggs had the tobacco industry just about where he wanted it in the spring of 1996. A small-town lawyer with a reputation for winning money from large companies, Scruggs helped concoct a new kind of lawsuit against Big Tobacco that had panicked the once-invincible cigarette companies. Then, sensing his opponent's desperation, Scruggs placed a telephone call to another hometown boy he thought could help close the deal.

"You might think this is crazy," Scruggs said he told his brother-in-law, who happened to be the majority leader of the U.S. Senate. "Would you be an intermediary to the tobacco industry to see whether they would talk about a resolution of these lawsuits? You're someone they could trust and who I trust."

Trent Lott said he'd get back to him, but added tartly, "You know what I think of your lawsuits."

Lott spends most holidays sipping drinks around Scruggs's pool, and the two men's wives are so close they're known as the Thompson twins, even though they were born years apart. Scruggs and Lott are said to be fond of each other as well, but Scruggs, a liberal Democrat, and the conservative Republican Lott generally avoid political debate, friends say.

But within days, Lott phoned the chief executive of RJR Nabisco Holdings Corp., then contacted some Washington political consultants. Soon he had his intermediaries shuttling between the company's New York headquarters and Scruggs's clients, a half-dozen state attorneys general. Early maneuvering evolved into formal negotiations – led by Scruggs's best friend, Mississippi Attorney General Michael Moore. Those ended on June 20 in a historic settlement of tobacco litigation, under which the industry agreed to pay the eye-popping sum of $368.5 billion, if Congress and the president ratify it.

The story of how Big Tobacco came to grief at the hands of a band of crafty lawyers, and then was rescued by them, is in many ways a buddy movie about two old classmates from Ole Miss law school who call each other "Mo" and "Scro." It began in this Gulf Coast shipbuilding town in 1994, when Scruggs and Moore filed a lawsuit in the state's name against the cigarette industry before a sympathetic judge in a courthouse down the street.

The story moved to Capitol Hill, the temporary neighborhood of that other son of Pascagoula, Trent Lott. The majority leader has recused himself from voting on legislation arising from the June 20 deal. But chances are good, congressional officials and lobbyists said, that Scruggs's brother-in-law will eventually weigh in to support a deal akin to the one reached last June. Lott will do so, they believe, because when all the speeches are over, it is good politics for the GOP to expunge its reputation as a tobacco front by voting for a deal that curbs the industry. Which Scruggs knew when he called on Lott in the first place.

While they started as the industry's enemies, Scruggs and Moore now have a vested interest in helping the tobacco business get the deal approved by Congress, which plans to take up the legislation in earnest this week. Tobacco executives, knowing they themselves are mistrusted, partially rely on Scruggs and Moore to lobby for the deal, and the pair have flown to Washington once a week since summer. The telegenic Moore, as spokesman for 40 attorneys general, and Scruggs, representing dozens of law firms that filed the states' tobacco lawsuits, represent a potent constituency both in terms of politics and campaign contributions.

Based on three months of grueling negotiations with cigarette executives last year, Scruggs and Moore believe this deal is the best anyone can get. The concessions the industry wants – mostly protection from some lawsuits – don't amount to much, they say, since so few anti-tobacco lawsuits have ever succeeded. And even if a few more concessions could be wrung from the companies, the pair argues, Congress should embrace the deal and immediately start to reduce youth smoking – 3,000 kids start puffing each day now – rather than be delayed by politics or dreams of a perfect settlement.

Of course, Scruggs stands to gain huge legal fees – up to $1 billion. But he says he's not in this deal for the money. Or, not just the money. In many ways, the giant tobacco settlement is Scruggs's deal.

A millionaire from his days suing asbestos firms, Scruggs in the mid-1990s became the behind-the-scenes general of the anti-tobacco movement, appearing ubiquitously on the fringes of news conferences, court hearings and photo ops wherever tobacco's enemies huddled.

Scruggs paid $5 million to finance the state of Mississippi's trailblazing lawsuit. Then he and Moore persuaded 39 more states to file similar actions. They also nurtured industry whistleblowers, worked closely with public-health activists and swapped data with Food and Drug Administration officials seeking to regulate tobacco for the first time.

Scruggs formed a strategy with Dick Morris, at the time President Clinton's political adviser, to convince the president that it was politically safe to crack down on the cigarette companies. When Morris needed poll data to back him up at a crucial point, Scruggs wrote the check to pay for it.

Finally, Scruggs was the first anti-tobacco player to push the industry to the bargaining table. Some industry lawyers believe Scruggs, 51, whose short gray hair and lock-on eye contact recall the Navy carrier pilot he once was, has been the anti-tobacco movement's most brilliant operative.

"Scruggs was the other side's tactician, engineer, their politician," said an industry attorney. "He was entirely underrated by us. But the fact he initiated the settlement talks shows he has a big view. Scruggs was the only one who saw all the sides would be gathered around the table."

Now he just has to keep them there.

Making the Case

Mississippi attorney Michael Lewis hit upon the idea for a new kind of lawsuit that would terrify the tobacco industry after he visited a coronary ward, and he refined his legal strategy before the elevator reached the ground floor.

It was May 1993, and Lewis was visiting his secretary's mother in a Memphis hospital for the last time. The woman, at 50, was dying from heart disease brought on by 35 years of smoking. The treatment left her penniless, so Medicaid paid $1 million more for her last operations. The daughter asked Lewis about suing the tobacco industry, but Lewis said it was useless. Dying smokers or their families had filed 800 such lawsuits, but juries always found smokers bore responsibility for lighting up.

Then on his way out, he was startled by an idea: The state of Mississippi, not sick smokers, should sue the companies. After all, the state never inhaled a puff, but its Medicaid program bore the costs of caring for sick patients.

"I knew immediately it was a way to deny the industry its traditional defense," Lewis said.

Lewis laid out his idea to two University of Mississippi law school classmates, Moore and Scruggs, who took it one step further: to square off against the industry's notoriously tenacious legal defenses, the state would subcontract to private attorneys skilled in such cases. And they would make sure the battle stayed on their home turf – a strategy Scruggs called "home cookin'."

"We wanted that insular advantage," Scruggs said. "We spent a year trying to think as diabolically as the industry. ... We knew it would be a public relations war and a political war every bit as much as a legal fight."

Scruggs hired Morris – a onetime political consultant to Clinton and Lott – to poll potential juries on the strategy of suing to recover Medicaid costs. But the results were disappointing – Mississippians reacted against such a lawsuit, by 2 to 1.

So they filed their case in Chancery Court, where most cases are heard by judges, not juries. A throwback to English common law that survives only in a few states, chancery court is usually the province of divorce cases and truancy complaints. Because of its peculiar legal rules, chancery court offered Scruggs another benefit: He could demonstrate the health toll of cigarettes by using gross statistics, instead of the burdensome task of providing evidence on every single smoker's ills. That denied the industry its most valuable defense.

Despite Scruggs's planning, he and Moore still thought that their case was a long shot with a shaky legal foundation, and that the industry would bury Moore with campaign donations to his opponents.

"I was convinced when I filed it that it was going to be my last political act," Moore said.

Moore and Scruggs filed their lawsuit on May 23, 1994, in a shabby courthouse set in a former grocery store here. Then they took to Scruggs's Lear jet to recruit other attorneys general to file similar suits. The tobacco lobbyists were close behind, quoting industry polls skewed to show the unpopularity of anti-cigarette lawsuits and threatening political retribution for those who followed Moore.

Moore and Scruggs also took legal risks enlisting the help of a number of cigarette industry whistleblowers whose documents revealed many of the businesses' most sensitive secrets.

One whistleblower was Merrell Williams, who had been a $9-an-hour paralegal for a Louisville law firm representing Brown & Williamson Tobacco Corp. Over time, he smuggled out 4,000 pages showing the firm hid evidence of smoking's dangers and addictiveness. After he left, the company secured a restraining order barring him from releasing the papers. Scruggs then bought Williams a $109,600 home nearby, a $30,000 sailboat and two cars. Industry lawyers said it was improper help for a thief who broke a judge's order to keep the papers secret. But Scruggs prevailed, and a medical journal devoted an entire issue to the documents.

Scruggs's timing couldn't have been better. As his case proceeded, cigarette executives were starting to fear the future. Internal industry polls revealed that an overwhelming majority of Americans, approaching 80 percent, deeply mistrusted the companies. "The tobacco companies are seen as all darkness," said an industry pollster, summing up the surveys. "They finally understood they couldn't keep things from happening."

Company officials have said they decided it was only a matter of time before judges or juries punished them with multibillion-dollar judgments, sparking yet more runaway verdicts and, perhaps, bankruptcy.

Class-Action Roots

Dick Scruggs hasn't always owned yachts and a Lear jet. He grew up on the edge of poverty in Pascagoula, raised by his mother, who had divorced her husband when Dick was 6. She later went to work as a secretary for the town's biggest employer, Ingalls Shipbuilding, builder of many of the Navy's warships.

Scruggs enlisted in the Navy, serving as a pilot flying A-6 Intruder bombers and almost making it a career. Instead he went to law school, joined a big firm in the state capital of Jackson and soon grew bored defending insurance firms. He brought his family back to Pascagoula, a town of 26,000 people and a one-story skyline dominated by shipyard cranes. He opened a solo law practice and in 1984, he took on as clients some Ingalls workers who had trouble breathing. Tests showed they suffered from exposure to asbestos, and soon he had hundreds of shipyard clients suing the firm whose paychecks once supported his family.

Scruggs learned tactics then that have served him well in the tobacco wars. He spent money up front to earn a lot more later, and instead of going to trial, he negotiated settlements in most of the hundreds of cases he filed. Since then, he's raked in about $1.5 million a year.

Scruggs said he didn't enter the tobacco lawsuit for money – his 10-attorney firm is still housed in a modest storefront – but for the competitive challenge of besting an industry that had escaped accountability.

"I had a growing compulsion to take tobacco on," Scruggs said. "You just couldn't let them get away with it."

The tobacco lawsuit appealed to Attorney General Moore's itch to upend the powerful too – what a friend of Moore's calls his self-image as "St. George slaying the dragon." After the suit was filed, the friend was visited by tobacco lawyers. "I laughed and I told them, 'He's going to beat you.'"

Moore, 45, exudes an aw-shucks southern populism combined with the power to electrify audiences. A former altar boy and Eagle Scout, he has always radiated a straight-arrow earnestness, with the exception of his fondness for the media spotlight. Critics call him "Flashbulb."

He's also well acquainted with ambition. Moore had been an assistant district attorney all of three years before running for his boss's job. He won, becoming Jackson County D.A. at age 27. He made a name for himself exposing corruption in the local political machine, eventually securing convictions or guilty pleas from four of five county supervisors.

A congressional endorsement of the deal he helped broker could send him further – perhaps launching a run for governor, as has been rumored in Mississippi.

Backwoods Battle

Industry lawyers were pleased when the lawsuit was handed to Judge William Myers because he had been named to the bench by Moore's nemesis, Republican Gov. Kirk Fordice. But all they really knew of Myers was that he was a heavyset Civil War buff with short-cropped gray hair, a nonsmoker who swam most days at the local YMCA. Their joy was short-lived.

Every third Tuesday each month, Myers heard tobacco motions. Industry lawyers flew in from around the country to sit on plastic chairs and await their turn to step up to a makeshift lectern to argue their points. Myers rarely asked questions, and often simply left without a word.

The tobacco lawyers didn't have a clue what was on the judge's mind until they received his rulings in the mail. They were almost all one-sentence statements and read the same way: overruling the industry and sustaining the state.

"Our jaws would drop," said one industry lawyer. "We'd pick up the phone and say, 'What in the hell is he up to?' " Then they would report the bad news to their tobacco clients – Scruggs had won again.

Cigarette executives say the industry's legions of big-city litigators were flummoxed by the Mississippi case. "These $500-an-hour company lawyers didn't understand small southern towns," said one tobacco industry attorney. "They were bamboozled."

History was being made by an overworked, inexperienced judge without a law clerk, who also kept up his full docket of probate disputes, land squabbles and juvenile delinquency cases. And the industry's luck didn't improve when it appealed Myers's rulings to higher courts.

When on March 13, 1997, the Mississippi Supreme Court found against the industry on every motion – including Fordice's assertion that Moore had no authority to file the suit – Philip Morris's stock sank 8 percent. The ruling meant the only issues at trial were whether the industry was improperly enriched by selling a dangerous product and how much the state should be repaid. Wall Street saw that a billion-dollar-plus ruling might release spasms of like judgments.

A lawyer representing the state said that as the trial date approached, Moore and Scruggs mounted a whispering campaign within the tight Pascagoula legal community suggesting that Judge Myers had already typed up a favorable decision.

True or not, industry executives acknowledged that they broke into cold sweats thinking of the judge and his homeboys. Its faith in its legal prowess shaken, Big Tobacco was now eager to deal.

Defending the Deal

Last May 28, taking a break from intense tobacco negotiations in New York, Moore flew to a hotel outside Chicago to address a ballroom of health advocates. Expecting a warm embrace from his allies, he was stunned when he spotted hundreds of "No Moore Sellout" buttons.

"Look, I'll wear one, too," Moore said, grabbing a button in an attempt to disarm his critics. For several hours, Moore heard a barrage of complaints from people who had dedicated their lives to wiping out Big Tobacco and now feared a sweetheart deal was being cut in fancy law offices.

From the start, Scruggs and Moore had courted the movement's leaders, who received the pair as heroes with the clout to humble the nicotine merchants.

The Mississippi duo was unprepared, then, when the anti-cigarette movement bitterly split over their negotiations with the industry. One side, including the Campaign for Tobacco-Free Kids, the American Medical Association and the American Cancer Society, supported a deal as a way to take immediate steps to curb youth smoking. Others, including the American Lung Association and many people in the Chicago ballroom, said any deal tobacco embraces must be shunned.

"Scruggs and Moore deserve credit for coming up with the idea for the suits and having the guts to file them," said Stanton Glantz, a San Francisco health researcher and leading skeptic of the deal. "But Scruggs decided his economic interests were with the industry, and Moore did also, given his political interest. Those aren't the interests of the health community."

Some Democratic members of Congress sympathetic to the health groups agree and are skeptical of Scruggs and Moore as they work the halls of Congress on behalf of the deal.

The two staunch Democrats also have limited influence with Republicans dubious about the legal fees that the deal would generate. To some in the GOP, Scruggs is the beneficiary of a venal gang of liberal, mostly Democratic attorneys general who carved out no-bid contracts for their big-donating, trial lawyer buddies.

But Scruggs and Moore aren't without options. They rely on Republican attorneys general to lobby GOP congressional leaders. California Attorney General Dan Lungren, whose state would receive tens of billions of dollars, lobbies a friend from his years in Congress, House Speaker Newt Gingrich (R-Ga.). Arizona Attorney General Grant Woods works on home state Republican Sen. John McCain.

Every other Tuesday, Scruggs and Moore meet tobacco lobbyists in the Washington office of an industry law firm, Arnold & Porter. The participants recount the news from Congress, but the two sides don't coordinate efforts – a recognition that they may soon return to the courtroom as adversaries if the agreement dies.

Yet, for all the energy they've put into the deal and all the motivation they have to make it work, Scruggs, Moore and their tobacco allies know that it is now largely out of their control. They are left hoping some maximum leader will convene a back-room gathering of congressmen, senators and White House aides to work it all out.

"This part could be called waiting for Clinton," said an industry representative. "Or waiting for Lott."

NEXT: How the White House decided that Big Tobacco was beatable.

© Copyright 1998 The Washington Post Company

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