By John Schwartz
Washington Post Staff Writer
Tuesday, May 5, 1998; Page A09

The tobacco industry has tentatively agreed to pay Minnesota $5 billion to settle the state's lawsuit -- but the possible settlement remained tenuous, sources said yesterday.

Settlement talks involving major tobacco companies, the state and its partner in the suit, Blue Cross and Blue Shield of Minnesota, have intensified in the past two weeks as the case has wound down. Barring a settlement, the case could go to the jury as early as Thursday.

While major parts of the settlement remained unresolved, the basic elements include a $5 billion payout to the state over 25 years and about $400 million to be paid to Blue Cross. The companies also would consent to two permanent injunctions, enforceable by the state attorney general, prohibiting tobacco marketing to minors and anti-competitive activity by the industry.

The tentative settlement also calls for the industry to shut down the Council for Tobacco Research, the industry's scientific arm and a focus of the state's contention that the industry fraudulently manipulated science to raise doubt about the link between smoking and disease.

Many of the details were revealed yesterday by the St. Paul Pioneer Press. A source familiar with the negotiations confirmed the details, though some parts could still shift.

"There ain't no done deal," said Eric Johnson, an aide to Minnesota Attorney General Hubert H. Humphrey III. Humphrey's office historically has refused to comment on the status of negotiations, saying such rumors undermine the state's efforts and serve the tobacco industry's interests. Yesterday, Humphrey issued a brief statement that the case "has always been about achieving our goals -- banning the marketing of tobacco to kids, exposing the full truth to the American public and forcing the tobacco industry to pay fully for the harm it has caused."

Scott Williams, a spokesman for the industry, declined to comment on the state of negotiations yesterday.

Humphrey, who is running for governor, has mounted an immensely complex case based on thousands of internal industry documents. Minnesota's has been considered the strongest of the 41 state suits that have been filed against the tobacco industry.

Juries historically have found for the industry in tobacco cases, and are reluctant to reward smokers for their decision to take up the habit. But the Minnesota case, like other state cases, isn't about the smokers but about the money that the states had to pay to cover tobacco-related health care costs. (And like many others, the Minnesota case claims fraud and other misdeeds by the industry.)

The novel argument that the state should be reimbursed for these expenses even though it had nothing to do with smokers taking up the habit has never reached a jury. The largest-ever jury award in a tobacco case, $750,000, could be dwarfed by an industry loss in Minnesota, encouraging more lawsuits.

The industry initiated the new round of talks. Cigarette makers are fighting proposed national tobacco legislation in Congress. A loss in Minnesota could damage the industry's position.

The industry previously settled three other state suits -- those brought by Mississippi, Florida and Texas -- shortly before they went to trial, for about $30 billion.

The payment of legal fees in the Minnesota case -- a controversial element of the other state settlements -- has yet to be worked out.

Mississippi Attorney General Michael Moore, who filed the first state suit against the industry in 1994, said settlement is "the smartest move" for Humphrey. "It's a sure win." Because juries and appellate courts are unpredictable, Moore said, Humphrey "can claim he did what he set out to do -- settle his case and put the money in the bank."

Jurors in the Minnesota case yesterday heard from the last defense witness, and today the jury will review a final cache of documents presented by both sides.