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Wave of Foreign Tobacco Suits Hits U.S. Shores
By Carrie Johnson
- Legal Times

WASHINGTON -- One might think America's major tobacco companies would be breathing easy in the wake of a $206 billion settlement that would resolve dozens of state suits over smoking-related health care costs.

Not necessarily

'If the federal government can't recover, why should the U.S. courts bend over backward to allow a foreign government to recover?'
-- Tobacco attorney Thomas Frederick

Instead, a passel of tobacco attorneys is busy fending off challenges on new, foreign frontiers.

At least two countries have taken the unusual step of suing tobacco concerns in the United States. The Republic of Guatemala is proceeding in U.S. District Court for the District of Columbia, while Panama has sued in a Louisiana federal court. Other foreign plaintiffs, from the Canadian province of British Columbia to a major health fund in Israel, are suing on their own soil.

Longtime observers say the U.S. settlement proposal could spur an international boom in suits against American tobacco sellers.

"This settlement, whatever you think about it, is very encouraging for other countries," says Richard Daynard, who chairs the Tobacco Products Liability Project at Northeastern University in Boston. "You sue 'em, you put the pressure on, they'll pay."

That's exactly what Guatemala is banking on. Last May, the country became the first foreign nation to sue major tobacco companies to recover health care payouts for its citizens who smoke. But the Guatemala case also illustrates the difficulties foreign governments face when they attempt to sue tobacco companies in the United States and abroad.

Earlier this year, Guatemala's then attorney general hired Fleming, Hovenkamp & Grayson -- a Houston firm that has done work on airline crashes, faulty polybutylene pipes, and other big litigation projects -- to handle the tobacco case on a contingency basis.

The stakes are staggering. In their amended complaint, lead lawyers George Fleming and Mark Hovenkamp estimate that the country spent $300 million from 1973 to 1997 in payouts for smoking-related illnesses. While smoking rates in the Central American country are not as steep as those in Asian nations, public health advocates are concerned by the Guatemalan figures.

A World Health Organization study on international smoking rates found that more than 37 percent of Guatemalan men and 17 percent of Guatemalan women smoked in 1989, the most recent year for which data were available. About 28 percent of American men and 23 percent of American women smoked in 1991, according to the WHO.

Guatemala accuses Brown & Williamson, Philip Morris, BAT, Liggett, and other related entities of negligence, fraud, restraint of trade, and violations of federal anti-racketeering laws, based in part on statements tobacco executives and employees made in the United States and in Guatemala about the addictiveness of cigarettes.

"Because Guatemala relied on defendants' continuing representations that smoking was not dangerous, it did not act to curb smoking by its citizens, thus expending enormous sums on health care," the country's lawyers wrote in legal papers filed with U.S. District Judge Paul Friedman.

The Guatemala suit appears to mirror many aspects of the suits filed by American state attorneys general. For instance, each focuses on the cost of smoking-related illness to public health systems. Fleming, Hovenkamp also relies on fraud, conspiracy, and antitrust violations allegedly committed by tobacco companies, some of which have been alleged in the state suits.

"This is not a 'smoker's case,'" the Fleming lawyers wrote in a brief. "It is based on defendants' deceptive practices, not on their sales of cigarettes."

Hovenkamp says in an interview that the settlement -- which affects each state and the District of Columbia -- will not hamper his client's ability to recover from big tobacco firms.

But Guatemala faces serious questions about whether it can sue in Washington and whether its lawyers are authorized to pursue the case.

Guatemala is suing 11 defendants, including the Tobacco Institute, an industry lobby group based in Washington. Only two of the defendant companies, however, control cigarette distribution in the nation.

Tabacalera Centroamericana, a Philip Morris subsidiary, controls about 73 percent of the Guatemalan tobacco market and uses the popular "Marlboro Man" ad campaign there. Tabacalera Nacional, a British American Tobacco Co. subsidiary, constitutes the rest of the market through brands like Lucky Strike, according to Guatemala's complaint.

BAT Industries, BATCO and BATUS Holdings Inc. have filed motions to get out of the case on jurisdictional grounds. Essentially, they argue they have no presence in the District of Columbia, where they are being sued.

Five other defendants, the Philip Morris Cos., Philip Morris Inc., Tobacco Institute Inc., the Council for Tobacco Research USA Inc., and Brown & Williamson have attacked the suit on other grounds, some of which echo the U.S. tobacco cases.

"Essentially, what the Republic of Guatemala has done is sue in the U.S. and hopes to win based on the superficial similarity with the state actions," says Thomas Frederick, a partner at Chicago's Winston & Strawn who represents the Philip Morris defendants.

Frederick argues that no U.S. or Guatemala law would allow the country to recover public health outlays for derivative, "secondary costs" spent on sick smokers. He says that U.S. states have passed these laws, but there is no federal legislation in place that would authorize foreign suits.

"Certainly, if the federal government can't recover [absent statutory authority], why should the U.S. courts bend over backward to allow a foreign government to recover?" asks Frederick, who also represents Philip Morris in the suit filed by Panama in New Orleans.

Lawyers in the Washington office of Chicago's Kirkland & Ellis who are working on behalf of Brown & Williamson characterized the Guatemalan case in a brief as part of a "veritable cottage industry of copy-cat contingency fee lawsuits seeking to further extend the already-flawed theories underlying those claims." They asserted that Guatemala "seeks to take this litigation frenzy to another level."

Tobacco attorneys also have questioned whether Guatemalan officials, including the new attorney general, have given Fleming, Hovenkamp authority to proceed.

Ricardo Viteri, a spokesman at the Guatemalan embassy in Washington, says the government is deciding whether to pursue the case and is awaiting Judge Friedman's decision on pending motions to dismiss the case.

Plaintiffs lawyers say the tobacco industry's defense strategies are par for the course. "They're taking the same kinds of stances they have in other litigation," says Hovenkamp, whose firm also is representing health funds in Louisiana, Arkansas, and Tennessee in their suits against tobacco firms.

D'Lisa Simmons, another lawyer at Fleming, Hovenkamp, says the tobacco companies tried the same tactic in Mississippi, when GOP Gov. Kirk Fordice sued state Attorney General Mike Moore, a Democrat, in an unsuccessful attempt to deny Moore the right to sue on behalf of the state's citizenry.

Simmons also says there's a long history of other governments bringing cases in the United States, dating back to an 1873 maritime dispute involving a French ship called the Euryale, which was damaged by another, foreign vessel, the Sapphire.

Still, the vexing jurisdictional questions make it difficult to predict whether Guatemala's suit will survive. "These are tough cases," says Professor Jack Friedenthal of George Washington University Law School.

A lawsuit pending in British Columbia could portend other problems for tobacco. The province has tapped Thomas Berger, a former justice on the provincial Supreme Court, to lead the plaintiffs' legal squad. The BC legislature has passed the Tobacco Damages Recovery Act to allow it to collect on behalf of those citizens who have purportedly become ill from smoking.

Observers of the industry say that Great Britain, Ireland, and Australia are considering lawsuits as well.

Defending the litigation is costly. Wall Street analyst Gary Black says each case costs tobacco companies $10 million a year.

But tobacco analysts and international experts observe that not every foreign sovereignty has a well-developed, independent legal system under which to sue the industry, making litigation unlikely in some countries.

"The fundamental fact is that the U.S. is different," says Timothy Lindon, senior assistant general counsel for international matters at Philip Morris. "Most countries' laws are inhospitable to these kinds of claims brought by governments, when the injuries are being suffered by individuals."

In these countries, analysts say, regulation and legislation may be preferable to litigation.

The global community is getting help in learning how to take on the tobacco industry.

Daynard, the Boston anti-tobacco expert, says he has spoken in Brussels, Helsinki, Beijing, and elsewhere on how to mount legal challenges to tobacco companies.

Other groups are using international conferences as a way to spread the fire. This week, the Asia Pacific Association for Tobacco Control is meeting in the Philippines, where tobacco litigation and taxation will be discussed. Sens. Ron Wyden, D-Ore., and Dick Durbin, D-Ill., will host a Washington-based conference on international tobacco control in March.

Says John Bloom, who manages international issues at the Center for Tobacco-Free Kids: "Litigation, regulation, and legislation are always part of the picture. These other countries are going to take action however they can."


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