Counting on Tobacco Money? Check With Your Attorney

Counting on Tobacco Money? Check With Your Attorney

The only people who will see any serious money out of the much-hyped tobacco settlement will be the lawyers.

Nicholas von Hoffman

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Walking past the Baruch College building on East 24th Street in the mild winter sunshine a few days ago, a passer-by could see not a few young people puffing on their coffin nails. The sight of them is yet more distressing than that of the grayish, older office workers huddled against the wind in front of their skyscrapers, toking on their little white death tubes.

Whilst the addicted administer the drug to themselves, the famous tobacco settlement lies in Congress, waiting to be translated into law. What with the ravenous lawyers and the money-hungry state governments, the pressure to make Congress ratify the deal is never ending. But, writes my friend Peter Pringle, “This has the smell of a whole new tobacco subterfuge.” (Pardon the plug for a pal, but the full story of the events leading up to where we are now is dramatically told in Cornered: Big Tobacco at the Bar of Justice, by Peter Pringle, just published by Henry Holt & Company.)

As Mr. Pringle and others who have read the fine print in the agreement have pointed out, that $368.5 billion in tobacco company reparations may never be paid.

Lynn LoPucki, who teaches debtor-creditor relations at Harvard and Cornell law schools, writes, “No one seems to have noticed that the folks who are supposed to pay the $368.5 billion don’t have it. Section VI. B. 6. of the settlement agreement reads: ‘[o]bligation for annual payments responsibility only of entities selling into the domestic market.’ What entities are those? The subsidiaries of Philip Morris, RJR Nabisco, Loews, Brooke Group and BAT that sell tobacco products in the United States. The parent companies will not be liable. Nor will the subsidiaries that sell only food, insurance, movie tickets and other non-tobacco products, the subsidiaries that sell tobacco products in foreign markets or even the subsidiaries engaged in some aspect of the tobacco business in the United States other than selling. The tobacco companies have not disclosed information sufficient to determine which of their more than 500 subsidiaries will be liable under the language of the settlement or what, if anything, those subsidiaries own.”

“BAT (Lucky Strikes and Kools, among other brands) takes the profits from its American operations but dares to claim immunity, using the argument that as a foreign-based corporate entity, it has never sold a single cigarette in the United States and has no office or even a telephone here,” says Mr. Pringle.

It will be one of those proverbially freezing polar days in Erebus ere we see more than a trickle of tobacco company money. Ms. LoPucki calculates that the corporate units of the tobacco companies legally obliged to pay the money stipulated in the agreement only have about 10 percent of the total sum. (Please remember that, under the terms of the agreement, in return for this pittance, the tobacco companies can never be sued again, neither by the Government nor by people sickened by their nicotine addiction.) Thus, once more, the only people who will see any serious money out of this thing will be the lawyers. No money for the medical expenses incurred by the states, no money for the penalties the tobacco companies are supposed to pay if there is no drop in the rate of youth smoking. Whether or not this is a con job engineered by the anti-smoking lawyers and the tobacco companies to enrich the former and immunize the latter, it has the outward appearances of such.

Corporate mitosis in advance of judgments and penalties is coming to be one of the standard ploys that companies in the drug and chemical industries use to escape paying for the messes they make and the damage they do. They subdivide themselves, throw up dummy corporations, export their treasuries overseas, invent wickedly clever means of hiding their assets until nothing is left to collect from but an abandoned and worthless corporate shell.

In previous times, malodorous companies didn’t have to play hide-and-seek to escape payment because the judgments were small and people had not yet come to know that business and government organizations can destroy the fields and streams and the sky itself, that they can weaken and perhaps, in this upcoming century, endanger the biological foundations for healthy human, if not all mammalian, life. Against the ever-darkening threats to earth, air and water, we have devised no really effective defense. The cigarette saga, which has been going on for decades now, illustrates how impotent we are in saving ourselves and our children from just this one death-dealing menace. More than a generation after the effects of tobacco use were proven to all but the shareholders in the cigarette companies, nothing really has been done.

We need a new approach to extract good behavior before the fact. Allowing the damage to be done and then hauling these companies into court doesn’t work. We’ve got to put the fear of God into them a priori. The best way to do that is to change the corporation laws by lifting immunity from legal action that protects the shareholders and officers of these companies.

Legal liability for havoc and mayhem limited to the fictional corporate person must go. In the case of the tobacco companies, for instance, that would mean we could go after every individual shareholder for the hundreds of billions of dollars owed, regardless of whether or not the corporate executives have hidden the companies’ assets overseas. If RJR Nabisco splits its tobacco and food segments in half to protect itself from judgments, it won’t matter, because the people who own the company, share by share, will personally be liable for the money. Sorry about that, all you Tisches.

Bankruptcy laws also need changing, so that neither individuals nor companies can escape payment using that tool. Fix the law so all judgments for health and environment crimes get paid off before all other creditors in a bankruptcy proceeding.

Once upon a time, the owners of corporations could be sued for the torts their companies committed. That only changed in the middle of the last century. Since then, it has been argued that people won’t invest their money in a company if the company’s misbehavior might involve them in litigation and personal loss.

That may or may not have been true at one time, but there are only so many places one can put one’s dough. People will continue to buy shares in companies and mutual funds because there is no place else for their money to go. They may very well shun companies that make their money as rapers and pillagers, which is precisely one of the beneficent side effects of such a change in the laws.

Corporations may also decide that, under this new set of rules, they will have to buy insurance to indemnify their shareholders. But there seems to be some question as to whether the law will enforce an insurance company indemnification of a tort. If it won’t, companies will have to devise some form of self-insurance, but either way, it will cost them many, many dollars. We can hope that it will cost them so many dollars that they will decide it is cheaper to do right than pay for the wrong.

The perennial inability of the law courts and the legislatures to tame one industry-just one industry, the tobacco industry-should show us that we are long past the time when the whole scaffolding of corporate law must be rejiggered in a major way.

These institutions are too big, too rich, too powerful and too dangerous to be effectively policed under present rules. Either we change those rules, or corporate excrement will soon fill our eyes, ears and mouths and asphyxiate us.

Counting on Tobacco Money? Check With Your Attorney