SUBMITTED TO THE COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
by
Robert A. Levy
Cato Institute
Washington, D.C.
August 15, 1997
1. Question from Chairman Hatch: In Professor Tribe’s testimony, he argued that the settlement actually fosters smaller government. This is apparently because absent the implementation of the settlement, Congress, to obtain the same results, would have to require agencies to implement many burdensome command and control regulations. With the settlement in place, many of its terms would be implemented through judicial enforcement of the consent decree. Any comments?
1. Response: To be sure, smaller government is a splendid objective, which I passionately support. But implicit in your question is this mistaken premise: The substantive goals of the proposed tobacco settlement are desirable; we need simply resolve whether those goals can best be accomplished by agency regulations or by judicial enforcement of consent decrees. I respectfully reject that premise on two grounds.
First, there are no “consent” decrees. An arrangement can not be characterized as consensual when it is exacted by subverting settled principles of law, retroactively, in order to assure that an unpopular defendant has no chance of prevailing in court. I take up that issue below in response to a question from Sen. Thurmond.
Second, the goals of the proposed settlement are misconceived, unworkable, and counterproductive. They are no less so because they are incorporated in a purported bargain. The real costs are not those associated with administrative or judicial implementation of the settlement, but those that arise in its wake. Indeed, that is a central tenet of my testimony before your committee. In particular, I refer you to page 2, where I identify some of the indirect economic costs; page 5, where I discuss the negative implications of nicotine regulation; and page 7, where I document the futility of planned restrictions on cigarette advertising. To reinforce one of those points, let me remind the committee of the likely aftermath should the Congress adopt the draconian “solution” promoted by former FDA commissioner, David A. Kessler, and former surgeon general, C. Everett Koop.
Anti‐smoking partisans like Messrs. Kessler and Koop want tougher FDA regulation, stiffer penalties imposed upon the industry if the nation doesn’t meet targeted declines in youth smoking, huge increases in cigarette taxes, tighter rules on smoking in public and work places, and export controls on industry access to foreign markets. That’s all — just Prohibition, without the label, and without the precursor to Prohibition which, as you will recall, was an amendment to the Constitution. Kessler and Koop object especially to a provision requiring the FDA to show that its regulations will not spawn black market transactions. No wonder they regard that provision as a material limitation on the agency’s powers. When FDA restrictions on nicotine content are coupled with inflated retail prices to help pay for the settlement, the unavoidable consequence will be a pernicious black market.
We never seem to learn. California, Maryland, Michigan, and New York hike their cigarette taxes and the result is rampant smuggling — not just from low‐tax neighboring states, but from military bases, Indian reservations, even exports to Mexico that are smuggled back into the United States. [1] After Canada raised its excise tax, smuggled cigarettes accounted for an estimated 30 to 50 percent of consumption; so Canada was forced to lower the tax to keep smuggled cigarettes away from children. [2]
It doesn’t take a rocket scientist, an FDA commissioner, or a surgeon general to know that the proposed tobacco settlement will inevitably foment illegal dealings dominated by criminal gangs hooking underage smokers on an adulterated product freed of all constraints on quality and price that competitive markets usually afford. The destructive effect on our nation’s health — lamentable but not surprising — will undoubtedly be accompanied by an ever more expanding and intrusive government.
Moreover, researchers have pointed out that smokers may well respond to nicotine reductions by smoking more, puffing harder, or even physically altering the filters that are intended to dilute the smoke stream. [3] Washington State attorney general Christine Gregoire reminds us that “people aren’t dying because of nicotine. It’s the other stuff,” she said, referring to the carcinogens present in tar and smoke. [4] And Gregory Connelly, director of the Massachusetts Tobacco Control Program, cautions that anti‐smoking crusades may backfire, as apparently happened in Massachusetts where teenage smoking rose by 10 percent in the first three years of Connelly’s $35 million‐a‐year campaign. “Among kids, you get a backlash anytime Big Brother goes after them,” Connelly observed. [5]
If the health imperative is to reduce smoking among teenagers, we have the requisite tools at our disposal; but they do not include either command and control agency regulations or judicially enforced consent decrees. The sale of cigarettes to youngsters is illegal in every state. Those laws must be vigorously enforced. Retailers who violate the law must be prosecuted. Proof of age requirements are appropriate if administered objectively and reasonably. Vending machine sales should be prohibited in areas like arcades and schools where children are the principal clientele. And minors — who are often held responsible as adults when charged with a serious crime — should at least have their wrists slapped when caught smoking or attempting to acquire cigarettes. Among the remedies available to state authorities: inform the parents of would‐be smokers, levy fines, impose community service, or suspend driving privileges.
Finally, let me comment briefly on Professor Tribe’s concern about the size of government. He testified that the settlement will not “create another unnecessary federal bureaucracy,” primarily because no group is more interested than the attorneys general “in federalism, states’ rights, and the Tenth Amendment.” The focus is on “decentralization”; the settlement “should not be greeted … with suspicion that it’s just another big Washington program”; it involves “market‐based incentive[s], not command‐and‐control regulation.” [6]
With all due respect, Professor Tribe’s testimony utterly conflates power with programs. Federalism — a jurisdictional matter — is quintessentially about the locus of power; and the proposed settlement locates power in federal not state agencies. The size of government, on the other hand, is a function of its programs, the scope of which determines the extent of governmental intrusion into private affairs. Smaller government cannot be achieved by federally mandated programs, operative in all 50 states, even if administered by state and local bureaucrats. There is but one way to reduce the size of government: repeal old programs and avoid new ones, especially a massive new one like the Global Tobacco Settlement.
2. Question from Chairman Hatch: Could you amplify the point you made in your testimony that the cumulative restrictions the settlement places on present and future lawsuits violate both due process and the right to a jury trial?
2. Response: When parties are injured, the tort system permits them to seek recovery from those who caused the injury. Unquestionably, legislatures can alter the rules at the margin (e.g., they can eliminate punitive damages); but legislatures cannot cut into the irreducible core that is our due process right. In my view, the cumulative effect of the immunities conferred by this settlement — no class actions, no punitive damages for past acts, a limit on compensatory damages — may well go too far. By foreclosing adequate legal remedies, those restrictions may have the practical effect of denying access to the courts.
Accordingly, should it approve the tobacco settlement, thereby frustrating judicial redress by civil litigants, Congress will have violated the common‐law right to trial by jury in federal court as guaranteed by the Seventh Amendment, and the right to due process of law as guaranteed by the Fifth Amendment. Further, if Congress were to grant the tobacco industry partial immunity against litigation in state court, that would flagrantly violate principles of federalism and the Tenth Amendment. On that point, Professor Tribe and I agree. [7]
In 1987, the Supreme Court restated its long held position that “those incidents which are regarded as fundamental, as inherent in and of the essence of the system of trial by jury, are placed beyond the reach of the legislature.” [8] We cannot know with certainty what aspects of trial by jury the Court considers essential. Nonetheless, when a plaintiff may not bring suit as a member of a class, when he cannot collect punitive damages, when any compensatory damages might be subject to an upper limit, when because of those combined constraints his prospect of attracting skilled legal assistance is materially diminished, and when he must confront a well‐financed and competently represented defendant, it strains credulity to suggest that his right to trial by jury has not been fundamentally compromised.
That same accumulation of obstacles may also deprive a litigant of due process. The Supreme Court has been somewhat more forthcoming in its musings on that possibility. When a surviving spouse sued under the Workmen’s Compensation Law following her husband’s death in a work‐related accident, the Court remarked that damages available under the Act were limited, then volunteered that “[t]he scheme of the act is so wide a departure from common‐law standards … that doubts naturally have been raised respecting its constitutional validity.” [9] In that instance, the Court found no constitutional infirmity because the employee, although “no longer able to recover as much as before … is entitled to moderate compensation in all cases of injury, and has a certain and speedy recovery.” [10]
The Court pondered whether “a state might, without violence to the constitutional guaranty of ‘due process of law,’ suddenly set aside all common‐law rules respecting liability … without providing a reasonably just substitute.” [11] Then, after explaining that the case at hand did not require resolution of that question, the Court conjectured that “it perhaps may be doubted whether the state could abolish all rights of action … without setting up something adequate in their stead.” [12] Applying a similar rationale in a 1978 case, the Court upheld the Price‐Anderson Act, which imposed a limitation on liability for nuclear accidents in federally licensed private nuclear power plants. The Act’s “panoply of remedies and guarantees,” noted Chief Justice Burger, “is at the least a reasonably just substitute for the common‐law rights replaced by the Price‐Anderson Act. Nothing more is required by the Due Process Clause.” [13] Two years later, Justice Marshall reiterated that “[q]uite serious constitutional questions might be raised if a legislature attempted to abolish certain categories of common‐law rights in some general way. Indeed,” he continued, “our cases demonstrate that there are limits on governmental authority to abolish ‘core’ common‐law rights … at least without a compelling showing of necessity or a provision for a reasonable alternative remedy.” [14]
Thus, while the Court has not established a bright line test for due process infractions, it has repeatedly intimated that litigants possess a nucleus of rights under the common law that may not be transgressed without substituting rough equivalents. The proposed tobacco settlement indisputably abridges rights long held under the common law. Class actions, for example, can be traced to the English “bill of peace” in the seventeenth century, which allowed a representative party to sue when the number of persons was too large to permit joinder, the class members had a common interest, and the absent members were adequately represented. [15] And the origin of punitive damages extends back to eighteenth century English decisions in which punitive awards were associated with honor, insult, and other dignitary torts. [16]
The question, then, is whether proscribing class actions, eliminating punitive damages, and capping compensatory damages — each of which, standing alone, is concededly within the scope of legislative power — are cumulatively so grave as to reduce common‐law rights below a base level to which we are constitutionally entitled. If that is the case — and I suggest that it is — then the rights thus denied must be replaced by other rights that will restore the depleted core. Clearly, the tobacco settlement has offered future litigants no substitute for the rights that it will take away. Therein lies a denial of due process.
3. Question from Sen. Thurmond: Opinion polls tend to show that the public believes smokers should be primarily responsible for the consequences of their decision to smoke. However, this settlement agreement would essentially shift responsibility to the tobacco companies. Should the Congress heed any lessons from public opinion regarding this agreement?
3. Response: Smokers must assuredly be held accountable for their freely chosen acts — but for reasons rooted in the rule of law, not merely the power of public opinion. One need not entirely agree with Robert Peel (“Public opinion is a compound of folly, weakness, prejudice, wrong feeling, right feeling, obstinacy, and newspaper paragraphs”) to conclude that individual liberty and personal responsibility rest on a more permanent foundation than the most recent poll. Shifting the blame for informed and voluntary decisions is thoroughly objectionable, first, because it is immoral and, second, because it is incompatible with the law as it existed when those decisions were made. Public support for that basic principle is encouraging and, from a political perspective, conducive to doing the right thing; but it is not why the right thing must be done.
A person may not recover for an injury to which he assents. In both negligence and product liability actions, if a plaintiff is aware of a condition, knows it to be dangerous, appreciates the extent and nature of the danger, and voluntarily exposes himself to the danger, he may not hold the defendant liable. That time‐honored precept has now been repealed — by statute in Florida, and by resort to so‐called equitable doctrine in most of the other states that are suing the tobacco companies for Medicaid recovery. What is immeasurably worse, the repeal is to be applied both retroactively and discriminatorily. Florida eliminated the industry’s assumption‐of‐risk defense in 1994. Yet that defense will be disallowed even for harms allegedly caused by cigarettes sold decades earlier. Moreover, the well‐heeled tobacco industry is the only targeted defendant at this writing, and the single plaintiff that will benefit from the new rule is the state itself — the same state that sponsored the repeal in order to refill its Medicaid coffers without enacting a politically unpopular tax increase.
What could possibly justify this abuse of power? Incredibly, the states have contended that they may abrogate affirmative defenses like assumption of risk because, after all, the state as plaintiff never smoked. Imagine, analogously, that you are exceeding the speed limit by five miles per hour and hit another car driven by a Medicaid recipient; he is driving 80 miles per hour, intoxicated, and hurtles through a red light. When the state Medicaid program sues you for negligence, you properly respond that the other driver was 99% at fault. The state counters that the Medicaid recipient’s behavior is irrelevant; the state doesn’t drink, nor does it drive. Such arrant nonsense — the exact equivalent of “the state never smoked” — is unworthy of serious consideration.
There is but one legitimate argument for holding tobacco companies liable notwithstanding a consumer’s decision to smoke: A smoker is not free to choose if he is misled by fraudulent advertising or if he is addicted as a minor and unable to quit once he is capable of appreciating the risks.
On the other hand, more than 40 million people have quit. [17] In Florida’s motion to dismiss a 1995 lawsuit by a prisoner for a smoking‐related illness, the state acknowledges that “whether nicotine is addictive or not is a gray area. You have as many in the medical field that say it is as that say it isn’t.” [18] And tobacco critic, Richard Kluger, concedes:
Whether one categorizes smoking as a practice, a habit, an indulgence, a vice, a dependency, or an addiction, it was commonly known — and had been for decades — to be hard to stop once begun. Nor could anyone say for certain how much of a daily dose served to induce addiction; tolerance differed from person to person, and the industry had in fact made available brands with extremely low dosages. How, then, to justify a claim that the cigarette makers had massively imposed an intentionally addicting product on an innocent public that had little knowledge or choice in the matter. [19]
It is not enough to show that tobacco industry statements and advertisements were deceptive. A plaintiff must also demonstrate that he relied upon the misinformation. The hazards of tobacco were well‐documented, however, from sources outside the industry as long as 400 years ago. Indeed, throughout this century incessant warnings have emanated from thousands of health publications, medical professionals, and government entities. By the 1920s, fourteen states had actually prohibited cigarettes. Printed health warnings appeared on every pack of cigarettes lawfully sold in the United States for the past thirty years. To be unaware of the danger of tobacco is to have been hopelessly oblivious.
In any event, those are the claims and counterclaims that should be resolved in court; they are not resolved by secret negotiations or by congressional fiat. Our adversarial system — including evidence, trial, and jury verdict — must be permitted to function. Smokers, insurance companies, and the industry should fight it out, applying traditional principles of tort law. State Medicaid systems may sue like any other insurer; but they are subject to the assumption‐of‐risk defense and they must prove case‐by‐case causation and damages. If a plaintiff can show that he was defrauded, otherwise unaware, and addicted by the industry’s deception, then he should prevail. But the rules must be objective and evenhanded, the same rules applied against any other defendant.
Congress would do well to heed the advice of former Sen. George McGovern, who knew firsthand the ravages of addiction, having lost his daughter to alcoholism. Sen. McGovern points to “those who would deny others the choice to eat meat, wear fur, drink coffee or simply eat extra‐large portions of food.” He cautions that “the choices we make may be foolish or self‐destructive [but] there is still the overriding principle that we cannot allow the micromanaging of each other’s lives…. [W]hen we no longer allow those choices, both civility and common sense will have been diminished.” [20]
4. Question from Sen. Thurmond: You have criticized the settlement as unfair to the tobacco companies, essentially portraying the industry as a victim. Yet, the tobacco companies have voluntarily chosen to enter into this agreement after extensive negotiations. Why shouldn’t we respect and support their decision to enter into a settlement agreement?
4. Response: As an initial matter, the proposed settlement requires that non‐participating and future tobacco companies — which will not be immunized against class actions and punitive damages if they do not consent to the settlement — place substantial sums in escrow for 35 years to ensure that potential future liabilities will be paid. Professor Tribe blithely dismisses that extortion with a declaration that “Congress is entitled to ensure that non‐participating companies will not become judgment‐proof.” [21] He provides no substantiation. In my view, the escrow requirement raises obvious constitutional concerns under the Due Process Clause, the Equal Protection Clause, the prohibition on bills of attainder, and the Takings Clause.
Moreover, Congress has no enumerated power that would permit it to compel private companies to escrow funds for satisfaction of potential judgments arising out of state tort law. The notion that such a power exists under the rubric of the Commerce Clause — which was intended to safeguard the free flow of trade among the states — makes a mockery of that clause as well as the Tenth Amendment and the principle of limited government. [22]
With respect to companies that participated in the settlement, their involvement and signature by no means equates to “consent.” Some background is necessary. Over four decades, after thousands of claims, not one dollar of damages has been paid by the industry for a smoking‐related illness. Juries have understood — even if state attorneys general have not — that we are free to consume whatever legal products we wish, but having done so, we must bear the consequences.
As juries were reaffirming that basic rule of law, state Medicaid programs were coming under intense financial pressure. Of course, states were entitled to sue the tobacco companies for recovery of Medicaid outlays supposedly traceable to smoking; but the states bore the same burden of proof as the injured party and they were subject to the same defenses — including assumption of risk. Unwilling to raise taxes, and unable to prevail in court, the states came up with a creative solution: they simply eliminated assumption of risk as a defense in Medicaid recovery suits and, for good measure, applied the new rule retroactively.
While they were at it, to head off any possibility of an adverse jury verdict, the states abolished the requirement for proof of individual causation. Instead of demonstrating that a particular claimant’s illness was caused by his smoking, all the states had to produce were aggregate statistics showing that certain injuries were more prevalent among smokers than nonsmokers. So tobacco companies, under the new regimen, would have to pay for such things as burn victims who fell asleep with a lit cigarette, cancer victims who never smoked, and even Medicaid recipients who defrauded the system and weren’t injured at all. Astonishingly, no corroborating evidence need be furnished.
Naturally, the states laughed off the charge that the new law wiped out the industry’s defenses. Mississippi’s lawyer said, for example, “It doesn’t mean that the tobacco industry is defenseless. They [sic] can show that the state has unclean hands, that the state has participated in the activity somehow.” [23] Yes, unclean hands is a legitimate defense; but when the time came to test that defense, the states went to still greater lengths to corrupt the law and tilt the playing field. Here’s what happened.
Florida’s Medicaid recovery suit commenced on Friday, August 1, 1997. The state’s attorney bemoaned the “carnage” from smoking, which he laid at the door of the tobacco companies. In its defense, the industry had identified several examples of Florida’s unclean hands: the state had voted for a continuation of federal tobacco support programs, invested $825 million of its pension assets in tobacco stocks, and manufactured cigarettes for sale to local jurisdictions and distribution to prisoners. When the industry sought to introduce that evidence, the state filed a motion to suppress, and the state judge granted the motion. [24] So much for the unclean hands defense.
Faced with insurmountable legal hurdles in dozens of Medicaid suits, the industry decided to negotiate. Was the settlement consensual? Ask yourself why an industry would agree to disgorge $370 billion, subject itself to FDA regulation, overhaul its advertising, eliminate vending machine sales, and pay large penalties if targeted reductions in youth smoking were not realized — all in return for partial immunity from litigation that had not cost a single dollar of damages in forty years.
Because the market price of tobacco stocks advanced whenever the settlement appeared to move forward, some argued that the settlement must be good for the industry. That argument betrays a profound confusion about the alternatives realistically available. Either tobacco companies could agree to the settlement or they could mount an expensive, time‐consuming, and ultimately futile challenge to nearly forty Medicaid recovery suits under a perverted system of law that effectively foreclosed every line of defense. Confronting those choices, it is no surprise that the industry elected to bargain, and it is no surprise that the stock market reacted positively.
Yes, the settlement was perceived as good for the companies, relative to certain and enormous losses at the hands of state attorneys general and their allies among the plaintiffs’ bar –together wielding the sword of government in a manner so outrageous as to threaten the liberty of any deep‐pocketed industry that might stand in their path. To call this settlement consensual is consummate doublespeak.
Footnotes
[1] Dwight R. Lee, Will Government’s Crusade Against Tobacco Work? (St. Louis: Center for the Study of American Business, Washington University, 1997), pp. 2–4.
[2] Ibid., p. 4.
[3] John Schwartz, “Tobacco Pact’s Fine Print Limits Action on Nicotine,” Washington Post, July 8, 1997, p. A4.
[4] Ibid.
[5] Marc Fisher and John Schwartz, “Trying to Snuff Out the Tobacco Culture,” Washington Post, June 22, 1997, p. A1.
[6] Tribe testimony, p. 2.
[7] Tribe testimony, p. 10 (“For Congress directly to regulate the procedures used by state courts in adjudicating state‐law tort claims — to forbid them, for example, from applying their generally applicable class action procedures in cases involving tobacco suits — would raise serious questions under the Tenth Amendment and principles of federalism).
[8] Tull v. United States, 481 U.S. 412, 426 (1987) (citations omitted).
[9] New York Cent. R.R. Co. v. White, 243 U.S. 188, 196 (1917).
[10] Ibid. at 201.
[11] Ibid.
[12] Ibid.
[13] Duke Power Co. v. Carolina Envtl. Study Group, Inc., 438 U.S. 59, 93 9 (1978).
[14] Pruneyard Shopping Ctr. v. Robins, 447 U.S. 74, 93–94 (1980) (Marshall, J., concurring).
[15] John J. Cound, et al., Civil Procedure (St. Paul: West Publishing Co., 1989), p. 656.
[16] Dan B. Dobbs, Law of Remedies (St. Paul: West Publishing Co., 1993), p. 313.
[17] The data cited in this and the following paragraph are documented at pages 13–16 of my extended paper, “Tobacco Medicaid Litigation: Snuffing Out the Rule of Law,” which is part of the committee’s record.
[18] Waugh v. Singletary, Case no. 95-CVC-J-20, Defendant’s Motion to Dismiss (D. Fla., October 4, 1995).
[19] Richard Kluger, Ashes to Ashes: America’s Hundred‐Year Cigarette War, the Public Health, and the Unabashed Triumph of Philip Morris (New York: Alfred A. Knopf, 1996), p. 760.
[20] George McGovern, “Whose Life Is It?” New York Times, August 14, 1997, p. A35.
[21] Tribe testimony, p. 11.
[22] See Levy testimony, pp. 10–12.
[23] Richard Scruggs, remarks to the Federalist Society, National Conference on Civil Justice and the Litigation Process, September 12, 1996, transcript, p. 188.
[24] Stephen Rothman, “Tobacco Industry Defense Move Curbed by Fla. Judge,” Reuters, February 3, 1997.