The Liggett Group, the smallest of the US tobacco giants, confirmed that it had negotiated a potentially explosive agreement to settle its liability in lawsuits filed against the entire industry by 22 US states. In return, it is to gain immunity in the future from such lawsuits.
Under the deal, detailed at a press conference given by the attorneys general of all 22 states last night, Liggett will surrender documents to assist the states in pursuing the other tobacco companies. It will also release its employees from all constraints from testifying in support of the lawsuits.
Looking ahead to the start in three weeks of the first of the lawsuits in Mississippi, that state's attorney general, Mike Moore, vowed that the Liggett documents would allow him to bring the industry "down to their knees".
The settlement promises to usher in a new phase in the legal struggle in the US over what responsibility should be shouldered by tobacco companies for health problems suffered by smokers. Ultimately, it may force the entire industry to seek a long-term truce with litigants and the federal government.
Negotiated behind closed doors with the attorneys general of all 22 states in Washington this week, the agreement will oblige Liggett to print new warnings on its cigarette packs spelling out that smoking is addictive and can cause cancer. Liggett brands also include Eve and L&M cigarettes.
Bennett LeBow, the head of Liggett, was expected to issue a personal statement conceding that cigarettes are addictive and carcinogenic and that the tobacco industry specifically targets young people as potential smokers.
While the admission may not in itself appear stunning, it directly contradicts statements made by all the main tobacco chief executives under oath before Congress in 1994 when they denied that smoking was addictive. The Justice Department is investigating whether they lied to Congress.
Under the deal, Liggett will also undertake to make an initial settlement of $25m. It will also continue to pay out 25 per cent of its pre-tax profits to the states for 25 years.
Liggett has broken ranks before. A year ago, it reached slightly less expansive settlements with five states and with the litigants in a massive class-action lawsuit that has since fizzled in the courts.
For the rest of the industry, it is Liggett's pledge to assist in the states' lawsuits that is most alarming. Shares in tobacco companies slumped yesterday. In New York, shares in Philip Morris were down by more than 5 points at midday to $116.75. Only a week ago, the same shares were at $140.
The fear of what the documents may hold prompted Philip Morris to seek and to obtain a temporary restraining order against their release.
Among the documents that Liggett has promised to release are notes from consultations between the legal officers of all the tobacco companies over a period of 30 years. These could be highly incriminating if they demonstrate a consistent policy of concealing the addictiveness of nicotine.
The deal was hailed by Scott Harshbarger, head of the Association of Attorneys General. "The fallout from this agreement will be felt well into the 21st century and it should end once and for all the farce of industry denials about their illegal and deceptive conduct," he said.
It will also be welcomed by anti-smoking advocates. In recent days, advertising signs atop New York City taxi cabs have appeared depicting a stylised Marlboro Man. The posters show a skull under a cowboy hat with a cigarette in its mouth and the slogan: "Cancer Country".
Analysts cautioned, however, that Philip Morris and the other giants may still not feel compelled to negotiate a settlement. The precise content of the Liggett documents is still unknown.
"I don't believe that the settlement will necessarily draw the rest of the industry in," said Mary Aronson, a litigation analyst in New York.
Also unclear last night was what was motivating Mr LeBow to hand over the shop in so dramatic a fashion. A prominent theory, however, is that by anointing Liggett with future immunity from prosecution, Mr LeBow is attempting to make his company attractive as a target for acquisition.
Mr LeBow, who owns Liggett through his larger holding company, the Brooke Group, was until recently fighting to force RJR Nabisco to separate its food and cigarette divisions. That strategy, which ultimately failed, was seen as an effort by Mr LeBow to engineer a merger of Liggett and RJ Reynolds.
The battle over tobacco meanwhile is broader than just the lawsuits of the 22 states, which alone could ultimately cost the companies billions of dollars. Several US cities, including New York, have also launched lawsuits. Additionally, there are some 200 lawsuits pending.