Morales says ruling may forge weapon against tobacco firms

By CLAY ROBISON
Copyright 1997 Houston Chronicle Austin Bureau

AUSTIN A federal appeals court ruling against the tobacco industry could
help Texas deliver a damaging blow to cigarette companies on a national
scale, Attorney General Dan Morales said Thursday.

A threejudge panel of the 5th U.S. Circuit Court of Appeals in New Orleans
rejected an industry attempt to overturn a ruling by U.S. District Judge
David Folsom dividing Texas' antitobacco trial into three parts.

The defendants contend that format, which will begin with the state's
antiracketeering charges against tobacco companies, would unfairly "tilt"
the trial against them. Dan Webb, tobacco's chief lawyer in the Texas
trial, said the defendants are disappointed but ready for trial.

Morales said he looks forward to Oct. 27, when jury selection is to resume
in federal court in Texarkana. The state is seeking as much as $14 billion
in damages for Medicaid costs associated with smoking. He called the Texas
trial an "all or nothing gamble" for tobacco companies, who settled two
similar lawsuits in Mississippi and Florida.

In the first phase, the state will try to prove that tobacco firms violated
federal racketeering laws by conspiring to defraud and mislead the public
about the dangers of cigarettes.

"If we get a finding of liability on racketeering, that jury determination
would apply across the country," Morales said.

Under a longtime legal doctrine, the racketeering verdict would apply to
industry activities in other states, he said. All other states would have
to do is file similar charges against the defendants, and "then it would
simply be a matter of how much damages," he added.

Tobacco lawyers would not respond directly to Morales' comments. But one
industry source said the attorney general's scenario was "by no stretch of
the imagination an automatic thing" and that not all of the Texas claims
would automatically transfer to every other state.

David Crump, a University of Houston law professor, said Morales'
interpretation of the potential implications of the Texas case was
"essentially correct." But he said the legal doctrine on which Morales was
relying had never been applied in a lawsuit as large as the antitobacco
litigation.

Folsom said he divided the trial into three phases to help the jury better
understand the complex case. But the defendants say it will cut off some of
their defenses in the crucial first phase.

Webb said Texas wants the trial divided so that jurors won't be able to
consider the state's own actions in relation to tobacco. The industry wants
to argue that state officials have known about the health risks of smoking
for years but have allowed tobacco to be sold as a legal product and
collected billions of dollars in tobacco taxes.

"We had felt there were some significant legal defects in the state's case
that should have made a trial unnecessary," Webb said.

"We're ready to go to trial, we're going to trial, and we're going to go to
trial because we are convinced we will be able to show the jury that the
state's case is without any merit whatsoever."

Other "wrongful conduct" claims against the industry will be tried in the
second phase of the trial. If the state wins a favorable jury verdict in
either the first or second phase, a third phase will be conducted on damages.

The industry's opposition to Folsom's division of the trial sparked
speculation that tobacco companies may seek to settle the case.

But Morales said he had received no settlement overtures.

"We hope that this will be the last attempt by the tobacco companies to try
to delay this case," he said.