because they had to prove that smoking actually was
the root cause of all the illnesses involved in the
Medicaid claims and that smokers did not know that
smoking was dangerous to their health. Besides, to-
bacco companies claimed that Medicaid costs were
offset by individual states’ cigarette taxes. This all
changed, however, in 1994, when Florida passed the
Medicaid Third-Party Liability Act forbidding to-
bacco companies from claiming these defenses. In
effect, the new statute enabled the state of Florida to
easily sue cigarette manufacturers. Simultaneously,
in Mississippi it became illegal for tobacco compa-
nies to argue that cigarette taxes offset Medicaid
costs. Thus, in 1997, the tobacco industry decided to
settle the state lawsuits to avoid further financial
losses.
While Florida, Minnesota, Mississippi, and Texas
settled separately, in November of 1998 the na-
tion’s leading cigarette manufacturers, Philip Mor-
ris USA, R. J. Reynolds Tobacco Company, Brown
and Williamson Tobacco Corporation, Lorillard
Tobacco Company, and forty other original partici-
pating manufacturers (OPMs) signed the MSA with
the attorneys general of forty-six states, five U.S. ter-
ritories, and the District of Columbia. The settle-
ment was estimated to be $246 billion paid out over
twenty-five years and did not include the estimated
$13 billion awarded to the trial lawyers. The MSA
ultimately exempted the major tobacco companies
(known as “big tobacco”) from tort liability from
state governments. Initial payments to the various
states totaled more than $10 billion. The tobacco
industry settlement was the largest settlement in
history; indeed, it has been called the largest pri-
vately handled rearrangement of capital in world
history.
In addition, despite First Amendment consider-
ations, the MSA imposed restrictions on tobacco
marketing and advertising, whose methods had
been harshly criticized for enticing teenagers to
smoke. Tobacco companies were to pay for adver-
tisements that discouraged adolescents from smok-
ing. The agreement also created, and currently
funds, the American Legacy Foundation, an anti-
smoking program designed to help reduce smoking
in the United States.
Ultimately, to get their share of the large tobacco
financial windfall, all the states, even those who were
opposed to the tobacco lawsuits, were forced to sign
the MSA. The settlement also allowed for the rise of
small tobacco manufacturers who were placed in a
position to undersell the big tobacco giants. In addi-
tion, to ensure that tobacco companies continued to
make payments to the states, a small number of
states’ attorneys general fought to regulate this new-
found wealth by imposing additional taxes on
emerging smaller tobacco companies that were not
named in the MSA. In addition, individual states
agreed not to bring lawsuits on any grounds against
tobacco manufacturers in the future.
Impact What has come to be known as the “tobacco
model” has had far-reaching consequences on all
U.S. industries, not just those concerned with to-
bacco manufacturing. Legal scholars claim that the
series of successful tobacco industry lawsuits simply
enabled government to become more accountable
to the people. In addition, the 1998 tobacco settle-
ment led to a trend in multistate lawsuits that suc-
cessfully targeted various industries. For instance,
investigations into the banking industry have led to
billion-dollar settlements; the pharmaceutical in-
dustry has been sued to rectify the disparity between
prices charged to Medicaid and Medicare, while var-
ious utilities have been sued to reduce carbon diox-
ide emissions. The National Association of Attorneys
General continues to coordinate enforcement of
the tobacco settlement.
Although state officials banded together against
tobacco companies, problems sprang up in individ-
ual states regarding how the settlement funds were
to be spent. While some states used the money to
prevent smoking among teenagers and to help es-
tablish smoking bans, others used settlement money
to balance state budgets and lower income taxes.
The majority of states have not continued to utilize
the tobacco settlement funds for smoking cessation
programs. Also, although the national rate of smok-
ing has declined, it remains unclear whether the
multistate tobacco settlement had a direct impact on
smoking or whether higher cigarette taxes and
changing public attitudes toward smoking contrib-
uted to the decreasing numbers of smokers.
Further Reading
Derthick, Martha A.Up in Smoke: From Legislation to
Litigation in Tobacco Politics. Washington D.C.: CQ
Press, 2004. Attempts to demonstrate how states
were more interested in raising tax revenue than
in controlling tobacco, how the tobacco lawsuits
produced flawed public policy, and how little hasThe Nineties in America Tobacco industry settlement 861