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How Big Tobacco Got Its Way in California

In a little-noticed action, state legislators and Gov. Davis have adopted two laws that soften legal blows to the industry

September 14, 2003|James F. Peltz and Myron Levin | Times Staff Writers

With its tough anti-smoking laws and huge jury verdicts for sick smokers, California is known as uniquely hostile to Big Tobacco. But in a move so quiet that it went virtually unnoticed, state lawmakers and the Davis administration have pushed through one of the industry's most cherished legislative goals -- a law that could reduce the threat to tobacco companies from massive damage awards.

The law was one of two tobacco measures adopted during frenzied eleventh-hour wrangling over the state budget, which Gov. Gray Davis signed Aug. 2. Several officials said they passed the laws to help resolve the state's budget crisis, not to help the tobacco industry.

Even so, one of the laws was aggressively pushed by cigarette makers, whose lobbyists "were all over the Legislature in the final weeks of the budget negotiations," said Sen. Joseph Dunn (D-Garden Grove).

And though officials generally denied that there was any attempt to keep them secret, the actions received little or no attention. Health groups and government agencies that closely track tobacco issues were stunned to learn about the laws days or even weeks after the fact.

The most controversial of the two places a ceiling of $150 million on the size of the bond a tobacco company must post during the appeal of a courtroom loss. Normally, the loser in a lawsuit must deposit a guarantee for the full amount of damages to protect its assets while it appeals. In Illinois, for example, where there is no cap on appeal bonds, Philip Morris USA is on the hook for a $12-billion bond. The company is fighting the bond in court, arguing that it would mean bankruptcy.

The other new California law calls on the state to guarantee a flow of money from bonds that are backed by payments owed California under the tobacco industry's $206-billion litigation settlement with the states.

Officials said that should bring the state an extra $500 million from a sale of tobacco settlement bonds set for this month. However, it also means the state might be on the hook to make up for investor losses should any of the tobacco companies default or file for bankruptcy protection.

Supporters say the laws were dictated by the state's dire budget straits and were meant simply to sustain the flow of money from the 1998 tobacco settlement. The settlement is providing about $1 billion a year to the state and its largest cities, which also sued the tobacco companies.

The governor's "tough stance on smoking continues to this day," said Davis spokeswoman Hilary McLean, noting that Davis' budget originally called for higher cigarette taxes.

"A different set of solutions was ultimately adopted by the Legislature," she said, and "the effect of having the state backing the bonds is simply a tool for us to get a better return on our dollar."

Low-Key Legislation

But the appeal-bond cap, in particular, has drawn scathing criticism from anti-tobacco activists and lawyers because it helps the industry -- and because of the way it was approved.

"This was something that was done quietly," said Stanton Glantz, a professor at UC San Francisco medical school and a leading tobacco-control advocate. "Nobody I know of who keeps track of this stuff knew it was going on."

Also in the dark was state Atty. Gen. Bill Lockyer, said his spokesman Tom Dresslar. "We knew nothing about that [the appeal-bond cap] before it was enacted," Dresslar said. Lockyer's office has "consistently opposed that proposal" as bad public policy, Dresslar said, adding that the cap was "unnecessary given the well-heeled financial condition of the tobacco companies."

Dresslar also said Lockyer's office was not asked for help in drafting the bill authorizing the state to backstop tobacco-bond payments, although it usually is asked to assist in crafting bond-related bills.

The situation demonstrates the extent to which the state -- while often acting as tobacco's staunch foe -- has developed a powerful interest in the industry's financial health because it is hooked on tobacco money.

"One can see where the Legislature would be sheepish, to say the least, about passing legislation ... that looks like a special favor to the industry," said Robert Rabin, a Stanford University law professor and an expert on tobacco litigation. "So the inference can be drawn that if there's strong pressure to do it, you do it in the dead of night when nobody's alert to what's happening."

Even now, there is considerable finger-pointing and some mystery over who is most responsible for the new laws. In late July, they were added to an obscure budget "trailer" bill as part of a deal struck between Senate President Pro Tem John Burton (D-San Francisco) and Republican Senate Leader James Brulte (R-Rancho Cucamonga) to resolve the budget stalemate.

Brulte acknowledged in an interview that he demanded the appeal-bond cap be part of the deal.

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