Letter to Attorney General Bill McCollum

From the Senate Dems:

Attorney General Bill McCollum

Re: Senate Bill 2198

Dear General McCollum:

I am writing to seek your input and assistance regarding the cigarette industry’s efforts to seek appellate bond protection from our legislature. Senate Bill 2198 will be debated on the Senate floor today. The bill will relieve the tobacco industry of any obligation to post a full appellate bond in the event they appeal an adverse judgment in one of the thousands of cigarette lawsuits now pending in our state. The tobacco industry claims that absent this relief, the annual payment to the State of Florida required by the Florida Tobacco Settlement Agreement may be jeopardized due to concerns about the solvency of the big tobacco companies.

Based upon my review, there appears to be a discrepancy between the tobacco industry’s representations made to the members of the Florida legislature in an effort to gain passage of this bill and the representations made to their own shareholders in corporate filings with the United States Securities and Exchange Commission. Your legal analysis of this issue is imperative in order for the members of the legislature to fully understand the circumstances underlying the tobacco industry’s request for this legislative relief.

My concern regarding the industry’s apparent contradictory statements was substantially heightened when I learned that these cigarette companies have been found to have committed a civil conspiracy to defraud the very Floridians who may be adversely affected should the above-referenced bill be passed into law.

Enclosed please find a copy of the July 1999 jury verdict resulting from a year-long trial in Phase I of the “Engle” lawsuits that have prompted this legislation. I direct your attention to question 5(a) wherein the jury determined that the cigarette companies entered into an agreement to conceal or omit information regarding the health effects of cigarette smoking, or the addictive nature of smoking cigarettes, with the intention that smokers and members of the public rely on this misinformation to their detriment. After seven years of post-trial motions and appeals by the cigarette industry, the Florida Supreme Court in 2006 upheld the jury’s verdict that the cigarette companies are civil co-conspirators in a fraudulent enterprise perpetrated on thousands of citizens of the state of Florida.

In an effort to determine the validity of the cigarette companies’ claims that posting full appellate bonds in the Engle lawsuits would pose a risk to their annual Florida Tobacco Settlement Agreement payments, I reviewed the 2008 year-end Form 10-K filings of Altria Group, Inc. (Phillip Morris) and Reynolds American, Inc. These documents are enclosed for your review. Although the companies’ 10-K Forms discuss both the Florida Engle class lawsuits and the annual payments to the State of Florida resulting from the Florida Tobacco Settlement Agreement, neither Phillip Morris nor Reynolds American have disclosed in these SEC filings that the Engle Class lawsuits pose any material risk either to their financial solvency or to their annual payments to the State of Florida.

As you know, the Securities Exchange Act of 1934 requires a corporation to disclose to its shareholders in a Form 10-K all material facts that pose financial risk to the corporation and its shareholders. Will you, in your capacity of Attorney General, please review these documents to ensure the accuracy of the testimony presented by Keith Teel on behalf of Phillip Morris, RJ Reynolds Tobacco Company and Lorillard Tobacco Company, before the House Finance and Tax Committee on April 20, 2009, a copy of which is attached to my letter? In his testimony, Mr. Teel stated, “We are very concerned that we be able to continue to make payments to the states.” He also referred to the Engle cases as a threat that “would make it difficult to continue making the payments.” I do not believe that there is anything in the 10-K statements that states that payments required to be made to the State of Florida are in jeopardy.

General McCollum, your prompt investigation of the tobacco industry’s assertions that their payments to Florida will be at risk without this legislation is necessary to help the Florida Senate sort out these seemingly contradictory claims. The attorney general’s office has the resources to help the members of the Senate determine where the truth lies in this matter, and I ask that you utilize those resources to their fullest.

Sincerely yours,
Ted Deutch