UNITED STATES DISTRICT COUR

EASTERN DISTRICT OF TEXAS

TEXARKANA DIVISION

THE STATE OF TEXAS,

Plaintiff,

v.

THE AMERICAN TOBACCO COMPANY; R.J. REYNOLDS TOBACCO COMPANY; BROWN & WILLIAMSON TOBACCO CORPORATION; B.A.T. INDUSTRIES, P.L.C.; PHILIP MORRIS, INC.; LIGGETT GROUP, INC.; LORILLARD TOBACCO COMPANY, INC.; UNITED STATES TOBACCO COMPANY; HILL & KNOWLTON, INC.; THE COUNCIL FOR TOBACCO RESEARCH - USA, INC. (Successor to Tobacco Institute Research Committee); and THE TOBACCO INSTITUTE, INC.

Defendants.

Civil Action No. 5:96CV91

JUDGE: DAVID G. FOLSOM

MAGISTRATE JUDGE: WENDELL C. RADFORD

JURY

FIRST AMENDED COMPLAINT

The State of Texas, by Dan Morales, Attorney General of the State of Texas ("The State"), complains against the Defendants as follows:

PRELIMINARY STATEMENT

The health, welfare and property of Texas citizens have been damaged by the tobacco industry's unlawful conduct and their addictive, injurious, and unreasonably dangerous products. The tobacco companies have placed corporate profits above any concern for the health and property of the consumers of their products. The toll of human misery from the mass addiction, disease and death caused by their products has not been sufficient to deter the tobacco companies from their unified campaign of disinformation and denials regarding the dangerousness of their products. The tobacco companies have unlawfully shifted the financial responsibility for their tortious and illegal conduct and for their unreasonably dangerous products to State of Texas.

This lawsuit seeks to have the tobacco companies' liability to the State judicially recognized and to restore to the State's treasury those funds spent for tobacco-attributable costs by the Medicaid Program, the State Employee Retirement System, the State Employee Group Insurance Program, charity care, tobacco cessation programs and related wellness and health care programs. This suit also seeks other damages to be determined by a jury and appropriate injunctive relief.

In particular, this lawsuit seeks to protect the future health of our children. Marketing strategies of the tobacco companies target our children to induce them to start using tobacco products. Dr. David Kessler, Commissioner of the U.S. Food and Drug Administration, classifies the nicotine addiction of teenagers as a pediatric disease.

According to a 1994 U.S. Surgeon General's Report, more than three million American children currently smoke cigarettes and an additional one million adolescent males use smokeless tobacco. Every day, another 3,000 children become regular smokers. Eighty-

two percent of adult smokers had their first cigarette before age 18, and more than half of them had already become regular smokers by that age. Reports published by the U.S. Centers for Disease Control and Prevention indicate that anyone who does not begin smoking in childhood is unlikely to begin. Of those 3,000 children who do become current regular users of tobacco products, 1,000 will die prematurely as a result of their tobacco use.

The tobacco industry has been successful in planning, implementing and executing the largest public health crisis in U.S. history. The industry has also orchestrated the largest and most distinctive campaign of corporate misinformation in U.S. history. The Executive Officers and Board of Trustees of the American Medical Association (AMA) stated that recently disclosed internal tobacco industry documents "... show us how this industry has managed to spread confusion by suppressing, manipulating, and distorting the scientific record.... The evidence is unequivocal - the U.S. public has been duped by the tobacco industry. No right-thinking individual can ignore the evidence. [ Todd, S.T., et al., The Brown and Williamson Documents: Where Do We Go From Here? Journal of the American Medical Association , July 19, 1995 - Vol. 274, No. 3, pp. 256-258.] "

It is the duty and obligation of the Attorney General as the chief law enforcement officer for the State of Texas to bring this suit to seek reimbursement to the State of those funds expended because of the Defendants' illegal conduct and unreasonably dangerous products, to halt tobacco marketing aimed at children, to restrain the Defendants' unlawful conduct and to dispel any illusion of a scientific controversy regarding tobacco and health.

NATURE OF THE CASE

1. This is an action to recover funds expended by the State to provide medical treatment to citizens suffering from tobacco-related illnesses and to seek appropriate injunctive relief against the Defendants’ continuing and illegal conduct. The reimbursement sought includes funds expended by Texas pursuant to the Medicaid program created by Title XIX of the Social Security Act. The Medicaid program is a cooperative endeavor in which the Federal Government provides financial assistance to participating States to aid them in furnishing health care to needy persons. For every dollar spent on Medicaid assistance by the State, the Federal Government provides approximately two dollars in matching funds. The State of Texas’ participation in this federal program is one of many programs conducted by the State to promote the general welfare of its citizens and meet its specific objective to insure that adequate and high-quality health care is available to its citizens who cannot afford it.

2. The State is required to take all reasonable measures to ascertain the legal liability of third parties to pay for care and services available under the Medicaid Act, and to seek reimbursement to the public fund to the extent of such legal liability. The State has discovered that the Defendants have been engaged in a protracted and willful course of corporate misconduct and misrepresentation in violating numerous federal and state laws, and in the actionable breach of the duties owed to the State and its citizens.

3. The Defendants are cigarette and tobacco product manufacturers and/or their trade associations that control virtually the entire cigarette industry in Texas and the Nation. For decades, the State has incurred significant expenses associated with the provision of necessary health care and other such necessary assistance under various State programs to citizens who suffer, or who have suffered, from tobacco-related injuries, diseases or sickness.

4. This action is based on the deliberate and willful misconduct by Defendants toward the Nation, the State and its citizens. Defendants’ misconduct and offenses came to light as the result of congressional hearings in 1994 and subsequent investigation by private and public entities. The Defendants' misconduct, actions and statements are violations of the following areas of law:

A. Federal Racketeer Influenced and Corrupt Organizations Act: Since the 1950s, the tobacco manufacturing Defendants have conducted or participated, directly or indirectly, in the conduct of an enterprise’s affairs through a pattern of racketeering activity, in violation of the federal RICO statute. The RICO enterprise is an association-in-fact composed of the Council for Tobacco Research (CTR), the Tobacco Institute (TI), Hill & Knowlton, and the Tobacco Companies’ law firms and related entities. The Tobacco Companies participated in the conduct of this enterprise’s affairs through a pattern of public fraud, via wire and mail fraud on a nationwide basis, and through a pattern of other racketeering injuries. Lawsuits brought by the Attorneys General of Mississippi, Minnesota, West Virginia, Florida, Massachusetts, Louisiana, and Maryland have uniformly characterized the Tobacco Companies’ acts as public fraud. A Prosecution Memorandum to the U.S. Department of Justice by U.S. Representative Martin Meehan sets forth the basis for a federal RICO criminal prosecution against the tobacco manufacturers. A copy of the Prosecution Memorandum is attached hereto as Exhibit 1 and incorporated herein for all purposes.

B. Federal and State Antitrust Acts: Beginning at least as early as the 1950s, and continuing to the present, Defendants entered into a contract, combination, or conspiracy in restraint of trade in the market for cigarettes and other tobacco products in the United States and Texas. The Defendants have agreed to restrain and eliminate competition in that market in order to sell nicotine-laden tobacco products and nicotine delivery devices to consumers. The Defendants’ conspiracy had the purpose and effect of unreasonably restricting the quality of the tobacco products manufactured and sold in the U.S. by retarding the research, development, production, and sale of alternative products.

The conspiracy to control and maintain the market was accomplished in part by anti-competitive patent accumulation practices restraining and suppressing research on the harmful effects of smoking and the development of alternative, higher quality and safer competitive cigarette and other tobacco products.

Defendants also entered into contracts, combinations or conspiracies to protect the tobacco market by restraining the market for health care. The purpose of these conspiracies was to suppress and withhold information on the true causal relationship between tobacco products and various diseases.

Defendants' conspiratorial conduct was motivated by their desire to maintain the status quo in the tobacco industry -- to perpetuate the unregulated and unfettered sale of nicotine in their products -- thereby creating and maintaining a stabilized market demand through nicotine dependency in consumers.

C. Equitable Principles of State Common Law: The State of Texas is entitled to assert its own claims for restitution, unjust enrichment and public nuisance against the Defendants under equitable principles of Texas law. These claims reside in the State itself and are wholly independent of any claims that individual smokers may have against the Defendants. The State is not a participant in the enterprise that has caused Texas to incur billions of dollars in health care costs. It has instead been compelled unfairly to subsidize the externalities of Defendants’ activities, to the great detriment of the State’s taxpaying citizens and businesses. This is not a case involving only tobacco companies and smokers. Here, an innocent third party -- the State, together with all those it represents -- has been forced to pay enormous sums which should in equity have been borne by Defendants. Accordingly, the State can assert independent and separate claims in its own right under equitable theories that do not depend on the State’s ability to show that Defendants would be liable to individual smokers in product liability actions.

D. Product Liability Law: The Defendants, at all pertinent times, manufactured, tested, designed, promoted, marketed, packaged, sold, distributed, and/or placed into the stream of commerce in and into the State, numerous brands of defective, unreasonably dangerous and hazardous tobacco products. In addition, the Defendants were negligent in that they fail to exercise reasonable care in the manufacture, sale, and distribution of tobacco products. Furthermore, the Defendants breached express and implied warranties relative to tobacco products. These wrongful acts and breaches of duty have caused the State cognizable harm to its finances and property that is wholly separate from the claims of individual smokers for their health injuries. Accordingly, none of the State’s claims depends on its ability to show that individual smokers would be able to recover damages against the Defendants.

JURISDICTION AND VENUE

5. This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331, § 1367; 15 U.S.C. § 1331, § 1367; 15 U.S.C. § 15 and 18 U.S.C. § 1964.

6. Venue is proper in this District pursuant to 28 U.S.C. § 1391. Defendants advertised in this District, received substantial compensation and profits from the sales of tobacco products in this District, and made material misrepresentations and breached warranties in this District. Further, significant health care services were provided in this District to qualified citizens under the Medicaid Act whose necessary health care services and the expense therefore were attributable to smoking-related disease and illness.

PARTIES

PLAINTIFF

7. Dan Morales, Attorney General for the State of Texas, is authorized to bring this action on behalf of the State by the Texas Constitution, Art. 4 § 22; the Texas Government Code, Section 402.021, et seq.; the Texas Free Enterprise and Antitrust Act of 1983, Business and Commerce Code, Chapter 15; 42 U.S.C. 1396, et seq., also known as the Social Security Act, Chapter 7, subchapter XIX, Grants to States for Medical Assistance Programs; the Texas Medical Assistance Act, Texas Human Resources Code § 32.001, et seq.; the Sherman Antitrust Act, 26 Stat. 209(1890), codified as amended 15 U.S.C. §§ 1-7; The Clayton Antitrust Act, 38 Stat. 730(1914), codified as amended 15 U.S.C. §§ 12-27; and, the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1964.

DEFENDANTS

8. The American Tobacco Company is a Delaware corporation whose principal place of business is located at 1700 E. Putnam Avenue, Greenwich, Connecticut, and upon whom process may be served. The American Tobacco Company (ATC) manufactured, advertised and sold Lucky Strike, Pall Mall, Tareyton, Malibu, American, Montclair, Newport, Misty, Barkeley, Iceberg, Silk Cut, Silva Thins, Sobrania, Bull Durham and Carlton cigarettes throughout the United States. On information and belief, the American Tobacco Company was purchased by Brown & Williamson who has succeeded to the liabilities of ATC by operation of law or as a matter of fact.

9. R.J. Reynolds Tobacco Company is a corporation organized and existing under and by virtue of the laws of the State of New Jersey, with an agent for service in the State of Texas, to-wit: Prentice-Hall Corporation System, 400 North St. Paul Street, Dallas, Texas 75201. R. J. Reynolds is a wholly-owned subsidiary of RJR Nabisco Holdings Corp. R.J. Reynolds Tobacco Company manufactures, advertises and sells Camel, Vantage, Now, Doral, Winston, Sterling Magna, More, Century, Bright Rite and Salem cigarettes throughout the United States.

10. Brown & Williamson Tobacco Corporation is a corporation organized and existing under and by virtue of the laws of the State of Delaware, with an agent for service in the State of Texas, to-wit: C.T. Corporation Systems, 350 North St. Paul Street, Dallas, Texas 75201. Brown & Williamson Tobacco Corporation is a subsidiary division of Batus, Inc. Brown & Williamson Tobacco Corporation manufactures, advertises and sells Kool, Barclay, Belair, Capri, Raleigh, Richland, Laredo, Eli Cutter and Viceroy cigarettes throughout the United States.

11. B.A.T. Industries P.L.C. ("B.A.T. Industries") is a British corporation with its principal place of business at Windsor House, 50 Victoria St., London, England. Through a succession of intermediary corporations and holding companies, B.A.T. Industries is the sole shareholder of Brown & Williamson. Through Brown & Williamson, B.A.T. Industries has placed cigarettes into the stream of commerce with the expectation that substantial sales of cigarettes would be made in the United States and in Texas. B.A.T. Industries has also conducted, or through its agents, subsidiaries, associated companies, and/or co-conspirators, conducted significant research for Brown & Williamson on the topics of smoking, disease and addiction. On information and belief, Brown & Williamson also sent to England, research conducted in the United States on the topics of smoking, disease and addiction, in order to remove sensitive and inculpatory documents from United States jurisdiction, and such documents were subject to B.A.T. Industries’ control. B.A.T. Industries is a participant in the conspiracy described herein both individually and throught its agent and alter ego, Defendant Brown & Williamson Tobacco Corporation and has caused harm in Texas.

12. British American Tobacco Co., Ltd. ("BATCO") is a British corporation whose principal place of business is Millbank, Knowle Green, Staines, Middlesex, England TW181DY. Brown & Williamson Tobacco Corporation is or was a subsidiary or division of British American Tobacco Co., Ltd. and has participated in the manufacture and distribution of cigarettes and other tobacco products both individually and through its agents and alter ego, Defendant Brown & Willaimson Tobacco Corporation.

13. Philip Morris, Inc. (Philip Morris U.S.A.), a subsidiary of Philip Morris Companies, Inc., is a corporation organized and existing under and by virtue of the laws of the State of Virginia, with an agent for service in the State of Texas, to-wit: C.T. Corporation Systems, 350 North St. Paul Street, Dallas, Texas 75201. Philip Morris, Inc. manufactures, advertises and sells Philip Morris, Merit, Cambridge, Marlboro, Benson & Hedges, Virginia Slims, Alpine, Dunhill, English Ovals, Galaxy, Players, Saratoga and Parliament cigarettes throughout the United States.

14. Liggett Group, Inc., a subsidiary of the Brooke Group, Ltd. and operating successor of Liggett & Myers Tobacco Co. (Liggett & Myers), is a corporation organized and existing under and by virtue of the laws of the State of Delaware, with an agent for service in the State of Texas, to-wit: Corporations Service Company, 100 Congress Avenue, Suite 1100, Austin, Texas 78701. Liggett Group, Inc. manufactures, advertises and sells Chesterfield, Decade, L&M, Pyramid, Dorado, Eve, Stride, Generic and Lark cigarettes throughout the United States.

15. Lorillard Tobacco Company, Inc. is a corporation organized and existing under and by virtue of the laws of the State of Delaware, with an agent for service in the State of Texas, to-wit: Prentice-Hall Corporation System, 400 North St. Paul Street, Dallas, Texas 75201. Lorillard Tobacco Company, Inc. is a subsidiary of Loews Corporation. Lorillard Tobacco Company, Inc. manufactures, advertises and sells Old Gold, Kent, Triumph, Satin, Max, Spring, Newport and True throughout the United States.

16. United States Tobacco Company is a Delaware corporation whose principal place of business is located at 100 West Putnam Avenue, Greenwich, Connecticut, and upon whom process may be served. United States Tobacco Company manufactures, advertises and sells Sano cigarettes and smokeless tobacco products throughout the United States.

17. Hill & Knowlton, Inc. is a corporation organized and existing under and by virtue of the laws of the State of New Jersey, with an agent for service in the State of Texas, to-wit: United Corporation Services, Inc., 466 Lexington Avenue, New York, New York. Defendant Hill & Knowlton, Inc. is an international public relations firm. Defendant Hill & Knowlton, Inc. played an active and knowing role in the conspiracy complained of, aiding the circulation and/or publication of many false statements of the tobacco industry attributable to the Tobacco Institute Research Committee (TIRC) and the Council for Tobacco Research. Hill & Knowlton, Inc. has been the primary advertising agency responsible for dissemination of the false and misleading information in question in its capacity as the advertising and public relations agency for the Tobacco Institute, Inc. and the Tobacco Companies.

18. The Council for Tobacco Research -- U.S.A., Inc. (successor in interest to the Tobacco Institute Research Committee) is a non-profit corporation organized under the laws of the State of New York with its principal place of business located at 900 3rd Avenue, New York, New York 10022, and upon whom process may be served.

19. The Tobacco Institute, Inc. is a non-profit corporation organized under the laws of the State of New York whose agent for service of process in New York is C.T. Corporation, 1633 Broadway, New York, New York 10019, with its principal place of business located at 1876 "I" Street N.W., Suite 800, Washington, D.C. 20006.

20. The American Tobacco Company, R.J. Reynolds Tobacco Company; B.A.T. Industries, P.L.C.; Brown & Williamson Tobacco Corporation; Philip Morris, Inc. (Philip Morris U.S.A.); Liggett Group, Inc.; Lorillard Tobacco Company, Inc.; and United States Tobacco Company are referred to hereinafter as the "Tobacco Companies."

21. The Council for Tobacco Research-U.S.A., Inc., (successor to the Tobacco Institute Research Committee) and the Tobacco Institute, Inc., collectively, are referred to hereinafter as the "Tobacco Trade Associations."

22. At all pertinent times, Defendants acted through their duly authorized agents, servants, and employees who were then acting in the course and scope of their employment, and in furtherance of the business of said Defendants. At all pertinent times, the Tobacco Trade Associations and Hill & Knowlton, Inc. were the agents, servants, and/or employees of the Tobacco Companies - and acted within the scope of said agency, servitude and/or employment.

23. The Defendants listed above, and/or their predecessors and successors in interest, did business in the State of Texas; made contracts to be performed in whole or in part in Texas; and/or manufactured, tested, sold, offered for sale, supplied or placed in the stream of commerce, or, in the course of business, materially participated with others in so doing, tobacco products which the Defendants knew to be defective, unreasonably dangerous and hazardous, and which the Defendants knew would be substantially certain to cause injury to the State, and to persons within the State, thereby negligently and intentionally causing injury to persons within Texas and to the State, and as described herein, committed and continue to commit tortious and other unlawful acts in the State of Texas.

24. The Defendants and/or their predecessors and successors in interest, performed such acts as were intended to, and did, result in the sale and distribution of tobacco products in the State of Texas.

25. The term "addictive" used in this complaint is synonymous and interchangeable with the term "dependence - producing"; both terms refer to the persistent and repetitive intake of psychoactive substances despite evidence of harm and a desire to quit. Some scientific organizations have replaced the term "addictive" with "dependence - producing" to shift the focus to dependent patterns of behavior and away from the moral and social issues associated with addiction. Both terms are equally relevant for purposes of understanding the drug effects of nicotine.

FACTUAL BACKGROUND: EVENTS LEADING TO

DECEMBER 15, 1953 CONSPIRACY MEETING

26. Although tobacco in various forms has been consumed by Americans for many centuries, it was not until the 19th century that an easily inhalable tobacco product, the cigarette, became widely popular. With the introduction of the Bonsack mechanized cigarette-rolling machine in 1884 by W. Duke and Sons, cigarettes were mass-produced and distributed and sold nationwide.

27. In 1881, Duke's factory produced 9.8 million cigarettes, 1-1/2 percent of the total market. But five years later, W. Duke and Sons were able to manufacture 744 million cigarettes, more than the national total in 1883. By 1890, Duke's competitors, who themselves had now become mechanized, joined forces with him to establish the American Tobacco Company. By the turn of the century, 9 out of every 10 cigarettes carried the Duke label. Shortly after the American Tobacco Company was formed, the State of North Carolina started an antitrust suit against it -- and other such litigation followed. In May 1911, the American Tobacco Company was dissolved by order of the Supreme Court, to be succeeded by four large firms -- Liggett and Myers, Reynolds, Lorillard, and American -- plus many smaller ones.

28. The increased availability and consumption of cigarettes at the end of the 19th century corresponded with an increased incidence of lung disease and cancer.

29. The modern period of investigation into the question of smoking and health began about 1900 when an increase in what was by then recognized as cancer of the lungs was noted by vital statisticians.

30. Cigarette smoking increased dramatically in the first half of the 20th century. With the increase of cigarette smoking came an increase in lung cancer. Dr. Alton Ochsner, a New Orleans surgeon and regional medical director of the American Cancer Society, told an audience at Duke University on October 23, 1945, that "there is a distinct parallelism between the incidence of cancer of the lung and the sale of cigarettes...the increase is due to the increased incidence of smoking and that smoking is a factor because of the chronic irritation it produces."

31. In 1946, Tobacco Company chemists themselves reported concern for the health of smokers. A 1946 letter from a Lorillard chemist to its manufacturing committee states that "Certain scientists and medical authorities have claimed for many years that the use of tobacco contributes to cancer development in susceptible people. Just enough evidence has been presented to justify the possibility of such a presumption."

32. Despite the evidence showing their cigarettes caused lung disease and cancer, the Tobacco Companies failed to conduct any investigation of the smoking and health relationship for the safety of their customers. Instead, the Tobacco Companies chose sales over public health and safety. In the 1930s through the 195Os, in response to what industry spokesmen referred to as "the health scare", the Tobacco Companies made express claims and warranties as to the healthiness of their products with reckless disregard to the falsity of their claims and the consequential adverse impact on consumers. Examples of these health warranties include the following: Old Gold - "Not a cough in a Carload"; Camel - "Not a single case of throat irritation due to smoking Camels"; Philip Morris - "The Throat-tested cigarette."

33. In 1942, Brown and Williamson claimed that Kools would keep the head clear and/or give extra protection against colds.

34. In 1952, Liggett & Myers conducted a test for advertising purposes to demonstrate the absence of harmful effects of smoking Chesterfields on the nose, throat, and affected organs. The test was conducted by Arthur D. Little, Inc. and was designed so as to have no real scientific value. Nonetheless, its conclusion that smoking Chesterfields had no harmful effect on the organs in question was widely publicized and the purported results used to assure the general public that Chesterfields were harmless.

35. During the 1950s, Liggett & Myers sponsored the nationally popular Arthur Godfrey radio and television show wherein health claims were made based on the alleged scientific studies assuring "smoking Chesterfields would have no adverse effects on the throat, sinuses or affected organs." Arthur Godfrey subsequently died from lung cancer caused by smoking cigarettes.

36. Earlier consumer-oriented ads from the 1930s and 1940s often carried wide-ranging medical claims that placed cigarette-touting physicians in the company of endorsers such as Santa Claus ("Luckies are easy on my throat"), movie stars, sports heroes, and steady-nerved circus stars. Similar ads even appeared in medical journals, where ads were directed solely at physicians. One, for example, touted the Camel cigarettes booth at the American Medical Association's 1942 Annual Meeting.

37. In the New York State Journal of Medicine, Chesterfield ads began running in 1933. They often carried claims such as, "Just as pure as the water you drink... and practically untouched by human hands."

38. The Tobacco Companies sponsored cigarette ads in the New England Journal of Medicine, Journal of the American Medical Association ("JAMA"), and The Lancet from the 1930s through the 1950s.

39. For 15 years, Philip Morris used various claims, including one it ran in JAMA in 1949: "Why many leading nose and throat specialists suggest, 'Change to Philip Morris'..." In 1935, Philip Morris ran an ad in the New York State Medical Journal touting studies that purportedly showed Philip Morris cigarettes were less irritating. An ad by the company in a 1943 issue of the National Medical Journal read: "Don't smoke, is advice hard for patients to swallow. May we suggest instead, 'Smoke Philip Morris?' Tests showed three out of every four cases of smokers’ cough cleared on changing to Philip Morris. Why not observe the results for yourself?"

40. Other companies added different angles for physicians. Camel cigarettes paid tribute to medical pioneers and concluded: "Experience is the best teacher.... experience is the best teacher in cigarettes, too." Old Gold reacted to early negative medical studies with the slogan: "If pleasure's your aim, not medical claims..." Some companies hired attractive women to deliver cigarette samples to physicians and the patients in their waiting rooms.

41. The appearance of landmark studies such as the 1952 JAMA article on smoking and bronchial carcinoma by Alton Ochsner, M.D. and others prompted JAMA's decision to ban cigarette ads from their journal.

42. The health-claim advertising campaigns by Defendants were patently false, misleading, deceptive and/or fraudulent. These campaigns were disseminated nationally in popular magazines, press, radio and television and were calculated to induce non-smokers to begin smoking and to induce smokers to continue in their addiction to their harm and injury and to the damage of the State.

43. During the 1950s the Tobacco Companies employed yet another method of deception in manufacturing and advertising to boost sales to counter the "health scare" -- "The Filter Derby" and "Tar Wars". The Tobacco Companies manufactured filtered cigarettes that were advertised with explicit and/or implicit warranties of tar/nicotine content and health claims. The Tobacco Companies' health claims and claims as to the effectiveness of the filters in removing tar and nicotine were knowingly deceptive when made, and/or were made with reckless disregard for the health risks to the cigarette smokers.

44. In addition to conducting an industry-wide campaign of false health claim advertising during the 1930s and 1940s, certain Tobacco Companies engaged in antitrust violations that set the pattern for current violations.

45. The American Tobacco Company, Liggett & Myers Tobacco Company and R. J. Reynolds Tobacco Company are convicted violators of the Sherman Antitrust Act, 15 U.S.C.A. §§ 1 and 2 [ ATC's conviction of antitrust violations was affirmed and a decree of dissolution ordered the 1911 by the Supreme Court, United States v. The American Tobacco Co. , 221 U.S. 185. Included in the fourteen successor companies from ATC's break-up were ATC, Liggett & Myers, P. Lorillard Co., R.J. Reynolds Tobacco Co., and British-American Tobacco Co. ATC was convicted again of antitrust violations, along with Liggett & Myers and R. J. Reynolds Tobacco Co. in 1944. See American Tobacco Co. v. United States, 147 F.2d 93 (6th Cir. 1944), aff'd 328 U.S. 781 (1946).] . In the 1930s and 1940s, ATC, Liggett & Myers and R.J. Reynolds, at that time the so-called "Big Three," had combined to restrain competition in order to control prices of leaf tobacco. The methods employed were 1) limitations and restrictions on the prices their buyers were permitted to pay for tobacco; 2) maintenance of price ceiling agreements among them; 3) stabilization and fixing of prices through percentage buying; 4) formulation of certain grades of tobacco so as to construct barriers to competition and 5) combining to manipulate and raise the price of lower-grade tobaccos in order to eliminate competition from manufacturers of low-priced cigarettes.

46. By the 1950s, the Defendants had known for decades of the lethal dangers of smoking their cigarettes and consuming their smokeless tobacco products.

47. The course of history for the tobacco industry was forever changed in 1953. A 1953 report by Dr. Ernst L. Wynder disclosed to the scientific community and to the Tobacco Companies a definitive link between smoking and cancer. In these tests, researchers painted condensed cigarette smoke onto the backs of mice. As a result, the mice grew cancerous tumors. While previous statistical and epidemiologic studies indicated a relationship between smoking and cancer, Dr. Wynder's study demonstrated a direct biological link between smoking and cancer. (Although Defendants have sought to discredit the Wynder findings, recently disclosed documents include a 1962 letter from Lorillard to Dr. Wynder regarding his work establishing smoking to be a carcinogen and the principal cause of lung cancer, which stated that Lorillard "considered [Dr. Wynder's] work above reproach, as usual.")

THE MODERN CONSPIRACY ERA-

DECEMBER 15, 1953 TO PRESENT

48. In response to the publication of Dr. Wynder's study in 1953, the presidents of the leading tobacco manufacturers, including American Tobacco Co., R.J. Reynolds, Philip Morris, U.S. Tobacco Co., Lorillard, and Brown & Williamson Tobacco Corporation, conspired with the public relations firm of Hill and Knowlton, Inc. to form a monopolistic trust to deal with the "health scare" presented by smoking. Acting in concert at an industry strategy meeting on December 15, 1953 at the Plaza Hotel in New York, the participants agreed to form a committee to orchestrate a public relations campaign to protect their cigarette market from the perceived threat posed by the adverse medical reports. This committee was designed to promote an offensive, pro-cigarettes stance to counter reports of health dangers caused by cigarettes. As a result of these efforts, the Tobacco Institute Research Committee (TIRC), an entity later known as the Council for Tobacco Research (CTR), was established.

49. Hill & Knowlton notes from the December 15, 1953 meeting show that ATC executive Paul Hahn served as chairman. Defendants knowingly conspired to conceal illegal antitrust activity by avoiding the incorporation of a formal association; instead, they would work in informal committees within a front organization to be established and designated the Tobacco Institute Research Committee (later the CTR). The purpose of their meeting and conspiracy was to protect the cigarette market structure along the same lines and utilizing the same methods employed in their last such meeting in 1939, which resulted in the conviction of the "Big Three" under the Sherman Antitrust Act.

50. Although Liggett & Myers did not become a signatory member of the CTR until 1965, Liggett & Myers helped organize, support, aid and abet the conspiracy and illegal acts of the TIRC/CTR from the latter's inception through the present.

51. The TIRC immediately ran a full-page promotion in more than 400 newspapers aimed at an estimated 43 million Americans. That piece was entitled "A Frank Statement To Cigarette Smokers" and contained the following language:

RECENT REPORTS on experiments with mice have given wide publicity to a theory that cigarette smoking is in some way linked to lung cancer in human beings.

Although conducted by doctors of professional standing, these experiments are not regarded as conclusive in the field of cancer research. However, we do not believe that any serious medical research, even though its results are inconclusive, should be disregarded or lightly dismissed.

At the same time, we feel it is in the public interest to call attention to the fact that eminent doctors and research scientists have publicly questioned the claimed significance of these experiments.

Distinguished authorities point out:

1. That medical research of recent years indicates many possible causes of lung cancer.

2. That there is no agreement among the authorities regarding what the cause is.

3. That there is no proof that cigarette smoking is one of the causes.

4. That statistics purporting to link cigarette smoking with the disease could apply with equal force to any one of many aspects of modern life. Indeed the validity of the statistics themselves is questioned by numerous scientists.

We accept an interest in people's health as a basic responsibility, paramount to every other consideration in our business.

We believe the products we make are not injurious to health.

We always have and always will cooperate closely with those whose task it is to safeguard the public health.

For more than 300 years tobacco has given solace, relaxation, and enjoyment to mankind. At one time or another during those years, critics have held it responsible for practically every disease of the human body. One by one these charges have been abandoned for lack of evidence.

Regardless of the record of the past, the fact that cigarette smoking today should even be suspected as a cause of serious disease is a matter of deep concern to us.

Many people have asked us what we are doing to meet the public's concern aroused by the recent reports. Here is the answer:

1. We are pledging aid and assistance to the research effort into all phases of tobacco use and health. This joint financial aid will of course be in addition to what is already being contributed by individual companies.

2. For this purpose we are establishing a joint group consisting initially of the undersigned. This group will be known as the TOBACCO INDUSTRY RESEARCH COMMITTEE.

3. In charge of the research activities of the Committee will be a scientist of unimpeachable integrity and national repute. In addition there will be an Advisory Board of scientists disinterested in the cigarette industry. A group of distinguished men from medicine, science and education will be invited to serve on this Board. These scientists will advise the Committee on its research activities.

This statement is being issued because we believe the people are entitled to know where we stand on this matter and what we intend to do about it.

52. In this advertisement, the participating Tobacco Companies recognized their "special responsibility" to the public and promised to learn the facts about smoking and health. The participating Tobacco Companies promised to sponsor independent research on the subject, claiming they would make health a basic responsibility, paramount to any other consideration in their business. The participating Tobacco Companies also promised to cooperate closely with public health officials. At the time these promises were made, Defendants had no intent to honor their promises. In fact, these promises so publicly and dramatically made to the public, the citizens of Texas and government regulators, have been breached over and over again.

53. After lulling the public into a false sense of security concerning smoking and health, the TIRC continued to act as a front for tobacco industry interests. Despite the initial public statements and posturing, and the repeated assertions that they were committed to full disclosure and vitally concerned with public health, the TIRC failed to make the public health a concern. Rather the TIRC, at the direction of the Tobacco Companies, acted to protect tobacco industry profits and failed to protect the public health. A coordinated, industry-wide strategy was designed to actively mislead and confuse the public about the true dangers associated with smoking cigarettes. Rather than work for the good of the public health and sponsor independent research, as it had promised, the Tobacco Companies, acting through the TIRC/CTR, concealed, undermined and distorted information coming from the scientific and medical community.

54. The Defendants, in their December 15, 1953 and subsequent meetings in forming, operating and maintaining the TIRC/CTR, knowingly replicated the framework of the "Big Three" combination in restraint of trade from the 1930s and 1940s by conspiring, agreeing and attempting to stabilize and protect their commodity's pricing structure from the "health scare" threat by, inter alia, 1) limiting and restricting scientific research and public dissemination of adverse product information or data from within the industry; 2) forming Ad Hoc Committees comprised of company lawyers to control jointly sponsored scientific research funded by and based upon market share percentages in order to further conspiratorial objectives and self-policing; 3) conducting an extensive disinformation campaign to contradict or neutralize legitimate science and health reports linking smoking or tobacco use with cancer and disease in order to stabilize and protect the tobacco market demand structure; 4) formulating combined and monopolistic opposition to any development and/or marketing of safer and/or alternative non-tobacco, non-nicotine, smoking devices by the conspirators or outsiders/non-conspirators; and 5) conspiring and combining to manipulate public and governmental awareness and responses to science adverse to the tobacco industry by a knowing, extensive and combined course of misrepresentation, deception and disinformation conducted via mail, wire, press, radio and television mediums, among others.

55. For purposes of this action, cigarettes and other tobacco products constitute one relevant product market. The Tobacco Companies manufacture, ship and sell tobacco products throughout the United States. The market for health care, including provisions of medical treatment and payment for such treatment, and medical and scientific research bearing upon the diagnosis, prevention and treatment of disease, constitutes another relevant market for the purposes of this action. Relevant geographic markets are the United States and the State of Texas.

56. The tobacco industry is highly concentrated, and has been one of the most concentrated industries in the United States throughout this century. Six tobacco companies dominate and control the market for cigarettes and other tobacco products in the United States and Texas. These six tobacco companies -- American Tobacco, R.J. Reynolds, Brown & Williamson, Philip Morris, Liggett, and Lorillard -- have a combined market share of nearly 100% of the market.

57. This market concentration and lack of significant price competition has long enabled the tobacco industry to be one of the most profitable businesses in the United States.

58. The concentration in the industry has also benefitted the Tobacco Companies and the Tobacco Trade Associations in their combination and conspiracy to control and maintain the market for cigarettes and other tobacco products.

59. All of the Defendants herein have acted pursuant to their conspiracy and agreement from 1953 without interruption until the present. The most recent example of Defendants’ acts in furtherance of their conspiracy is the combined response of Brown and Williamson, Liggett, Lorillard, Philip Morris, and the Tobacco Institute in their January 1996 joint submission of twelve volumes in opposition to the 1995 proposed regulations of cigarettes and nicotine by the FDA. In this joint submission, Defendants perpetuate their disinformation campaign by denying that nicotine is a drug, by denying that cigarettes or smokeless tobacco are drug delivery devices, and by denying that nicotine in tobacco products is addictive.

60. The public disinformation strategy employed by the Tobacco Companies and the Tobacco Trade Associations was a strategy best described as "see no evil, hear no evil, and speak no evil" concerning the health effects of cigarette smoking. A publication called Tobacco and Health (later, Tobacco and Health Research) was created by the Tobacco Companies and the Tobacco Trade Associations and was used by them to disseminate false information and create confusion over the causal connection between cigarette smoking and disease. It was distributed to the press, doctors, and health officials. The "Criteria For Selection" of articles for publication included an example of "a report in which smoking-associated diseases are questioned."

61. The January 15, 1968 issue of True Magazine contained an article written by Stanley Frank called, "To Smoke or not to smoke--that is still the Question." The article dismissed the evidence against smoking as "inconclusive and inaccurate', and claimed that "Statistics alone link cigarettes with lung cancer... it is not accepted as scientific proof of the cause and effect." A few months later, a similar but shorter article appeared in the National Enquirer entitled "Cigarette Cancer Link is Bunk" written by "Charles Golden" (a fictitious name commonly used by the Enquirer.) The real author was Stanley Frank. Two million reprints of the True Magazine article were distributed to physicians, scientists, journalists, government officials, and other opinion leaders with a small card which stated, "As a leader in your profession and community, you will be interested in reading this story from the January issue of True Magazine about one of today's controversial issues." The cost for this was paid by Brown and Williamson, Philip Morris and R. J. Reynolds. It was subsequently disclosed that author Frank had been paid $500 to write the article by Joseph Field, a public relations professional working for Brown and Williamson. Brown and Williamson reimbursed Field for that amount.

62. Other public statements by the Defendants over the years have repeated the misrepresentations that the industry was dedicated to the pursuit and dissemination of the scientific truth regarding smoking and health.

63. For example, the Tobacco Institute in 1970 ran an advertisement captioned "A Statement About Tobacco and Health," which stated:

a. "We recognize that we have a special responsibility to the public--to help scientists determine the facts about tobacco and health, and about certain diseases that have been associated with tobacco use."

b. "We accepted this responsibility in 1954 by establishing the Tobacco Industry Research Committee, which provides research grants to independent scientists. We pledge continued support of this program of research until all the facts are known."

c. "Scientific advisors informs us that until much more is known about such diseases as lung cancer, medical science probably will not be able to determine whether tobacco or any other single factor plays a causative role -- or whether such a role might be direct or indirect, incidental or important."

d. "We shall continue all possible efforts to bring the facts to light."

64. Also, in 1970, the Tobacco Institute ran an advertisement captioned, "The question about smoking and health is still a question." In this advertisement, the Tobacco Institute stated:

a. "[A] major portion of this scientific inquiry has been financed by the people who know the most about cigarettes and have a great desire to learn the truth... the tobacco industry."

b. "[T]he industry has committed itself to this task in the most objective and scientific way possible".

c. "In the interest of absolute objectivity, the tobacco industry has supported totally independent research efforts with completely non-restrictive funding."

d. "Completely autonomous, CTR's research is directed by a board of ten scientists and physicians...This board has full authority and responsibility for policy, development and direction of the research effort."

e. "The findings are not secret."

f. "From the beginning, the tobacco industry has believed that the American people deserve objective, scientific answers."

65. Again, in 1970, the Tobacco Institute stated, "The Tobacco Institute believes that the American public is entitled to complete, authenticated information about cigarette smoking and health." The Tobacco Institute further stated that, "The tobacco industry recognizes and accepts a responsibility to promote the progress of independent scientific research in the field of tobacco and health."

66. In direct contrast to what the Defendants were telling the public, a memo from Tobacco Institute vice president Fred Panzer to president Horace Kornegay dated May 1, 1972, acknowledges that the industry had employed a single strategy for nearly 20 years to defend itself on three major fronts: litigation, politics, and public opinion. This strategy consisted of "creating doubt about the health charge without actually denying it-- advocating the public's right to smoke, without actually urging them to take up the practice--encouraging objective scientific research as the only way to resolve the question of health hazard." Panzer said this strategy had been successful on the litigation front and had "helped make possible an orderly retreat" on the political front, but that the situation had deteriorated on the public-opinion front. To remedy the public-opinion problem, he proposed that the industry supply the public with "ready-made credible alternatives" to the prevalent view that smoking causes cancer, such as genetic and environmental explanations for smoking-related diseases.

67. The Tobacco Companies, through the Tobacco Trade Associations, intentionally breached their promises to the American public, to the citizens of Texas and to the State to study and report independently and honestly on the health effects of smoking and the use of smokeless tobacco products. Defendants caused the cancellation of press conferences where their scientists sought to inform the public, actively and wrongfully suppressed the publishing of reports concerning the health dangers presented by cigarette smoking, attacked research linking smoking to disease, and threatened professionally the researchers themselves. Their scientists were not allowed to "freely publish what they find as they choose" as a CTR director once claimed.

68. Numerous scientists formerly employed by the Tobacco Companies and the Tobacco Trade Associations have spoken out against the suppression of scientific data and the practice of deception known to exist in the tobacco industry generally. For example, in April of 1994, Dr. Victor DeNoble, a former research scientist for Philip Morris, Inc., testified before the United States House of Representatives Health & Environment Subcommittee that the Philip Morris Company in 1983 suppressed and refused to allow him or his colleague, Dr. Paul Mele, to publish or to talk publicly about the research that they had conducted with respect to nicotine tolerance in rats, the potentially addictive nature of nicotine in rats, and research with respect to synthetic nicotine substances. Dr. DeNoble testified that his research demonstrated that the animals would administer nicotine to themselves and that this fact indicated that nicotine had the potential to be addictive. Dr. DeNoble testified that the focus of his research was nicotine's effect on the brain, not nicotine's effect on the flavor of tobacco in cigarettes. He further testified that his laboratory was closed and his research was terminated following the filing of a lawsuit by Rose Cipollone against Philip Morris and other tobacco companies.

69. In a similar vein, Liggett & Myers, while publicly refusing to acknowledge the validity of Dr. Wynder's tests, hired the consulting firm of Arthur D. Little, Inc. to duplicate Dr. Wynder's tests. Defendant Lorillard Corporation also duplicated Dr. Wynder's mouse tests. The results of the duplicated tests were essentially the same as Dr. Wynder's, and both Liggett & Myers and Arthur D. Little became aware by 1954 of the cancer-causing propensity of cigarettes. A Liggett & Myers researcher requested that the results of this testing be published, but Liggett & Myers would not allow it. In furtherance of the conspiracy objectives of the TIRC, the results of these additional tests were never made public.

70. The vast body of credible medical and scientific evidence identifies smoking as the leading cause of lung cancer. Tobacco industry scientific consultants also have accepted the causal association between smoking and disease.

SAFER CIGARETTES SUPPRESSED

71. The Tobacco Companies could have designed and manufactured a safer cigarette, but refused to do so. The need for a "safer" tobacco product results from the harmful chemical compounds occurring in tobacco products and/or formed as a result of burning. These compounds include carbon monoxide, nicotine, nickel, carbon dioxide, benzene, hydrazine, formaldehyde, Polonium-210, ammonia, nicotine sulfate, Freon II, hydrogen cyanide and certain liver toxins known collectively as furans. More than forty (40) known carcinogens are found in cigarette tobacco. The Tobacco Companies artificially add chemicals and flavorings to their products that increase toxicity and/or carcinogenicity.

72. At Liggett & Myers, Dr. James Mold conducted tests to divide the components of cigarette smoke into separate entities and to interrupt the process that produces carcinogens by using a catalyst. Liggett & Myers researchers were able to produce a so-called "safer" cigarette, designated as the "XA Project" that eliminated the carcinogenic activity on mouse skin. However, Liggett & Myers did not want to be identified publicly as the source of the research behind this non-carcinogenic "safer" cigarette.

73. Liggett & Myers instructed its researchers that any meetings held that pertained to the "safer" cigarette project were to be attended by a lawyer and that all reports, notes or memoranda should go to the Liggett & Myers legal department. The "safer" cigarette was never marketed.

74. Liggett abandoned its XA Project for two apparent reasons. One was that Liggett feared that the marketing of a "safer" cigarette would be, in essence, a concession that its -- and the industry's -- other cigarettes were not safe. Second, industry leader Philip Morris threatened to retaliate against Liggett if it broke ranks with the industry conspiracy.

75. Dr. Mold, who was assistant director of research at Liggett during the development of the safer cigarette, has provided the following overview of the XA Project and its abandonment:

a. Dr. Mold stated that the XA project produced a safer cigarette. He stated, "We produced a cigarette which was, we felt, commercially acceptable as established by some consumer tests, which eliminated carcinogenic activity..."

b. Dr. Mold stated that after 1975, all meetings on the project were attended by lawyers. Lawyers collected notes after all meetings. All documents were directed to the law department to cloak the documents with the attorney-client privilege. He stated, "Whenever any problem came up on the project, the Legal Department would pounce upon that in an attempt to kill the project, and this happened time and time again."

c. Dr. Mold was asked why Liggett didn't market a safer cigarette. He stated,

"Well, I can't give you, you know, a positive statement because I wasn't in the management circles that made the decision, but I certainly had a pretty fair idea why... (T)hey felt that such a cigarette, if put on the market, would seriously indict them for having sold other types of cigarettes that didn't contain this, for example ... (a)t a meeting we held in ... New Jersey at the Grand Met headquarters ... at which the various legal people involved and the management people involved and myself were present. At one point, Mr. Dey ... who at that time, and I guess still is the president of Liggett Tobacco, made the statement that he was told by someone in the Philip Morris Company that if we tried to market such a product that they would clobber us."

76. A memorandum authored by an attorney at the firm of Shook, Hardy & Bacon, long-time lawyers for the cigarette industry, confirmed the industry-wide position regarding the issue of a safer cigarette.

77. The 1987 memorandum was written in the context of the marketing by R.J. Reynolds of a smokeless cigarette, Premier, that heated rather than burned tobacco. The Shook, Hardy attorney wrote that the smokeless cigarette could "have significant effects on the tobacco industry's joint defense efforts" and "(t)he industry position has always been that there is no alternative design for a cigarette as we know them." The attorney also noted that, "Unfortunately, the Reynolds announcement... seriously undercuts this component of industry's defense."

TOBACCO, NICOTINE AND DEPENDENCY

78. The tobacco products manufactured and sold by the Tobacco Companies contain nicotine, a highly addictive substance. The Defendants know of the difficulties smokers experience in quitting smoking and of the tendency of addicted individuals to focus on any rationalization to justify their continued smoking. The Defendants exploit this weakness and capitalize upon the known addictive nature of nicotine. An internal tobacco industry memo acknowledged in 1972: "(w)ithout nicotine...there would be no smoking...the cigarette (is) a dispenser for a dose unit of nicotine." Nicotine addiction guarantees a market for cigarettes. The addictive nature of the nicotine in cigarettes virtually eliminates personal choice in those who become addicted.

79. The industry's recognition of the extent to which nicotine -- and not tobacco -- defines its product is illustrated in a 1972 Philip Morris report on a CTR conference, which stated:

As with eating and copulating, so it is with smoking. The physiological effect serves as the primary incentive; all other incentives are secondary. The majority of the conferees would go even further and accept the proposition that nicotine is the active constituent of cigarette smoke. Without nicotine, the argument goes, there would be no smoking.

. . .

Why then is there not a market for nicotine per se, eaten, sucked, drunk, injected, inserted or inhaled as a pure aerosol? The answer, and I feel quite strongly about this, is that the cigarette is in fact among the most awe-inspiring examples of the ingenuity of man. Let me explain my conviction.

. . .

The cigarette should be conceived not as a product but as a package. The product is nicotine.

. . .

Think of the cigarette pack as a storage container for a day's supply of nicotine...Think of the cigarette as a dispenser for a dose unit of nicotine.

80. Accordingly, the industry has developed sophisticated technology to control the levels of nicotine in cigarettes in order to maintain its market. David A. Kessler, M.D., Commissioner of Food and Drugs, recently testified before a congressional committee that cigarette manufacturers can manipulate precisely nicotine levels in cigarettes, manipulate precisely the rate at which the nicotine is delivered in cigarettes, and add nicotine to any part of cigarettes.

81. Dr. Kessler testified that "the cigarette industry has attempted to frame the debate on smoking as the right of each American to choose. The question we must ask is whether smokers really have that choice." Dr. Kessler stated:

Accumulating evidence suggests that cigarette manufacturers may intend this result -- that they may be controlling the levels of nicotine in their products in a manner that creates and sustains an addiction in the vast majority of smokers.

. . .

We have information strongly suggesting that the amount of nicotine in a cigarette is there by design.

. . .

[Tlhe public thinks of cigarettes as simply blended tobacco rolled in paper. But they are much more than that. Some of today's cigarettes may, in fact, qualify as high technology nicotine delivery systems that deliver nicotine in precisely calculated quantities -- quantities that are more than sufficient to create and to sustain addiction in the vast majority of individuals who smoke regularly.

. . .

[T]he history of the tobacco industry is a story of how a product that may at one time have been a simple agricultural commodity appears to have become a nicotine delivery system.

. . .

[T]he cigarette industry has developed enormously sophisticated methods for manipulating nicotine levels in cigarettes.

. . .

In many cigarettes today, the amount of nicotine present is a result of choice, not chance.

. . .

[S]ince the technology apparently exists to reduce nicotine in cigarettes to insignificant levels, why, one is led to ask, does the industry keep nicotine in cigarettes at all?

. . .

82. In a subsequent appearance before Congress, Dr. Kessler testified that one manufacturer, Brown & Williamson, had developed a tobacco plant, code-named Y-1, with perhaps twice the nicotine content of regular tobacco. Brown & Williamson manufactured and marketed cigarettes with Y-1 tobacco in the United States in 1993.

83. The story of Brown & Williamson's development of Y-1 is one of the more egregious examples of the cigarette industry's concealment of its control and manipulation of the nicotine levels in its products.

84. On June 21, 1994, Dr. Kessler told the Waxman Subcommittee that FDA investigators had discovered that Brown & Williamson had developed a high nicotine tobacco plant, which the company called Y-1. This discovery followed Brown & Williamson's flat denial to the FDA on May 2, 1994, that it had engaged in "any breeding of tobacco for high or low nicotine levels."

85. When four FDA investigators visited the Brown & Williamson plant in Macon, Georgia on May 3, 1994, Brown & Williamson officials denied that the company was involved in breeding tobacco for specific nicotine levels. Only after the FDA had learned of the development of Y-1 in its investigation and confronted company officials with the evidence, did the company admit that it was growing and using the high-nicotine plant.

86. In fact, in a decade-long project, Brown & Williamson secretly developed a genetically-engineered tobacco plant with a nicotine content more than twice the average found naturally in flue-cured tobacco. Brown & Williamson took out a Brazilian patent for the new plant, which was printed in Portuguese. Brown & Williamson and a Brazilian sister company, Souza Cruz Overseas, grew Y-1 in Brazil and shipped it to the United States where it was used in five Brown & Williamson cigarette brands sold in Texas, including three labeled "light." When the company's deception was uncovered, company officials admitted that close to four million pounds of Y-1 were stored in company warehouses in the United States.

87. As part of its cover-up, Brown & Williamson even went so far as to instruct the DNA Plant Technology Corporation of Oakland, California, which had developed Y-1, to tell FDA investigators that Y-1 had "never [been] commercialized." Only after the FDA discovered two United States Customs Service invoices indicating that "more than a half-million pounds" of Y-1 tobacco had been shipped to Brown & Williamson on September 21, 1992, did the company admit that it had developed the high-nicotine tobacco.

88. Y-1 is one example of an overall trend in the tobacco industry to increase the nicotine content and/or impact of its products.

89. As a result of the industry's actions, as many as 74% to 90% of smokers are addicted. Eight out of ten smokers say they wish they had never started smoking. Two-thirds of adults who smoke say they wish they could quit. Seventeen million try to quit each year, but fewer than one out of ten succeed. A high percentage of the smokers who have had surgery for lung cancer or heart attacks return to smoking, as do 40% of smokers who have had their larynxes removed.

90. Beyond its addictive qualities, nicotine is believed to contribute to cardiovascular disease and death -- a fact known to the cigarette industry for many years.

DECEIT AND FRAUD-A CONTINUING CONSPIRACY

AND COMBINATION IN RESTRAINT OF TRADE

91. The general counsel of the major cigarette manufacturers, through joint meetings to review and direct proposals for scientific research for the entire industry, aided in the conspiracy of the tobacco industry to defraud the public on the issue of tobacco and health.

92. The tobacco industry's combination in restraint of trade was also referred to as the "gentlemen's agreement." The "gentlemen's agreement" among the manufacturers was to suppress independent research on smoking and health. This agreement was referenced in a 1968 internal Philip Morris draft memo, which states, "We have reason to believe that in spite of gentlemens (sic) agreement from the tobacco industry in previous years that at least some of the major companies have been increasing biological studies within their own facilities." This memo also acknowledged that cigarettes are inextricably intertwined with the health field, stating, "Most Philip Morris products both tobacco and non-tobacco are directly related to the health field."

93. The industry believed that individual companies were performing certain research on their own in addition to the joint industry research. But the fundamental understanding and agreement remained intact: any harmful information and activities would be restrained, suppressed and/or concealed. This secret agreement included restraining, suppressing and concealing research on the health effects of smoking, including the addictive qualities of nicotine, and restraining, concealing and suppressing the research and marketing of safer cigarettes.

94. The Defendants designed a litigation strategy over the years to conceal, delay and to run up consumers' expenses in a war of attrition. For example, a memo written by J. Michael Jordan, an attorney for Defendant R.J. Reynolds Tobacco Company, noted:

"(T)he aggressive posture we have taken regarding depositions and discovery in general continues to make these cases extremely burdensome and expensive for plaintiffs’ lawyers, particularly sole practitioners. To paraphrase General Patton, the way we won these cases was not by spending all of Reynolds' money, but by making that other son of a bitch spend all his."

95. Additionally, corporate officials of the Tobacco Companies and the Tobacco Trade Associations have attempted wrongfully to create a privilege for various documents that they wish to conceal by sending such documents through their legal departments and law firms in order that they might claim the documents to be protected by the attorney-client or attorney work-product privileges. A "Special Projects" division within CTR was set up to conceal research that was harmful to the tobacco industry and to promote and develop research and expert witnesses needed for the defense of tort litigation. Incriminating reports and documents contained within this division were passed through attorneys and are now claimed by the Defendants to be privileged.

96. The industry has congratulated itself on a brilliantly conceived and executed strategy to create doubt about the charge that cigarette smoking is deleterious to health without actually denying it. A 1962 memo stated that they had handled the "emergency" (of the Wynder report) effectively by treating the public health threat as a public relations problem that was solved for the self-preservation of the industry's image and profit. One Defendant's executive called the CTR the best, cheapest insurance the tobacco industry could buy, noting that without it the Tobacco Companies would have to invent CTR or would be dead.

97. Not content with the holding strategy employed by the TIRC and the CTR, the Tobacco Companies advocated a more offensive role through their lobbying arm, the Tobacco Institute (TI). This tobacco industry-supported group actively seeks to increase doubt about the negative health effects of smoking by suggesting that there are alternative explanations to the data. One "theory" detailed how individual genetic makeups predisposed individuals to illness. Another, the "multi-factorial hypothesis," asserted that multiple factors should be blamed, i.e., food additives, viruses, occupational hazards, air pollution or stress, for causing cancer. The tobacco industry financed, supported and encouraged the manufacture of fraudulent science.

98. However, evidence began to surface concerning the Defendants’ illegal scheme. On February 6, 1992, United States District Court Judge H. Lee Sarokin for the District of New Jersey issued an opinion in Haines v. Liggett Group. Inc., Civ. Action 84-678. After reviewing 1500 documents in camera, Judge Sarokin noted that "In 1954, the tobacco industry promised to disseminate the results of industry-sponsored, independent scientific research for the purpose of answering the question: "Does cigarette smoking cause illness?" To fulfill its promise, the tobacco industry proffered the allegedly "independent research organization, the Council for Tobacco Research (the 'CTR'), which purportedly would examine the risks of smoking and report its findings to the public." After his review of the withheld documents, Judge Sarokin concluded:

Despite the industry's promise to engage independent researchers to explore the dangers of cigarette smoking and to publicize their findings, the evidence clearly suggests the research was not independent; that potentially adverse results were shielded under the caption of "special projects;" that the attorney-client privilege was intentionally employed to guard against such unwanted disclosure; and that the promise of full disclosure was never meant to be honored, and never was.

As a result of this finding, Judge Sarokin went on to note:

A jury might reasonably conclude that the industry's announcement of proposed independent research into the dangers of smoking and its promise to disclose its findings was nothing but a public relations ploy -- a fraud -- to deflect the growing evidence against the industry, to encourage smokers to continue and non-smokers to begin, and to reassure the public that adverse information would be disclosed.

99. Undaunted by Judge Sarokin's findings, in April, 1994, Tobacco Company executives asserted, under oath, that tobacco does not cause cancer, that nicotine is not addictive and that tobacco advertising does not target new smokers. Judge Sarokin's earlier written opinion in Haines is still valid for describing the Defendants: "...despite some rising pretenders, the tobacco industry may be the king of concealment and disinformation." Recently, the fight to uncover the truth has been joined by the Food and Drug Administration (FDA).

100. On February 25, 1994, David A. Kessler, M.D., Commissioner of the FDA, sent a letter to Scott D. Ballin, Chairman of the Coalition on Smoking Or Health, asserting:

Evidence brought to our attention is accumulating that suggests that cigarette manufacturers may intend that their products contain nicotine to satisfy an addiction on the part of some of their customers. The possible inference that cigarette vendors intend cigarettes to achieve drug effects in some smokers is based on mounting evidence we have received that: (1) the nicotine ingredient in cigarettes is a powerfully addictive agent and (2) cigarette vendors control the levels of nicotine to satisfy this addiction.

101. In response to Kessler's letter, on March 15, 1994, in a letter to The New York Times, James W. Johnston, Chairman and Chief Executive Officer of R.J. Reynolds, continued to assert that nicotine was not addictive. Johnston based his assertion upon the success rate of American adults who had quit smoking.

102. The Chief Executive officers of The American Tobacco Company, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, Philip Morris, Inc., Lorillard and Liggett Group, Inc. all testified under oath before the same Subcommittee in April of 1994 that they believed nicotine is not addictive.

103. The recent disclosures of the sworn testimony of a former research chief for Brown & Williamson Tobacco Corporation, Dr. Jeffrey S. Wigand, and former Philip Morris scientists Jerome Rivers, Dr. Ian L. Uydess and Dr. William A. Farone, directly contradict the Tobacco Companies' CEOs' testimony regarding addiction, as well as the industry's denial of nicotine manipulation.

TARGETING CHILDREN

104. For many years, the Defendants have engaged in a vast and misleading promotional, public relations and sham lobbying blitz that had as its goal increasing the numbers of people addicted to nicotine in cigarettes and/or smokeless tobacco products and decreasing the number of people who attempt or succeed in quitting. Their efforts have been and continue to be directed toward children. They have done so and continue to do so in contravention of their duty not to make false statements of material fact and their duty not to conceal such true facts from the public. At the cost of countless lives, the Defendants spend billions of dollars every year misleading the public and promoting the myth that smoking cigarettes and using smokeless tobacco products does not cause cardiovascular disease, lung and other cancers, emphysema and other diseases and that smokers live healthy and vital lives. The Defendants have at all pertinent times presented and promoted smoking as an attractive, glamorous, youthful and relaxing pastime, associating it with movie stars, athletes and successful professionals.

105. Every day more than 1,200 cigarette smokers die of cigarette-related diseases. Others manage to break their addiction to nicotine and quit. In order to prevent a precipitous decline in cigarette sales, the Tobacco Companies must attract more than 3,000 new smokers each day. Children and teenagers have become the main target, and as a result of the Tobacco Companies’ fraudulent and false advertising, more than 3,000 of them begin the habit every day.

106. The Defendants specifically target children. By way of example, the Joe Camel campaign waged by Defendant R.J. Reynolds Tobacco Company is intended to and has had great appeal to children. More than one million new underage smokers become addicted in the United States each year. Such efforts by the Defendants create more sales for the tobacco industry and more resulting health care costs for the State.

107. As previously alleged, the Defendants have engaged in a concerted effort to circumvent and violate the laws of the State of Texas by targeting children with sophisticated promotional schemes designed to create successive generations of addicted customers. As a result of Defendants’ campaigns, it is virtually impossible for parents or law enforcement resources to control the efforts of the Defendants to make children the users of tobacco products.

108. Despite the best efforts of parents, educators and the medical profession, smoking among young people has remained alarmingly constant since the late 1970s. Tobacco Companies use advertising to create a mental image associating smoking with health, glamorous and athletic lifestyles and with success and sexual attractiveness. Their advertising and marketing campaigns increase demand for tobacco products among young people. The ease with which children and teenagers can obtain cigarettes from vending machines assures that there is a ready supply to meet this demand. Results of a Texas state-wide vending machine survey show children are successful in their attempts to purchase cigarettes 90% of the time. It has been shown repeatedly that cigarette vending machines (even those located in bars and other supposedly adult locations) are readily available to children. Within a short period of time, the young smoker becomes physiologically and emotionally dependent, i.e., addicted to tobacco. Later, as the maturing smoker begins to wish he or she could quit, advertising reinforces the practice and seeks to minimize health concerns, create doubt and confusion, which are used by smokers as an excuse to avoid the pain and discomfort of attempting to break their addiction to nicotine.

109. The advertising imagery used to promote smoking among young people particularly appeals to those with low self-esteem and emotional insecurity. Once the young person has been predisposed toward smoking, a variety of factors can precipitate actual experimentation. For many young people, the precipitating factor is being given a free pack of cigarettes by a tobacco company representative, or purchasing cigarettes in order to obtain an attractive t-shirt, baseball cap, or other gimmick used to promote cigarette smoking.

110. One of the best examples of this was the transformation of Marlboro cigarettes from a red-tipped cigarette for women to the cigarette for the 'macho cowboy'. By changing advertising imagery, Philip Morris was able to tap into a wholly new and different market. In 1950, R.J. Reynolds was the king of the cigarette business. It sold more cigarettes than any other company. Philip Morris, though doing well on the basis of its fraudulent health-oriented advertising, was still far behind. In 1981, Philip Morris overtook R.J. Reynolds and each year has extended its lead by developing an effective marketing campaign for recruiting young new smokers to its brands. The wild spirit of the Marlboro Man captured the adolescent imagination. The children who started smoking Marlboro became tenaciously loyal customers. Soon, Marlboro became the "gold standard" of cigarettes among teenagers. Through the year 1988, nearly three-fourths of teenage smokers used Marlboro.

111. At about the time it lost market leadership to Philip Morris, R.J. Reynolds dedicated itself to a ruthless advertising campaign encouraging children and teenagers to smoke. One of the key elements of the R.J. Reynolds’ strategy for attracting children was to reposition many of its cigarette brands to younger audiences. Just as Marlboro was repositioned from the women's market to the macho male market by a new advertising campaign, R.J. Reynolds has positioned its cigarette advertising campaigns to younger and younger audiences using a succession of advertising images of men engaged in extraordinary feats of physical and athletic achievements.

112. R.J. Reynolds' Vantage cigarettes entered the 1980s as a brand targeted at the health-conscious adult smoker. Advertisements were intended to assuage fears of lung cancer and other diseases and give the concerned smoker arguments for rationalizing their continuation of the addiction. Through multiple-advertising transmogrifications, Vantage cigarettes have been progressively repositioned to ever-younger audiences. During the mid-1980s, this advertising campaign featured young, successful professionals (including architects, fashion designers, lawyers, etc.) with the slogan "The Taste of Success." These ads promoted the implication that smoking is helpful-if not essential-to success or prominence. In the late 1980s, the advertising theme for Vantage cigarettes began to feature professional-caliber athletes and auto racers. These advertisements depict physical activity requiring strength or stamina beyond that of everyday activity. The obvious implication is that smoking does not harm you.

113. During the 1980s, advertising for Salem cigarettes also became more youth-oriented. Whereas the dominant advertising theme for Salem cigarettes used to be clean, fresh country air during the 1980s, Salem ads became populated by muscular surfers and bikini-clad women, fun-loving party animals and other attractive adolescent role models. Another successful advertising campaign targeted at young people is the Lorillard Tobacco Company campaign promoting Newport cigarettes. Newport ads frequently show men and women in sexually suggestive positions always having fun, using the slogan "Alive With Pleasure."

114. Another successful advertising campaign has been the "You've Come A Long Way Baby" campaign promoting Virginia Slims cigarettes. One of the most important psychological needs of most adolescent girls is to become independent from their parents. By associating smoking with women's liberation, Philip Morris intended to create in the minds of teenage girls the vision of smoking as a symbol of autonomy and independence. Ads for Virginia Slims and other "feminine" cigarettes prey upon the natural and common insecurity and sense of inferiority experienced by adolescents by portraying the cigarette as a crutch and a symbol of superiority and sophistication. Perhaps the most acute psychological need of adolescence is to fit in, to be accepted, to be popular. Ads for Philip Morris' Benson & Hedges cigarettes developed an image of smoking as a happy pleasure to be shared in the company of others and the easy road to instant acceptance within a group.

115. In today's culture many teenage girls perceive that a prerequisite to popularity is to be thin. Philip Morris and other Tobacco Companies capitalize upon this perception by presenting cigarette smoking as a suitable alternative to a diet for being thin. Virtually every "feminine" cigarette includes words like slim, light, super slim, ultra light, etc. The photographic imagery in cigarette advertising that targets young females universally portrays attractive young women in glamorous outfits. Smoking is thus associated with being sexy and beautiful. In cigarette ads, the air is fresh and clear; magical things happen. The reality is that cigarette smoking causes addiction, disease and death.

116. Many teenage boys fantasize about owning a powerful motorcycle. For this reason, many cigarette brands have used motorcycle imagery to encourage teenage boys to smoke. Many cigarette ads that target young boys glamorize high risk activities like hang gliding, motorcycle racing, mountain climbing, etc. Cigarette makers do this deliberately to undermine awareness that smoking is dangerous. In its campaign to attract adolescent boys to become smokers, the R.J. Reynolds Tobacco Company has made extensive use of risk-taking and danger in its advertising. By glorifying risk-taking, these ads have a more insidious purpose. How a person estimates the magnitude and likelihood of a risk can be significantly affected by what it is compared against. By portraying dangerous activities like hang-gliding, mountain climbing, and stunt motorcycle riding in tobacco advertising, R.J. Reynolds minimizes the dangers of smoking in adolescent minds.

117. The great success that R.J. Reynolds had in its effort to overtake Philip Morris in the youth market is the "Joe Camel" cartoon character. This campaign was inaugurated in the United States in 1987 to commemorate the 75th anniversary of Camel cigarettes. In the first ads, the camel leered out over the ad saying, "75 Years And Still Smoking." The implication is obvious. It soon became evident that "Joe Camel" would strike a responsive chord among children and teenagers and has been used by R.J. Reynolds to target children to get them to start smoking as early as possible, so they can become addicted to nicotine at the earliest age possible. R.J. Reynolds has more than tripled its advertising expenditures for Camel cigarettes since 1988, utilizing themes like "Joe Camel" guaranteed to be attractive to young people at high risk of becoming smokers.

118. When R.J. Reynolds began the Joe Camel cartoon campaign, Camel’s share of the children's market was only O.5%. In just a few years, Camel's share of this illegal market has increased to 32.8%, representing sales estimated at $476 million per year. Another indication of the phenomenal success of this marketing campaign is the fact that in a recent survey of six year olds, 91% of the children could correctly match Joe Camel with a picture of a cigarette, and both the silhouette of Mickey Mouse and the face of Joe Camel were nearly equally well-recognized by almost all children surveyed.

119. The themes within cigarette advertising are not the only feature of tobacco marketing that betray the real target. The location and placement of those ads further reveal that children are the intended target. During the decade of the 1980s, there was a steady migration of cigarette advertising into youth-oriented publications. Magazines with sexually-oriented themes and those concerning entertainment and sporting activities had the highest concentration of cigarette ads. For many of these magazines, teenagers comprise a quarter or more of the total readership. Cigarette ads in these youth-oriented magazines were frequently multi-page, pop-up ads which are significantly more costly, but also more attention-grabbing than conventional ads. News magazines, like Time and Newsweek, which have older audiences, had few cigarette ads and those tended to emphasize implicit health promises concerning tar and nicotine rather than glamorous images.

120. The Tobacco Companies sell more than one billion packs of cigarettes per year to children under the age of 18. In 1988, the tobacco industry reaped $221 Million in profits from $1.25 Billion in sales to children under the age of 18. Marlboro and Camel cigarettes dominate the teenage smoking market.

121. In late 1990, the Tobacco Institute, on behalf of the industry, inaugurated a public relations campaign designed to convince the public that the Tobacco Companies wished to discourage young people from smoking. Several Tobacco Companies began their own campaigns at the same time. In fact, these programs are just a continuation of the Defendants' ongoing fraud and conspiracy. While these programs call for age 18 as the national standard for tobacco sales to children, and for requiring "adult supervision" of cigarette vending machines, in fact, the Institute and Tobacco Companies hope to maintain the status quo with regard to children's access to tobacco as most states already have a minimum age of 18 or older. Brochures, like "Tobacco: Helping Youth Say No", are being distributed by the Institute and Tobacco Companies. In reality, this is a pro-smoking subterfuge. The brochure presents smoking as a permissible "adult" decision and smoking as something an "adult" can safely do. The only reason given to children for not smoking is that - like getting married or driving a car - smoking is for grown ups. Of course, that message really makes the smoking more desirable to kids. An R.J. Reynolds' brochure even tells parents to tell their children that the parents smoke "because they enjoy it." None of these brochures disclose that smoking is highly addictive and harmful to human life.

122. Perhaps the most vicious element of this advertising campaign has been advertising aimed at young girls. Nearly every issue of magazines for young girls, like Teen and Young Miss, includes an advertisement by Reynolds urging children not to smoke. But the reasons given for refraining are not that smoking is addictive, that it can harm or kill the infants of pregnant women or that it causes cancer and other lethal diseases; rather, the reason given is that it is an "adult decision."

123. The likely effect of these ads is that, rather than discouraging children from smoking, they plant in impressionable young girls’ minds the notion that smoking is something to do to show one's independence, to act grown-up. This notion is, of course, reinforced by the ubiquitous cigarette ads depicting glamorous young adult women smoking as a way of demonstrating their independence.

124. This despicable conduct has gone on for 40 years and continues into this decade. In January 1990, the Manager of Public Relations of R.J. Reynolds wrote the principal of a public school that:

The tobacco industry is also concerned about the charges being made that smoking is responsible for so many serious diseases. Long before the present criticism began, the tobacco industry in a sincere attempt to determine the harmful effects, if any, smoking might have on human health, established the Council for Tobacco Research-USA. The industry has also supported research grants directed by the American Medical Association. Over the years the tobacco industry has given in excess of $162 million to independent research on the controversies surrounding smoking more than all voluntary health associations combined.

Despite all the research going on, the simple and unfortunate fact is that scientists do not know the cause or causes of the chronic diseases reported to be associated with smoking. The answers to many unanswered controversies surrounding smoking - and the fundamental causes of the diseases often statistically associated with smoking - we do believe can only be determined through much more scientific research. Our company intends, therefore, to continue to support such research in a continuing search for answers.

125. The targeting of children, while unquestionably wanton, reckless, and unethical and cynically denied by the industry, was and continues to be, vitally important to the tobacco industry. Children enticed into smoking provide a guaranteed future market for a product that kills the industry's customers by the hundreds of thousands.

126. The reckless disregard by the Defendants for the health risks for the youth and minorities of America, is reflected in the response of an R. J. Reynolds’ executive to the question of a former "Winston Man", David Goerlitz, when he asked why the R.J. Reynolds executives did not smoke: "We don't smoke the s---, we just sell it. We reserve that for the young, the black, the poor and the stupid."

FRAUDULENT ADVERTISING OF

TAR/NICOTINE CONTENT

127. The campaign of deception in advertising by the Defendants regarding filters and tar/nicotine content that began in the 1950s has continued unabated through the present. Although an "FTC Method" has been developed that measures the amount of tar and nicotine in a cigarette with a "smoking machine" (measurements the Tobacco Companies advertise for their brands), the FTC method is not a valid or reliable method to measure tar/nicotine intake by "human smokers". In fact, the Tobacco Companies have specifically designed their products to deceive the public into thinking they are getting a low tar/nicotine cigarette, when in fact they are getting significantly higher deliveries of tar/nicotine in their smoke.

128. In 1982, The New York Times noted that Brown and Williamson had complained to the FTC that American Brands, Inc., Philip Morris, U.S.A. and R.J. Reynolds were engaging in deceptive advertising. While promoting very low-tar cigarettes packaged in flip-top boxes, the three were also marketing cigarettes containing 10 to 100 times more tar -- in look-alike soft packages. The Times also reported that Brown and Williamson's much publicized low-tar Barclay was designed to fool the FTC's smoking machines. The machines preserve Barclay filter -- but the human lips probably destroy it, giving smokers heavy doses of just what they were trying to avoid. In January 1983, Consumer Reports noted that while the Barclay ads claimed "1 mg. of tar," smokers actually got 3 to 7 times as much.

129. In the 1980s and 1990s, the Tobacco Companies have continued the "tar/nicotine reduction" deception by increasing bioavailability of nicotine through pH manipulation and use of additives, such as acetaldehyde to boost the reinforcer pharmacological impact of nicotine, while still publishing "FTC Method" measurements and advertising their products as "Light" or "Ultra-light".

OTHER TOBACCO PRODUCTS

130. Defendants Brown & Williamson and R.J. Reynolds also manufacture and distribute loose tobacco used in the "roll your own" process of cigarette-making.

131. The "roll your own" tobacco products distributed in Texas by these Defendants are unreasonably dangerous to the consumer.

132. Even though the medical evidence regarding the hazards of cigarette smoking and addiction have been known to these Defendants for many years, the packages and containers of the "roll your own" tobacco bear no warning regarding such hazards.

133. The fact that nicotine delivered by tobacco products is highly addictive was carefully and comprehensively documented in the 1988 Surgeon General's Report, "The Health Consequences of Smoking: Nicotine Addiction." The major conclusions contained in this report are: (1) "Cigarettes and other forms of tobacco are addicting"; (2) "Nicotine is the drug in tobacco that causes addiction"; and (3) "The pharmacologic and behavioral processes that determine tobacco addiction are similar to those that determine addiction to drugs such as heroin and cocaine."

Likewise, in a 1988 report addressing the health effects of smokeless tobacco, the World Health Organization concluded:

"There is ample evidence that the blood nicotine levels of smokeless tobacco users were as high as or even higher than those found in many cigarette smokers. Its continued use therefore, does cause addiction and dependence in humans."

134. Nicotine in cigarettes and smokeless tobacco is now recognized as an addictive substance by such major medical organizations as the Office of U.S. Surgeon General, the World Health Organization, the American Medical Association, the American Psychiatric Association, the American Psychological Association, the American Society of Addiction Medicine, the American Public Health Association, and the Medical Research Counsel in the United Kingdom. The National Institute on Drug Abuse ("NIDA") has called cigarette smoking the most common example of drug dependence in the United States.

135. Despite their knowledge that cigarette smoking and the use of smokeless tobacco is, as a result of nicotine, extremely addictive, the Tobacco Companies to this day deny that smoking, "dipping" or "chewing" tobacco is addictive. Through their individual advertising and public relations campaigns, and collectively, through the Tobacco Institute, the Tobacco Companies have successfully promoted and sold tobacco products by concealing and misrepresenting the highly addictive nature of cigarettes and smokeless tobacco.

136. Defendant United States Tobacco Company makes approximately 90 percent of the oral snuff and chewing tobacco sold in the United States. As alleged above, smokeless tobacco delivers a similar amount of nicotine as cigarettes and is equally as addictive. Plaintiff is informed and believes that smokeless tobacco manufacturers intend to cause nicotine dependence among consumers through a strategy that involves promoting the use of lower nicotine brands with the intent of moving users up to higher, more addictive brands over time. The "graduation" strategy calls for three different brands of low, medium and high nicotine content. The strategy is based on the premise that new users of smokeless tobacco are most likely to begin with products that are milder tasting, more flavored and lighter in nicotine content. After a period of time, there is a natural progression to products switching to brands that are more full-bodied and have more concentrated tobacco taste, with more nicotine, than the entry brand. This graduation strategy is supported by the manufacturers' advertising practices which indicate the manufacturers' intent to have consumers experiment with low-nicotine brands and graduate to higher-nicotine brands over time.

RECENT DEVELOPMENTS AND DISCLOSURES

137. After an extensive investigation, in August, 1995, the FDA published its report and proposed regulations of cigarettes and nicotine. The results of that inquiry and analysis support a finding that nicotine in cigarettes and smokeless tobacco is a drug, and that these tobacco products are drug delivery devices within the meaning of the Federal Food, Drug and Cosmetic Act.

138. The August 1995 FDA report included findings on the statements, research and actions by the Tobacco Companies. The factual findings of the FDA investigation cover the following subjects:

A. Industry Statements on Nicotine Drug Effects.

B. Industry Research on the Drug Effects of Nicotine.

C. Industry Research on the Consumers' Need for an Adequate Dose of Nicotine.

D. Industry Product Development Research to Ensure an Adequate Dose of Nicotine.

E. Industry Manipulation and Control of Nicotine Delivery in Marketed Tobacco Products.

F. Industry Knowledge that Nicotine's Sensory Effects are Secondary to its Pharmacological Effects.

G. Industry Failure to Remove Nicotine from Tobacco Despite Available Technology.

The above-referenced FDA findings are set forth in pages 121-318 of the August 1995 report that are attached hereto and incorporated herein for all purposes as Exhibit 2.

139. On May 12, 1994, Stanton A. Glantz, Ph.D., a professor of medicine in the Division of Cardiology at the University of California, San Francisco (UCSF) and a scholar interested in the field of tobacco and the public health, received from an unknown source, "Mr. Butts," approximately 4000 pages of memoranda, reports, and letters, covering a 30-year period, from the Brown and Williamson Tobacco Corporation (B&W) and its parent company, the British American Tobacco Company (now BAT Industries). In the subsequent months, Glantz received several thousand additional pages of documents from Congressman Henry Waxman's House Subcommittee on Health and the Environment and another few hundred pages of documents from the estate of the chief scientist of BAT. Glantz ultimately put all the documents into the library at UCSF. The July 19, 1995 Journal of the American Medical Association is largely devoted to an analysis by Glantz and his colleagues of these three sets of documents.

140. As reported in JAMA, the documents show: 1) that research conducted by Tobacco Companies into the deleterious health effects of tobacco was often more advanced and sophisticated than studies by the medical community; 2) that executives at B&W knew early on that tobacco use was harmful and that nicotine was addictive and debated whether to make the research public; 3) that the industry decided to conceal the truth from the public; 4) that the industry hid its research from the courts by sending the data through its legal departments, and that its lawyers asserted that the results were immune to disclosure in litigation because they were the privileged product of the lawyer-client relationship; and, 5) that despite knowledge to the contrary, the industry's public position was (and continues to be) that the link between smoking and ill-health was not proven, that they were dedicated to determining whether there was such a link and revealing this to the public, and that nicotine was not addictive.

141. The pertinent articles of the July 19, 1995 JAMA are as follows:

1) "Looking Through a Keyhole at The Tobacco Industry: The Brown and Williamson Documents," pages 219-224, JAMA, July 19, 1995-Vol. 274, No. 3, Glantz, et al.;

2) "Lawyer Control of the Tobacco Industry's External Research Program: The Brown and Williamson Documents," pages 241-247, JAMA, July 19, 1995-Vol. 274, No. 3, Bero, et al.;

3) "Lawyer Control of Internal Scientific Research to Protect Against Products Liability Lawsuits: The Brown and Williamson Documents," pages 234-240, JAMA, July 19, 1995, Vol. 274, No. 3, Hanauer, et al.; and

4) "Nicotine and Addiction: The Brown and Williamson Documents," pages 225-233, JAMA, July 19, 1995, Vol. 274, No. 3, Slade, et al.

Copies of the above referenced JAMA Articles are attached hereto and incorporated herein for all purposes as Exhibits 3, 4, 5 and 6, respectively.

142. Factual details of how the tobacco industry and Hill Knowlton initiated its public fraud campaign are set forth in a Staff Report dated May 26, 1994, prepared for the Subcommittee on Health and the Environment, U.S. House of Representatives. A copy of this report is attached hereto and incorporated herein for all purposes as Exhibit 7.

143. Factual details of nicotine manipulation by the American Tobacco Company are set forth in a Staff Report dated December 20, 1994, prepared by the Majority Staff for the Subcommittee on Health and the Environment, entitled "Evidence of Nicotine Manipulation by the American Tobacco Company." A copy of this report is attached hereto and incorporated herein for all purposes as Exhibit 8.

THE IMPACT OF DEFENDANTS'

ACTIONS ON THE STATE OF TEXAS

144. Tobacco-caused disease has killed, and continues to kill, millions of Americans. The Centers for Disease Control (CDC) has estimated that, currently, more than 400,000 Americans die each year from smoking; that is 26 times more deaths than result from illegal drugs and indicates that approximately one in five deaths is attributable to smoking. Thousands of Texas citizens die each year as a result of smoking cigarettes. According to the Texas Bureau of Vital Statistics, 25,900 Texans died in 1993 as a result of tobacco use.

145. The economic consequences of smoking cigarettes are equally staggering. In May of 1993, the Office Of Technology Assessment advised the United States Congress that in 1990 smoking-related illnesses cost United States taxpayers a total of approximately $50 billion in direct health care costs; $68 billion in indirect costs for morbidity; and $40.3 billion in direct costs for mortality.

146. The State spends millions of dollars each year to provide or pay for health care and other necessary facilities and services on behalf of indigents and other eligible citizens whose health care costs are directly caused by tobacco-induced cardiovascular disease, lung and other cancers, emphysema, other respiratory diseases as well as the complications of pregnancy and childbirth including, but not limited to, low-weight babies.

147. The State of Texas has suffered damages from the Defendants’ illegal and tortious conduct and as a result of their unreasonably dangerous products. Those damages include, but are not limited to, costs and expenditures from the public fund in the following areas: the Medicaid Program, the State Employees Group Insurance Program, the State Employees Retirement System, charity care and related health and wellness programs.

148. The State of Texas, as an employer which provides health coverage for its approximately 500,000 employees, retirees and their dependents pursuant to statutory and contractual obligations, is mandated by law to offer comprehensive and major medical health coverage and benefits that include coverage for treatment of smoking-caused diseases. The State of Texas, through a combination of self-insured plans and contractual agreements with certain health care service providers and plans, makes available to its employees, retirees and their respective dependents health coverage that includes these mandated benefits. In fiscal year 1995, the State paid more than $820 million in claims and premium payments to insurance carriers for such benefits. The State of Texas has paid and will pay substantial sums of money pursuant to these statutory and contractual obligations due to the increased cost of providing health care services for treatment of smoking-caused diseases. These increased expenditures have been caused by the unlawful actions of the Defendants.

149. The State of Texas operates a number of health care facilities, including state hospitals and university health science centers that provide medical care to qualifying persons who are not eligible for Medicaid. The State of Texas pays for all or part of this care. The State of Texas has expended and will expend substantial sums of money due to the increased cost of providing health care services for treatment of smoking-related diseases. These increased expenditures have been caused by the unlawful actions of the Defendants.

150. The State of Texas has expended and will expend substantial sums of money to fund and promote wellness and healthy lifestyle programs, including smoking cessation, in order to reduce health care costs. In addition, the State of Texas operates a program of preventive health services for state employees. These expenditures have been and will be increased by the unlawful actions of the Defendants.

CONSPIRACY AND CONCERT OF ACTION

151. From the 1950s and continuing through the filing of this suit, the Tobacco Companies have entered into agreements to suppress, distort and/or obfuscate scientific and medical information relating to the use of tobacco products and the resulting diseases.

152. The Tobacco Companies participated in and cooperated with each other in the above conspiracy enabling each and every manufacturer and distributor of tobacco products to take the position that the association between using tobacco products and disease had not been established.

153. In order to carry out their conspiracy, the Tobacco Companies and Hill and Knowlton, Inc. formed the Tobacco Institute and the Council for Tobacco Research.

154. The TI and the CTR actively participated in the conspiracy to conceal and suppress the hazards of cigarette smoking and use of smokeless tobacco products.

155. The TI and the CTR, acting on behalf of the Tobacco Companies, monitored research and literature in the scientific and medical communities regarding cigarette smoking and/or smokeless tobacco products and actively attempted to suppress and/or undermine any negative reports.

156. When TI and CTR were unsuccessful in suppressing negative reports regarding cigarette smoking, the two organizations acted to challenge, dilute and diminish the influence of such reports.

157. As a result of the conspiracy, the Tobacco Companies were able to continue selling tobacco products to an unsuspecting and confused public, including the Texas citizens who had relied on their misrepresentation to their detriment.

l58. As a result of the conspiracy, government regulators were mislead and deceived; thereby distorting perceptions and understanding of regulators whose task was to properly assess and control the hazards presented by tobacco products.

159. As a direct and proximate result of the Defendants’ actions, the consumers of tobacco products became ill and required medical care paid for by the State.

AIDING AND ABETTING LIABILITY

160. The actions of the Defendants, individually and collectively, provided substantial support and encouragement and aid to the Tobacco Companies in the sale of cigarettes and other tobacco products.

161. All of the Defendants, individually and collectively, aided and abetted the fraud perpetuated on the State of Texas, government regulators and the citizens of Texas.

162. All of the Defendants, individually and collectively, aided and abetted the sale of tobacco products that they knew to be hazardous and defective.

CAUSES OF ACTION

COUNT ONE

[Against all Defendants except Hill & Knowlton, the

Council for Tobacco Research and

the Tobacco Institute]

VIOLATION OF 18 U.S.C. 1962(c) and (d),

FEDERAL RACKETEER INFLUENCED AND CORRUPT ORGANIZATION ACT

163. The State of Texas incorporates and adopts by reference the allegations contained in this Complaint.

164. The Defendants are "persons" within the meaning of 18 U.S.C. § 1961(3).

165. At all relevant times, Hill & Knowlton, Inc., The Council for Tobacco Research - USA, The Tobacco Institute, Inc., the law firms of Shook, Hardy & Bacon; Covington & Burling; Jones, Day, Reavis & Pogue; Jacob & Medinger; and related entities, including the Ad Hoc Committee of the CTR and the Committee of Counsel of the Tobacco Institute, have constituted an "enterprise" within the meaning of 18 U.S.C. § 1961(4). The enterprise is an ongoing organization whose constituent elements function as a continuing unit in maximizing the sales of tobacco products, misleading the public and regulators as to the health hazards of tobacco, suppressing the truth concerning the addictive properties of nicotine and of the Defendants’ manipulation of nicotine levels, and carrying out other elements of Defendants’ scheme. The enterprise has an ascertainable structure and purpose beyond the scope of the Defendants’ predicate acts and their conspiracy to commit such acts. The enterprise has engaged in, and its activities have affected, interstate and foreign commerce. The enterprise continues to date through the concerted activities of the Defendants actively to disguise the nature of their wrongdoing, to conceal the proceeds thereof, and to conceal the Defendants’ participation in the enterprise in order to avoid and/or minimize their exposure to criminal and civil penalties and damages.

166. Each Defendant has been associated with this enterprise. Moreover, each Defendant participated, directly or indirectly, in the conduct of the affairs of the enterprise. Each Defendant helped to direct the enterprise’s actions and manage its affairs.

167. Each Defendant "conduct[ed] or participate[d], directly or indirectly, in the conduct of [the] enterprise’s affairs through a pattern of racketeering activity," in violation of 18 U.S.C. § 1962(c). The Defendants’ pattern of racketeering activity dates from December 15, 1953 through the present and threatens to continue in the future.

168. The Defendants’ multiple predicate acts of racketeering include:

a. Wire and mail fraud, in violation of 18 U.S.C. §§ 1341 and 1342. The Defendants engaged in schemes to defraud members of the public and other regarding their tobacco products and health issues. Those schemes have involved fraudulent misrepresentations and/or omissions reasonably calculated to deceive persons of ordinary prudence and comprehension. Defendants executed or attempted to execute those schemes through the use of the U.S. mails and through transmissions by wire, radio and television communications in interstate commerce.

i. For example, numerous Brown & Williamson Tobacco Corp. documents were disseminated and/or transmitted by the Defendants and their agents as part of a fraudulent scheme to mislead the public and others about the health risks of tobacco. Details and descriptions of those documents are set forth in Exhibits 3, 4, 5, and 6 attached hereto and incorporated herein for all purposes.

ii. Chief executive officers and/or representatives of the Defendants made false and fraudulent statements under penalty of perjury in hearings before the House Subcommittee on Health and the Environment, convened on March 25, April 14, April 28, May 17, May 26, June 21 and June 23, 1994, and televised nationwide. The witnesses affirmatively denied that Tobacco Companies manipulate the amount of nicotine contained in cigarettes; denied that using tobacco products causes cancer; and denied that there any correlation between the amount of nicotine in tobacco products and the incidence of cancer. The chief executive officers and representatives giving false testimony were:

William I. Campbell, President, Philip Morris U.S.A.

Edward A. Horrigan, Jr., Chairman, Liggett Group, Inc.

James W. Johnston, Chairman, R.J. Reynolds Tobacco Co.

Donald S. Johnston, President, American Tobacco Co.

Stephen Raffle, Tobacco Institute

Tilford F. Riehl, Vice-President, Brown & Williamson Tobacco Corp.

Thomas E. Sandefur, Jr., Chairman and Chief Executive Officer, Brown & Williamson Tobacco Corp.

Andy Schindler, Head of Manufacturing, R.J. Reynolds Tobacco Co.

Alexander W. Spears, III, Vice-Chairman, Lorillard Tobacco Co.

Joseph Taddeo, President, U.S. Tobacco Co.

Andrew H. Tisch, Chairman, Lorillard Tobacco Co.

Charles O. Whitley, Senior Consultant, The Tobacco Institute.

iii. On the nationally televised CBS program Face the Nation, air date March 27, 1994, 10:30 a.m. - 11:00 a.m., EDT, Ms. Brenda Dawson, Vice-President of the Tobacco Institute, stated before a live television and radio audience: "all six cigarette manufacturers in the United States do . . . not add nicotine" and "they don’t manipulate nicotine. So Congress has been told form[ally] by every cigarette manufacturer in the United Stated that this claim is without foundation."

b. Bribery, through attempts to influence the testimony of "any person" under oath "upon a trial, hearing, or other proceeding, before any court, any committee of either House or both Houses of Congress, or any agency, commission, or officer authorized by the laws of the United States to hear evidence or take testimony, or with intent to influence such person to absent himself therefrom." 18 U.S.C. § 201(b)(3). These violations include attempts to influence the testimony of whistleblowers and also payments to tobacco company officials who have knowingly made false statements before Congress.

c. Sending tobacco products through the mails in a manner calculated to place them in the hands of minors, and/or using the mails to promote and advertise cigarettes to children, in violation of 18 U.S.C. § 1461, which prohibits use of the mails to deliver any "article or thing designed, adapted, or intended . . . for any indecent or immoral use" and use of the mails to circulate any "paper, writing, advertisement, or representation that any article, instrument, substance, drug, medicine, or thing may, or can be used or applied . . . for any indecent or immoral purpose" and any "description calculated to induce or incite a person to so use or apply any such article, instrument, substance, drug, medicine, or thing."

d. Attempting to intimidate one or more witnesses in pending or prospective legal proceedings, in violation of 18 U.S.C. § 1513, and 18 U.S.C. § 1951(a), including threats against Jeffrey Wigand, former research chief of Brown & Williamson Tobacco Corporation, to discourage him from providing testimony to the Mississippi Attorney General in connection with Mike Moore, Attorney General, ex rel., State of Mississippi v. The American Tobacco Co., No. 94-1429 (Ch. Ct. Jackson Co.).

e. Use of facilities in interstate or foreign commerce to distribute the proceeds of unlawful activity and otherwise to promote, manager, establish, carry on or facilitate the promotion, management, establishment, or carrying on of unlawful activity, in violation of 18 U.S.C. § 1952.

f. Engaging in monetary transactions involving the proceeds of crime in violation of 18 U.S.C. § 1957, which prohibits "knowingly engag[ing] or attempt[ing] to engage in a monetary transaction in criminally derived property that is of a value greater than $10,000 and is derived from specific unlawful activity," including mail and wire fraud. 18 U.S.C. &