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Posted on 04/09/2003 3:21:21 AM PDT by sarcasm

CHICAGO (AP) -- A judge who had ordered Philip Morris USA to pay a $12 billion bond before it appeals a court loss said a compromise may be reached that would allow the tobacco giant to continue doling out billions of dollars into state coffers.

Madison County Judge Nicholas Byron on Tuesday ordered lawyers for Philip Morris and the plaintiffs, who won a lawsuit over the firm's so-called light cigarettes, to reach a compromise on the bond.

``I see some possibilities for resolving this matter,'' Byron said, before asking reporters to leave the courtroom. ``What will be reached will be reached on a consensual basis.''

Lawyers for Philip Morris were joined by attorneys general from 37 states and U.S. territories in urging that Byron reduce the bond, saying the original amount would leave nothing for the twice-yearly payouts the states have grown to depend on since the 1998 national tobacco settlement.

Some cash-strapped states have already spent their share of the $2.6 billion that the firm is supposed to distribute April 15 as part of the settlement.

The uncertainty is already disrupting state budgets. New York, Virginia and California, for example, have postponed plans to sell bonds backed by money from the tobacco settlement.

Dozens of smaller programs across the country will be in trouble, too.

Kentucky uses settlement money to diversify its tobacco-based agricultural economy, while Kansas puts the money into an education trust fund. Indiana earmarks the money for children's health insurance, prescription drugs for poor seniors and anti-smoking programs.

Vermont has already spent the $13 million it expects from Philip Morris on Medicaid services and tobacco and substance abuse programs. And Washington has spent its anticipated $53 million on health insurance for children, immunization programs and other public health needs.

The financial pinch was triggered after Byron awarded $10.1 billion in the class-action lawsuit alleging Philip Morris misled smokers into believing ``light'' cigarettes are less harmful.

The judge ruled that Philip Morris must post a $12 billion bond before it can appeal the judgment -- equal to the amount of the award plus $2 billion in legal fees.

The cigarette maker wants the bond lowered to between $1.2 and $1.5 billion.

``Philip Morris USA's net worth is south of $12 billion,'' said William Ohlemeyer, Philip Morris vice president and general counsel. ``We only have so much money. If the judge requires us to put it all in Madison County, we wouldn't have enough to make the master settlement agreement payment.''

Wall Street analysts say Philip Morris isn't blowing smoke about its inability to pay.

``I do not believe Philip Morris USA has the ability to post the bond of $12 billion,'' said Martin Feldman of Merrill Lynch. He suggested bankruptcy was a ``real option'' unless the bond is reduced.

If Philip Morris falls short, states may have to cut health programs deeply, cut other programs or raise taxes -- not a popular option during an economic downturn.

``The impact is pretty critical,'' said Lee Dixon, director of health policy for the National Conference of State Legislatures. ``It's kind of like a paycheck you were expecting that you don't get from an employer. You're expecting that money, and you have bills to pay.''

Anti-smoking activists scoff at the notion that Philip Morris can't afford to pay both the states and the appeal bond.

``What Philip Morris wants the states to do is to panic because of their current budget situation,'' said Bill Corr, executive director of the Campaign for Tobacco-Free Kids. ``Philip Morris has attempted to manufacture a crisis with its claims of bankruptcy.''

But Washington Attorney General Christine Gregoire, who negotiated the national settlement, is convinced the crisis is real. With no end in sight to tobacco companies' legal woes, Gregoire said states should get used to fighting for their tobacco payments.

``I don't think this is by any stretch of the imagination the end,'' Gregoire said.

On Tuesday, another judge issued a 10-day restraining order barring Illinois from collecting its share of the $10.1 billion judgment -- $3.6 billion in punitive damages -- because it is already getting billions from the national settlement. A hearing is planned.

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