Report: Gov't, Tobacco Companies in Settlement Talks

WASHINGTON – U.S. government lawyers have begun talks with cigarette makers to try to settle the government's racketeering case against the industry, a source close to the case said Tuesday.

The Justice Department (search) has met at least once with tobacco industry lawyers and a court-appointed mediator, but the source said both sides are under orders by the presiding judge not to discuss the settlement efforts.

The talks, reported by The Wall Street Journal in its Tuesday edition, came at the request of the trial judge in the case, U.S. District Judge Gladys Kessler, said the source who declined to be identified.

Representatives of the tobacco companies either declined to comment on the settlement talks or were unavailable. A spokesman for the Justice Department declined to comment.

The talks come at a time when both sides are under pressure to resolve the five-year legal battle.

Lawyers for the government have more incentive to settle since a Feb. 4 federal appeals court panel ruling that barred them from seeking billions of dollars in past industry profits.

The government had been seeking the "disgorgement" of up to $280 billion in past profits. It has since asked the full appeals court to reconsider last month's ruling.

For the biggest cigarette maker, Altria Group Inc. (MO), a settlement would help clear the way for a planned spin-off of its Kraft Foods Inc. (KFT) unit. Altria Chairman Louis Camilleri said in November that any such spin-off would have to wait until U.S. tobacco litigation hurdles are cleared.

The case has been in trial before Judge Kessler since September. The Justice Department has called dozens of witnesses, trying to prove that the industry conspired to mislead the public for decades about the dangers of smoking.

The defendants are Philip Morris USA Inc. and its parent, Altria Group Inc.; R.J. Reynolds Tobacco Co. (RJR) ; Brown & Williamson Tobacco Co. (search) ; British American Tobacco Ltd. (BTI); Lorillard Tobacco Co. (search) ; Liggett Group Inc. (search) ; Counsel for Tobacco Research-U.S.A.; and the Tobacco Institute.

The tobacco companies deny they illegally conspired to promote smoking and say the government has no grounds to pursue them after they drastically overhauled marketing practices as part of the 1998 settlement with state attorneys general.