States File Suit Over Withheld Tobacco Settlement Payments

Attorneys general in five states -- California, New Hampshire, Massachusetts, New Jersey and Ohio -- on Tuesday filed lawsuits after tobacco companies placed in escrow accounts more than $750 million that states were scheduled to receive under the 1998 national tobacco settlement, the Manchester Union Leader reports. The attorneys general of Connecticut and New York indicated that they likely will file similar lawsuits (Manchester Union Leader, 4/19).

R.J. Reynolds Tobacco paid states about $1.4 billion but withheld $647 million in a "disputed payments account," according to Charles Blixt, general counsel for the company. Lorillard Tobacco paid the states about $558 million and withheld $108 million. Philip Morris USA paid states $3.4 billion and withheld no funds (Zuckerbrod, AP/Long Island Newsday, 4/17).

Under the settlement, the tobacco companies agreed to pay more than $240 billion to the states over 25 years as compensation for health care costs associated with smoking (Worden, Philadelphia Inquirer, 4/17). According to a provision of the settlement, the tobacco companies can reduce payments to states in the event they lose market share to smaller companies not involved in the agreement.

An economic consulting company in March concluded that the settlement represents a significant factor in the loss of market share by the tobacco companies.

Blixt said that the decision by RJR to withhold some of the payments to states adheres to the terms of settlement. He said, "This is the mechanism by which we withhold money," adding, "We're entitled to these adjustments. States should not be spending money that they're not certain that they're going to get" (AP/Long Island Newsday, 4/17). He added, "We tried very hard to work with the states to reach a negotiated settlement to this matter" (McNichol, Newark Star-Ledger, 4/19).

Philip Morris spokesperson Michael Neese said, "We're analyzing the lawsuits and considering how to respond to them," adding that the company will continue to negotiate with states to resolve the dispute (Zuckerbrod, AP/Augusta Chronicle, 4/19).

David Howard, a spokesperson for RJR, said, "We had tried to work hard with the states to resolve this very difficult matter and are disappointed an agreement couldn't be reached" (AP/Richmond Times-Dispatch, 4/19).

State attorneys general said the tobacco companies can reduce payments to states only in the event that states failed to adequately enforce laws to require companies not involved in the settlement to place funds in escrow accounts for future legal obligations (AP/Long Island Newsday, 4/17).

California Attorney General Bill Lockyer (D) said, "We were, and remain, entitled to full payment" (AP/Richmond Times-Dispatch, 4/19). He added, "The tobacco companies that signed the agreement have no legal grounds for taking back this money from California. They owed it, and we intend to keep it" (Spagat, AP/Contra Costa Times, 4/19).

Connecticut Attorney General Richard Blumenthal (D) said, "We're continuing to review our options, but certainly a lawsuit looks likely this week" (AP/Richmond Times-Dispatch, 4/19). He added, "The states all take the position that when the dispute is finally settled we will be entitled to all the moneys placed into the Disputed Payments Account today, with interest, and we will take all necessary steps to ensure that these disputes are resolved as speedily as possible" (AP/Long Island Newsday, 4/17).

New Jersey Attorney General Zulima Farber (D) said, "We are seeking a court order affirming the fact that we have diligently enforced our statute requiring escrow payments from tobacco companies that are not parties to the Master Settlement Agreement" (Newark Star-Ledger, 4/19).

Ohio Attorney General Jim Petro (R) said, "We will fight to see that full payments are made" (AP/Augusta Chronicle, 4/19).

New Hampshire Attorney General Kelly Ayotte (R) said, "Our position is really going to be focusing on moving forward and making sure these tobacco companies hold up their end of the bargain" (Manchester Union Leader, 4/19).

Noelle Talley, a spokesperson for North Carolina Attorney General Roy Cooper (D), said, "Attorney General Cooper believes that the people of North Carolina are due the full amount under the Master Settlement Agreement, and he will fight in court if necessary to see that full payments are made," adding, "There are some talks going on. Unless something gets worked out, we do plan to file suit" (Winston-Salem Journal, 4/19).

Iowa Attorney General Tom Miller (D), co-chair of the tobacco committee of the National Association of Attorneys General, said, "At the end of the day, we'll get the money back" (Reuters/Los Angeles Times, 4/19).