California on Tuesday became one of the first states to sue cigarette-makers to force them to pay their share of the total of $1.2 billion the companies say they do not owe because they lost business to discounters.
California sues Big Tobacco to pay in full
Apr 18, 2006
Joan Gralla
NEW YORK, April 18 California on Tuesday became one of the first states to sue cigarette-makers to force them to pay their share of the total of $1.2 billion the companies say they do not owe because they lost business to discounters.
In 1998, tobacco companies settled lawsuits brought by states by agreeing to pay $206 billion to provide medical care for ailing smokers. The settlement lets cigarette-makers cut their payments if they lose market share to rivals, often discounters, that did not sign the landmark accord.
Big Tobacco says discounters in 2003 won enough of their business to trigger the reduced payments. But the states say they still are owed the full sums because they met another requirement: they “diligently” collected payments from non-signing companies.
California Attorney General Bill Lockyer in a statement said he had filed papers in San Diego County Court to prevent cigarette-makers from “taking back” at least $154 million that they owe the state.
“Our case is rock solid, and I have no doubts that we will show that to the court’s complete satisfaction,” Lockyer said.
He added the “Big 3” tobacco companies — R.J. Reynolds Tobacco Co. (RAI.N: Quote, Profile, Research), Lorillard (LTR.N: Quote, Profile, Research), and Philip Morris (MO.N: Quote, Profile, Research) — and 27 smaller firms are disputing a total of $1.2 billion of payments they owe the 46 states in the settlement.
New York state, which said it too will sue Big Tobacco to collect the disputed payments, took a different tack.
Paul Larrabee, spokesman for New York Attorney General Eliot Spitzer, drew a distinction between the way industry leader and Marlboro-maker Philip Morris was handling the clash and the approach taken by R.J. Reynolds, known for its Camel cigarettes, and Lorillard, which makes Newports.
Philip Morris (MO.N: Quote, Profile, Research) did not put any of its $3.4 billion payment into the special escrow account set up to handle disputes, Larrabee noted.
In contrast, R.J. Reynolds plunked $647 million of its $2.016 billion annual payment into the dispute account.
Lorillard deposited $108 million of its $666 million into the escrow account.
“We strongly disagree with the decisions of R.J. Reynolds and Lorillard to withhold substantial sums from the states,” Larrabee said.
He added: “We intend to file suit to recover the amounts that we believe are due and owed to New York.”
States cannot tap the disputed funds until the fight is resolved. Some companies, including Philip Morris, wanted to negotiate a settlement with the states’ attorneys general.
R.J. Reynolds Spokesman David Howard said the pact requires the disputes to be settled via arbitration, not in the courts.
However, Peter Aseltine, a spokesman for New Jersey Attorney General Zulima Farber who also filed suit on Tuesday, disagreed. “Each state has a designated master settlement agreement court,” he said.
A Lorillard spokesmen was not available to comment.
Iowa Attorney General Tom Miller, who co-chairs the National Association of Attorneys General tobacco committee, said he believes states will prove they diligently collected escrow funds from nonparticipating manufacturers.
“At the end of the day, we’ll get the money back,” Miller told Reuters in a telephone interview. “States were doing their best with ineffective escrow statutes.”
Loopholes in many of the initial escrow statutes allowed nonparticipating firms to avoid big payments, giving them a pricing advantage, he said, but these have since been closed.
Cigarette-makers who signed the accord will likely be back with fresh claims to reduce payments because they lost market share in 2004, Miller said, but he added that these firms won back market share in 2005 and so far in 2006.
(Additional reporting by Jim Christie in San Francisco and David Lawder in Washington, D.C.)
