Law Suits: OK Seneca-Cayuga Lawsuit

Judge revives tobacco lawsuit: Tribe to get day in court

by: DAVID HARPER World Staff Writer
9/8/2007

The Seneca-Cayuga tribe wants to retrieve millions it has paid into an escrow account.

A federal judge has reopened a lawsuit in which the Seneca-Cayuga Tribe of Oklahoma claimed that its tobacco corporation was on the brink of collapse because of issues related to a 1998 tobacco settlement.

U.S. District Judge Gregory Frizzell, in an order posted late Thursday on the court’s Web site, found that the tribe does have the proper legal standing to seek recovery of funds it has paid into an escrow account.

Plaintiffs’ attorney Daniel Doyle said Friday that the ruling is good news for the tribe.

Although not a final decision on the merits of the lawsuit, Doyle said Frizzell’s order means that the tribe will get its day in court in its effort to retrieve more than $4 million in funds now held in escrow.

U.S. Chief District Judge Claire Eagan in November dismissed the 2006 lawsuit on a technical issue.

The tribe subsequently filed papers asking the court to set aside or alter the order. The case was reassigned to Frizzell in February when he became a federal judge.

The tribe claims in its lawsuit that the Seneca-Cayuga Tribal Tobacco Corp. had been driven to the verge of going out of business because the corporation did not have access to the money held in an escrow account.

The account was established as a result of the settlement of a lawsuit several states filed against major tobacco manufacturers in the mid-1990s to recover costs incurred while treating smoking-related diseases.

In 1998, 46 states — including Oklahoma — reached a settlement with Phillip Morris USA; Lorillard Tobacco Co.; Brown & Williamson Tobacco Co.; and R.J. Reynolds.

Forty more companies later joined in the settlement.

Under the pact, states could require nonparticipating manufacturers to make annual payments or make deposits into escrow accounts based on cigarettes sold in their states.

Payments into the Tobacco Escrow are substantially equivalent to what the nonsettling manufacturers would have paid had they settled in 1998, according to the lawsuit.

Frizzell found this week that Eagan’s November order did not address the tribe’s argument that it was entitled to the escrow funds under the theory of sovereign immunity.

Doyle said Friday that the more than $4 million in escrow should be used to fund tribal programs.

The tribe’s Grove plant employs about 70 people and produces more than 13,000 cartons of cigarettes a day.

Doyle said the cigarettes produced there are now sold to other tribes and in the few states that did not participate in the 1998 settlement.

The Seneca-Cayuga corporation is the only tribally owned cigarette manufacturer in Oklahoma.

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Tobacco Settlement: Seneca-Cayuga Lawsuit: Tribe sues over escrow account

8/1/2006
By DAVID HARPER World Staff Writer

The Seneca-Cayuga Tribes sued Oklahoma Attorney General Drew Edmondson on Monday in federal court in Tulsa, claiming that its tribal tobacco corporation is on the brink of collapse because it can’t get to more than $10 million that is tied up in a state-mandated escrow account.

The tribe claimed that the Seneca-Cayuga Tribal Tobacco Corp., which operates a small cigarette manufacturing plant on Indian land near Grove, has been driven “to the verge of going out of business with a loss of 74 on-reservation jobs” because the corporation does not have access to money that is in escrow.

The escrow account was established because of the settlement of a lawsuit several states filed against major tobacco manufacturers in the mid-1990s to recover costs incurred while treating smoking-related diseases.

In 1998, 46 states — including Oklahoma — reached a settlement with Phillip Morris USA; Lorillard Tobacco Co; Brown & Williamson Tobacco Co.; and R.J. Reynolds.

Forty more tobacco companies later joined in the settlement.

Under the pact, states could require nonparticipating manufacturers to make annual payments or deposit into escrow accounts money based on cigarettes sold in the state.

The payments made under the Oklahoma Escrow Statute were either to be released to the state to satisfy any eventual judgments or returned to the companies after 25 years.

The lawsuit filed Monday asserts that “the payments into the Tobacco Escrow are substantially equivalent to what the non-settling manufacturers would have paid had they settled” in 1998.

The Seneca-Cayugas allege that “states knowingly or unwittingly agreed to help manipulate the tobacco market to protect Big Tobacco’s bottom line and overburden small tobacco manufacturers to the point of extinction.”

The Seneca-Cayugas established the tobacco business in 1997 to provide employment for tribal members and their relatives and to provide funds for the tribe’s health and benefit programs, according to the complaint.

The tribal tobacco corporation has more than $10 million in escrow “but has had negative cash flow because it does not have access to those funds,” according to the complaint.

The Seneca-Cayugas claim that Edmondson has demanded that the tribe continue to place additional money into escrow if it continues to sell its products in the state.

Charlie Price, a spokesman for Edmondson, said Monday that lawyers in the Attorney’s General’s Office are reviewing the lawsuit and formulating their response to its allegations.

The tribe argues in the lawsuit that it has sovereign immunity from state economic regulation.

It asks that the Tulsa federal court “enter a temporary, preliminary and permanent injunction barring defendant Edmondson from prohibiting the sale of the tribal corporation’s products within Oklahoma.”

The tribe also is asking the court to order the release of tribal money from the escrow account.

The case has been assigned to U.S. Chief District Judge Claire Eagan.

In May 2005, Eagan ruled against two small tobacco companies that challenged a change in Oklahoma tobacco law that also dealt with the escrow accounts.

The original Oklahoma Escrow Statute contained a provision allowing an immediate refund of money paid into escrow if it was more than the state would have received had the company participated in the 1998 settlement.

The Oklahoma Attorney General’s Office contended that the statute was flawed with a loophole that would allow nonparticipating companies to regain the majority of their escrow payments by concentrating sales in a few states.

The statute was amended in 2003 to reduce significantly the amount of escrow funds returned to nonparticipating manufacturers who concentrate their sales in Oklahoma.

In December 2004, Xcaliber International Ltd. of Pryor and KT&G; Corp. of South Korea sued, claiming that the change was an illegal attempt to drive them out of business.

Eagan acknowledged in May 2005 that the plaintiffs presented “an abundance of evidence” that the amendment was prompted more by a desire to protect the market share of the larger, participating manufacturers instead of any desire to protect the public’s health.

Still, she wrote that “a state’s unstated motive in enacting legislation is irrelevant.”

She noted that the U.S. Supreme Court has held that action taken under a state’s police power is protected from an antitrust challenge even if the move has an anti-competitive effect.

In an unrelated tribal-tobacco related lawsuit this year, U.S. District Judge Terence Kern declined June 19 to issue an injunction requested by the Osage Nation, which claimed that a new tax rule violated its compact with the state.

David Harper 581-8359 david.harper@tulsaworld.com