Pa., N.J. AGs threaten suits if tobacco companies don't make full payments

HARRISBURG, Pa. -- The attorneys general of Pennsylvania and New Jersey said they would sue the nation's largest tobacco companies if they carry out threats to reduce their state payments, which were due yesterday, said The Philadelphia Inquirer.

Pennsylvania expects to receive $379 million as its annual share of the 1998 tobacco-settlement agreement with 46 states over smoking-related health issues. Should the amounts be cut, the state could lose up to $60 million, Budget Secretary Michael Masch said.

"These companies already [image-nocss] have a history of mistrust on the part of the public," Masch said last week. "It would be a profound mistake to worsen the perception that exists by a failure to meet their obligations."

Pennsylvania AG Tom Corbett sent letters last month to the three companies involved in the agreement, stating that he would take legal action as early as this week if the state was shortchanged. "We believe we have diligently enforced the provisions" of the agreement, Kevin Harley, a spokesperson for Corbett, told the newspaper.

New Jersey AG Zulima Farber vowed that her state would take similar action. "Should any cigarette company fail to comply with the mandates of the settlement agreement, the state of New Jersey will go to court to seek an order requiring companies to make full payments," spokesperson Lee Moore told the paper.

New Jersey expects to receive between $240 million and $250 million.

Under the Master Settlement Agreement (MSA), Philip Morris USA Inc., R.J. Reynolds Tobacco Co. and Lorillard Tobacco Co. will send more than $240 billion to the states over 25 years as compensation for health-care costs associated with smoking. This year's total payout is $6.2 billion; however, the tobacco companies contend that they are entitled to reduce payments because of a decline in market share.

The dispute with the states was touched off last month by the release of an independent economic analysis that found that the MSA caused major tobacco companies to suffer market-share losses of more than 2%.

It is unclear how many of the other states that signed the agreement also would sue, but the National Association of Attorneys General (NAAG) released a statement last month maintaining that all of the states had fulfilled their obligations under the pact.

Under the agreement, the 46 states enacted legislation requiring smaller tobacco companies to put money in escrow in the event that they are also found liable over similar health issues.

Now the big companies are seeking a $1.2 billion reduction in payments. They blame the states for not enforcing the statutes aimed at preventing the nonparticipating smaller manufacturers from gaining market-share advantage.

A spokesperson for Philip Morris USA said that the company agreed with the conclusion of the economic analysis but that it still made its full payment of $3.4 billion to the states this year. "We will continue to pursue a dialogue with the state attorneys general to reach a mutually agreeable resolution," Michael Neese told The Inquirer.

The two other companies, R.J. Reynolds and Lorillard, were scheduled this year to pay out a total of $2 billion and $666 million, respectively. The amounts are based on 2005 tobacco sales.

So far, Pennsylvania has received $2.4 billion of its total $10 billion allocation and has used most of the money for health-care programs for low-income residents and medical research, said the report.

New Jersey securitized $3.8 billion of the total $7.5 billion it was due to cover budget deficits in fiscal 2003 and 2004, the report added.

In a press statement, R.J. Reynolds Tobacco Co. said yesterday that it has satisfied its full $2.016 billion annual payment obligation for 2006 as specified in the MSA.

We are following the process that all parties understood and agreed to when they signed the MSA in 1998, said Charles A. Blixt, executive vice president and general counsel for R.J. Reynolds. We remain committed to the MSA and will continue to live up to both the letter and spirit of the agreement.