PM USA Challenges Minnesota Cigarette Fee

Cites conflict with state's tobacco settlement agreement

RICHMOND, Va. -- Philip Morris USA last week filed a motion in Minnesota state court challenging the recently enacted Minnesota health impact fee. The company asserts that application of the fee to its products violates the Minnesota Settlement Agreement.

"Minnesota agreed in the settlement not to make additional claims for healthcare costs related to smoking," said Denise Keane, PM USA executive vice president and general counsel. "In return, Philip Morris USA and other tobacco companies have already paid the state more than a billion dollars. We are [image-nocss] asking that the state comply with its obligations under the agreement."

In 1994, Minnesota sued PM USA and other cigarette manufacturers to recover healthcare costs that the state attributed to smoking. In 1998, PM USA and the other participating manufacturers resolved the lawsuit and agreed to pay the state billions of dollars in the form of annual payments in perpetuity in exchange for a release of all past, present, and future liability.

A key component of the settlement was the state's agreement not to seek further payments for these healthcare costs. PM USA says that application of the fee is a clear breach of the agreement in part because the fee's stated purpose is "to recover for the state healthcare costs related to or caused by tobacco use."

The new law took effect on Aug. 1, 2005. Several distributors of PM USA's products have joined in the motion.