Arbitration to begin in tobacco agreement dispute

John O'Brien Dec. 10, 2009, 2:00pm

NAAG President Jon Bruning of Nebraska

WASHINGTON (Legal Newsline) - An arbitration process will help decide a disagreement over whether states are diligently enforcing the rules of the 1998 Tobacco Master Settlement Agreement against non-participating manufacturers.

The National Association of Attorneys Generals Nov. 30 edition of NAAGazette says the process will begin "early next year." Every state but Mississippi, Minnesota, Florida and Texas signed into the MSA, which requires cigarette makers to make an annual payment to offset health care costs allegedly caused by their products.

It has an estimated worth of $246 billion over its first 25 years. The four states that did not enter into it have their own separate agreements.

Every year, an accounting firm is hired to calculate the amount of the payments that will be made by the approximately 40 companies who are signed into the agreement. Other measures, like taxes, are placed on companies that never signed into it (Non-Participating Manufacturers) to ensure fair competition between all companies.

Concerning the 2003 payment, the accounting firm said it could not calculate an adjustment for Participating Manufacturers because it could not determine if the states were diligently enforcing certain statutes against NPMs.

"The disputes to be arbitrated pertain to the NPM Adjustment for 2003, which potentially totals approximately $1.1 billion and which would, if applied, reduce MSA revenues that were due the states in 2004," NAAG says.

"However, the arbitration could resolve underlying legal issues and create precedents for disputes over potential NPM Adjustments for 2004-2008. These potential 2004-2008 NPM Adjustments total an additional $4.1 billion."

West Virginia Attorney General Darrell McGraw had unsuccessfully asked for a state judge to resolve the dispute.

In one of their motions, the tobacco companies stated that McGraw's argument had been repeatedly rejected around the country.

"So far, courts in 44 MSA jurisdictions, including 10 appellate courts, have compelled arbitration of this same dispute under the same unambiguous MSA language," they wrote, adding that only once has the argument succeeded.

"The Auditor's determination not to apply the NPM Adjustment cost the (Subsequent Participating Manufacturers) about $80 million and the (Original Participating Manufacturers) more than $1 billion in increased payments."

Disputes arising from the MSA that are sent to arbitration must be heard by three former Article III federal judges. Article III judges are those appointed by the President and confirmed by the Senate for a lifetime position.

The states choose one judge, the tobacco companies another and a neutral judge joins them.

Judges Abner Mikva and William Bassler have been chosen so far. Mikva is a former Democratic member of the U.S. House of Representatives. Bassler served 15 years on the federal bench in New Jersey after being appointed in 1991 by President George H. W. Bush.

If there are no objections, the sides will begin seeking the third arbitrator.

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