April 19, 2006
California sued tobacco companies Tuesday to force them to pay at least $154 million that the cigarette makers 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.
The large cigarette makers say 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 Atty. Gen. Bill Lockyer said he filed papers in San Diego County to prevent cigarette makers from "taking back" at least $154 million that they owe the state.
Lockyer said R.J. Reynolds Tobacco Co., Lorillard Tobacco Corp., Philip Morris USA and 27 smaller companies are disputing a total of $1.2 billion of payments to the 46 states that participated in the settlement.
New York state, which said it too would sue tobacco companies to collect the disputed payments, was taking a different tack.
Paul Larrabee, spokesman for New York Atty. Gen. Eliot Spitzer, drew a distinction between the way industry leader Philip Morris was handling the clash and the approach taken by R.J. Reynolds and Lorillard.
Philip Morris did not put any of its $3.4-billion payment into the special escrow account set up to handle disputes, Larrabee noted.
In contrast, Reynolds plunked $647 million of its $2-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.
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.
Reynolds spokesman David Howard said the pact required the disputes to be settled via arbitration, not in the courts.
However, Peter Aseltine, a spokesman for New Jersey Atty. Gen. Zulima Farber who also filed suit on Tuesday, disagreed. "Each state has a designated master settlement agreement court," he said.
A Lorillard spokesman was not available to comment.
Iowa Atty. Gen. Tom Miller, who co-chairs the tobacco committee of the National Assn. of Attorneys General, said he believed states would prove they diligently collected escrow funds from nonparticipating manufacturers.
"At the end of the day, we'll get the money back," Miller said.
Cigarette makers that signed the accord will probably 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.