Wednesday, March 16, 2005

Partnership between Attorneys General and Big Tobacco Exposed; Attorneys General are Vigorously Protecting Major Tobacco Companies

A little-noticed New York federal district court decision issued in September has brought to the forefront how strongly the nation's attorneys general, including the current treasurer of the American Legacy Foundation, have worked to protect the interests of the nation's leading tobacco companies.

In the case, plaintiffs (importers that buy from small tobacco manufacturers that did not participate in the Master Settlement Agreement [MSA]) assert that the MSA and certain state laws related to MSA provisions violate antitrust laws because they have created an "output cartel" by the major tobacco companies that unfairly and illegally inhibits competition from smaller companies. In January 2004, a New York federal appeals court ruled that the MSA could indeed be challenged on antitrust grounds.

Now, a New York district court judge has issued an injunction against the state law, effective in 2003, that essentially forces non-participating tobacco companies to make full MSA payments to all states, even if they sell in only one or a few states. The injunction finds that this law, which is similar to laws passed in 38 other states, is not justified on any public health or other basis and is likely to violate antitrust laws. The judge found that: "The only purpose [of the law] appears to be a desire to accommodate the PMs [participating manufacturers - i.e., big tobacco companies], and to protect them unduly against competition from the NPMs [non-participating manufacturers - i.e., small tobacco companies]."

The Rest of the Story

The MSA represents, and has created, a strong partnership between the state attorneys general and the major tobacco companies. This partnership is evidenced by the extent to which the AGs have gone to protect Big Tobacco from harm:
  • The MSA itself imposed escrow payments by non-participating manufacturers -- companies that were not even parties to the agreement -- by requiring states to pass such laws in order to receive their full share of MSA payments.
  • The MSA made payments to the Public Education Fund contingent on the large tobacco companies retaining their overwhelming market share.
  • Most of the attorneys general joined in the submission of an amicus brief in the Price vs. Philip Morris case in Illinois, urging the judge to reduce the $12 billion bond payment that he had required of the company after his Madison County trial court issued a $10.1 billion judgment against Philip Morris (see separate posting on the amicus brief). Signatories included William Sorrell (Vermont), now treasurer of the American Legacy Foundation and Christine Gregoire (Washington), former board chair of the American Legacy Foundation.
  • It appears that at least some of the attorneys general (most notably, Bob Butterworth of Florida [which settled its tobacco lawsuit independently with the companies]) played a role in supporting state legislation (enacted in at least 23 states) that places limits on the amount of the appeal bond that tobacco companies must pay in order to challenge a guilty verdict.
  • According to a recent Fortune article (Roger Parloff, Is the $200 billion tobacco deal going up in smoke? March 7, 2005), Attorney General William Sorrell of Vermont wrote a letter to all state attorneys general in September 2003 warning them that the success of non-participating tobacco companies was threatening the market share of Big Tobacco and urging them to take action to protect Big Tobacco from this competition: "Increasing sales by [nonparticipating manufacturers] will sharply reduce the next scheduled payments. These results underscore the urgency of all states taking steps to deal with the proliferation of [nonparticipant] sales."
The MSA has in fact set up a partnership between the states and the tobacco companies, and the attorneys general have gone to great lengths to come to the financial rescue of Big Tobacco in order to protect both of their financial interests. The financial interests of the states and Big Tobacco are irretrievably intertwined because of the MSA.

Despite anything that the attorneys general or their public anti-smoking foundation - the American Legacy Foundation - may say about the public health benefits of the settlement, the alliance that it has created between the states and Big Tobacco is a complete public health disaster that dwarfs any small positive impact that the MSA may have had on the public's health.

In my view, the MSA and what it has created - including the actions of the nation's attorneys general and the American Legacy Foundation, which have undermined public health goals for financial interests - is and will continue to be the greatest public health blunder of my lifetime.

UPDATE (March 16, 10:30 pm): The New York state Senate today passed a bill that would cap at $100 million the bond tobacco companies would have to post in order to appeal a damage award against them. According to a Newsday article, a spokesman for Governor Pataki confirmed that the reason for this bill was to protect the state's MSA payments (in other words, to protect the financial health of Philip Morris). This is just the latest example of the public health damage created by the partnership between the states and the tobacco companies.

UPDATE 2 (March 20, 10:30 am): A Louisville Courier-Journal article reported yesterday that a federal district judge this week issued an injunction against part of a 2004 Kentucky law that essentially forces non-participating tobacco companies to make full MSA payments to all states, even if they sell in only one or a few states. This now marks the second instance in which an injunction has been issued againstan MSA-related state law intended to protect Big Tobacco from smaller potential competing manufacturers. A federal judicial panel is considering whether to consolidate related cases in New York, Kentucky, Oklahoma, Tennessee and move them all to the New York court.

UPDATE 3 (March 28, 4:15 pm): The Arkansas House passed a bill that would limit the bond tobacco companies would have to pay to appeal an unfavorable court decision to $25 million, regardless of the amount of the damages awarded. Under current law, the companies would have to post bond for the full amount of the damages in order to appeal the decision.

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