Colorado State Treasurer Suggests MSA is Unconstitutional, Supports Competitive Enterprise Institute's Lawsuit

In a column published last week in the Wall Street Journal, Colorado State Treasurer Mark Hillman argues that the 1998 Master Settlement Agreement (MSA) between Big Tobacco and 46 state attorneys general (AGs) is unconstitutional and expresses support for a lawsuit by the Competitive Enterprise Institute (CEI) which challenges the settlement on the grounds that it "violates the Constitution and establishes a cartel designed to circumvent antitrust law and quash competition."

Hillman writes: "This Faustian bargain (the MSA) locks states into a sleazy partnership with Big Tobacco, enforced by a compact that violates antitrust law and undermines market competition. ... To add injustice to insult, the MSA takes money from predominately low- to middle-income smokers and transfers it to wealthy trial lawyers, some of whom reaped fees in excess of $100,000 an hour for their "work." On top of these affronts, the Constitutional objections to the MSA are manifold:

• The Constitution stipulates that "No state shall … enter into any agreement or compact with another state" without the approval of Congress. The MSA has never been so approved.
• The Constitution gives Congress exclusive authority to regulate interstate commerce. The MSA clearly usurps that authority.
• Delegation of inherent state powers to the NAAG undermines the state sovereignty protected by the Tenth Amendment.

The question facing the courts is not whether the MSA is good policy or whether tobacco companies are scoundrels. The larger issue is whether AGs can rightfully evolve into a law unto themselves, usurping the Constitutional roles of state legislators, governors, Congress and, ultimately, the voters themselves."

In response to Hillman's remarks, an Associated Press story reported that Colorado Senate President Joan Fitz-Gerald defended the settlement, emphasizing that Colorado is dependent upon that funding for a number of essential services and losing that money would be a blow to the state. She was quoted as stating: "I can't count the number of services we rely on from the tobacco settlement. I can't imagine Mark Hillman aligning himself with big tobacco."

The Rest of the Story

I think Hillman's comments are on the mark. The MSA has indeed locked states into a partnership with Big Tobacco and it is enforced by a compact that does inhibit competition and which may well violate antitrust law.

As the Colorado Senate President's comments expose, the states are heavily dependent upon the settlement funding and therefore on the financial health and profits of the tobacco companies, making them partners. And states have little choice but to inhibit competition from non-participating manufacturers by enacting laws that impose escrow payments on those manufacturers (see previous post for the details of this scheme and the basic premise of the CEI lawsuit).

All in all, it was a brilliant scheme devised by the major tobacco companies, who I think took advantage of the greed and political aspirations of the nation's attorneys general. By tempting them with a pot of money and the prospect of being able to publicly take credit for changing Big Tobacco's ways, the tobacco company negotiators were able to get the AGs to agree to enter into this enforced partnership. The money was simply too much for them to pass up.

But the brilliance of the scheme is best revealed by Fitz-Gerald's (the Colorado Senate President) comment:

"I can't count the number of services we rely on from the tobacco settlement. I can't imagine Mark Hillman aligning himself with big tobacco."

First, her comment documents the extent of the partnership: the extent to which the states rely upon Big Tobacco funding for numerous services, too many to even be counted.

Second, her comment reveals the ultimate irony of the whole thing: Fitz-Gerald, just after exposing the partnership between herself and Big Tobacco, actually attacks Hillman for "aligning himself with big tobacco."

But that is completely absurd, because Hillman is not taking Big Tobacco's position!!!

Hillman is actually supporting a lawsuit that could, if successful, bring down the MSA, and against which Big Tobacco will most certainly argue vigorously in their defense.

So the MSA was truly brilliant. It created this partnership between the states and Big Tobacco, yet the states are not really even aware of it - they still appear to be under the impression that they are the ones fighting Big Tobacco and that anyone who opposes the MSA is aligned with Big Tobacco!

In other words, the MSA has created what Americans for Nonsmokers' Rights (ANR) might well call a "front group." The states, after all, are now heavily funded by Big Tobacco, these funds are viewed as essential to the infrastructure of these states and any loss of the funding is viewed as being a big blow, the states are representing the financial interests of Big Tobacco, and all of this is being done in a way that allows the companies themselves to remain behind the scenes. In fact, it is done in a way that the states actually make it appear that they are fighting Big Tobacco, and thus the role of the tobacco companies in the states' efforts to protect the companies remains disguised.

I'm torn between whether to close this post by chastising the Attorneys General for being suckered into signing such a devastating (to the public's health) scheme or whether to commend the tobacco company negotiators for their brilliance.

At any rate, according to the rest of the story, perhaps ANR should consider adding the 46 states which signed the MSA and the 46 Attorneys General who signed for them as one of its "Front Groups and Allies."

They certainly deserve that distinction far more than the Competitive Enterprise Institute, which is actually fighting to bring down those front groups and their ties to Big Tobacco.