April 10, 2015

Attorney General: Court Ruling Restores $126M In Tobacco Settlement Money

Attorney General Kathleen G. Kane Friday announced a court victory that prevented approximately $126 million from being reduced from Pennsylvania's annual payments pursuant to the Tobacco Master Settlement Agreement (MSA).
"We are very pleased with the Commonwealth Court's decision, which ensures the terms of the MSA are followed by the arbitration panel and that Pennsylvania is fairly treated under the terms of the agreement,” Kane said. “The court’s decision ensures Pennsylvania receives the funding it needs to forward the important goals of smoking cessation, and to invest in medical research and health programs."
The ruling from the Commonwealth Court upheld an earlier ruling from the Philadelphia Court of Common Pleas. The Commonwealth Court indicated in its ruling that an arbitration panel that presided over hearings associated with the Tobacco Master Settlement Agreement  failed to properly apply the terms of the contract.
The Commonwealth Court’s ruling was a result of arbitration associated with the MSA, an agreement signed in 1998 by 52 states and territories. That agreement was the result of tobacco-related lawsuits in the 1990s regarding the states’ incurrence of health care costs for tobacco-related illnesses.
The MSA requires participating tobacco manufacturers to make annual payments in perpetuity to the states. Those payments are subject to a series of adjustments, including the Non-Participating Manufacturers’ Adjustment, which reduces states’ annual payments if they fail to diligently enforce payments required to be made by tobacco companies that did not sign the MSA.
The arbitration panel found that in 2003 Pennsylvania did not "diligently enforce" certain laws requiring the collection of taxes and other payments from certain tobacco companies that did not sign the 1998 MSA.
The panel's decision shifted certain financial obligations of states that entered into a 2013 settlement agreement to Pennsylvania. States that joined the 2013 settlement did so to avoid a possible finding that they failed to diligently enforce their laws regarding non-signatory tobacco companies.
In the fall of 2013, the Commonwealth filed a motion in the Philadelphia Court of Common Pleas to overturn the arbitration panel decision. An appeal of the trial court’s March, 2014 ruling in favor of the Commonwealth led to today's ruling by the Commonwealth Court.
Attorney General Kane stressed the court victory was the result of a collaborative team effort by the Office of Attorney General, the Governor's office and House and Senate leadership.
Pennsylvania was represented in this matter by the law firm of Orrick, Herrington, and Sutcliffe, as well as attorneys from the Office of Attorney General.