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September 11, 2013

National Arbitration Panel Backs Iowa in Tobacco Payment Dispute

Miller fought big tobacco companies' attempts to reduce Iowa's payments under 1998 Master Settlement Agreement

(DES MOINES, Iowa) An arbitration panel today ruled unanimously that the State of Iowa “diligently enforced“ state laws against tobacco companies that did not sign the $206 billion, 25-year Master Settlement Agreement in 1998 between tobacco companies and 46 states, including Iowa.

“Iowa exemplified a settling state,” the panel wrote in its 24-page decision.

The decision by the three-member panel is a significant legal victory for the state in a years-long dispute with major tobacco companies that have withheld a significant portion of their 2003 settlement payments to the MSA states and territories, including Iowa.  The tobacco manufacturers pay billions annually to participating states in exchange for the states agreeing not to sue for health-related damages to citizens.

“This was a big tobacco battle worth fighting,” Attorney General Tom Miller said.  “The arbitration panel affirmed what we have always said, and that’s that Iowa has upheld its end of the agreement by diligently enforcing our state’s tobacco laws.”

17 states, Washington, D.C. and Puerto Rico settled with the tobacco companies during the course of the arbitration process.

The protracted legal case centered on the state’s enforcement efforts against tobacco companies that did not sign the Master Settlement Agreement, or MSA.  Under the agreement, states were required to collect cigarette sales escrow payments from non-participating manufacturers.

If the three-member arbitration panel, comprised of retired federal judges, ruled that a state failed to “diligently enforce” its tobacco laws as agreed to in the MSA, the agreement allows participating manufacturers to withhold all or part of their annual scheduled payments to that state.

Since 1999, when tobacco companies sent their first MSA payments to the states, Iowa has received $888,758,719 in payments.

This year tobacco companies transferred more than $65 million to the state treasury in their annual payment.  The payment included a regular annual settlement payment of $47.8 million, and an additional $17.9 million payment because of the key roles of Miller and his staff in negotiating the MSA.

Since 2008, when Iowa received its first additional payment tied to the state’s role in negotiating the settlement, those additional funds to the state have totaled more than $116 million.

“The MSA is at its core a landmark agreement intended to protect the public health by ending the relentless marketing of tobacco products to young people, reducing the tremendous drain on state resources to pay the cost of smoking-related diseases, and telling the truth about the harms caused by smoking,” Miller said.  The MSA substantially limits advertising, promotion, marketing and packaging of cigarettes, including a ban on “targeting youth,” and limits tobacco brand name sponsorships and merchandising.

Miller noted that this arbitration focused on the 2003 sales year, and that tobacco companies could launch further legal challenges for subsequent years.  “It’s time for these tobacco companies to step up and live up to their end of the bargain,” he said.  “Rather than continuing to litigate, they should acknowledge that Iowa has enforced its statutes across the board, and they should pay us what they owe us.”

The participating manufacturers include R.J. Reynolds, Phillip Morris Inc., Lorillard and 16 smaller companies.

Miller thanked Cedar Rapids attorney Roger Stone, Kansas City attorney Kristie Orme, Special Assistant Attorney General Donn Stanley, Assistant Attorney General Matt Gannon, and the Iowa Department of Revenue for their substantial efforts in the successful arbitration.


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