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September 2, 2021

National arbitration panel once again backs Iowa in tobacco payment dispute

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

(DES MOINES, Iowa) An arbitration panel Wednesday ruled unanimously that the State of Iowa “diligently enforced“ state laws against tobacco companies that did not sign the Master Settlement Agreement in 1998 between tobacco companies and 46 states, including Iowa, that was estimated to encompass more than $206 billion in the first 25 years. 

The panel endorsed previous findings that “Iowa exemplified a settling state . . . continuously and persistently” enforcing the state’s tobacco laws. The panel found that Iowa’s efforts “were not static, but reflected a recognition based on experience that it could improve enforcement. . . . by refining its efforts and implementing enhanced enforcement tools to achieve greater results.”  

The decision by the 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 2004 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. 

“For more than two decades, Iowa has diligently upheld its end of the agreement by enforcing the state’s tobacco laws,” Miller said. “Today, the arbitration panel affirmed the state’s work to monitor, detect and remediate non-compliance by tobacco companies.”  

The arbitration panel noted that Iowa worked to improve enforcement by refining its efforts and implementing enhanced enforcement tools, including enacting legislation and establishing a directory of certified tobacco distributors. Many of these measures were later adopted by other states participating in the MSA.  

While today’s ruling is a victory for Iowa and other states, Miller noted that this arbitration focused on the 2004 sales year, and that tobacco companies could launch further legal challenges for subsequent years.   

“Iowa and other states who signed on the MSA have lived up to their end of the bargain, it’s time tobacco companies do the same,” Miller said. “Future legal challenges will no doubt come to the same conclusion that this panel and others have already determined. These companies should acknowledge that Iowa has enforced its statutes across the board, and they should pay us what they owe us.” 

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 assess cigarette sales escrow payments from non-participating manufacturers and direct those payments to be deposited in qualified bank escrow accounts. 

If the 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 MSA 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 $1.36 billion in payments. This year, tobacco companies transferred $52.9 million to the state treasury in their annual payment. 

In 1998, Miller and attorneys general of 45 states signed the MSA with the nation’s four largest tobacco companies to settle lawsuits to recover billions of dollars in state health care costs associated with treating smoking-related illnesses.  

Since then, several other tobacco companies have signed onto the agreement. The 2021 payment came from 29 companies, including Philip Morris USA, R.J. Reynolds, Santa Fe Natural Tobacco, Vector, and Commonwealth Brands.   

The landmark 1998 tobacco settlement was hailed as a significant public health achievement:  it created restrictions on the advertising, marketing and promotion of cigarettes, including a ban on targeting children through advertising.  It also includes prohibitions on outdoor advertising of cigarettes and the advertising of cigarettes in public transit facilities, as well as the use of cigarette brand names on merchandise, and a host of other restrictions.  

“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.   

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