DOJ: News Release

Lawsuit: Tobacco Manufacturers Ignore Escrow Requirements

HELENA – Montana Attorney General Mike McGrath on Thursday filed suit in district court in Helena, charging that 30 tobacco companies failed to establish or properly fund escrow accounts required by Montana law. The companies named in Thursday’s suit manufactured cigarettes sold in Montana in 1999 and 2000.

Defendants in the suit are so-called “non-participating manufacturers,” companies that refused to participate in 1998′s massive Master Settlement Agreement between major tobacco companies and 46 states. To date, Montana has received more than $69 million from the Master Settlement.

The settlement included provisions to protect the participating companies from unfair competition from companies that refused to join the settlement. The amounts the settling companies pay to the states each year can be substantially reduced if the obligations set out in the Master Settlement cause them to lose market share to non-participating companies.

Generally, for every 1 percent of market share lost, annual payments to the states shrink by 3 percent. However, the reduction formula only applies to states without a model statute requiring the non-participating manufacturers to make payments into escrow accounts.

To protect Montana’s share of the tobacco settlement, the 1999 Montana Legislature passed such a law, requiring companies that refused to join the settlement to pay into an escrow fund, with payments based on units of tobacco sold in Montana each year from 1999. By law, wholesalers in Montana must report to the Department of Revenue how many units of tobacco manufactured by the tobacco companies are sold in Montana. The statute specified a payment roughly equal to what the “NPMs” would have paid, had they agreed to settle with the states. The money remains in the fund for up to 25 years and, while it cannot be spent by the state, it can be used to cover any future legal claims the state may have against those companies.

“Tobacco companies that were not part of the Master Settlement are nonetheless part of the problem in this state,” McGrath said. “Every manufacturer must be held accountable for the health effects caused by smoking and the government programs required to pay for them.”

Each of the 30 companies named in Thursday’s suit is charged with one of three violations:

  • Failing to set up an escrow account and certify compliance to the Montana Department of Justice;
  • Failing to put the correct amount of money into the account, or
  • Creating an escrow account that doesn’t meet the requirements of the statute.

The lawsuit seeks a variety of relief, including orders to place funds in escrow, penalties for improper deposits, orders prohibiting the defendants from selling tobacco products in the state and other relief as “necessary or appropriate.”

McGrath said the amount owed by the companies included in the lawsuit is over $26,000, not including the penalties requested.

“The payments received under the tobacco settlement are in trust for the people of Montana,” McGrath said. “This is an important step in protecting the tobacco trust fund and ensuring that it will be there to fund vital public health programs into the future.”

The companies named in the suit are from across the country and around the globe, stretching from Idaho, Washington and Oregon to India, Germany, China, Greece, Canada, Belgium and elsewhere. McGrath said Thursday’s action excludes tribal manufacturers. He also said the State may pursue other NPMs in the future.

Thirty-five other states and the District of Columbia have filed similar lawsuits.

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