DOJ: News Release

McGrath: Montana Entitled to Full Payment from Tobacco Companies

HELENA – Attorney General Mike McGrath filed an action in district court today, seeking a ruling that Montana has met the terms of the massive multi-state tobacco agreement and is entitled to its full share of the settlement funds.

Tobacco companies made their annual payment to the states on Monday, April 17, as required by the Master Settlement Agreement (MSA), but Reynolds American, Lorillard and several smaller companies paid a portion of their payments into a disputed-payment account, resulting in a $3 million cut to Montana’s payment. Other companies made full payment, but also assert they are entitled to pay less.

“Montana is owed full payment under the agreement,” McGrath said. “We’ve met all of our obligations under the MSA. There is no reason for tobacco companies to withhold any part of the required payments.

“Collectively, the states received more than $5.7 billion this time in MSA payments,” he said, “but it’s important to remember that the MSA is primarily a public health agreement. It has strong prohibitions on many forms of advertising, promotion and marketing of cigarettes by the participating manufacturers, and it has led to reduced smoking.”

Under the Master Settlement Agreement reached in 1998 between states and the “Participating Manufacturers” (now principally Philip Morris USA, Reynolds American, and Lorillard, plus many smaller companies), Participating Manufacturers must make annual payments – in perpetuity – to the states.

At the same time, payments may be subject to increases or decreases. One is the “NPM” – for “Non-Participating Manufacturer” – adjustment.

States enforce laws that require cigarette makers who were not part of the Master Settlement to pay into escrow accounts. These laws were passed to require that companies that are not part of the MSA but still sell tobacco products – NPMs – have funds in escrow available to meet potential legal obligations the companies could face later. If there is no legal action or settlement or judgment against an NPM after 25 years, the escrow funds could be returned to the company.

To reduce their payments under the NPM Adjustment, tobacco manufacturers that signed on to the agreement must show that states failed to enforce state laws that require the NPMs to pay into the escrow accounts. That is the provision under which Reynolds and Lorillard are withholding a share of their payments, and others (including Philip Morris USA) are disputing their payment amounts even though they paid in full.

McGrath said that Montana has “diligently enforced” its NPM laws, and no adjustment is warranted.

Reynolds and Lorillard paid about $755 million of their overall payment into the disputed-payment accounts. Philip Morris USA made its full payment but has claimed it is entitled to reduce payments. The states received a total of over $5.7 billion from the companies for the April 17 payment, bringing the total paid under the MSA to over $47 billion since 1998. Montana received slightly more than $23 million in tobacco payments Monday. The actions by Reynolds and Lorillard reduced Montana’s payment by roughly $3 million.

McGrath said that if the filing is successful and enforcement orders are entered, the state will receive the withheld funds plus interest.

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