By TIM THORNBERRY
Kentucky Correspondent

MAYODAN, N.C. — The country’s sixth-largest tobacco company filed suit in a Louisville federal court last week against 52 state and U.S. territories’ attorneys general and a host of fellow tobacco companies.

The lawsuit claims their competitors conspired with states to set up the Master Settlement Agreement (MSA) in a way as new entrants to the agreement would have to pay substantially more toward the settlement.

General Tobacco (GT) wants more than $1 billion in damages and a stop in action by states against them for their non-payment of MSA funds. The company was established in 2000 and signed on to the agreement in 2004. According to a GT statement, the company “believes the effect of the MSA is to drastically limit future competitors from fair market competition.”

The action is a turnabout from the original 1998 MSA in which 42 state attorneys general sued the largest tobacco companies at that time and were awarded a historic $206 billion partly to recover medical damages caused by tobacco use.

The distribution of funds was set up to cover a 25-year period. The settlement also placed restrictions on tobacco product advertising and contained language to prevent states from filing future actions against the tobacco companies involved.

The GT statement also noted that “the MSA was structured so that certain companies in the market in 1998 would receive future preferential payment terms while ‘new members’ such as GT would have to pay substantially more than the original preferred members.”

The company’s executive vice president J. Ronald Denman compared the MSA’s unequal treatment to a cartel.

“The structure for the MSA created an impossible business environment for future competitors especially small players such as GT. All we are asking for is a level playing field for everyone,” Denman said.

The suit comes on the heels of a letter sent to GT, specifically Denman, by the Arkansas Attorney General Dustin McDaniel on behalf of all the states’ attorneys general involved.

The letter served as a 30-day notice to the company warning of impending legal action should GT continue to withhold their portion of the MSA payments.

The letter listed specific requirements of the MSA regarding payments including: “Pursuant to paragraph (eight) of said Adherence Agreement, General Tobacco was to have paid 2 percent of the principal amount of the General Tobacco Prior Obligations, as defined in the Adherence Agreement, together with all accrued interest on or before Aug. 30, 2006.

“Also pursuant to paragraph (eight) of said Adherence Agreement, General Tobacco was to have paid 3 percent of the principal amount of the General Tobacco Prior Obligations, together with all accrued interest, on or before Aug. 30, 2007, and 5 percent of the principal amount of the General Tobacco Prior Obligations, together with all accrued interest, on or before Aug. 30, 2008. As of this date, General Tobacco has not made such payments, and General Tobacco has indicated that it will not be able to make such payments.”

According to information from GT, the company has paid approximately $470 million to the MSA and an additional $36 million in escrow. GT has annual sales of about $300 million.
McDaniel wrote in the letter, “We are willing to discuss these matters with you at any time in an effort to resolve them, as contemplated by section VII(c) of the MSA. Please be advised, however, that unless we are able to reach a quick and satisfactory resolution, one or more of the undersigned Settling States will seek judicial resolution of these violations by General Tobacco.”

R.J. Reynolds, one of the tobacco giants named in the 1998 MSA was also named in this case as a defendant. Reynolds Spokesman David Howard said the company was unlikely to make a statement about the lawsuit since the papers had literally just arrived as of last Thursday but he added the company was prepared to defend itself.

GT claims those named in the suit violated “the Sherman Anti-Trust Act, its constitutional rights under the Equal Protection and Due Process Clauses of the Fourteenth Amendment, the Compact Clause and the Commerce Clause of the U. S. Constitution as well as violation of the Civil Rights Act, Title 42 USC Section 1983.”

Language contained in the Sherman Anti-Trust Act said, “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of a felony.”