Court Upholds 1998 Tobacco Deal, Denies North Carolina Firm’s Claims

The landmark 1998 national settlement between 46 states and 19 tobacco companies is valid and doesn’t amount to a conspiracy or anti-competitive behavior by the government, a federal appeals court ruled this week.

The U.S. 6th Circuit Court of Appeals in Cincinnati rejected claims from General Tobacco, a now-shuttered Mayodan, N.C., company, that it was misled into taking part in the agreement in 2004, causing it to effectively shut down five years later.

The Master Settlement Agreement ultimately prevented companies from being sued by state governments for the costs of health care for smokers, but required a combination of yearly payments to states and restrictions on advertising. The settlement protected cigarette wholesalers and retailers from liability.

General Tobacco’s attorney, John Bush of Bingham, Greenbaum, Doll in Louisville, said the company was disappointed by the ruling.

“The company is reviewing its options for further appeal at this point,” Bush told The Associated Press.

Kentucky Attorney General Jack Conway said in a statement that the state has received $1.39 billion from the agreement since 1998.

“We appreciate the court upholding the integrity of the Tobacco Master Settlement Agreement,” Conway said.

The National Association of Attorneys General, which argued the case, was reviewing the decision.

The case arose after U.S. District Judge Jennifer Coffman in Louisville dismissed General Tobacco’s challenge to the agreement in 2009, ruling that the company couldn’t prove the settlement amounted to a conspiracy or anti-competitive behavior by the government.

General Tobacco, which sold the GT-One brand and at one point was the sixth-largest cigarette maker in the country, paid about $600 million into the settlement, including about $200 million in back payments for the six years the settlement was in place before the company joined, and another $36 million in escrow.

General Tobacco, founded in 2000, claimed that nonparticipating companies were almost excluded from selling tobacco products in the United States because no wholesaler or retailer would risk selling a brand not covered by the agreement.

The settlement divided participants into two camps — original participants and subsequent participants. General Tobacco claimed that split amounted to a conspiracy and unfairly treated cigarette companies who came late to the agreement by making them pay more than the original group.

General Tobacco argued that it eventually signed on to the settlement because it was the only way to get full access to the U.S. tobacco market. But, by joining late, the company said it had to pay more than the 19 companies that originally settled the case, making the settlement unfair to General Tobacco.

Judge Eric Clay wrote in a 21-page decision that General Tobacco understood the terms of the agreement and the multiple rights it waived signing on to the agreement.

“Plaintiff has not alleged that it did not understand that it was waiving its constitutional claims,” Clay wrote. “…The waiver is valid.”

Judge Helene White concurred with the decision in a one-sentence opinion.

Clay, writing for the court, found that the Attorneys General and the 19 tobacco companies that took part in the settlement before General Tobacco signed on are immune from being sued. States and their agencies are generally immune from lawsuits, unless they are acting as a “market participant” instead of a governmental role.

Clay found that the attorneys general were acting as government officials in enforcing the settlement.

“Plaintiff does not allege any facts necessary to show that Attorneys General defendants were acting as market participants,” Clay wrote.