Is The Master Settlement Agreement Legal?

General Tobacco Sues 52 U.S. AGs


Arguing that the Master Settlement Agreement in 1998 hinders competition from new tobacco companies, General Tobacco also sues competitors for $1 billion.

North Carolina-based tobacco manufacturer and distributor General Tobacco said it is suing 52 U.S. attorneys general and 19 tobacco companies, as well as asking for damages in excess of $1 billion from competitors.

The company says its competitors allegedly conspired with the states to set up the Master Settlement Agreement (MSA) so later market entrants, such as GT, have to pay the states substantially more than certain competitors pay.

General Tobacco said it believes the effect of the MSA is to drastically limit future competitors from fair market competition. The company has paid approximately $470 million to the MSA and an additional $36 million in escrow.

The complaint was filed in U.S. District Court in Louisville, Ky., charging the 52 states and territories attorneys general with violating 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 Section1983.

The MSA was created in 1998 by the 46 states, the District of Columbia and five U.S. island territories, along with big tobacco companies, which then controlled more than 97% of the market.

General Tobacco said MSA was structured so that certain companies in the market in 1998 would receive future preferential payment terms while new members such as General Tobacco, would have to pay substantially more than the original preferred members.

J. Ronald Denman, executive vice president of General Tobacco, compared the MSA 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.



#1 Pat on 10.31.08 at 3:39 PM

The Compact Clause of the Constitution states “No state shall, without the consent of Congress…enter into any Agreement or Compact with another State.” (Article 1, Section 10)
It is quite obvious that, according to the Constitution, the Master Settlement Agreement is illegal.

#2 jay on 10.31.08 at 7:50 PM

Does Burgerking pay more taxes than Mcdonald’s? Does Toyota pay more than Ford? I say we have too much government involvement in an overtaxed industry. What happened to ” no monopolies ” and a ” freemarket system” ?

#3 Bill Godshall on 11.01.08 at 2:58 PM

While I haven’t read General Tobacco’s complaint (if anyone has a link, please post) and I’m confused why General Tobacco is a MSA participant and also pays into state escrow accounts (that is required for nonparticipants), but none of the many previous state and federal lawsuits filed against the ten year old MSA have been successful so far.

A few years ago, the Competitive Enterprise Institute filed a federal lawsuit (citing very similar, or identical, arguments as General Tobacco). I haven’t heard anything about that case since then.

As one who challenged the MSA in PA court and encouraged/assisted with legal challenges in a dozen other states, I found the legal processes frustrating as the judges rejected the legal challenges without providing much rationale.

The Philadelphia Common Pleas Court Judge who rejected our petition (filed by more than a dozen health and anti tobacco organizations) simply stated (after numerous briefs and counterbriefs were filed and after a hearing was held) that while we raised many intriquing legal arguments, he would let those issues be determined by other courts in the future. Then he signed the court’s approval of the settlement.

Seemed like the judges who struck down the legal challenges didn’t want to risk losing a future appointment to a state appeals or supreme court (which are made by Governors, all of whom wanted the MSA revenue).

When we appealed our loss in Common Pleas Court, PA Attorney General Mike Fisher sent all of us appealants a threatening letter claiming our appeal was frivolous, and stating his intent to sue all of us personally (if we didn’t end our appeal) for the tens or hundreds of millions of dollars that might be lost to the state if our appeal delayed or reduced PA’s reciept of MSA funds (about $450 million/year).

#4 Jordan on 11.03.08 at 10:35 AM

What does everyone think about GT getting that letter from the Arkansas attorney general threatening to sue the company to force payments that were never made?

#5 Smoker Babe on 11.04.08 at 10:59 AM

I was under the thought that GT had worked out arrangements to take care of their back payments. Didn’t they work out a backroom deal? Correct me if I’m wrong!

#6 The OTP Kid on 11.07.08 at 9:41 AM

The MSA is clearly unconstitutional under the Compact Clause, and yet the public does not understand the ramifications. There’s no public interest in this case because it involves Big Tobacco. The MSA represents one more example of the chipping away of rights Americans were supposed to enjoy. RICO is another example. What’s next?

#7 EX WS on 11.08.08 at 2:16 PM

OTP Kid your right but as you and I know not many outside the industry care. In light of the recent political news a people that become more dependent on government in turn give up their rights!

#8 Bill Godshall on 11.17.08 at 4:20 PM

A 2005 Reason Magazine article on the Competitive Enterprise Institute’s federal lawsuit against the MSA (citing the same consitutional issue as General Tobacco’s recently filed lawsuit) is at:

#9 TAZ on 11.19.08 at 3:30 PM

I found this to be very interesting:

A report titled “A Decade of Broken Promises: The 1998 State Tobacco Settlement Ten Years Later” released on November 18th by the Campaign for Tobacco-Free Kids, American Heart Association, American Cancer Society Cancer Action Network, American Lung Association and Robert Wood Johnson Foundation showed that the US States have received a total of $203.5 billion from the tobacco settlement ($79.2 billion) and from tobacco product taxes ($124.3 billion) over the past ten years, but have spent only 3.2% of that money, or $6.5 billion, on tobacco prevention and cessation programs. (Campaign For Tobacco-Free Kids 11/18)

#10 Bill Godshall on 11.19.08 at 5:57 PM

CTFK, ACS, AHA, ALA want more MSA funds for themselves (via state contracts, subcontracts, consulting fees, partnerships, etc.).

#11 Mal on 11.20.08 at 4:11 PM

well of course! All companies should pay the states where their customers live for abusing their products. The State of Virginia should be compensated by Ford for someone who drives a new Mustang 120 mph endangering his life and the lives of others. This is the American Way!

#12 Big Tuna on 11.22.08 at 1:53 AM

But why doesn’t AB pay the families for their losses from a drunk driver? Why should the state be reimbursed by Ford. Things are out of control.

#13 Bill Godshall on 01.06.09 at 1:16 PM

A federal judge has dismissed the lawsuit filed by General Tobacco against the MSA.

Does anyone know what happened to the similar lawsuit filed several years ago by the Competitive Enterprise Institute (cited in Sullum’s column below)?

#14 The OTP Kid on 01.06.09 at 4:27 PM

Oh boy, now Obama has offered the job of Surgeon General to Sanjay Guptha, the CNN health correspondent. I am beyond befuddled, I have no idea where this is going!

#15 Sweetness on 01.06.09 at 4:33 PM

Hey Kid did you think it would have been Sean Hannity? LOL!

#16 Pat on 01.06.09 at 6:31 PM

I’m as befuddled as the rest of you.

#17 The OTP Kid on 01.06.09 at 6:43 PM

I’m trying to see the positive in it, so I’m thinking if the criteria was to choose a TV personality, Obama could have made a worse pick. I guess we should all just be glad it wasn’t Richard Simmons!!!

#18 Pat on 01.07.09 at 8:38 AM

Motion dismissed.

#19 TAZ on 02.18.09 at 2:56 AM

Mayodan, North Carolina-based cigarette and cigar manufacturer General Tobacco, which was founded in 2000 and joined the Master Settlement Agreement in 2004, announced February 17th that it reached an agreement with an undisclosed number of States to change how it will make back payments for the MSA. (Associated Press – AP 02/17)

#20 Bill Godshall on 02.18.09 at 11:55 AM

Last week, a news article stated the Competitive Enterprise Institute (in DC) presented its case to a federal judge in Louisiana. Several years ago, the CEI filed a lawsuit very similar to the one filed by General Tobacco challenging the MSA (which was recently dismissed by another federal court).

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