A panel of arbitrators today rejected Big Tobacco companies’ $800 million claim against New York that sought to reduce their annual payment to the state that was set up as part of the 1998 Master Settlement Agreement with 52 states and territories, Attorney General Eric Schneiderman announced this afternoon. They found that New York had fully complied with its obligations under the agreement and was entitled to full payment, he said.
On top of that, the three retired federal judges that comprised the panel ordered the companies to pay New York more than $92 million they had wrongfully withheld from the 2003 annual Master Settlement payment.
“This ruling is a huge victory for all New Yorkers, and I applaud the panel for denying Big Tobacco’s efforts to avoid responsibility for illnesses caused by cigarettes—and paid for by taxpayers,” Schneiderman said in a statement. “Big Tobacco companies contribute to the deaths of thousands of people every year, in large part by luring more and more young people onto cigarettes. Finally, these companies will be required to reimburse the State for money spent treating New Yorkers made ill by their deadly product.”
The settlement grew out of lawsuits filed by New York and many other states alleging longstanding fraud and conspiracy on the part of Big Tobacco to hide the risks and addictive nature of tobacco products from the public and the government. The states pay for the impact of cigarettes through Medicaid, a health-care program for the poor and disabled, and other health and welfare programs.
The 15-year-old agreement requires that tobacco companies make annual payments to states and territories in perpetuity. The payments can be adjusted down if four criteria are met, such as if participating manufacturers experienced a market-share loss to tobacco manufacturers that aren’t part of the master settlement and the participating manufacturers shipped fewer cigarettes in the United States than in 1997.
The tobacco companies argued that New York didn’t have in place one of part of one of the criterion in 2003. They claimed the state had a qualifying statute on escrow accounts for non-participating manufacturers but didn’t enforce it. The law requires for non-participating manufacturers to make escrow deposits for every unit of cigarettes sold, that is cigarettes that state excise taxes were paid on and that had excise tax stamps. New York does not tax cigarette sales to or on Indian reservations, so non-participating manufacturers were not required to make escrow deposits for them, so the arbitrators
which was the tobacco companies’ legal argument hinged on, according to the attorney general.
Schneiderman said Big Tobacco is making the same claims against New York for other years and is withholding millions of dollars due to the state.
“This office will make every effort to force the tobacco companies to give New York the money they are unlawfully withholding from the State, including going to court if necessary,” he said.