Tobacco Settlement: It Is Not What
the Tobacco Industry Says It Is (continued page 5)
B. SOME LEGAL ISSUES
The Tobacco Industry and the Attorneys General have marketed this Settlement
as one with Limited Immunity by the States on Behalf of the Medicaid Program.
However, the Immunity is Far Broader. For instance, this Settlement:
Preempts all state and local government lawsuits in perpetuity to redress
industry misconduct on secondhand smoke pollution, even though secondhand
smoke isn't a cause for action in any of the lawsuits and even though formulas
used to determine tobacco-related costs to States' Medicaid programs do
not include costs incurred by secondhand smoke (which kills an estimated
70,000 non-smoking Americans every year). (Section II(nn)(1)(B), page 6)
Preempts all state and local government lawsuits in perpetuity to redress
misconduct by industry executives, attorneys, agents, advertisers, distributors,
retailers, etc. even though none are defendants in the current lawsuits.
(Section II(oo), page7)
Preempts all state and local government lawsuits in perpetuity to redress
misconduct by the Tobacco Industry on behalf of all state employees, even
though they are not plaintiffs in the current lawsuit. (Section II(pp),
page7)
Preempts all state and local government lawsuits in perpetuity to redress
past industry misconduct, even though local governments are not plaintiffs
in any of the state lawsuits. (Section II(pp), page 7)
Releases all past and future claims by the Tobacco Industry, although
the current lawsuits were based on past misconduct. (Section II (nn), (oo),
and (pp), pages 6-7)
Possible Antitrust Violations inherent in Settlement:
The Settlement includes Exhibit T (pages 137-141), a model state statute
whose purpose is to address the inequities between non-settling and settling
tobacco manufacturers. The Settlement says that since it obligates the
settling tobacco manufacturers to "pay substantial sums to the State;
to fund a national foundation devoted to the interests of public health;
and to make substantial changes in their advertising and marketing practices
and corporate culture, with the intention of reducing underage smoking";
therefore, "it would be contrary to the policy of the State if tobacco
product manufacturers who determine not to enter such a settlement could
use a resulting cost advantage to derive large, short-term profits."
The model statute requires that non-participating manufacturers either
participate in the settlement OR make payments to a state escrow account
in proportion to their market share. The money is released from the escrow
account either: as settlement or judgment money on any released claim brought
against the tobacco company by the State OR as part of the tobacco company's
settlement money to the state if the company joins The Master Settlement
OR after 25 years, it may revert back to the tobacco companies it came from.
This Model Statute essentially ensures the non-participating tobacco companies
will suffer the consequences of not signing onto the Settlement.
Exhibit T, if enacted, appears to violate federal antitrust laws. However,
even if Exhibit T is not enacted or is struck down in court, Section IX(d),
pages26-34 has provisions that decrease the Settlement payments in proportion
to the economic disadvantages the tobacco companies participating in the
Settlement suffer as a result of the Settlement. In other words, no matter
what, the participating tobacco companies are ensured that they maintain
an equal playing field in terms of their market share compared to non-participating
tobacco companies.
Attorneys General Authority:
Some have questioned whether the States' Attorneys General have (or should
have) the authority to grant such broad sweeping immunity. The immunity
in this settlement is broad on two accounts:
some of the releasing parties (local governments, government employees)
were never plaintiffs in the original lawsuits; and some of the issues the
tobacco industry is now released from were not causes for action in the
original lawsuits (secondhand smoke pollution).
In some states, it is the legislature by precedence which has conferred
immunity, not the Attorneys General. Although some Attorneys General are
saying this Settlement results in a release from claims and not immunity,
other lawyers disagree and say that a release of claims is a form of immunity.