Tobacco Companies and States Announce MSA “Diligent Enforcement” Settlement
On December 18th, 17 states and the manufacturer-signatories to the Master Settlement Agreement announced a settlement of the manufacturers’ claims that the states failed to satisfy their obligations to “diligently enforce” non-signatories’ escrow requirements.
The manufacturers had claimed that the states failed to adequately enforce non-signatories’ escrow obligations, and as a result, the manufacturers disputed more than four billion dollars in settlement payments dating back to 2003. The manufacturers’ claims were the subject of an ongoing arbitration, with decisions expected in 2013.
Under the terms of the settlement, the manufacturers released the disputed payments. In exchange, the 17 states (Alabama, Arizona, Arkansas, California, Georgia, Kansas, Louisiana, Michigan, Nebraska, Nevada, New Hampshire, New Jersey, North Carolina, Tennessee, Virginia, West Virginia and Wyoming, as well as the District of Columbia and Puerto Rico) agreed to credits totaling 1.65 billion dollars against the manufacturers’ payments over the next five years. The settlement allows other states to join at a later date.
Significantly for manufacturers that are not signatories to the MSA, the settlement has strong incentives for states to pass new laws regarding non-signatories’ escrow requirements. The settlement encourages states to pass laws or regulations that broaden escrow requirements for sales on Indian reservations, as well as laws that impose bonding requirements for non-signatories. Under the settlement, if the states do not pass these laws, the states could lose even more settlement money.