Last week, the U.S. Supreme Court declined a request by Vibo Corporation, Inc. d/b/a General Tobacco (“General Tobacco”) to review the Supreme Court of Arkansas’ decision upholding a lower’s court’s order that, among other things, directed General Tobacco to pay almost $300 million to satisfy an MSA backpayment obligation and refused to stay the proceedings pending arbitration ( the “Backpayment Decision”).   

General Tobacco, a manufacturer of tobacco products, operated as a NPM from 2000 until August 2004.  In August 2004, General Tobacco signed an agreement under which it became a subsequent participating manufacturer under the MSA.  As part of the agreement, General Tobacco agreed to pay, through a series of installments, a backpayment obligation which covered its sales for the time period during which it was a NPM.  General Tobacco made its first installment payment but, admittedly, did not make its installment payments for subsequent years.  Arkansas then filed suit to collect the monies, which ended with the Backpayment Decision.

Three years prior to the Backpayment Lawsuit, in 2006, the independent auditor for MSA payments decided not to apply a downward adjustment to participating manufacturers’ annual MSA payments because Arkansas had a qualifying statute in place that negated any such adjustment under the MSA.  Arkansas then filed suit seeking a declaratory order that it had diligently enforced the qualifying statute and, therefore, the adjustment was inapplicable.  The participating manufacturers moved to compel arbitration on this issue whether the independent auditor should have applied the adjustment.  According to the manufacturers, this issue fell within the MSA arbitration provision.  The circuit court agreed, ordering that “this matter is stayed pending arbitration.” Based on this language and a U.S. Supreme Court decision that was issued after the Backpayment Decision, General Tobacco argued in its appeal of the Backpayment Decision that, pursuant to the Federal Arbitration Act, the 2006 order had stayed the entire litigation and not just the specific question whether the adjustment applied.

For now, the validity of General Tobacco’s argument must wait another day, as the Supreme Court denied General Tobacco’s petition seeking review of the Backpayment Decision.

Contributor: Brenna Newman

For questions and/or comments, please contact Bryan Haynes, at 804.697.1420 or by email.