Last summer, we wrote about the Iowa Attorney General’s $133 million suit against the tobacco manufacturers that are signatories to the Master Settlement Agreement (MSA).  Brought in Iowa state court, this suit alleged that those manufacturers (commonly referred to as “Participating Manufacturers”) acted in bad faith by disputing (and delaying the ultimate payment of) the amounts they owe to the state under the MSA. On August 22, 2023, Iowa compromised its past and future claims under the lawsuit and joined 37 other states that have settled similar disputes. Iowa Attorney General Brenna Bird announced that the state reached a settlement with the Participating Manufacturers that will result in the state receiving payments of more than $171 million over the next six years.  

The protracted dispute centered around a provision of the MSA known as the “NPM Adjustment.” The MSA requires the Participating Manufacturers to make substantial annual payments to MSA states. Part of the MSA bargain between the Participating Manufacturers and the settling states requires the states to pass and “diligently enforce” statutes that obligate non-participating manufacturers (“NPMs”) to make similar payments into escrow accounts.

To ensure that states keep up their end the bargain, the MSA allows Participating Manufacturers to dispute the amount they owe to a state if the state fails to diligently enforce its NPM escrow statutes. Such disputes are subject to arbitration, and Iowa has been involved in NPM Adjustment arbitrations for the years 2004 through 2007. As the Iowa press release related: “Iowa was one of only nine states that was still litigating this dispute in slow-moving and massive arbitration proceedings. Before this settlement, Iowa and those States had still been fighting over the annual payment amounts from over 18 years ago and had not been paid any of those disputed amounts.”

Iowa’s Tobacco Settlement Authority Act provides for the issuance of bonds to fund capital projects, debt services, and attorneys fees related to the MSA; such bonds were secured by a pledge of all or a portion of the state’s share of MSA payments. Iowa now states that it will use 78% of the payments to pay down the state’s debt to bondholders and deposit the rest in the State Treasury’s Rebuild Iowa Infrastructure Fund.

Eight states continue to arbitrate the matter. New Mexico brought a similar lawsuit as Iowa that has yet to be resolved.

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Photo of Christina Sava Christina Sava

Christina is an attorney in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. She helps clients navigate local, state, and federal regulations affecting the tobacco, hemp, and cannabis industries – including ancillary service providers. She brings extensive experience in the cannabis…

Christina is an attorney in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group. She helps clients navigate local, state, and federal regulations affecting the tobacco, hemp, and cannabis industries – including ancillary service providers. She brings extensive experience in the cannabis industry to her work in the tobacco, nicotine, and vapor space, giving her a deep understanding of the challenges and opportunities of launching new products and marketing campaigns in a shifting regulatory landscape.

Photo of Bryan Haynes Bryan Haynes

Bryan Haynes serves clients by developing and implementing creative solutions for complex issues. Specializing in tobacco industry regulatory compliance and enforcement matters, Bryan efficiently assists clients in complying with regulatory obligations and managing risk, consistent with clients’ business objectives.

Photo of Agustin Rodriguez Agustin Rodriguez

Agustin is sought after by clients for his strategic counsel on their most challenging competitive and regulatory compliance issues, including tobacco Master Settlement Agreement issues, federal and state enforcement investigations, licensing and excise tax issues, developing compliance programs, and evaluating advertising and marketing…

Agustin is sought after by clients for his strategic counsel on their most challenging competitive and regulatory compliance issues, including tobacco Master Settlement Agreement issues, federal and state enforcement investigations, licensing and excise tax issues, developing compliance programs, and evaluating advertising and marketing practices. A partner in the firm’s Regulatory Investigations, Strategy + Enforcement (RISE) Practice Group as well as its Tobacco and Cannabis law practices, he represents manufacturers, distributors, retailers, and suppliers in all aspects of their businesses, including regulatory compliance, FDA requirements, administrative disputes involving federal or state governmental entities, mergers and acquisitions, commercial agreements, and taxation matters.