Cigarette Dealer Loses Settlement Challenge

     (CN) – An amendment to Louisiana’s 1998 settlement with major tobacco companies does not violate federal antitrust law, the 5th Circuit ruled, rejecting a challenge by a discount cigarette dealer.




     Xcaliber International Limited, a cigarette dealer that’s not a party to the state’s tobacco settlement, claimed that a 2003 amendment to the original escrow agreement “destroyed” its ability to compete within a regional market.
     As a non-party to the settlement, Xcaliber is required to put money in an escrow account to guard against future tobacco-related lawsuits. Before the amendment, Xcaliber could recover escrow funds when they exceeded the state’s “allocable share,” which was equal to that of participating members.
     The amended law, however, set a limit on the amount of escrow funds that would be released to a non-party in a particular year by removing the “state’s allocable share” language.
     Xcaliber claimed the amendment violated the federal Sherman Act, but a federal judge sided with the state.
     The New Orleans-based federal appeals court affirmed that decision.
     “On its face, the [amendment] does not force or allow private parties to collude, set prices, divide markets, or in any other manner violate antitrust law,” Judge Emilio Garza wrote. “The [amendment] simply alters the amount of money to be refunded to [non-parties] by changing how much of the annual escrow payments are released.”
     The three-judge panel was equally unconvinced by Xcaliber’s argument that the regulatory structure created by the original settlement “represents a private conspiracy” by the Legislature in favor of the cigarette companies that settled.
     “The [settlement] has brought about a substantial reduction in cigarette consumption and substantial reimbursements to the states for the public costs of cigarette consumption,” Garza wrote. “By implementing the [settlement], Louisiana has ensured these beneficial achievements are not corrupted by allowing [non-parties] to sell cigarettes at prices unburdened by any payment obligation, and potentially to dodge liability by closing up shop and selling elsewhere.
     “Louisiana has articulated reasonable goals, linked to its public health needs, that support its decision” to approve the settlement, the court concluded.

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