High Court Won’t Review Tobacco Settlement Law

(CN) - Cigarette manufacturers failed to convince the Supreme Court on Monday to take up their challenge to a New York law that requires them to make annual payments into a reserve fund because they refused to participate in the state's settlement with the tobacco industry.

Freedom Holdings and International Tobacco Partners sued New York in 2002, claiming the state's Escrow and Contraband Statutes violated the Sherman Act and the Commerce Clause. New York enacted the statutes to enforce the 1998 landmark settlement between 46 states and four leading tobacco companies.

A federal judge rejected the cigarette importers' claims in 2008 after the companies filed five amended complaints, which complained that the laws improperly restrained trade and attempted to regulate out-of-state commerce.

The 2nd Circuit upheld the decision in October 2010, joining many of its sister circuits, which had reached similar conclusions about other states' escrow and contraband laws.

Under the state laws, tobacco companies that refused to join the settlement agreement are required to deposit an amount of money "roughly equivalent" to the costs borne by the settling companies. As such, the federal appeals panel noted that the deposit amounts to a "flat tax."

"A tax increase, like any cost, will likely be passed on to consumers in the form of higher prices," the decision states, "but where, as here, the state alone imposes the increased cost, there is no private collusion implicating the antitrust laws."

The Supreme Court rejected the cigarette companies' petition for review without comment, except to note that Justice Sonia Sotomayor did not participate in the court's consideration of the case.

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