Montana Sues Big Tobacco Over $43 Million in Disputed Settlement Payments

Montana is seeking $43 million from several tobacco companies. (Image via Pixabay)

(CN) — The state of Montana is taking several tobacco companies to court for withholding $43 million in payments owed for marketing a lethal product to children and driving up health care costs.

“No one gets to take money from Montana’s citizens, particularly when that money is owed for serious corporate wrongdoing, and especially when that money is intended to keep Montanans safe and healthy,” Montana Attorney General Tim Fox said in a statement Monday. 

Montana joined every other state in the country in suing its largest tobacco companies 22 years ago. The states settled with 60 companies, including Philip Morris, R.J. Reynolds, and Brown & Williamson Tobacco Corp., after a federal court in Washington, D.C., found they had known for at least 50 years that tobacco is a highly addictive substance that causes a multitude of serious and deadly health problems but tried to replace their dying customer base by marketing to children.

Under a settlement signed in 1998, the companies agreed to make annual payments to Montana, which the state would use for smoking prevention and cessation programs and health insurance for children.

In a motion to enforce the judgment, Fox says the tobacco companies have been trying to renege on the payments since 2006.

“The defendant tobacco companies are engaged in a bad faith conspiracy to improperly reduce every annual payment obligation to Montana due under the (Master Settlement Agreement). The goal is to permanently, and in unison, reduce their payment obligations under the MSA through a scheme of distortion, deception, and delay,” the motion states, adding that the conduct has stripped the state of funding to provide an additional 200–300 Montana children with annual health insurance.

The state claims that the companies have been disputing the settlement every year since 2006, demanding a maximum potential payment adjustment that forces Montana into a renewed and protracted legal battle resulting in withheld payments. 

The state’s motion outlines the supposed scheme as follows: “First, the defendants assert a dispute each year — having no factual basis for asserting the dispute. Then, they withhold millions of dollars from Montana’s MSA payment due that year on the bare assertion that there is a ‘dispute.’ Next, the defendants insist that Montana spend multiple years litigating each of these annual disputes. When Montana prevails, the defendants then insist that Montana wait to receive the withheld portion of its MSA payment until defendants’ analogous disputes with all other states are also resolved. As long as a new dispute is asserted each year, and it takes multiple years to resolve each dispute, the backlog of disputes increases each year. Defendants thus make it functionally impossible for Montana to ever recover the full amount of MSA payments withheld over the years — even if Montana wins every dispute asserted against it.”

The annual disputes center around whether Montana has a qualifying statute allowing tobacco companies to withhold a certain amount of payment in a “disputed payment account,” or escrow account.  

In 2006, the companies tried to reduce their 2003 settlement payment on the grounds that they were entitled to an adjustment because of Montana’s alleged failure to enforce its qualifying statute. Montana fought back and the tobacco companies dragged out the litigation for 11 years.

It wasn’t until 2018 when the state deposed Philip Morris’s corporate representative Agustin Rodriguez that it learned the company did not have any specific information about Montana’s qualifying statute enforcement when it withheld settlement payments.

The state claims these annual disputes are a stalling tactic to exhaust Montana’s legal resources, which are vastly outweighed by the tobacco industry’s. The state says Philip Morris’s parent company Altria has revenues of about four times Montana’s annual budget of $6.4 billion, and that the companies had at least 18 lawyers in 2017–2018 devoted to litigating a dispute from 2004.

The tobacco companies currently have 12 unresolved disputes with Montana. “These numbers will continue to increase each year until the defendants’ scheme is stopped,” the state’s motion states.

Philip Morris declined to comment, referring Courthouse News to Altria, which did not respond to a request for comment Monday.

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