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State To Receive $2 Million In Disputed Tobacco Payments

CONTACT: William H. Sorrell, Attorney General, (802) 828-3173

February 24, 2009 - Attorney General William Sorrell announced today that as a result of an agreement with major tobacco companies, Vermont will receive about $2.1 million this month. Under the agreement, the companies will authorize release to the states of a total $529 million in funds that were previously withheld by the companies, or placed in a disputed payments account.

The 1998 tobacco Master Settlement Agreement requires the tobacco industry to make annual payments to the settling states of billions of dollars, in perpetuity. To date, Vermont has received $260.6 million of these payments, or an average of $26 million per year since the inception of the agreement.

In the last three years, the industry has withheld from its annual payments, or placed into disputed payment accounts, a total of more than $2 billion owing to the states, because of the “Diligent Enforcement disputes” regarding the states’ enforcement of their escrow statutes applicable to cigarette companies that are not party to the settlement (non-participating manufacturers or NPMs). This withholding has reduced Vermont’s payments by about $8.3 million over the three years 2006-2008. The Vermont share of the funds held in disputed payment accounts includes about $3.1 million withheld in 2006 (for the 2003 dispute); $2.8 million withheld in 2007 (for the 2004 dispute); and $2.2 million in 2008 (for the 2005 dispute).

The MSA provides for a reduction in the companies’ required payments to states that failed to diligently enforce the applicable laws, for each year in which such state failed to be diligent, if certain other conditions are satisfied. Each state, in order to recover the withheld money, must demonstrate its entitlement to the full payment by establishing that it diligently enforced for each year in dispute. This determination will be made separately for each state and each year in dispute.

The states and companies will commence a single nationwide arbitration, probably next year, to resolve the 2003 Diligent Enforcement dispute. Last month, the states and the companies entered into an agreement regarding commencement of this arbitration. As part of the agreement, the companies are now releasing funds withheld from the states for the 2005 Diligent Enforcement dispute. This release is not a concession by the companies that the states are entitled to the funds. Vermont, like every other state, is still required to establish, in a nationwide arbitration, its entitlement to the withheld funds. The Attorney General’s Office is preparing for arbitration of the 2003 dispute, and anticipates there will be subsequent proceedings to establish Vermont’s Diligent Enforcement in 2004, 2005, and possibly later years as well.

At stake is not only the total of $8+ million previously withheld, but in fact Vermont’s entire payments for the years in dispute. For 2003, for example, the industry is entitled to a payment reduction of up to $1.2 billion in total, which it can recover from payments that have been made to those states that are found not to have been diligent in 2003. If only a few states are found not to have been diligent, those states could lose their entire payment for 2003. The Attorney General’s Office will continue its diligent pursuit of all monies owing to the state under the MSA.

“We look forward to presenting our case before the national arbitration panels and hope to recoup all of our withheld funds with interest. But given these harsh economic times, we welcome the present release of these tobacco monies,” said Attorney General Sorrell

  Website consulting provided by The National Association of Attorneys General.