Small cigarette makers file suit over state laws

Three small cigarette makers filed a lawsuit Monday accusing Louisiana of enacting legislation aimed at preserving Big Tobacco's market share and artificially propping up the major producers' settlement payments to the states.

Plaintiffs said the lawsuit was the first targeting 19 states that have similar legislation.

The National Association of Attorneys General says such laws closed a loophole that gave upstart cigarette companies a price advantage over firms that signed 1998's $200 billion Master Settlement Agreement.

Annual payments to the states are based on the market share of the four major signatories -- Philip Morris USA, R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Co. and Lorillard Tobacco Co. In the past four years, hundreds of small manufacturers have seen their market share grow more than tenfold to about 6.5 percent.

Under the agreement, cigarette companies were required to escrow money for up to 25 years with each state to cover awards in future state legal actions. But there was a provision in the settlement allowing companies that only did business in a few states to get most of that money back almost immediately.

The legislation, supported by Philip Morris and the other big cigarette makers, would require those non-signatory companies to escrow the money as if they were doing business in all 46 states and United States territories that entered the settlement.

The suit -- filed in federal court in New Orleans on behalf of Xcaliber International Limited of Pryor, Okla.; CigTec Tobacco of Charles City, Va.; and Carolina Tobacco Co. of Portland, Ore. -- argues that these small manufacturers are being penalized for Big Tobacco's historical misrepresentation of scientific data on the hazards of smoking, suppression of production of safer cigarettes and marketing of cigarettes to children.

"The MSA was designed to reimburse the settling states for the harm caused by these major tobacco manufacturers' wrongful conduct dating back to the 1950s," the suit argues. "No such claims have been asserted against plaintiffs."

Lawyers for the three companies argue that the new legislation was designed to increase the costs on nonparticipating manufacturers and "thereby to squeeze them out of business or, at least, inhibit their business development."

In addition to Louisiana, states that have passed such legislation include Alabama, California, Hawaii, Idaho, Illinois, Indiana, Iowa, Maine, Michigan, Montana, New York, Ohio, Oklahoma, Oregon, Vermont, Washington, West Virginia and Wisconsin.

Vermont attorney general Bill Sorrell, chairman of NAAG's tobacco committee, said the issue is not just about money, but about protecting public health.

Companies that signed the MSA are prohibited from giving out free samples, using cartoons in their advertisements or using merchandise to promote brands. Sorrell said the states have an interest in ensuring that all cigarette makers are playing by the same rules.

"Certainly it is a concern to the states ... because the payments to the states are reduced when there's this kind of market share shift taking place," he said. "But it's also a concern that the nonparticipating manufacturers, by virtue of their status, do not need to abide by the advertising and marketing restrictions that the companies that are part of the agreement need to adhere to."