N.C. court rules tobaccco growers in 14 states due millions

RALEIGH, N.C. -- A federal tobaccco quota buyout doesn't free cigarette makers from having to pay $424 million to growers in 14 states as part of 1998's multibillion-dollar anti-smoking settlement, North Carolina's Supreme Court ruled Friday.

The ruling, which reversed a lower court's decision, was welcomed by tobacco farmers who had counted on the money to pay for materials and equipment.

"I'm going to take it to the bank and pay some money I owe, and that's the honest truth," said Sam Crews, president of the Tobacco Growers Association of North Carolina, who stands to receive $60,000 as a result of the ruling.

An attorney representing Philip Morris USA, R.J. Reynolds Tobacco, Lorillard Tobacco and Brown & Williamson did not immediately return calls seeking comment.

The payments stem from 1998's $206 billion settlement of anti-smoking lawsuits filed by 46 states against the cigarette makers. In the wake of that settlement, the tobacco companies agreed to a second part of the deal -- Phase II -- which would pay tobacco growers and quota-holders $5.1 billion over 12 years to compensate them for reduced tobacco demand.

That agreement provided for a reduction or stop in the payments if the losses were made good in some other way, such as the $10.1 billion tobacco-quota buyout approved by Congress last year to end the Depression-era price support system.

Attorneys for tobacco-growing states argued the companies weren't relieved of making the Phase II payments to growers for 2004 until they started making buyout payments this year.

An agreement between the 14 states and the companies gave legal jurisdiction to courts in North Carolina, the nation's leading tobacco state, to decide the issue.

In December, North Carolina Business Court Judge Ben Tennille ruled the companies did not have to make a final, $106 million payment to growers for the final quarter of 2004, and should receive a refund of other payments of about $318 million.

But the state Supreme Court ruled Friday that Tennille was mistaken, writing in the opinion that the tobacco companies "must actually assume the burden of (the buyout) before being relieved of their obligations to the Phase II Trust."

The ruling affected 80,000 tobacco growers and over 300,000 tobacco quota holders in North Carolina, Kentucky, Tennessee, South Carolina, Virginia, Georgia, Ohio, Indiana, Florida, Missouri, West Virginia, Alabama, Maryland and Pennsylvania.

Kentucky's General Assembly this year provided $114 million in June to make up for most of the Phase II payment to Kentucky growers and quota holders. State officials expect to recoup the money with Friday's court order.

"What we know at this point, we could not have asked for a better outcome," said Keith Rogers, executive director of the governor's agricultural policy office in Kentucky.

Stan Duffer, a regional market manager for Virginia's agriculture department, said the ruling is a bit of good news for tobacco farmers grappling with higher fuel prices and loss of price supports at the same time many are getting out of the business.

Federal statistics show that planted acreage of flue-cured tobacco in Virginia fell 40 percent from last year, and Kentucky's first burley crop since the buyout is expected to produce the smallest harvest in nearly 80 years.

"We're in a tough world," Duffer said, adding that court's decision Friday "sort of ends a chapter, if you will."