Agreement contingent upon legislature’s updating state’s tobacco law on allocable share release.
Jefferson City, Mo. – Attorney General Chris Koster today announced the State of Missouri has negotiated a settlement with major tobacco companies to resolve a contract dispute over 12 years of annual tobacco payments to the State. Under the Settlement, Missouri would recoup $50 million lost in the 2003 NPM Adjustment Arbitration, protect itself from potential further losses of more than $1 billion in the 2004-2014 NPM Adjustment Arbitrations, and receive an estimated $11 million increase to the State’s annual tobacco payments beginning in 2020. The settlement is contingent upon the General Assembly passing a law this session that every other state has already enacted to preserve escrow payments made by tobacco companies that did not join the 1998 national tobacco settlement.
“Recovering $50 million and preserving future payments provides the legislature some certainty going into the next budget cycle and continues to fund the programs that depend on this money,” Missouri Attorney General Chris Koster said. “I hope that we are able to work together to protect a significant revenue stream that benefits Missourians.”
Koster met with legislative leaders last week to discuss the settlement proposal, and today sent a letter to all members of the General Assembly outlining the history of the tobacco litigation. The letter highlights the need to update Missouri’s tobacco law to repeal what is known as the “allocable share release,” or “ASR,” loophole. Enactment of ASR legislation is a condition of the settlement taking effect.
Since 2001, the major tobacco companies have paid over $2.2 billion to Missouri as a result of the national Master Settlement Agreement (MSA). The current dispute arose when the tobacco companies participating in the MSA alleged that many states, including Missouri, failed to diligently enforce state tobacco laws in 2003. As a result, the tobacco companies argued, they were entitled to withhold a large portion of their payment for that year under the terms of the MSA. During the arbitration over the 2003 MSA payment, 22 states settled with the tobacco companies without any finding of liability. A three-judge arbitration panel ruled against six of the remaining 24 states—Missouri, Indiana, Kentucky, Maryland, New Mexico, and Pennsylvania—holding them responsible not only for their own share of the 2003 payment dispute, but also for a portion of the shares of the 22 states that settled their cases.
Koster’s office challenged the arbitration decision in state court, arguing that reallocating the liability of the 22 settling states onto the six losing states violated the terms of the MSA. The trial court ruled that Missouri was entitled to a $50 million refund, but the Missouri Court of Appeals reversed that finding in September 2015, reinstating the $50 million loss. The appeal is now pending before the Missouri Supreme Court.
Koster’s settlement resolves the ongoing dispute over the $50 million loss from 2003. It also protects the state against potential further losses in future arbitrations regarding 2004 – 2014, each of which could result in the loss of Missouri’s entire annual payment.
The settlement agreement does not take effect unless the Missouri General Assembly updates a particular tobacco law, commonly known as “ASR,” this legislative session. The ASR law requires tobacco companies that did not participate in the settlement to set aside funds in escrow each year that could pay states’ claims against the companies in the future. But a gap in the law’s drafting led to unintended consequences, releasing almost the entire escrow amount deposited each year back to companies that concentrate their sales in Missouri. While all of the other 45 states participating in the settlement have corrected this error, legislation in Missouri has not succeeded.
Then-Attorney General Nixon first proposed closing Missouri’s loophole in 2002, and continued to seek its passage every year. Attorney General Koster in turn has consistently asked the General Assembly to amend the escrow law.
“The time has come to close the loophole in our tobacco law, as every other state has already done,” said Koster. “This year, the benefits to Missouri are clear and quantifiable.”
