Big Tobacco Ordered to Pay Oregon $9 Million in National Arbitration Dispute

Today a panel of arbitrators ordered Big Tobacco to pay Oregon the more than $9 million that they had failed to pay. These tobacco companies -- which include Philip Morris USA Inc., R.J. Reynolds Tobacco Company, and Lorillard Tobacco Company, among others -- argued that they should not have to make their full payments under the Tobacco Master Settlement Agreement (MSA) because Oregon had failed to diligently enforce certain terms of the agreement. The panel found that Oregon "diligently enforced" its MSA obligations and is entitled to the remaining $9 million due on the 2003 payment. 

"This is a big victory for the citizens of Oregon," said Attorney General Ellen F. Rosenblum. "The Oregon Department of Justice has taken very seriously its obligation to diligently enforce the terms of the Tobacco Master Settlement Agreement. We took the position that we were entitled to our full payment from Big Tobacco and we were vindicated by the panel’s ruling."

This decision is a significant legal victory for Oregon. Oregon has been litigating with Big Tobacco since 2006 regarding whether Oregon fulfilled its obligations under the MSA, a 25-year-old agreement between tobacco companies and 46 states, including Oregon. The tobacco manufacturers pay billions annually to participating states in exchange for the states’ agreement not to sue for health-related damages to citizens.

In 1998, Oregon and a number of other states entered into the MSA as a method of settling the numerous claims the states were pursing against Big Tobacco as a result of their fraudulent advertising practices and the resultant health care costs borne by the states. As a result of the MSA, Oregon currently receives payments of approximately $80 million per year from Big Tobacco. Since 1999, Oregon has received over $690 million in MSA payments.

The protracted dispute that resulted in today’s decision began in 2006. Under the MSA the states are required to collect escrow payments on cigarette sales from tobacco companies that did not join the MSA. Big Tobacco may withhold all or part of a state’s annual payment if that state failed to "diligently enforce" its tobacco laws against those companies that did not join the MSA. To resolve the Big Tobacco claim that many states had failed to diligently enforce, Oregon and other states entered into a nationwide arbitration, conducted by a panel of three retired federal judges. All states who had signed on to the MSA were originally parties to the arbitration. Late in the arbitration process, 17 states, Washington, D.C., and Puerto Rico settled with Big Tobacco.

The case was handled by a team of lawyers from the Department of Justice’s Civil Enforcement Division, along with Special Assistant Attorneys General David Markowitz and Lisa Kaner and their team.
 
"We were honored to work with the Attorney General on such an important issue for this state and we could not be more pleased with the result," said Special Assistant Attorney General Lisa Kaner, of the Markowitz, Herbold, Glade, & Mehlhaf P.C. law firm.

Rosenblum thanked the Markowitz law firm, Fred Boss, Chief Counsel of the Civil Enforcement Division, and Lisa Udland, Deputy Chief Counsel of the Civil Enforcement Division, saying "the panel was obviously impressed with our team’s preparation, going out of its way to commend our Deputy Chief Counsel Lisa Udlund, who has been the lead lawyer on these matters at DOJ for 10 years."

Contact:

Lisa Udland, Department of Justice, Lisa.Udland@doj.state.or.us, 503-934-4400