Tobacco Growers' Lawsuit Expands

Source from:  The Brantford Expositor 06/03/2010

LONDON -A growing class-action lawsuit by the Ontario tobacco board and growers against major manufacturers is taking another step forward with the filing of a statement of claim against a third company, JTI-MacDonald Corp. Werner Keller, a lawyer with Windsor-based Sutts, Strosberg LLP acting on behalf of the plaintiffs, was successful in late April in getting a judge's order allowing a suit to be filed against JTI. The company is under court protection through the federal Companies Creditors Arrangements Act, which protects it from lawsuits, unless a judge agrees to a motion allowing an action to proceed. Shortly afterward, the plaintiffs filed a $50-million suit against the company in Ontario Superior Court in London. The Ontario Flue-Cured Tobacco Growers' Marketing Board and individual growers Andy Jacko, Brian Baswick, Ron Kichler and Arpad Dobrentey filed similar actions against Imperial Tobacco and Rothmans Benson and Hedges in late 2009, but had to wait to file against the third large manufacturer until the legal protection obstacle had been cleared. The claimants are also seeking an order for costs, for what could be lengthy legal proceedings. All three statements of claim deal with a period of activities the companies are alleged to have carried on between 1986 and 1996. Allegations in the statements of claim must still be proven in court. "Getting to bring an action against the third company represents another step forward," said Keller. JTI has not filed a statement of defence yet, and is not commenting publicly because the class action has not been certified. The plaintiffs argue the class actions seek to recover the difference between the export price paid by the domestic manufacturers for Ontario tobacco at the board's auctions and the higher price they ought to have paid because the tobacco was actually intended for domestic use. The pricing and payment obligations were contained in the agreements negotiated annually by the board on behalf of Ontario flue-cured tobacco growers and producers. In the three suits failed, the board and the individual growers take issue with the actions of the two companies in buying and trading in Ontario tobacco grown under the board's supply management jurisdiction during the crop years 1986 to 1996. It was also the same time period the federal government used in its action against the same companies, who later admitted they violated the Canada Excise Act by buying product under the export and duty-free regime and pretending to export it, only to bring it back into the Canadian market. In exchange for their pleading guilty, the government won a $1-billion settlement from the companies in 2008, then later used some of the money to assist Ontario growers with a $300-million exit package and transition program. During the class action 1986 to 1996 period, the Ontario Farm Products Marketing Commission had delegated to the board the ability to manage the supply of all tobacco grown in the province under a quota system, and sold through an auction exchange. The board and growers dealt with the companies through an annual agreement that set out the terms and conditions of the sale of tobacco, the prices and quantities to be produced and marketed. The agreements required the companies to pay to the board a guaranteed average price per pound for tobacco for domestic use and floor prices for each pound of tobacco to be used for duty free, or export, purposes. That price was normally lower. The companies also were required to provide "proof of export" to the board's auditors, accurately disclosing the quantity of tobacco they delivered to the U.S. to be sold for duty free and export purposes. The claim states that in 1986, duty free and export tobacco represented between 1% and 3% of all domestic tobacco sold through the board. During the class-action period, the companies "designated tobacco as being for export and duty free purposes, intending that it be smuggled into and sold in Canada," the claims say. "In the result, massive quantities of cigarettes and other tobacco products were smuggled back into Canada after (the companies) executed sham exports, leading to the distribution of these products throughout Canada on the black market." The claims accuse the companies of not stamping the cigarette packages and cartons to conform to the Excise Act. That was not done, the claims say, "to facilitate the smuggling of cigarettes into Canada." The board and the other plaintiffs are awaiting the next step, a judge's order certifying the class action suit. Keller said it is unknown when that might come, but he hopes it will be soon. Enditem