Cigarette Companies Sue Kentucky Over Rival's Deal

Source from:  By Robert Schoenberger The Courier-Journal 08/22/2005

A group of smaller cigarette companies that have agreed to the terms of the 1998 tobacco settlement are suing Kentucky, saying the state gave a fast-growing competitor too sweet of a deal. The 1998 Master Settlement Agreement signed by tobacco companies and 46 states limits tobacco marketing and requires firms to make annual payments to states. A deal last year to get General Tobacco, maker of GT One cigarettes, into the MSA violated the agreement by giving the company 12 years to make $242 million in payments, the suit argues. The deal also allowed the company to make payments based on cigarette sales for only half of last year, the suit claims. Filed by Liggett Group, its parent company, Vector Group, Bowling Green-based Commonwealth Brands and other cigarette makers, the suit asks that General Tobacco pay full fees for 2004 immediately or that other cigarette makers get 12 years to make their payments. "The MSA is an agreement between two parties, the states and the tobacco companies. The states shouldn't have the right to make unilateral changes without consulting us," Ron Bernstein, CEO of the Liggett Group, said yesterday from New York. Liggett, maker of Liggett Select, paid about $21 million in fees for 2004 cigarette sales, according to filings with the Securities and Exchange Commission. While the General Tobacco challenge could have been filed in any of the 46 states, the companies said they filed the case in Kentucky because they wanted to file where one of the plaintiffs, Commonwealth Brands, was headquartered. Last year Commonwealth Brands, maker of USA Gold, filed similar claims against Virginia, New York, Connecticut, New Mexico and Arkansas. Michael Plumley, Kentucky's assistant attorney general who handles tobacco issues, said the state plans to defend the deal with General Tobacco. "Each company had a different situation at the time they joined," Plumley said of the agreement. "We've brought companies into the agreement in a proper way." Bernstein said that by giving General Tobacco the rewards of the MSA -- companies in the agreement may not be sued by participating states -- without the full fees, states are rewarding a company that violated the spirit of the agreement. Operating outside the agreement, General Tobacco had lower costs and was able to undercut its rivals. In 2000, General Tobacco sold 59 million cigarettes, according to forms it filed when it joined the MSA last year. By 2003, its sales had grown to 7.7 billion cigarettes. "They grew by taking advantage of a significant price advantage for not being in the MSA," Bernstein said. Calls to General Tobacco and its parent, Vibo Corp., were not immediately returned yesterday. Plumley declined to comment on the competition issue, saying it would be addressed in court. A preliminary hearing has been called for Sept. 7 in Frankfort, where the suit was filed. Enditem