Dispute over MSA Payments Trundles on

Source from:  tr.itsmyiq.com Apr 16, 2008 04/17/2008

Philip Morris USA yesterday made its 2008 Master Settlement Agreement (MSA) payment of about $4 billion. This brings to more than $42 billion the amount PM USA has handed over to U.S. states since 1997 in MSA payments and pre-MSA settlements. The latest amount includes about $156 million that PM USA disputes it owes as a result of the 2005 Non-Participating Manufacturer (NPM) adjustment. But as it did with respect to the 2003 and 2004 NPM adjustments, the company has elected to pay the disputed money to the states, though it had the right to put the disputed money into the Disputed Payments Account (DPA). "We continue to work in good faith with the states to resolve the Non-Participating Manufacturer adjustment dispute, whether by settlement or by the arbitration process specified by the Master Settlement Agreement," said Denise Keane, executive vice president and general counsel of the Altria Group, speaking on behalf of PM USA. Also on Monday, R.J. Reynolds Tobacco Co met its $2.251 billion MSA payment obligation for 2008, which brings to nearly $20.2 billion the amount that the company has paid to the states since 1998, when the agreement was signed. But R.J. Reynolds has chosen to take advantage of the DPA. In a note posted on its website, the company said that, as was agreed to by all MSA signatories, a tobacco company was due a credit against its annual payment if it were determined that the disadvantages imposed by the MSA were a significant contributing factor in the participating manufacturers losing market share to NPMs in a particular year. 'That determination was recently made by an independent economic consulting firm, hired jointly by the states and the tobacco companies, in connection with the 2005 market year,' the note said. 'The Settling States dispute that R.J. Reynolds and the other tobacco manufacturers are entitled to these credits.' R.J. Reynolds said that following the process specified in the MSA, about $431 million of its 2008 payment was deposited into the DPA. This marked the third year the company had deposited a portion of its payment into the special escrow account and brought to $1.6 billion the total amount it had deposited there. "It is our position that the MSA requires that payment disputes, such as the ones relating to the 2003, 2004 and 2005 NPM adjustments, should be resolved through binding arbitration before a single panel of three former federal judges," Martin L. Holton III, general counsel for R.J. Reynolds, was quoted as saying. "For almost two years, we have been litigating with the states over whether our dispute relating to the 2003 NPM adjustment should be submitted to arbitration. Forty-seven of the 48 state courts to address the issue have ruled in our favor. It's time for the states to comply with their obligations under the MSA and move forward with a nationwide arbitration of this dispute." Enditem