General Tobacco Sues to Halt Payments

Source from:  By Jere Downs jdowns@courier-journal.com October 29, 2008 10/30/2008

Off-brand cigarette maker General Tobacco filed a federal lawsuit in Louisville yesterday claiming that it would be bankrupted if forced to continue making hundreds of millions of dollars in payments to the Master Settlement Agreement. General Tobacco, based in Mayodon, N.C., launched its first brand, GT One, in 2000, two years after states' attorneys general reached a multibillion-dollar agreement with major tobacco manufacturers to fund health initiatives to counteract tobacco-marketing campaigns aimed at young people. To broaden its cigarette distribution network in 2004, General Tobacco joined the national agreement and has paid approximately $470 million into the fund. General Tobacco said in the lawsuit that it also pays $36 million annually into an escrow account held by Kentucky and other states for settlement of possible future health-related tobacco claims. Named as defendants in the lawsuit, which seeks $1 billion in damages, are 52 attorneys general and 19 other tobacco makers, including Philip Morris and Reynolds American. General Tobacco also asked the court to stop states from penalizing the company for not making payments while the lawsuit proceeds. Allison Martin, a spokeswoman for Kentucky Attorney General Jack Conway, noted that General Tobacco voluntarily negotiated with states to join the Master Settlement Agreement. "General Tobacco was not forced to agree with the terms of the settlement," Martin said. "They negotiated the terms." General Tobacco sells 1 percent of the cigarettes sold in the United States, said J. Ron Denman, the company's executive vice president and general counsel. Philip Morris, the largest U.S. cigarette maker, pays $3.5 billion annually to states under the agreement. Philip Morris controls nearly half the market with brands such as Marlboro, Virginia Slims, Parliament and Basic brands, General Tobacco asserts in the complaint. More favorable payment terms reached with the states in 1998 by Philip Morris and other giant tobacco manufacturers discourage new entrants to the marketplace, the complaint asserts. "It is hard enough without artificial regulations that benefit a certain exempt few," Denman said in an interview yesterday. Enditem