Reynolds Disputes $477 Million of Tobacco Settlement Payment

Source from:  Winston-Salem Journal 04/22/2011

R.J. Reynolds Tobacco Co. continued Friday its dispute over annual payment obligations to the Master Settlement Agreement by withholding about 24 percent of the amount due from 2010. Reynolds paid $1.49 billion toward satisfying its MSA payment obligation. But it also placed $477 million in a special escrow account for the fifth time in six years. Keeping the money is permitted in the agreement. Philip Morris USA said it made a payment of $3.23 billion and placed $267 million into a disputed-payments escrow account. The agreement, reached in 1998, sets marketing limits on the companies and requires payments to states. Friday was the annual filing deadline for participants. Reynolds and other major tobacco manufacturers say that a provision in the agreement allows them to pay less if they have lost market share to smaller companies that weren't part of the MSA deal. A panel of three judges, selected in July, is arbitrating the nonparticipating-manufacturer adjustment for 2003. Reynolds said its portion of the 2003 money was $615 million. Since 2006, Reynolds has withheld $2.95 billion and paid $12.34 billion. It released $445 million from the account in February 2009 but still considers it part of the amount being disputed. "By depositing a portion of our payment into the disputed-payments account, we are simply following the process that all parties understood and agreed to when they signed the MSA in 1998," said David Howard, a spokesman for Reynolds. Smaller cigarette makers emerged because of the MSA settlement and have sold cigarettes for less than the bigger cigarette makers, grabbing significant market share. The states passed laws aimed at reducing the smaller companies' competitive advantage by forcing them to put money into escrow in case they are sued by the states. At issue in the dispute between the states and the big companies is whether the states "diligently" enforce the law. Enditem