Reynolds Agrees to $15M Resolution in Mississippi Dispute

Source from:  Winston-Salem (NC) Journal 06/24/2015

Reynolds American Inc. has agreed to pay $15 million to Mississippi to settle shipment disputes involving a subsidiary and a manufacturer it bought in 2004.

The $15 million is about $3.8 million less than the amount a Mississippi chancery court had ordered paid by legacy Brown & Williamson Tobacco Corp. and R.J. Reynolds Tobacco Co.

Reynolds bought Brown & Williamson for $4.4 billion in July 2004. Reynolds could not be reached today for immediate comment on the agreement.

In 1998, the nation's largest tobacco manufacturers agreed to pay $206 billion over 25 years to settle public-health lawsuits filed by attorneys general in 46 states, including North Carolina.

Mississippi was one of four states to reach an individual deal, in 1997, with the manufacturers. Mississippi receives $136 million annually from Reynolds.

The two disputes involve what Jim Hood, Mississippi's attorney general, called an underreporting of cigarette shipments by Brown & Williamson, through a partnership with Star Tobacco, and by R.J. Reynolds.

"The original settlement requires Brown & Williamson to pay Mississippi for every cigarette it makes and ships to the state," Hood said. "Brown & Williamson dodged this payment by manufacturing cigarettes for Star Tobacco. The company then sold those cigarettes to Mississippians without paying the state."

Hood said that as his office investigated the Brown & Williamson shipments, it discovered a similar practice by R.J. Reynolds. Reynolds denies the accusations.

The Mississippi chancery judge ruled in 2011 that Brown & Williamson owed $3.8 million in underpayments and $4.3 million in interest. A special master appointed to review the settlement determined in 2014 that the total amount owed by Brown & Williamson was $10.8 million, including interest.

In the legal action against Reynolds, the state initially sought $3.8 million in underpayments and $2.7 million in interest. The court ruled in June 2012 that Reynolds owed $3.3 million each in underpayments and interest even though the court said the company won part of the legal case.

After additional legal maneuvers, the court ruled in September 2014 that Reynolds altogether owned $8 million to the state.

The court required the two companies to pay a combined $4.9 million in attorney fees for the state. Reynolds said in an April 20 regulatory filing that a final appealable order has not yet been entered, and additional hearings on other damages issues are possible.

Reynolds said in the same filing it had set aside $19 million related to legal action in Mississippi. Enditem