By Dow Jones Business News, September 11, 2013, 06:35:00 PM EDT
By Ben Fox Rubin
A panel of arbitrators threw out tobacco companies' claim against New York and instead ordered the companies to pay
the state more than $92 million that they withheld, Attorney General Eric T. Schneiderman's office said Wednesday.
The panel of three retired federal judged rejected the tobacco companies' request to reduce its annual pay to New
York, instead finding that the state had complied with its agreement obligations and was entitled to its full payment
under the landmark 1998 tobacco Master Settlement Agreement.
Beginning in the mid-1990s, New York and many other states sued the major U.S. tobacco manufacturers, alleging a long-
standing fraud and conspiracy to hide the health risks and the addictive nature of their products from the government
and the public. The Master Settlement Agreement resolved the separate claims of 52 states and territories against the
major participants in the U.S. tobacco industry.
The cigarette manufacturers that signed the settlement agreed to make substantial annual payments to the states in
The dispute in New York hinged on the construction of a state statute: whether untaxed reservation sales of cigarettes
to the public were subject to escrow collection.
Under New York's escrow statute, only sales of cigarettes on which New York state excise taxes have been paid trigger
the escrow requirement. However, for more than 50 years, New York didn't require state excise taxes to be paid on
cigarette sales to or on Indian reservations. Consequently, the state didn't seek to have nonparticipating manufacturers
make escrow deposits for their untaxed sales in New York. In rejecting the tobacco companies' claims, the panel
recognized the state's long-standing policy of not taxing cigarette sales on Indian reservations.
The arbitration panel also found that six out of 15 states in 2003 failed to enforce laws that require escrow payments
from cigarette manufacturers that didn't sign the Master Settlement Agreement. Manufacturers that participate in the
Master Settlement Agreement, such as Philip Morris USA (MO) will receive downward adjustments in their MSA payments if
states fail to diligently enforce non-participating manufacturer escrow laws. As a result, Philip Morris expects to
receive a credit of about $145 million against next year's MSA payment, the full remaining amount available to the
company in the 2003 arbitration.
-Nathalie Tadena contributed to this article.
Write to Ben Fox Rubin at firstname.lastname@example.org
Corrections & Amplifications
This was corrected at 4:58 p.m. EDT on September 15, 2013 because the original incorrectly stated that Philip Morris
International Inc. would receive downward adjustments in MSA payments if states fail to diligently enforce non-
participating manufacturer escrow laws. The company that would receive those adjustments is Philip Morris USA.
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