Tobacco settlement survives another challenge, appeal coming

John O'Brien Aug. 11, 2010, 2:34am


A federal appeals court decided Tuesday that 1998's Tobacco Master Settlement Agreement is constitutional, ruling against a challenge by the Competitive Enterprise Institute.

The deal, reached between major tobacco companies and 46 states, required cigarette manufacturers to make annual payments to the states to offset the alleged health care costs of smoking-related illnesses. It has an estimated worth of $246 billion over its first 25 years, and more than 40 companies have signed into the MSA.

A three-judge panel of the U.S. Court of Appeals for the Fifth Circuit sided with Louisiana Attorney General Buddy Caldwell, whose office defended the MSA.

The panel relied on reasoning from similar cases before the Fourth and Sixth circuits. Those who have challenged the MSA say it creates a market place wherein smaller businesses can not compete with larger ones.

The decision, authored by Judge Eugene Davis, cites a Sixth Circuit decision that says, "The genesis of this anticompetitive behavior, however, stemmed neither from the MSA nor the complementary legislation that Kentucky enacted to give effect to the MSA's provisions.

"Instead, the behavior with which (the plaintiff) really takes issue is the behavior of the (participating manufacturers) following the MSA's enactment. Because such behavior was neither mandated nor explicitly authorized by the state of Kentucky forecloses (the plaintiff's) argument on this issue."

CEI said it will likely appeal. The group can ask for an en banc review, where all judges of the Fifth Circuit would consider the issue.

CEI's Hans Bader said he doesn't know if his group will ask for the review or simply appeal Tuesday's ruling directly to the U.S. Supreme Court.

CEI challenged the MSA on behalf of a small cigarette company that refused to sign into it, a tobacco shop owner and an individual smoker. CEI's complaint calls the deal "one of the most effective and destructive cartels in the history of the nation."

The CEI also claims the MSA violates the Compact Clause of the Constitution because it imposes a national regulatory scheme that hasn't been approved by Congress.

Davis included a decision from the Fourth Circuit when addressing that claim.

"(T)he Master Settlement Agreement may result in an increase in bargaining power of the States vis-a-vis the tobacco manufacturers, but this increase in power does not interfere with federal supremacy because the Master Settlement Agreement 'does not purport to authorize the member states to exercise any powers they could not exercise in its absence,'" it says, citing a U.S. Supreme Court case.

CEI calls the MSA a backroom deal that transferred money and power to state attorneys general. Private attorneys hired by those AGs earned billions of dollars in the settlement.

In exchange for settling, the MSA protects "the companies from competition by imposing penalties on companies that don't join the settlement," CEI says. "The tobacco companies passed the cost onto smokers in the form of a hidden tax."

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