U.S. SC won't hear challenge of $246B tobacco deal

John O'Brien Mar. 7, 2011, 10:13am


WASHINGTON (Legal Newsline) - The U.S. Supreme Court won't hear the appeal of a group that claims the 1998 Tobacco Master Settlement Agreement created a marketplace unfairly hostile to smaller cigarette manufacturers.

The Competitive Enterprise Institute challenged the agreement, which requires tobacco companies to make an annual payment to states to allow their products to be put on shelves. The payments are supposed to help states offset health care costs caused by smoking-related illnesses.

The agreement has an estimated worth of $246 billion over its first 25 years. Louisiana Attorney General Buddy Caldwell defended the MSA against the challenge.

"We regret the court's decision not to take up a case of major constitutional and policy importance," said Sam Kazman, CEI's general counsel. "The tobacco settlement imposed a massive national sales tax on cigarettes, without a single elected legislator at any level of government voting for it.

"This was a major power grab by state attorneys general at the expense of both citizens and our structure of government."

The U.S. Supreme Court's decision lets stand decisions from a district court and the U.S. Court of Appeals for the Fifth Circuit in New Orleans.

"(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,'" the Fifth Circuit's decision 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."

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.

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