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Verdicts & Settlements

Tobacco Companies Ordered to Issue Back Pay to States

— March 23, 2021

R.J. Reynolds must compensate states for brands it sold off.

Minnesota Attorney General Keith Ellison announced the state has settled its lawsuit against R.J. Reynolds Tobacco and ITG Brands over payments from an original 1998 case indicating the state should have received at least $81 million.  In 2019, a state court ruled in favor of Minnesota in a case in which it argued that a brand-transfer issue led to the company’s failing to pay millions of dollars in the original settlement.  Reynolds merged with Lorrilard tobacco in 2015, transferring the KOOL, Maverick, Salem and Winston brands to ITG Brands, which was not part of the 1998 settlement.

The new deal struck with the state requires R.J. Reynolds to issue back payments due from 2015-2020, and ITG Brands will make payments on the transferred brands going forward.  “Annual payments to the state are expected to be “at least $10 million for the foreseeable future,” Ellison said, adding that the payments will be placed in Minnesota’s general fund.  Under terms of the settlement, the state will receive a full back payment for the unpaid period.

Tobacco Companies Ordered to Issue Back Pay to States
Photo by Антон Воробьев on Unsplash

Similar cases have been litigated in other states against R.J. Reynolds.  A state appeals court previously ruled the company is responsible for paying more than $100 million to Florida, upholding a decision by a Palm Beach County circuit judge.  The 11-page decision, written by Chief Judge Spencer Levine, Judge Dorian Damoorgian and Judge Alan Forst, stated, “We find, simply put, that a contract is a contract, and that Reynolds continues to be liable under the contract it signed with the state of Florida.”

Florida filed a lawsuit in 1995 against R.J. Reynolds and four other tobacco companies arguing the state had incurred high healthcare costs related to the dangers of smoking.  A settlement in the case required defendants making an initial payment of $750 million and agreeing to pay $440 million a year.  The appeal court’s ruling ordered R.J. Reynolds to pay $92.6 million to the state and $9.8 million to Philip Morris USA.

“The impact of the trial court’s unsupportable construction of the (settlement agreement) is severe: Reynolds faces a judgment requiring it to pay $102 million, plus payments in perpetuity amounting to millions of dollars annually, by including brands Reynolds no longer manufactures, sells, or ships in the calculation of its annual settlement liability – contrary to the express terms of the (the settlement),” the companies attorneys argued in a brief following the decision by the appeals court.

“The FSA (Florida Settlement Agreement) required that Reynolds make annual payments to the state of Florida in perpetuity, with no condition of termination, in exchange for the release of liability for past and future medical costs incurred by the state of Florida,” Levine wrote. “Significantly, the FSA could be ‘amended only by a writing executed by all signatories hereto and any provision hereof may be waived only by an instrument in writing executed by the waiving party.’ It is undisputed that there was no written agreement by the signatories to the FSA altering or waiving Reynolds’s payment obligations to Florida. In the absence of such a written amendment, Reynolds’s payment obligations continued in full force and effect under the FSA. Thus, the lack of any such written agreement altering or waiving conditions of the contract alone compels affirmance (of the circuit judge’s decision).”


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