Washington State

Office of the Attorney General

Attorney General

Bob Ferguson

Sep 11 2013

Ferguson’s office thwarts efforts by tobacco companies to avoid paying millions in tobacco settlement

OLYMPIA— The Washington State Attorney General’s Office won a major arbitration decision today in the continuing effort to enforce the $206 billion, 25-year Master Tobacco Settlement Agreement (MSA). The decision means $14.8 million in withheld tobacco settlement funds from 2003 will come to Washington.

In its 23-page ruling, the arbitration panel, comprised of three former federal judges, concluded Washington “diligently enforced” its tobacco laws and tobacco companies are not entitled to a reduction in the amount of money that they are required to pay the state as part of the settlement.

“This is an important victory for Washington,” said Washington State Attorney General Bob Ferguson.  “Tobacco use continues to be a significant public health problem in Washington— costing the state Medicaid program roughly $651 million a year. The losses are not limited to dollars and cents. Roughly 7,600 adults in Washington die each year due to smoking and it is estimated 124,000 kids under 18 in Washington will ultimately die prematurely due to smoking.”

As part of the master settlement, participating tobacco manufacturers pay billions each year to the settlement states. In exchange, the states agreed not to pursue additional suits for health-related damages. 

The years-long “diligent enforcement” case dealt with the requirement that states collect cigarette sales escrow payments from manufacturers who did not participate in the settlement (also referred to as “non-participating manufacturers”).  The “participating manufacturers”— including R.J. Reynolds, Phillip Morris Inc., Lorillard and 16 smaller companies—alleged that Washington did not “diligently enforce” these laws and thus should forfeit an amount up to its entire annual payment for 2003.

The “participating manufacturers” paid more than $723 million of their 2003 settlement payments to the MSA states and territories, including Washington, into a disputed payments account pending the outcome of the arbitration. As a result of today’s arbitration decision, Washington is entitled to receive $14.8 million of these withheld funds.

Washington has received more than $2.07 billion in tobacco settlement payments since 1999 when tobacco companies sent their first MSA payments to the states,

Tobacco companies transferred more than $150 million to the Washington state treasury in their 2013 annual payment—including securitization payments to the Tobacco Settlement Authority.  The state’s payment includes the regular annual settlement payment of $112 million, and an additional $37.8 million "strategic contribution" payment due to Washington’s significant role in negotiating the MSA.

Washington has received more than $246 million in such “strategic contribution payments” since 2008 when states first began receiving additional payments tied to their roles in negotiating the settlement. As a leader in negotiating and enforcing the settlement, Washington receives the highest “strategic contribution” payment in the nation.

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The Office of the Attorney General is the chief legal office for the state of Washington with attorneys and staff in 27 divisions across the state providing legal services to roughly 200 state agencies, boards and commissions. Attorney General Bob Ferguson is working hard to protect consumers and seniors against fraud, keep our communities safe, protect our environment and stand up for our veterans. Visit www.atg.wa.gov to learn more.

Janelle Guthrie, Director of Communications, (360) 586-0725
Alison Dempsey-Hall, Dep. Communications Director, (206) 641-1335