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MSA being challenged by Competitive Enterprise Institute
MSA Tobacco Settlement Challenged in Court
Author: Maureen Martin
Published by: The Heartland Institute
Published in: Health Care News
Publication date: January 2007 In early November, a Louisiana federal district court judge ruled the Competitive Enterprise Institute's (CEI) lawsuit challenging the constitutionality of the Multistate Settlement Agreement (MSA) on tobacco may proceed to trial. The MSA was brokered in 1998 between 46 states and the four major tobacco companies, the resolution of a lawsuit brought by the states to recover expenses incurred on behalf of Medicaid patients with tobacco-related diseases. Payments from tobacco companies are expected to total approximately $205 billion by 2023. Under the MSA, the money is being raised by mandatory payments from tobacco companies, with amounts distributed to the states according to a formula determined by a group selected by the National Association of Attorneys General (NAAG) and the four major tobacco companies. Sales even in the four states that did not sign the MSA are included in the funds distributed to the participating states, and tobacco companies that did not join the MSA are also required to pay the taxes.
Breaking Laws
CEI alleges in its suit, brought against Louisiana Attorney General Charles C. Foti Jr., that the MSA violates the United States Constitution, which prohibits agreements among states that encroach on federal power without first obtaining the consent of Congress. "The MSA was an incredibly lucrative backroom deal, paid for by smokers, that has become a blueprint for state attorney general activism," CEI General Counsel Sam Kazman stated in a November 14 news release. "It should be struck down." CEI argues the MSA violates federal antitrust laws, usurps exclusive federal powers over cigarette advertising, and imposes a nationwide tax that only the federal government has the power to levy. The CEI suit also claims the MSA violates the Tenth Amendment by forcing states to impose the sales tax and by delegating state enforcement powers to NAAG. Louisiana moved to dismiss the suit, saying CEI failed to allege a monopoly claim; that the MSA does not impose a nationwide sales tax, but merely individual state sales taxes; and that parties are free to limit the exercise of their constitutional rights by contract, which is what happened with the MSA. Jennifer Cluck, Foti's assistant public information officer, said his office had no comment on the ruling.
Dismissing Claim
The federal district court denied most of the state's motion, dismissing only the Tenth Amendment claim, to hand CEI a substantial win in the first round of its MSA bout. But the court's opinion makes plain it's too early for MSA opponents to celebrate. Faced with the motion to dismiss the CEI suit, Federal District Court Judge S. Maurice Hicks Jr. first handed it off to a federal magistrate--a sort of "assistant judge"--to analyze. The magistrate recommended dismissing the case completely. In declining to follow the magistrate's recommendation, Hicks stated that while he was "inclined to agree" with the magistrate's reasoning, he was bound not to follow his recommendation because of a ruling by the Fifth Circuit Court of Appeals in March 2006 in a similar case, Xcaliber International Ltd., LLC v. Foti, 442 F.3d 233 (5th Cir. 2006). In that suit, a tobacco products manufacturer alleged the Louisiana MSA tobacco tax statute was unconstitutional because it violates manufacturers' rights to free speech, due process, and equal protection. A trial court dismissed the case on February 3, 2005, but the Fifth Circuit reversed the decision without setting out its reasoning. The Fifth Circuit remanded the case to the district court, where it is now proceeding toward trial. For more information ... The text of the federal district court judge's ruling in A.B. Coker Co., Inc., S&M Brands, Inc., CLP Inc., Tobacco Discount House #1, Inc. and Mark Heacock v. Charles C. Foti, Jr. is available through PolicyBot™, The Heartland Institute's free online research database. Point your Web browser to http://www.policybot.org and search for document #20196. Judge allows legal challenge to Multi-State Tobacco Settlement to proceed
Constitutionality of State-Tobacco Cartel at Issue
Washington, D.C., November 14, 2006—A lawsuit challenging the $240 billion, 46-state tobacco settlement can have its day in court, a federal district judge said in a ruling filed Monday. The lawsuit, brought by the Competitive Enterprise Institute on behalf of five plaintiffs in August 2005, challenges the constitutionality of the settlement. “The judge’s denial of Louisiana’s motion to dismiss is a welcome ruling,” said Sam Kazman, CEI General Counsel. “Given the number of unsuccessful challenges to the tobacco Master Settlement Agreement across the nation, it might be easy to conclude that the legality of this deal is settled. It isn’t, and we look forward to addressing these issues in court.” The MSA was unveiled eight years ago, in November 1998, as an agreement between 46 state attorneys general and the four major tobacco companies. It required the companies to pay huge sums to the states (over $200 billion in 25 years) and to abstain from certain advertising and other practices. In return, the states would protect the companies from competition. “The MSA was an incredibly lucrative backroom deal, paid for by smokers, that has become a blue-print for state attorney general activism” said Kazman. “It should be struck down.” Secret Tobacco Settlement Ruling Pried from State Attorneys General
Washington, D.C., June 21, 2006— A free market state policy group succeeded in wresting a secret ruling on the tobacco settlement from the National Association of Attorneys General (NAAG) this week. The $250 billion tobacco deal, signed in 1998 between 46 states and major tobacco companies, may well be the biggest settlement in history.
For nearly three months, the NAAG has kept secret a March 27 report by an arbitrator that could lead to reduced tobacco settlement payments for the states. NAAG claimed the report, written by the Brattle Group, was “privileged and confidential.”
But the Evergreen Freedom Foundation in Olympia, Washington, working with CEI, used its state’s public records law to force the state’s attorney general to disclose the report.
“Given that NAAG’s members are public servants, this important report should never have been kept from the public,” said Hans Bader, Competitive Enterprise Institute counsel. CEI has a pending lawsuit in federal court challenging the constitutionality of the tobacco settlement.
"It's shameful that the NAAG tried to keep the report from the public," agreed Jason Mercier, senior budget analyst for the Evergreen Freedom Foundation. “The tobacco settlement is, after all, a public settlement agreement. The report would still be secret if it weren't for Washington State’s public records law.”
The Brattle report was the result of a squabble that erupted early this year between state attorneys general and Big Tobacco, partners in a cartel arrangement to bolster the major companies and provide states a steady stream of settlement money. The majors argued that settlement payments should be lowered, since their share of the domestic cigarette market declined by several percentage points in recent years. The newly revealed report sheds light on how the Brattle Group reached its conclusion that the majors had lost market share to smaller competitors.
“It’s evident now that the report takes an already unfair agreement and makes it even more unfair, anticompetitive, and anti-consumer,” Bader remarked. “The report adopted a very strained reading of the tobacco settlement agreement.”
For example, despite evidence that Big Tobacco benefited from the settlement cartel, the Brattle report found that the major companies were harmed by it. That’s because the report cherry-picked the data it used to determine whether major companies were disadvantaged.
Relevant documents:
· The Brattle Group report
· Background on the EFF open records request
· Background on CEI’s legal challenge to the tobacco Master Settlement Agreement
· CEI CAP project website Contact: Christine Hall, 202.331.2258 CEI is a non-profit, non-partisan public policy group dedicated to the principles of free enterprise and limited government. For more information about CEI, please visit our website at www.cei.org. 1001 Connecticut Avenue, N.W. l Suite 1250 l Washington, D.C. 20036 202-331-1010 l info@cei.org l www.cei.org
Tobacco settlement violates Constitution, federal suit claims
June 15, 2006
By Steve Korris SHREVEPORT, La. - When attorney generals of 46 states signed a settlement of claims against tobacco companies they violated a section of the U.S. Constitution forbidding compacts between states, according to a lawsuit in federal court in Shreveport. The first article of the Constitution provides that, "No state shall, without the consent of Congress,…enter into any Agreement or Compact with another State…" According to the Competitive Enterprise Institute of Washington, the "Compact Clause" fits the Master Settlement Agreement that tobacco companies and states signed in 1998. The institute represents two cigarette makers, a distributor, a retailer and a smoker who want the Western Louisiana District Court to declare the "MSA" unconstitutional. Louisiana Attorney General Charles Foti has moved to dismiss the suit, arguing that the Compact Clause has lost most of its meaning. Foti told the court that actions of Congress and decisions of judges under other sections of the Constitution "have given the pressing concerns the Framers faced in 1789, in light of their then-recent experience under the Articles of Confederation, less urgency in more contemporary circumstances." Plaintiffs and the state await a ruling on the motion to dismiss from District Judge S. Maurice Hicks Jr. The tobacco deal has provoked many lawsuits, but according to Competitive Enterprise Institute executive director Hans Bader no other suit has relied primarily on the Compact Clause. He wrote to the court that, "If any interstate compact falls within the Compact Clause, it must be the MSA." The agreement established a national tax, he wrote, national regulation, national restrictions on advertising and national restrictions on political activity. States joined the agreement after Congress refused to pass a bill that would have accomplished a similar result. The Louisiana suit also claims that the tobacco deal violates the Commerce Clause, the Due Process Clause, the Bill of Rights and antitrust laws. Bader wrote that he could prove these violations but added that he would not need to prove them if the court enforced the Compact Clause. He described the tobacco deal as "one of the most effective and destructive cartels in the history of the Nation." He wrote that state legislatures passed laws to protect big tobacco companies from price competition by imposing payment obligations on companies that did not sign the MSA. He wrote that the MSA established a national excise tax that would be flatly unconstitutional if any state imposed it. Attorney General Foti wrote in his motion to dismiss that plaintiffs mischaracterized the agreement. "…[n]othing in it purports to infringe - either actually or potentially - on the sovereignty of the Federal Government," he wrote. It may have enhanced the power of states at the expense of cigarette makers but not at the expense of the federal government, he wrote. "…[i]f a single State can exercise a power, the fact that it does so in concert with other States in no way implicates the Compact Clause," he wrote. He wrote that the agreement does not authorize or require anyone to violate antitrust laws. Read
Unholy Alliance
Big Tobacco and Big Government join forces. By Christine Hall
April 12, 2006
States are embroiled in a nasty squabble with their business partner of seven years: Big Tobacco. Major tobacco companies Philip Morris and R. J. Reynolds have accused the states of failing to enforce anti-competitive laws that were instituted as a part of the major tobacco settlement of 1998. Under the terms of the settlement, the companies were given the right to reduce their payments to the states if they could prove two things: that the settlement caused them to lose market share, and that the states failed to “diligently enforce” laws imposing special taxes and regulations on small competitors. FULL STORY
To start the new year, George F. Will wrote about the states' tobacco addiction, how revenue from the 1998 tobacco settlement along with cigarette excise taxes incentivizes states to protect Big Tobacco. Will also notes that the tobacco settlement may be declared unconstitutional under Article I, Section 10 (the Compact Clause), referencing CEI's lawsuit in federal district court. For a quick refresher on the Compact Clause, please see the relevant chapter in the Heritage Foundation's Guide to the Constitution. For a bunch of related info, please visit ControlAbuseofPower.org The States' Tobacco Addiction By George F. Will The Washington Post Sunday, January 1, 2006; B07 Philip Morris USA recently got the Illinois Supreme Court to overturn a gigantic judgment against it in a suit that had originated in a place -- Madison County, Ill. -- that few could locate on a map. The court's ruling resulted in this Wall Street Journal headline: "Tobacco-Revenue Munis Get a Lift." This episode illuminates American governance today. Philip Morris is America's largest maker of cigarettes, a product legal to use but problematic to merchandise legally. Cigarettes are stigmatized by common sense and all state governments. But because those governments are increasingly addicted to cigarette tax revenue, the governments must be careful not to make cigarettes so expensive they do not sell well. Madison County, located along a bend in the Mississippi River near St. Louis, elects its judges, some of them very friendly to plaintiffs' lawyers who prosper from class action lawsuits. In 2003 a county court held that Philip Morris deceived 1.14 million current and former Illinois smokers into believing that cigarettes labeled "light" and "low tar" are safer than regular cigarettes. Without blaming Philip Morris for any illnesses, the purchasers of these products accused the company of fraud. A Madison County judge exuberantly awarded them $10.1 billion in compensation. The 0.1 was a nice touch, suggesting -- speaking of fraud -- scientific precision. But the Federal Trade Commission has ratified the use of the light and low-tar labels, and Illinois law sensibly says that companies cannot be penalized for conduct authorized by a regulatory body. So the Illinois Supreme Court, in a 4 to 2 ruling, vacated the $10.1 billion judgment. Two of the four justices in the majority also argued that the judgment should be overturned because the plaintiffs had not demonstrated that they had been harmed by Philip Morris's actions. That principle could spoil the fun of the asbestos litigation racket, in which some plaintiffs collect even though they have no symptoms of any ailments associated with exposure to asbestos. The Illinois Supreme Court's ruling stimulated the market for "tobacco-revenue munis." Those are municipal bonds backed by tobacco revenue streams resulting from a real fraud -- the Master Settlement Agreement. In 1998, 46 states conspired to seize $246 billion from companies that sell products made from a commodity -- tobacco -- the cultivation of which was then subsidized by the federal government. Tobacco subsidies totaled $528 million from 2000 through 2004; then the government paid $10.1 billion -- that number again -- to terminate the tobacco quota system. Under the MSA, the states are scheduled to get their portions of the pot over many years. But deferral of gratification is un-American, so some states, eager to get their loot, have "securitized" their expected portions. Securitization involves selling bonds backed by the anticipated revenue. The MSA is a deal struck between the state attorneys general and trial lawyers. For the latter, it was a financial windfall, netting about $13 billion in fees that sometimes amounted to tens of thousands of dollars per hour of work. For the former, it was a political windfall, enabling their states to finance this and that with billions paid by smokers, who are disproportionately low-income people. The MSA rests on the fraudulent claim that smoking costs the states huge sums, principally because of health care costs. Actually, smoking makes money for governments, for two reasons. Cigarettes are the world's most heavily taxed consumer product (state taxes range from 7 cents to $2.46 per pack; the federal tax is 39 cents). And many smokers die prematurely from smoking-related illnesses, curtailing their receipt of entitlements for the elderly. There is one problem with the states' plans to divvy up the money extorted from the tobacco industry: The MSA may be declared unconstitutional. The U.S. Constitution says (Article I, Section 10): "No state shall, without the consent of Congress, . . . enter into any agreement or compact with another state." A federal district court is being asked to declare that 46 states have done just that. The states' ability to continue treating the tobacco industry as a "budgetary Alaska" -- the last frontier for exploitation -- depends on brisk sales of cigarettes far into the future. So all 50 states, which in 2004 reaped $12.3 billion in cigarette taxes, have an incentive to carefully calibrate these taxes so as to maximize revenue. They want high taxes, but not high enough to cause large numbers of smokers to quit the habit that is so lucrative to states. The state governments seem to be calibrating cleverly: The adult smoking rate has not fallen much recently. So we have here a rarity -- a government success story. Of sorts. georgewill@washpost.comRead
Lawsuit Challenges Constitutionality of Tobacco Settlement Author: Maureen Martin
Published: The Heartland Institute 11/01/2005 A lawsuit challenging the constitutionality of the Master Settlement Agreement (MSA), entered into between 46 states and the four major tobacco companies, was greeted with applause by those who perceived the settlement as an overstepping of bounds by state attorneys general. The MSA resolved cases brought by the attorneys general against the tobacco companies, allegedly to recover state expenditures to treat Medicaid recipients for tobacco-related illnesses and to obtain funding for tobacco use prevention in the future. The suit, filed on August 2 by the Competitive Enterprise Institute, a Washington, DC-based think tank, followed the publication in March 2005 of a study by the U.S. Government Accountability Office (GAO) that examined how the states have been spending their shares of the tobacco settlement funds. The study found less than half of the money has gone for health-related spending, and much of that spending has not been related to smoking prevention. Taxes May Exceed Jurisdiction The MSA requires every participating state to enact identical laws taxing cigarette sales nationwide--even sales by non-participants in the settlement. A recent study characterizes this as a national sales tax masquerading as individual state sales taxes. In his study, Jeremy Bulow, a professor at the Stanford University School of Business, notes the tax proceeds of about $4 per carton are not distributed to the states based upon sales within their respective jurisdictions. The CEI suit is brought against the attorney general of Louisiana and alleges the MSA participant states have entered into a nationwide agreement with one another in violation of Article I, Section 10, of the U.S. Constitution, which prohibits any such "agreement or compact" without the consent of the U.S. Congress. "The States became business partners in establishing one of the most effective and destructive cartels in the history of the Nation," the complaint alleges. The Louisiana attorney general's response to the complaint was due in early October, but a spokesman for CEI said the attorney general's office has asked the lawyers for the plaintiffs for an extension of several months, most likely because of Hurricane Katrina though a reason was not given. State Actions Questioned An August 19 Wall Street Journal editorial commented, "[I]n going after Big Tobacco, state officials took a major industry, wrung previously unimaginable sums out of it, and thus turned the attorney general's office into a profit center for state government. Thanks to the settlement, states are receiving huge new amounts of revenue each year without legislatures having to raise taxes." The editorial continued, "We're glad to say someone is finally asking a court if this wasn't illegal." On September 20, the Colorado state treasurer, Mark Hillman, noted in an op-ed in the Wall Street Journal that the state attorneys general have usurped the role of the state legislatures: "The billions generated by the settlement cloak the pernicious threat that activist AGs pose to the checks and balances on political power that govern our Constitutional system. Regulation and taxation policies are the rightful responsibility of the legislative and executive branches--not the domain of states' chief law enforcement officers." The lawsuit will be an uphill battle, however. According to Hans Bader, CEI's counsel for special projects, the last time a multistate agreement was challenged in the U.S. Supreme Court under the Compact Clause was in 1978 ... and that attempt failed. The court found the terms "agreement" and "compact" were not to be read literally and that agreements and compacts are barred only if they "impermissibly enhance state power at the expense of federal supremacy." But Bader believes the MSA does exactly that, pointing out that the cigarette sales tax is effective even in states that did not sign the MSA, a situation not present in the 1978 case. Spending Not Health-Related Several other commentators on the CEI suit took notice of the GAO study. The study finds that in 2003, the states received a total of about $6.3 billion in tobacco money. Of that amount, 36 percent went to subsidize budget shortfalls, and 37 percent went to health-related programs. In 2004, states expected to receive $5.2 billion in tobacco money. They anticipated spending 54 percent of it on budget shortfalls and 17 percent of it on health-related spending. In all, the MSA will result in payments to the state and territorial governments of approximately $205 billion over its first 25 years. "Prior to CEI's lawsuit," said Bader, "there were a few challenges to agreements between states. The Supreme Court upheld one in 1978--the Multistate Tax Commission--although it was a much less harmful agreement. In that case, the Tax Commission implemented California-style unitary taxation of interstate businesses, apportioning their taxes between states in which they did their business rather than just taxing them in their domicile state. But the states could have done that individually, without the Multistate Tax Commission. Indeed, California itself had done so long before the Commission. "By contrast," Bader concluded, "the tobacco settlement regulates the tobacco industry everywhere in America, even outside the states that joined it, something no state could manage to do on its own." Maureen Martin ( martin@heartland.org) is senior fellow, legal affairs, for The Heartland Institute. THE HEARTLAND INSTITUTE 19 South LaSalle Street #903 Chicago, IL 60603 phone 312/377-4000 · fax 312/377-5000 http://www.heartland.org/
To the Ashtray of History
By Christine Hall
August 9, 2005
Was this what was promised? Billions of dollars later and more than six years after the tobacco settlement was signed, American taxpayers and consumers deserve an answer. But they won't like it.
Back in the 1990s, state attorneys general sued "Big Tobacco" claiming that tobacco companies had lied about the health risks of smoking and run up state Medicaid costs in treating sick smokers over the years. Eventually, the tobacco companies decided to settle the state lawsuits for $246 billion. In the years since the signing of that settlement — in reality, a permanent sales tax — it's clear who are the winners and losers.
State governments did well. They won a staggering sum of money, to be doled out by tobacco companies over just the first 25 years, with payments continuing in perpetuity. States have so far spent most of the money on a wide range of programs unrelated to treating sick smokers or reducing smoking rates, according to an annual report by the General Accounting Office. The particulars can be unseemly. Kentucky, for example, reportedly spent $271,750 for improving the prawn industry, while North Carolina spent $100,000 on "motorsports research."
State attorneys general also came out winners. They discovered a new tool for growing their own power. Now, instead of waiting around for the legislature to raise taxes or pass new laws regulating industries, attorneys general can do it all themselves. As New York Attorney General Eliot Spitzer has since demonstrated, often all it takes is indictment-by-press conference, and pretty soon he has a settlement that puts (who else?) the attorney general in charge of regulating the industry.
Trial lawyers did well by the tobacco settlement, too. The trial bar was slated to get an estimated $13 billion, which for some worked out to $7,716 per hour, according to legal scholar Robert Levy, assuming the lawyers worked 24 hours per day, seven days per week, for 42 months. Trial lawyers reinvested a lot of the money in political campaigns and developing new litigation campaigns.
Big tobacco companies, as it turned out, did quite well by the settlement. They raised cigarette prices beyond the actual settlement costs and gained the states as partners in a cartel to hamstring competitors. Small tobacco companies that were never part of the state lawsuits or the multi-state settlement were required to make annual escrow payments to the states. Then, when the upstarts did better than expected and carved into the market share enjoyed by the majors — and state revenue — states responded by passing laws raising taxes, er, escrow payments. "All states have an interest in reducing ... sales [by non-settlement companies] in every state," Vermont's attorney general admonished his peers in 2003.
So where does that leave taxpayers, consumers, small businesses, and anyone concerned about unchecked government power? Holding the bag. Yet, despite the massive, unprecedented transfer of wealth and ambitious new regulatory regime unleashed by the tobacco settlement, it was all negotiated in a backroom deal. No legislator voted on it, no small businesses were consulted, and no taxpayer had a chance to lobby against the tax increases.
And the agreement, which was entered into by 46 state attorneys general, never gained the approval of Congress, an egregious violation of the U.S. Constitution. Article I, Section 10 of the U.S. Constitution specifically prohibits a state from entering into an agreement or compact with another state without the consent of Congress.
Looking at the tobacco settlement, one begins to understand what the Founding Fathers feared when they wrote the Compact Clause. That's why the Competitive Enterprise Institute launched a lawsuit on August 2 challenging the tobacco settlement: to end such abuse of power and restore one essential constitutional check on government greed.
Shady Deals in Smoky Rooms
Can a little lawsuit shut down a big tobacco racket?
August 8, 2005 By Jonathan Rauch .
Coming soon to a courtroom near you: Bambi meets Godzilla. This week, the Competitive Enterprise Institute, a free-market advocacy group in Washington, filed suit in federal court to challenge the constitutionality of the massive and fantastically lucrative 1998 Master Settlement Agreement—otherwise known as the Tobacco Deal. Arrayed against the suit's five plaintiffs (several small tobacco companies and distributors, plus a discount tobacco store and a smoker) will be Big Tobacco, the state attorneys general, a host of public-health organizations, and probably most of the mainstream media. Other than that, it's a fair fight.
Read: http://www.reason.com/rauch/080805.shtml
Media Conference Call on CEI Legal Challenge to Tobacco Settlement
CEI Counsel to Answer Questions from Journalists
by Christine Hall
August 3, 2005
On Thursday, August 4, the Competitive Enterprise Institute will hold a conference call to discuss its constitutional challenge to the 1998 tobacco settlement, called the Master Settlement Agreement (MSA).
CEI’s suit alleges that the agreement between 46 states and major tobacco companies violates the Compact Clause (Article I, Section 10) of the U.S. Constitution. The suit was filed in the U.S. District Court for the Western District of Louisiana on behalf of a distributor; two small tobacco manufacturers; a tobacco store; and an individual smoker, against the state’s attorney general, Charles C. Foti, Jr. The complaint is available online at http://www.controlabuseofpower.org/.
What: Media conference call to discuss CEI’s legal challenge to the tobacco settlement
When: 10:00 a.m. ET, Thursday, August 4, 2005
Who: Sam Kazman, General Counsel
Hans Bader, Counsel for Special Projects
Christine Hall, Director of Communications (moderator)
For call-in details, please contact Christine Hall at 202.331.2258 or chall@cei.org
MSA being challenged by Competitive Enterprise Institute
August 3, 2005
Dear supporters and friends of CEI,
Yesterday, CEI filed its constitutional challenge to the tobacco Master Settlement Agreement.
Our case focuses on the Compact Clause—the Constitution’s requirement that agreements between two or more states must first be ratified by Congress. This issue has been largely ignored in previous challenges to the MSA. Nonetheless, it is the key to undoing the MSA’s imposition of a national sales tax without the vote of any elected official.
The MSA has become a template for how state attorneys general, in league with trial lawyers, can persecute one disfavored industry after another. In the Compact Clause, the Framers recognized the danger of states ganging up in such a manner. If we succeed in getting the courts to do the same, a basic check on government power will be re-established.
We’ve succeeded in bringing together an outstanding set of plaintiffs—two small tobacco manufacturers (one of whom was featured in a recent Fortune article on the MSA), a distributor specializing in discount cigarettes, a retail tobacco shop, and an individual smoker.
Although we just filed yesterday, CEI has received dozens of hits in the media regarding the lawsuit.
Best regards,
Fred L. Smith, Jr.
President
Government-Tobacco Cartel Challenged In Court
CEI Cites Constitutional Violation
News Release
by Christine Hall
August 2, 2005
Washington, D.C., August 2, 2005—The Competitive Enterprise Institute on Tuesday filed a constitutional challenge to the 1998 tobacco settlement.
The suit alleges that the agreement between 46 states and major tobacco companies is unconstitutional because it violates the Compact Clause of the Constitution:
No State shall, without the Consent of Congress … enter into any Agreement or Compact with another State. (Article I, Section 10)
The Compact Clause was meant to prevent states from collectively encroaching on federal power or ganging up on other states. The tobacco settlement set up a national government/tobacco cartel that harmed consumers and small businesses by increasing cigarette prices and restricting competition.
According to the terms of the settlement, major tobacco companies would make annual payments to the states in perpetuity, with an estimated cost of $206 billion over 25 years. Small tobacco companies that were never part of the settlement are nonetheless required to make separate payments to the states.
“The tobacco settlement was a major government power grab at the expense of taxpayers and the rule of law,” said CEI President Fred L. Smith, Jr..
“This lucrative backroom deal between state attorneys general and the trial bar has created a new model for targeting other politically incorrect industries and their customers,” said Sam Kazman, CEI General Counsel.
“The States became business partners in establishing one of the most effective and destructive cartels in the history of the Nation,” the complaint alleges.
The suit was filed in the U.S. District Court for the Western District of Louisiana on behalf of a distributor; two small tobacco manufacturers; a tobacco store; and an individual smoker, against the state’s attorney general, Charles C. Foti, Jr.
August 5 - Challenging the cartel - Five pending suits against the 1998 Master Settlement Agreement have now become six. The Competitive Enterprise Institute announced its Constitutional challenge on Tuesday.
The Master Settlement Agreement is a massively corrupt price-fixing scheme contrived between forty-six states and the major American cigarette manufacturers. As this latest challenge states, upon signing the MSA, "the States became business partners in establishing one of the most effective and destructive cartels in the history of the Nation."
If there is any justice left in the USA these suits shall prevail. The happiest outcome of all would be total bankruptcy of the major manufacturers to the benefit of fair dealers and the public. We have a bottle of Dom Perignon cooling for the day Philip Morris and the rest bite the dust. Big Tobacco's ignominious demise is a dream that really could come true. Genuinely sane cigarette prices won't reappear at the local store, of course, until grotesque taxes are also challenged and revoked. The four states which did not sign the MSA must also be challenged as necessary, because they have made similar corrupt arrangements, on individual bases.
The fight is on. It's going to take years. That's okay. Smokers and all seekers of justice are watching, and strategizing, and we're ready for the long haul. Dom Perignon always tastes good with a smoke — but never ever — with a Marlboro.
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