DENVER, Co. — Since its establishment in 1998, the landmark deal between major tobacco companies and 46 states known as the Master Settlement Agreement (MSA) has been controversial, and it continues to be following comments by Colorado State Treasurer Mark Hillman last week.
Hillman questioned the constitutionality of the MSA even though Colorado, among others, receives hundreds of millions of dollars from the settlement.
In an opinion written by Hillman, he said the MSA violates the constitutional provisions allowing for a system of tax collections only by legislative authority.
“The billions generated by the tobacco settlement conceal the threat that activist attorneys general pose to taxpayers and to checks and balances on political power,” Hillman explained. “Regulation and taxation policies are the rightful responsibility of the legislative and executive branches, not the domain of the state's chief law enforcement officer.”
According to an MSA summary written in 1999 by Joy Johnson Wilson of the National Conference of State Legislators and director of the Assembly on Federal Issues’ Health Committee, “the agreement settles all anti-trust, consumer protection, common law negligence, statutory, common law and equitable claims for monetary, restitutionary, equitable and injunctive relief alleged by any of the settling states with respect to the year of payment or earlier years and cannot be modified in any way unless all the parties agree to the modification.”
Last month a lawsuit was filed in New Orleans, La. by the non-profit Competitive Enterprise Institute argued that the MSA created, according to Hillman, “a cartel designed to circumvent anti-trust law and quash competition.”
The Colorado Treasurer cites a 1997 draft agreement that was sent to Congress for ratification, as required by the Compact Clause of the Constitution, which said states couldn’t enter into agreements with each other without Congressional approval. The draft failed to pass Congress.
The 1998 agreement didn’t require federal legislation for implementation except to prevent the federal government from staking claim to more than half of the states’ tobacco settlement dollars.
The MSA contained provisions to prohibit targeting youths in marketing and promotional advertising, changed the corporate culture of the industry by way of lobbying restrictions and the disbanding of tobacco trade associations and most significantly, distributed $206 billion to the 46 states participating in the pact.
In exchange, those states would settle litigation against the tobacco companies. While the settlement would end state claims, it could not limit individual claims.
In 1994, Mississippi became the first state to file a suit against the tobacco companies. That state along with three others (Florida, Minnesota and Texas) had settled suits totaling $40 billion before the MSA was established.
Brian Anderson, a spokesman for Hillman, said the treasurer’s opinion specifically questions the legality of the settlement.
“This isn’t about winning or losing, or even bad policy, but whether the MSA is unconstitutional,” said Anderson.
While many states have established legislation regulating the use of their funds from the MSA, many have been forced to use that money in depleted general funds due to economic downturns in recent years. Kentucky’s portion was split with half going to such programs as smoking cessation, Medicaid and early childhood development while the other half went into agricultural development funds to help in the diversification of farms away from tobacco dependency.
That fund was temporarily used as a way to pay halted Phase II funds, which were recently reinstated by the North Carolina Supreme Court.
Kentucky, Oklahoma, New York, Tennessee and Arkansas have filed lawsuits in the past, but Kentucky Assistant Attorney General Michael Plumley said the state had no pending litigation similar to the one filed in New Orleans, La.
“There have been a number of challenges to the MSA, but none from this state pertaining to this issue,” Plumley said.
Hillman, referring to the MSA, went on to say “this Faustian bargain means states have a sleazy partnership with Big Tobacco, enforced by a compact that violates antitrust law and undermines market competition. … And adding injustice to insult, the settlement takes money from predominately low- to middle-income smokers and transfers it to wealthy trial lawyers, some of whom reaped fees in excess of $100,000 an hour for their work.’”
Those “smokers” Hillman referred to had to pay steep increases for their tobacco products once the settlement was in place; increases that came about because of the settlement and the changing tobacco market.
While it is doubtful that any kind of agreement regarding the MSA will happen soon, it is a safe bet most states wouldn’t want to give back their money.
Hillman told the Associated Press last week that he wasn’t suggesting the state give the money back.
“I think what they could do is take the Master Settlement Agreement to Congress and have Congress decide if they want to approve it,” he said. “As long as the money is being collected, we’d be stupid not to keep it.”