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Big Tobacco’s claim against State of New York extinguished

Three-judge panel rules cigarette makers owe New York State $800 million plus interest

An $800 million claim filed against the State of New York by Big Tobacco companies has been shot down, according to the Office of New York Attorney General Eric T. Schneiderman. The three-judge special panel presiding over the case also ruled that Big Tobacco is responsible for paying an additional $92 million in back payments for delaying repayment schedule.

New York was one of 52 states and territories that took legal action against cigarette makers in the mid 1990’s in an attempt to recoup healthcare costs and stop a conspiracy to hide negative health effects. The result of this suit was the “Master Settlement Agreement” of 1998.

The MSA required Big Tobacco to make substantial escrow payments to the states involved in perpetuity. The amount of money owed would be based on the sales figures of taxable cigarettes within that state or province. The agreement also stated that Big Tobacco would be eligible to a discounted repayment schedule if several conditions were met; including if cigarette sales fell below a predetermined figure, or the litigation directly impacted sales figures.

The $800 million claim filed against New York asserted that in 2003, the state had erroneously collected payment on cigarettes sold at Indian reservations (which are not taxed), and owed them the money collected, plus a discount for unit sales dipping below a reasonable number as a result.

But the Sept. 11, 2013, ruling found that this was not the case, and ordered Big Tobacco to continue to repay the original agreed upon amount, plus interest on the money that had been withheld since 2003.

“Under New York’s escrow statute, only sales of cigarettes on which New York state excise taxes have been paid trigger the escrow requirement. However, for well over 50 years, with the full knowledge of the participating manufacturers and specifically up to and including 2003, New York did not require state excise taxes to be paid on cigarette sales to or on Indian reservations,” a press release from Schneiderman’s office said.

The ruling affects only cigarettes sold in the 2003, and cigarette manufacturers are expected to make similar claims on other years.

The New York Attorney General warned that cigarette manufacturers frequently attempted to falsify figures to exempt themselves from the payment plans issued with the MSA, and warned other settlement winners to remain vigilant. 

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