Business
Email
Print
Suit gone; what now?
General Tobacco tried to challenge pact with states
ADVERTISEMENT
Published: January 7, 2009
The future of a Triad tobacco manufacturer remains unclear after confirmation yesterday of a U.S. District Court judge's decision to dismiss its challenge to the landmark 1998 Master Settlement Agreement.
Jennifer Coffman, a judge for the Western District of Kentucky, provided more detail on her Dec. 8 ruling that dismissed the lawsuit filed by General Tobacco Co., a maker of discount cigarettes in Mayodan, and its parent company, Vibo Corp Inc.
Coffman said that the companies failed to prove that the agreement led to anti-competitive behavior by the government. The company argued that the MSA is more expensive for new entrants to the industry.
The lawsuit was filed against 52 attorneys general of the United States and its territories and 19 U.S. and foreign tobacco companies.
The 46 states, including North Carolina, agreed to drop their lawsuits against the industry for a $206 billion payout over 25 years, primarily to reimburse states for health-care costs related to tobacco use. The agreement also fundamentally changed how tobacco is marketed, advertised and promoted.
"While such acts are not immune from every kind of challenge, they are immune from challenge as a violation of antitrust laws," Coffman said. She also said that "nothing in the MSA steals power from the federal government."
General officials could not be reached for comment yesterday about the judge's decision.
The company has 93 employees at its $55 million plant in Mayodan. It is eligible for up to $3 million in local incentives, as well as a $400,000 grant from the One North Carolina Fund that the governor can provide to existing businesses or new businesses to the state.
The local incentives are based on General creating at least 200 jobs by 2010. However, the company cut 31 jobs in November because of slowing sales.
General said in its lawsuit, filed on Oct. 28, that not being able to sell its cigarette products in the states that participate in the MSA would "destroy General Tobacco's business and drive General Tobacco into bankruptcy."
However, Ronald Denman, the executive vice president of General, said after the Dec. 8 order was issued that filing for Chapter 11 bankruptcy protection "would be a last resort" for the company.
Competitive issues connected to the MSA did lead another Triad cigarette-maker to file for Chapter 11 in April 2007.
Cutting Edge Enterprises Inc., based in Mocksville, filed shortly after it was sued by several state attorneys general. The company was accused of engaging in a series of corporate transactions with the objective of avoiding MSA payments and circumventing the marketing and advertising restrictions aimed largely at preventing youth smoking.
General moved to Mayodan from Miami in 2007. It began production in March with a work force made up of some former employees of R.J. Reynolds Tobacco Co. and Lorillard Tobacco Co.
The company accused the attorneys general of violating its constitutional rights under the 14th Amendment and the Sherman Antitrust Act. General was pursuing damages of more than $1 billion from competitors that include Reynolds, Lorillard and Philip Morris USA.
"We're pleased with the court's decision, as lawsuits similar to this that have been filed since the MSA was signed have universally been dismissed," said David Howard, a spokesman for Reynolds.
General also asked the court to stop states from penalizing it for not making payments while the lawsuit was pending. General said it has paid about $470 million under the MSA and has another $36 million in escrow.
Denman said that without the injunction, the attorneys general could delist General's brands from a list of government-approved tobacco products. Companies that are not on the list have difficulty getting their products onto market.
■ Richard Craver can be reached at 727-7376 or at rcraver@wsjournal.com.
Email
Print
