Tobacco Master Settlement Agreement
The Tobacco Master Settlement Agreement was entered on November 23rd, 1998, originally between the four largest United States tobacco companies and the attorneys general of 46 states. The states settled their Medicaid lawsuits against the tobacco industry for recovery of their tobacco-related health-care costs. In exchange, the companies agreed to curtail or cease certain tobacco marketing practices, as well as to pay, in perpetuity, various annual payments to the states to compensate them for some of the medical costs of caring for persons with smoking-related illnesses. The money also funds a new anti-smoking advocacy group, called the Truth Initiative, that is responsible for such campaigns as Truth and maintains a public archive of documents resulting from the cases.
The settlement also dissolved the tobacco industry groups Tobacco Institute, the Center for Indoor Air Research, and the Council for Tobacco Research. In the MSA, the original participating manufacturers agreed to pay a minimum of $206 billion over the first 25 years of the agreement.
History of adoption
Private lawsuits before the settlement
In September 1950, an article was published in the British Medical Journal linking smoking to lung cancer and heart disease. In 1954 the British Doctors Study confirmed the suggestion, based on which the government issued advice that smoking and lung cancer rates were related. In 1964 the United States Surgeon General's Report on Smoking and Health likewise began suggesting the relationship between smoking and cancer.By the mid-1950s, individuals in the United States began to sue the companies responsible for manufacturing and marketing cigarettes for damages related to the effects of smoking. In the forty years through 1994, over 800 private claims were brought against tobacco companies in state courts across the country. The individuals asserted claims for negligent manufacture, negligent advertising, fraud, and violation of various state consumer protection statutes. The tobacco companies were successful against these lawsuits. Only two plaintiffs ever prevailed, and both of those decisions were reversed on appeal. As scientific evidence mounted in the 1980s, tobacco companies claimed contributory negligence as they asserted adverse health effects were previously unknown or lacked substantial credibility.
State litigation
In the mid-1990s, more than 40 states commenced litigation against the tobacco industry, seeking monetary, equitable, and injunctive relief under various consumer-protection and antitrust laws. The first case was declared in May 1994 by Mississippi Attorney General Mike Moore.The general theory of these lawsuits was that the cigarettes produced by the tobacco industry contributed to health problems among the population, which in turn resulted in significant costs to the states' public health systems. As Moore declared, " lawsuit is premised on a simple notion: you caused the health crisis; you pay for it." The states alleged a wide range of deceptive and fraudulent practices by the tobacco companies over decades of sales. Other states soon followed. The state lawsuits sought recovery for Medicaid and other public health expenses incurred in the treatment of smoking-induced illnesses. Importantly, the defenses of personal responsibility that were so effective for the tobacco industry in suits by private individuals were inapplicable to the causes of action alleged by the states.
Proposed "Global Settlement Agreement"
Faced with the prospect of defending multiple actions nationwide, the Majors sought a congressional remedy, primarily in the form of a national legislative settlement. In June 1997, the National Association of Attorneys General and the Majors jointly petitioned Congress for a global resolution. On June 20, 1997, Mississippi Attorney General Michael Moore and a group of other attorneys general announced the details of the settlement. The settlement included a payment by the companies of $365.5 billion, agreement to possible Food and Drug Administration regulation under certain circumstances, and stronger warning labels and restrictions on advertising. In exchange the companies would be freed from class-action suits and litigation costs would be capped.This proposed congressional remedy for the cigarette tobacco problem resembled the eventual Multistate Settlement Agreement, but with important differences. For example, although the congressional proposal would have earmarked one-third of all funds to combat teenage smoking, no such restrictions appear in the MSA. In addition, the congressional proposal would have mandated Food and Drug Administration oversight and imposed federal advertising restrictions. It also would have granted immunity from state prosecutions; eliminated punitive damages in individual tort suits; and prohibited the use of class actions, or other joinder or aggregation devices without the defendant's consent, assuring that only individual actions could be brought. The congressional proposal called for payments to the states of $368.5 billion over 25 years. By contrast, assuming that the Majors would maintain their market share, the MSA provides baseline payments of about $200 billion over 25 years. This baseline payment is subject to
The attorneys general did not have the authority to grant all this by themselves: the Global Settlement Agreement would require an act of Congress. Senator John McCain of Arizona carried the bill, which was much more aggressive than even the global settlement. However, in the spring of 1998, Congress rejected both the proposed settlement and an alternative proposal submitted by McCain.
While the proposed legislation was being discussed in Congress, some individual states began settling their litigation against the tobacco industry. On July 2, 1997, Mississippi became the first. Over the next year, Florida, Texas, and Minnesota followed, with the four states recovering a total of over $35 billion.
Adoption of the "Master Settlement Agreement"
On November 23, 1998, the Attorneys General of the remaining 46 states, as well as of the District of Columbia, Puerto Rico, and the Virgin Islands, entered into the Master Settlement Agreement with the four largest manufacturers of cigarettes in the United States. The four manufacturers—Philip Morris USA, R. J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corp., and Lorillard Tobacco Company—are referred to in the MSA as the Original Participating Manufacturers.This settlement process yielded two other national agreements:
Smokeless Tobacco Master Settlement Agreement
In the Smokeless Tobacco Master Settlement Agreement, which was executed at the same time as the Master Settlement Agreement, the leading manufacturer in the smokeless tobacco market settled with the jurisdictions who signed the MSA, plus Minnesota and Mississippi.Phase II settlement
The next year, the major cigarette manufacturers settled with the tobacco-growing states to compensate tobacco growers for losses they were expected to suffer due to the higher cigarette prices resulting from the earlier settlements. Called the "Phase II" settlement, this agreement created the National Tobacco Growers' Settlement Trust Fund. Tobacco growers and quota holders in the 14 states that grow flue-cured and burley tobacco used to manufacture cigarettes are eligible to receive payments from the trust fund. The states are Alabama, Florida, Georgia, Indiana, Kentucky, Maryland, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia, and West Virginia.Subsequent signatories
At the time the Master Settlement Agreement became effective, the OPMs collectively controlled approximately 97% of the domestic market for cigarettes. In addition to these "originally settling parties", the Master Settlement Agreement permits other tobacco companies to join the settlement; a list of these "subsequently settling parties" is maintained by the National Association of Attorneys General. Since 1998, approximately 41 additional tobacco companies have joined the Master Settlement Agreement. These companies, referred to as the Subsequent Participating Manufacturers, are bound by the Master Settlement Agreement's restrictions and must make payments to the settling states as set forth in the Master Settlement Agreement. Collectively, the OPMs and the SPMs are referred to as the Participating Manufacturers. Any tobacco company choosing not to participate in the Master Settlement Agreement is referred to as a Nonparticipating Manufacturer.As an incentive to join the Master Settlement Agreement, the agreement provides that, if an SPM joined within ninety days following the Master Settlement Agreement's "Execution Date," that SPM is exempt from making annual payments to the settling states unless the SPM increases its share of the national cigarette market beyond its 1998 market share, or beyond 125% of that SPM's 1997 market share. If the exempt SPM's market share in a given year increases beyond those relevant historic limits, the MSA requires that the exempt SPM make annual payments to the settling states, similar to those made by the OPMs, but based only upon the SPM's sales representing the exempt SPM's market share increase.
SPMs joining the Master Settlement Agreement after this ninety-day exempt period must, instead, make annual payments based upon all of the SPM's national cigarette sales for a given year. In addition to its annual payment obligations, in order to join the Master Settlement Agreement now, a non-exempt SPM must, "within a reasonable time after signing the" Master Settlement Agreement, pay the amount it would have been obligated to pay under the Master Settlement Agreement during the time between the Master Settlement Agreement's effective date and the date on which the SPM joined the agreement.
The addition of the Subsequent Participating Manufacturers meant that nearly all of the cigarette producers in the domestic market had signed the Multistate Settlement Agreement. Their addition was significant. The Majors allegedly feared that any cigarette manufacturer left out of a settlement would be free to expand market share or could enter the market with lower prices, drastically altering the Majors' future profits and their ability to increase prices to pay for the settlement.