Missouri Supreme Court Says State Entitled To $50 Million In Withheld Tobacco Funds

Feb 15, 2017

Although the Missouri Supreme Court ruled in the state's favor, the Legislature's failure to hike the price of cheap cigarettes could still cost the state millions of dollars in tobacco company payments.
Credit File Photo

A decision by the Missouri Supreme Court Tuesday will allow Missouri to recover $50 million in withheld tobacco funds.

The 37-page ruling upheld a decision by a St. Louis Circuit Court judge that found an arbitration panel had exceeded its powers in withholding the money.

The complicated case deals with the terms of a multibillion-dollar settlement agreement reached by 46 states, including Missouri, and four major cigarette manufacturers in 1998.

Missouri’s proportionate share of the settlement is about 2.3 percent, and it has received about $130 million annually to reimburse it for tobacco-related health costs.

But in 2013, an arbitration panel ruled that Missouri had failed to enforce a provision of the agreement and reduced the state’s payment for 2003 by $70 million.

The provision required states to hike the price of cheap cigarettes sold by smaller tobacco companies that did not participate in the 1998 settlement agreement. The idea was to prevent the non-participating companies from gaining market share at the expense of the participating companies.

Missouri appealed the panel’s decision to the St. Louis County Circuit Court, and in May 2014 Judge Jimmie Edwards ruled the panel had improperly adjusted Missouri’s 2003 payment. Edwards restored $50 million of the $70 million that the panel had lopped off.

The participating tobacco companies appealed and in September 2015 the Missouri Court of Appeals overturned Edwards’ decision. The case was then transferred to the Supreme Court.

In its decision Tuesday, the Supreme Court affirmed Edwards’ ruling and found that the arbitration panel exceeded its powers by amending the terms of the settlement agreement without the consent of Missouri and the other states that were negatively affected by the panel’s adjustment.

Attorneys for the tobacco companies involved in the case did not return calls seeking comment. 

Loree Anne Paradise, deputy chief of staff in the Missouri Attorney General's office, which represented the state, said, "The Court’s ruling that means that an estimated $50 million will stay where it belongs – in the hands of Missourians,"  Paradise said. "It is a great win for the people of this state."

Last year, then-Attorney General Chris Koster announced that he had reached a settlement with the tobacco industries to recoup the $50 million. But that settlement was contingent on Missouri lawmakers passing legislation to address the cigarette-pricing disparity that led to the dispute.

So far they have not – leaving Missouri as the only state that has failed to close the loophole.

While the Supreme Court’s decision allows it to recoup the $50 million that was withheld from its 2003 payment, the lack of legislative action could still cost it hundreds of millions of dollars. That’s because the participating tobacco companies have challenged Missouri’s lack of diligent enforcement in 2004 – and will likely do so for each year after that.

Dan Margolies is KCUR’s health editor. You can reach him on Twitter @DanMargolies.

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