Phila. judge restores $120 million from tobacco settlement to Pa. that was cut by arbitration panel

By Jon Campisi | Apr 11, 2014

The commonwealth will recoup $120 million from the Tobacco Master

The commonwealth will recoup $120 million from the Tobacco Master

Settlement Agreement that was withheld because of an arbitration panel’s finding that Pennsylvania failed to “diligently enforce” tobacco tax collection laws.

The news stems from a decision by Philadelphia Common Pleas Court Judge Patricia McInerney, who determined that the arbitration panel ignored the plain language of the 1998 master settlement agreement, which did not allow for such a financial shift.

The state Attorney General’s Office, which late last year had filed a motion in Philadelphia’s Common Pleas Court seeking an overturning of the arbitration panel’s decision, announced the judge’s ruling on Thursday.

“I would like to congratulate First Deputy [Attorney General] Adrian King and the entire team involved for their tremendous dedication to fighting the unjust reduction of MSA funding,” Attorney General Kathleen Kane said in a statement.

Kane, King, and individuals from the Governor’s Office and legislative leadership banded together to fight the arbitration panel’s September 2013 ruling, which found that the commonwealth didn’t “diligently enforce” laws pertaining to the collection of taxes and other payments from specific tobacco companies that never the signed the 1998 settlement agreement.

The commonwealth argued that the panel’s final award disregarded the law and was “wholly irrational.”

Kane’s office contended that the panel announced the definition and the factors it would rely upon for the first time in the final award, or after the evidence was presented.

The panel also applied its own “manufactured definition irrationally,” the commonwealth had stated in its November 2013 motion.

The motion noted that the arbitration panel anchored its final award to the number of lawsuits Pennsylvania brought to enforce the settlement agreement and its collection rate of 44 percent.

However, the commonwealth’s litigation policy focused on those entities with significant noncompliant sales, the motion had stated.

The motion also noted that in 2003, Pennsylvania prosecuted a total of six civil actions against noncompliant companies, including five that represented 80 percent of applicable tobacco sales in Pennsylvania.

Three other states, Colorado, North Dakota and Illinois, however, failed to bring any civil litigation against noncompliant companies, yet those states were found diligent by the panel, Pennsylvania argued.

Kane’s office also noted that the arbitration panel ignored the fact that Pennsylvania cannot collect against noncompliant companies owned by Native American tribes or those based in foreign counties.

In arguing for the final award to be vacated, Kane’s office stated that the panel’s definition of diligence and its factors were neither rational nor applied rationally.

“The Panel disregarded the applicable law and its own manufactured standard and exceeded its authority,” the motion read.

Kane’s office praised the judge’s ruling restoring the $120 million from tobacco manufacturers.

“This bipartisan collaboration shows what can happen when government works together for the people,” Kane said in a statement. “While we were not able to win the entire amount, we are excited for this victory and what it means for the future of important smoking cessation, medical research and health programs that depend on this money.”

Pennsylvania reportedly receives an estimated $330 annually from the tobacco settlement.

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