The 1998 Master Settlement Agreement, the largest civil litigation settlement in U.S. history, dramatically changed tobacco control in the United States. The settlement, between the major tobacco companies (Philip Morris, RJ Reynolds, Brown & Williamson, and Lorillard) and 46 U.S. States, banned advertising that targets children, eliminated billboard advertising, and made available to the public millions of important tobacco documents. Read the text of the MSA here>

States at Risk of Financial Loss

The tobacco companies also agreed to pay yearly installments (totaling over $200 billion over the first 25 years) to 46 states, in order to settle lawsuits for tobacco-related public health costs. In exchange, states agreed to pass laws to stop corporations that were not part of the MSA from gaining an economic advantage over those that settled. Read more about the MSA here> and here>.

Issues arising from the MSA resurfaced in a recent arbitration. The arbitration case is about whether several states met their requirements under the MSA. In September 2013, a ruling found that six states – including Pennsylvania – did not “diligently enforce” that law. Therefore, the tobacco companies who participated in the settlement are entitled to an approximately $180 million reduction in this year’s payment to the state of Pennsylvania because the state failed to collect required payments in 2003 from the sales of products by competitors that did not join the settlement.

In early March 2014, the Pennsylvania state attorney general’s office asked a judge to throw out that ruling, arguing that it incorrectly calculated tobacco sales, which led to an overstated amount that the state needed to collect. The original arbitration ruling is incredibly detrimental to the state.

Currently, Pennsylvania receives roughly $320 million annually from the MSA fund. A loss of $180 million of that payment will jeopardize Pennsylvania’s tobacco prevention and cessation program.

However, the ruling could have ramifications far beyond the loss of the 2014 payment. The arbitration only deals with 2003; if tobacco companies seek payments from previous years, it could cost Pennsylvania billions of dollars overall. There are several other states named in the arbitration ruling as well: Indiana, Kentucky, Missouri, New Mexico, and Maryland.

These six states could see payments from the tobacco settlement decline by a total $500 million. Read more here>.

If the arbitration ruling is upheld, the loss of funding will have an extremely negative impact on tobacco prevention, cessation, research and other programs in these states.

The Pennsylvania Common Court Pleas has not yet issued a ruling in this case. Check back for updates on this case.