RJR Caved to State AGs On Flavored Cigarette Sales
Friday, October 13 - Tobacco maker R.J. Reynolds this week caved into pressure from New York Attorney General Eliot Spitzer and 38 other state attorneys general. The nation's second-larged cigarette maker agreed to stop selling candy, fruit and alcohol-flavored cigarettes to all smokers in the U.S.
The AGs had accused Reynolds of violating the 1998 tobacco Master Settlement Agreement by allegedly targeting youth through advertising, marketing and promotion of its flavored cigarettes. According to Spitzer's press release, the "evidence that led the states to conclude that Reynolds was targeting youth" was the fact that the cigarettes were candy, fruit and alcohol flavored; that advertising and packaging featured "graphics, typography, colors, styles and themes that were enticing to youth"; and the fact that "Scratch and Sniff" and "Lift and Sniff" promotional cards were used. There was no mention in the press release of statistical data concerning youth smoking nor actual instances of youth smoking.
The investigation was led by New York and Illinois and involved a team of lawyers from the offices of the Attorneys General of California, Connecticut and Maryland. In addition to Spitzer, the other attorneys general who joined the agreement were from: Alaska; Arizona; Arkansas; California; Connecticut; Delaware; Hawaii; Idaho; Illinois; Iowa; Kansas; Kentucky; Louisiana; Maine; Maryland; Massachusetts; Michigan; Montana; Nebraska; Nevada; New Hampshire; New Jersey; New Mexico; North Dakota; Ohio; Oklahoma; Oregon; Pennsylvania; Rhode Island; South Carolina; South Dakota; Utah; Vermont; Washington; West Virginia; Wisconsin; and Wyoming.
State AGs Lose A Round in the Supreme Court
Wednesday, October 11 - State attorneys general had hoped to be granted special privileges in a lawsuit brought by small tobacco makers. But the U.S. Supreme Court on Tuesday declined not to take the bait, rejecting the appeal on Tuesday.
The lawsuit challenges the 1998 tobacco "Master Settlement Agreement" on anti-trust grounds. Plaintiffs allege that the 48 states that are part of the MSA violate the Sherman Act by forcing companies that never signed the agreement to establish escrow accounts. The plaintiffs were seeking to invalidate the MSA.
A federal appeals court denied a motion to dismiss the case. But the attorneys general appealed to the U.S. Supreme Court to intervene. Despite the fact the MSA was negotiated and adopted within New York -- the state where plaintiffs brought suit -- the attorneys general had argued to the high court that principles of state sovereignty should protect states from lawsuits seeking to invalidate laws enacted within another state.
"The appropriate course is to end the wrongful exercise of jurisdiction as soon as possible, not to subject 30 attorneys general to the indignity of defending this case through trial in a New York district court," the AGs argued.
The Supreme Court appeal was brought by the AGs of Alabama, Alaska, Arizona, California, Colorado, Delaware, Georgia, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, Nebraska, North Carolina, Ohio, Oregon, South Carolina, South Dakota, Tennessee, Washington, Wisconsin and Wyoming.
Plaintiffs in the case include cigarette maker Grand River Enterprises Six Nations Limited, distributor Nationwide Tobacco and 3B Holdings, a maker of loose tobacco.
Sarbanes-Oxley Created Oliogopoly and Fueled 'Climate of Fear,' Says Plaintiff
Monday, August 21 - In the "climate of fear" fueled by Sarbanes-Oxley, an oligopoly "now has enormous power to demand additional auditing tests and countless hours of documentation under the guise of increased vigilance on corporate internal controls," explains Brad Beckstead, owner of a small accounting firm and plaintiff in a lawsuit challenging the PCAOB. Read Mr. Beckstead's op-ed in September's Accounting Today.
Federal Judge Finds Big Tobacco Guilty of Rackateering
Monday, August 21 - Federal judge Gladys Kessler on August 17 issued a 1742 page opinion finding big tobacco companies guilty of racketeering. Read the CEIOpenMarket blog by Hans Bader explaining why some of Judge Kessler's rulings are "ludicrous, confirming her reputation as a loose cannon on the bench."
WSJ Blasts R.I. Attorney General Over Ethics Scandal
Wedneday, August 16 - Rhode Island Attorney General Patrick Lynch faces a possible ethics investigation after reports that he took campaign money and related donations from a company under settlement negotiations with the attorney general. The Wall Street Journal on Wednesday also questions Lynch's use of contingency fee trial lawyers.
Contingency deals also raise the question of whether prosecutors are rewarding campaign donors with lucrative business. In 2001, West Virginia Attorney General Darrell McGraw used four outside law firms -- three based outside of the state -- to sue Purdue Pharmaceuticals, the maker of OxyContin. The lawsuit was brought on behalf of the state's workers' compensation fund and other state agencies. But when Purdue settled the case for $10 million, a third of the money went to the lawyers instead of the state. The one in-state law firm used by Mr. McGraw turned out to be a major contributor to his re-election campaign.
Former Va. Attorney General Knocks Fellow AGs for Use of Contingency Fee Lawyers
Wedneday, August 16 - State attorneys general are "turn[ing] over too much authority to outside lawyers," according to former Virginia Attorney General Jerry Kilgore, writing in the July 10 issue of Legal Times. Kilgore singled out the attorneys general of West Virginia and Connecticut for using outside lawyers as special assistant AGs. Read the news report.
Spoiling for a Fight: The Rise of Eliot Spitzer
BOOK FORUM
Monday, August 7, 2006, 2:00–4:00 p.m.
Wohlstetter Conference Center, Twelfth Floor, AEI
1150 Seventeenth Street, N.W., Washington, DC 20036
Please register for this event online at www.aei.org/event1368
Eliot Spitzer has risen to national prominence during his tenure as the attorney general of New York. Hailed as the “most powerful man on Wall Street,” Mr. Spitzer’s corporate investigations and vigorous litigation have left a mark on everything from mutual funds to the music industry. According to recent polls, he is expected to win the New York gubernatorial race this November.
In Spoiling for a Fight: The Rise of Eliot Spitzer (Times Books, July 2006), Washington Post staff writer Brooke A. Masters offers the first book-length account of Mr. Spitzer and the impact of his aggressive corporate prosecutions. In the book, Ms. Masters draws on her behind-the-scenes access to Mr. Spitzer’s operation and staff, as well as numerous interviews with officials, executives, and attorneys.
Please join AEI scholar Michael S. Greve and Ms. Masters as they discuss the book and Mr. Spitzer’s redefinition of the role of attorney general. The Honorable William H. Pryor Jr., of the United States Court of Appeals for the Eleventh Circuit, and a former attorney general of Alabama, will moderate.
1:45 p.m.
Registration
2:00
Presenter:
Brooke A. Masters, Washington Post
Discussant:
Michael S. Greve, AEI
Moderator:
The Honorable William H. Pryor Jr., U.S. Court of Appeals for the Eleventh Circuit
4:00
Adjournment
State AGs Tighten Control Over Tobacco Cartel
Wedneday, July 12 - State attorneys general are seeking federal legislation to end cigarette shipments via the U.S. mail in a veiled effort to protect the government/industry cartel and cigarette tax revenue. New York Attorney General Eliot Spitzer led a successful effort early in the year to get all the other major carriers-- Federal Express, DHL, and UPS-- to agree to halt all cigarette shipments. Then Spitzer and Sen. Chuck Schumer (D-N.Y.) in March announced plans to introduce a bill making it illegal to ship cigarettes through the U.S. mail. That bill has not since been introduced, however, Rep. Henry Waxman (D-Calif.), the ranking Democrat on the House Government Reform Committee, told Congress Daily this week that he plans to introduce such a provision as an amendment to the postal reform bill.
Waxman said he is in the early stages of adding language to the Postal Service overhaul bill that would require the agency confirm packages containing cigarettes purchased online are received by adults. While he said "there is no language set," he has scheduled a meeting to discuss the issue with Government Reform Chairman Davis. Waxman would not elaborate further. For his part, Davis said such language "would certainly be in play as far as I'm concerned."
Postal Service spokesman Gerry McKiernan told Congress Daily that most important issue is collecting sales tax on cigarettes sold online by Indian reservations.
More to follow...
Big Tobacco, Big Business, Big Government -- New Book Reveals the 'Big Rip Off'
Tuesday, July 11 - "From General Motors to General Electric, Boeing to Philip Morris, today's largest corporations have mastered the art of working with government officials at every level to stifle competition." Get the scoop in a new book by CEI journalism fellow, Timothy P. Carney.
EVENT ANNOUNCEMENT
WHAT: The Federalist Society San Francisco Lawyers Division announces a debate on "The Role of the State Attorney General: Can the Attorney General Properly Pursue His Own Public Policy Through Litigation?"
Tom Greene, Chief Ass't AG
Public Rights Division, Cal. Attorney General's Office
Michael Greve, resident scholar
American Enterprise Institute
WHEN: Monday, July 10, 2006, 5:45-7:15
WHERE: Sheppard, Mullin, Richter & Hampton LLP,
4 Embarcadero Center, 17th Floor, San Francisco
RSVP: sffederalist@gmail.com or 415/774-2973
EVENT ANNOUNCEMENT
WHAT: The Presiding Justice Robert K. Puglia Chapter, Federalist Society of Sacramento is pleased to invite you to a lunchtime debate on "The Role of the State Attorney General in Setting Public Policy"
Tom Greene is the Chief Assistant Attorney General for the Public Rights Division of the California Attorney General’s office. In this role, he manages the Antitrust, Charities, Consumer, Corporate Responsibility, Energy, Environment, False Claims, Gaming, Lands, Resources and Tobacco units in the California Department of Justice.
Michael Greve is the John G. Searle Scholar at the American Enterprise Institute. Dr. Greve is the director of AEI’s Federalism Project. That project maintains a blog called “AG Watch” to monitor the activities of state attorneys general.
State Constitutions generally provide for a divided executive. Where the United States Constitution vests all federal executive power in the President, state constitutions often provide for several, individually elected, executive officers. In California, for example, the Attorney General is a separately elected official in the executive branch of state government. Does that mean that the Attorney General is free to pursue his or her own vision of public policy through litigation?
WHEN: Tuesday, July 11, 2006, from noon to 1:30 p.m.
WHERE: The Sutter Club, 1220 9th Street, Sacramento
COST: $20.00 ($10.00 for law students) for a buffet lunch and 1 hour of MCLE credit
RSVP: Tom Caso (atc@pacificlegal.org)
Florida Court Ruling on $165 Billion Tobacco Case
Thursday, July 6 - The Florida Supreme Court on July 6 upheld a state appeals court’s reversal of $145 billion class action lawsuit against big tobacco companies, overturning the largest punitive damage award by a jury in U.S. history. But it wasn't a total victory for tobacco companies. See comments by CEI counsel Hans Bader.
Secret Tobacco Settlement Ruling Pried from State Attorneys General
Washington, D.C., June 21, 2006— A free market state policy group succeeded in wresting a secret ruling on the tobacco settlement from the National Association of Attorneys General (NAAG) this week. The $250 billion tobacco deal, signed in 1998 between 46 states and major tobacco companies, may well be the biggest settlement in history.
For nearly three months, the NAAG has kept secret a March 27 report by an arbitrator that could lead to reduced tobacco settlement payments for the states. NAAG claimed the report, written by the Brattle Group, was “privileged and confidential.”
But the Evergreen Freedom Foundation in Olympia, Washington, working with CEI, used its state’s public records law to force the state’s attorney general to disclose the report.
“Given that NAAG’s members are public servants, this important report should never have been kept from the public,” said Hans Bader, Competitive Enterprise Institute counsel. CEI has a pending lawsuit in federal court challenging the constitutionality of the tobacco settlement.
"It's shameful that the NAAG tried to keep the report from the public," agreed Jason Mercier, senior budget analyst for the Evergreen Freedom Foundation. “The tobacco settlement is, after all, a public settlement agreement. The report would still be secret if it weren't for Washington State’s public records law.”
The Brattle report was the result of a squabble that erupted early this year between state attorneys general and Big Tobacco, partners in a cartel arrangement to bolster the major companies and provide states a steady stream of settlement money. The majors argued that settlement payments should be lowered, since their share of the domestic cigarette market declined by several percentage points in recent years. The newly revealed report sheds light on how the Brattle Group reached its conclusion that the majors had lost market share to smaller competitors.
“It’s evident now that the report takes an already unfair agreement and makes it even more unfair, anticompetitive, and anti-consumer,” Bader remarked. “The report adopted a very strained reading of the tobacco settlement agreement.”
For example, despite evidence that Big Tobacco benefited from the settlement cartel, the Brattle report found that the major companies were harmed by it. That’s because the report cherry-picked the data it used to determine whether major companies were disadvantaged.
Relevant documents:
The Brattle Group report
Background on the EFF open records request
About CEI's legal challenge to the MSA
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Why Must Companies Cave In to NY Attorney General Spitzer? Bloomberg Columnist Amity Shlaes Wonders
Thursday, June 15 - "The most irritating thing about Eliot Spitzer is his complacency, his overriding conviction that no matter what he does to New York, the city and state will endure," writes Bloomberg columnist Amity Shlaes in her Wednesday column. Instead of fighting back most companies and lawyers try to settle when Spitzer attacks, Shlaes notes. The Spitzer approach "maximizes uncertainty in the name of a moral cause." Read the Bloomberg column.
Economist Walter Williams Warns of 'the Next Round of Tyranny' As Health Zealots, State Attorney General File Lawsuits
Wednesday, June 14 - First, it was tobacco, now it's the food industry. Economist and columnist Walter Williams warns against the "next round of tyranny using tactics so successful for the anti-tobacco zealots." Read the Townhall.com column. Meanwhile, Fox News reports that a health activist group is suing Kentucky Fried Chicken over its use of trans fats. Center for Science in the Public Interest is seeking to force KFC to stop cooking with trans fat or warn customers that trans fats pose health risks. Read the news story. And CEI analyst Gregory Conko blasts California Attorney General Bill Lockyer for suing fast food restaurants and potato chip makers over a substance that the Food and Drug Administration, the World Health Organization and the International Agency for Research on Cancer have concluded poses no health threat to consumers. Read the commentary. And if that isn't enough, the American Medical Association voted on June 13 to urge the government to mandate warning labels for high-salt foods. The AMA also reportedly has plans to pressure the food industry to reduce salt in restaurant and processed foods. Read the AP story.
State AGs Sue Big Tobacco Over Settlement Payments
Wednesday, April 19 - State attorneys general are suing Big Tobacco again, this time over disputed settlement payments. Tobacco giants Philip Morris, R.J. Reynolds, and Lorillard put a portion of their April 17 payment to the states into an escrow account, pending a ruling on whether settlement payments should be reduced due to a loss in market share. AGs in California, Massachusetts, New Jersey and Ohio were the first to file suit in an effort to collect the full settlement payment, the the Associated Press reported on Wednesday. Read the full AP story.
See also:
The Wall Street Journal, May 1, 2006: "Thank You for Smoking"
States Blow Tobacco Settlement $ On Budget Smorgasbord in 2005
Wednesday, April 12 - States spent two-thirds of tobacco settlement money on government programs unrelated to health care in 2005, according to an annual report issued by the U.S. Government Accountability Office.
Contrary to what many elected officials said back in 1998 when the $240 billion multi-state settlement was signed, most of the money received by the states has not been spent on treating sick smokers or preventing youth smoking. The settlement, in reality a hidden tax on smokers, was ostensibly a compensation for state Medicaid costs in treating smoking-related illnesses over the years.
The GAO survey shows states spending a third of the $5.8 billion payment in 2005 on health programs and another quarter on debt service. None of the money was used to offset tax cuts. Maryland spent $30 million on legal fees and on enforcing laws targeting non-settling tobacco companies.
The GAO report highlights the fact that states are addicted to tobacco money, despite the fact that the revenue stream is in jeopardy from pending legal challenges to the legality of the tobacco deal and to the amount of annual payments.
Ruling: Arbitrator to Resolve MSA Cartel Squabble
Friday, April 7 - The question of whether major tobacco companies can reduce their settlement payments by over $1 billion to the states will be decided by a single panel of arbitrators--not state judges. So held the New York Appellate Division in an April 6 ruling. That means a panel of arbitrators will decide whether to adjust the annual settlement payments due to a gain in market share by nonparticipating manufactures (NPMs). Read the New York Law Journal article.
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Forbes Magazine: AGs, Big Tobacco 'Smoking Buddies' Conspired Against Competitors
Friday, April 7 - Attorneys general and major tobacco companies--"Smoking Buddies"-- huddled in a Washington, D.C. meeting room to come up with a plan for squashing competitors, according to a new article in Forbes Magazine by Scott Woolley. (registration required)
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Ruling on Tobacco Settlement Payments Favors Companies
Friday, March 31 - An independent arbiter on March 28 sided with tobacco giants Philip Morris and R.J. Reynolds in a decision that could cost the states billions under the terms of the 1998 tobacco settlement.
The National Association of Attorneys General announced that the the Brattle Group, an economic firm, ruled that Philip Morris and R.J. Reynolds lost domestic market share due to the advertising restrictions imposed by the Master Settlement Agreement. The actual ruling on the public settlement by has been classified as "privileged and confidential" by NAAG.
The ruling could lead to a reduction in annual settlement payments to the states by as much as $1.2 billion, according to some estimates. (The 2005 settlement payment to the states totaled over $5 billion, and NAAG said the expected 2006 payment is $6.5 billion.)
According to the terms of the Master Settlement Agreement, tobacco companies could reduce annual payments to the states if the MSA causes the majors to lose market share and the companies could prove that states failed to “diligently enforce” certain anti-competitive laws. The majors are accusing state attorneys general of failing to enforce laws requiring competitors outside the settlement agreement, so-called nonparticipating manufacturers, to make special escrow payments to the states. The escrow laws represented an effort to"level the playing field." Still, since the settlement went into effect more than seven years ago, competitors have gained ground, and the majors' share of the market has dropped from over 99 percent to about 92 percent.
The AGs argue, meanwhile, that they’ve done a lot to hurt competition. A 2003 confidential memo from NAAG's then-tobacco committee chairman, William Sorrell of Vermont, admonished fellow AGs that “all states have an interest in reducing sales” by companies outside the multi-state agreement. (See memo - page 1 - page 2 - page 3.)
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Ruling on Tobacco Settlement Payments Expected,
State- Tobacco Cartel Squabble Highlights Corrupt Deal
March 27, 2005— Billions in future tobacco settlement payments to the states are at stake in an expected ruling today. An independent economic firm, the Brattle Group, is scheduled to rule on a dispute brought by major tobacco companies.
The companies have argued that annual payments to 46 states resulting from the 1998 tobacco “Master Settlement Agreement” should be reduced because the majors have lost market share to smaller competitors.
The feud between big tobacco companies and state attorneys general draws attention to the corrupt inner workings of the $240 billion tobacco deal. In exchange for receiving billions of dollars in annual payments from the four major tobacco companies, states agreed to pass laws to protect the majors from competition. However, despite imposing burdensome and unwarranted escrow payments on small companies that were never part of the settlement agreement, some upstarts were nonetheless able to win consumers by offering lower-price cigarettes.
Under the terms of the settlement, annual payments by the majors could be reduced if the majors lose market share due to the MSA and states have fail to diligently enforce anti-competitive policies against so-called “nonparticipating manufacturers.”
More to follow...
Schumer, Spitzer Hatch Plan for Outlawing Cigarette Shipmens Via US Mail
Tuesday, March 14 - New York Senator Chuck Schumer joined forces with Attorney General Eliot Spitzer in a plan aimed at curtailing cigarette sales over the Internet. The goal is to coerce smokers into buying cigarettes locally so that states get a guaranteed revenue stream from both excise taxes and the 1998 tobacco settlement.
Schumer and Spitzer on Friday, March 10 unveiled a federal bill that would prevent consumers from buying cigarettes via the U.S. mail, imposing fines of at least $1,000 per offense and possible jail time for anyone convicted of mailing the otherwise legal product.
The New York duo hopes to build on successful efforts by state attorneys general to bully UPS, FedEx, and DHL into halting cigarette shipments. "The U.S. Mail has become the last refuge for online cigarette merchants and it's time that this loophole be closed," Schumer explained.
South Carolina AG: Tobacco Settlement 'Disgraceful [Abuse] of Legal System'
Tuesday, March 14 - Reacting to the fight that erupted last week between major tobacco companies and state attorneys general over annual settlement payments, a spokesman for South Carolina Attorney General Henry McMaster called the tobacco settlement "one of the most disgraceful abuses of the legal system that he's ever seen."
"It's another lunacy of this program," said Trey Walker, spokesman for South Carolina Attorney General Henry McMaster told The Island Packet on March 14. "(Attorney General McMaster) finds himself the tobacco regulator in South Carolina, and put in a position where he has to prop up big tobacco to make sure they sell enough cigarettes to make payments to the states.
"That shouldn't be the role of government. (McMaster) has said this is one of the most disgraceful abuses of the legal system that he's ever seen."
Fight Brews Between State Attorneys General, Big Tobacco Over MSA Payments, Plaintiff S&M Brands Singled Out
Thursday, March 9 - A new fissure has erupted between state attorneys general and Big Tobacco, who have been loyal partners in a $240 billion tobacco cartel for the past seven years. The Wall Street Journal reported on Wednesday that Altria/Philip Morris USA and others want to reduce settlement payments by billions. The two sides are fighting over whether the states went far enough in preventing small tobacco companies from gaining market share.
As the Journal's Vanessa O’Connell reported, major tobacco companies are disputing billions in annual settlement payments stipulated by the deal signed in 1998 between 46 states and the four major companies. Back then, the big companies collectively controlled over 99% in domestic market share, but that’s since dropped to a mere 92%. So Big Tobacco is lashing out at its state partners for not doing enough to protect them from small competitors.
One plaintiff in CEI's suit challenging the Master Settlement Agreement, S&M Brands, Inc., is singled out.
The companies have argued that, because these smaller rivals--such as S&M Brands, Inc., Keysville, Va., which makes Bailey's cigarettes--aren't subject to the marketing limits and cost burdens of the settlement, the small players can sell cigarettes at lower prices.
State attorneys general, the group most responsible for the tobacco deal, loudly retort that they've done a lot to "level the playing field” and warn that the money better keep coming.
The states, in turn, argue that the market-share drop was caused not by the settlement, but rather because of consumers' growing preference for generic brands, and because of the growth in cigarette sales over the Internet. Furthermore, they argue that they have taken the steps required in the settlement to create a level playing field; they say they've enacted and enforced laws requiring the companies not in the settlement group to set aside similar payments in escrow accounts.
Bonnie Herzog, a tobacco analyst for Citigroup, has predicted that the current feud between cartel members "could lead to another settlement [and] an ironclad partnership between the states and tobacco manufacturers."
Washington, DC (February 8, 2006) – The Free Enterprise Fund and the Competitive Enterprise Institute (CEI) on Tuesday launched a Constitutional legal challenge to the Public Company Accounting Oversight Board (PCAOB) created by Congress as part of the Sarbanes-Oxley Act. Enacted in 2002 following a number of corporate scandals, the legislation was rushed into law, but it has produced costly unintended consequences for publicly traded U.S. businesses, entrepreneurs and capital markets.
When politicians take campaign contributions from Big Tobacco, self-proclaimed watchdog groups yelp about impropriety. Yet for the past seven years, the industry has paid tens of billions of dollars to state governments to protect tobacco profits. Until recently, hardly anyone seemed to notice, much less care.
Then, on Aug. 2, the non-profit Competitive Enterprise Institute filed a lawsuit arguing that the 1998 Master Settlement Agreement (MSA) between Big Tobacco and 46 state attorneys-general (AGs) violates the Constitution and establishes a cartel designed to circumvent antitrust law and quash competition. Hallelujah. Read the op-ed...
"As the CEI complaint notes, a handful of state AGs originally cut a back-room deal with tobacco companies and then gave other states 'seven days to review its terms and decide whether to join it.' Eventually, every state joined, which is no surprise given that a cut of a quarter-trillion dollar carrot was dangling in front of them. Read the editorial...
"The tobacco deal that was supposed to promote a healthier America turned out to be a naked cash grab. At least someone's trying to prevent another." Read the editorial...
"This week, the Competitive Enterprise Institute, a free-market advocacy group in Washington, filed suit in federal court to challenge the constitutionality of the massive and fantastically lucrative 1998 Master Settlement Agreement -- otherwise known as the Tobacco Deal. Arrayed against the suit's five plaintiffs (several small tobacco companies and distributors, plus a discount tobacco store and a smoker) will be Big Tobacco, the state attorneys general, a host of public-health organizations, and probably most of the mainstream media. Other than that, it's a fair fight." Read the article...
