Arkansas - escrow accounts Master Settlement Agreement, non-participating manufacturers..

August 6, 2009 - The 8th Circuit affirmed dismissal of a Canadian cigarette maker's lawsuit accusing Arkansas of violating antitrust laws by levying fees on manufacturers based on how many cigarettes are sold there each year.

Grand River Enterprises Six Nations, involved in the manufacture and sale of tobacco products, a Canadian corporation. According to its Statement of Claim, Grand River seeks not less than $310 million to $664 million for damages allegedly resulting from a 1998 settlement agreement bealong with a pair of wholesale distributors, sued Arkansas after it passed a law requiring certain manufacturers to make payments into an escrow account to offset future Medicaid costs related to smoking.

They alleged the so-called Allocable Share Amendment violated antitrust laws because it forced them to raise prices and prevented them from gaining a competitive advantage over other manufacturers and wholesalers. "Although these payments may increase the cost of doing business in Arkansas, they do not amount to an antitrust injury," the St. Louis-based court ruled. The plaintiffs "have not proven that the Allocable Share Amendment amounts to a per se violation of the Sherman Act."

In the mid-1990s, all 50 states and two U.S. territories sued the country's major cigarette manufacturers to recover Medicaid costs related to cigarette smoking. They also sought to impose restrictions on the makers' sales and ad practices. The lawsuits were settled in 1998. As part of the settlement agreement, manufacturers were banned from targeting youth in their advertising and were ordered to make payments to the states for all future cigarette sales. The states, in exchange, agreed not to file future claims.

The agreement allowed manufacturers who were not parties to the lawsuit to join the master agreement within 90 days, making them exempt from having to make future payments with certain restrictions.

Unlike the Participating Manufacturers to the Master Settlement Agreement, Non-Participating Manufacturers (NPMs) like Grand River Enterprises Six Nations, have not been released from State claims. Grand River was not a party to the original lawsuit or the subsequent agreement, and opted not to participate in the master agreement. But the master agreement allows states - including Arkansas - to enact statutes forcing such non-participating manufacturers to place money into escrow each year to settle future judgments based on the number of cigarettes sold in that state.

Grand River Enterprises Six Nations, Ltd. v. Beebe, No. 08-1436, U.S. Eighth Circuit, Findlaw.com, 8/4/2009.

Reference: Arkansas Wins Antitrust Ruling Over Tobacco Fees by NICK DIVITO, Courthouse News Service, 8/6/2009.