Kentucky reaches $110 million settlement with tobacco companies, ending 10-year legal battle


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FRANKFORT, Kentucky — Tobacco companies have agreed to pay Kentucky more than $110 million to settle a 10-year legal battle over the state's share of the tobacco master settlement agreement.

In 1998, U.S. tobacco companies agreed to pay $229 billion to 52 states and territories over many years to compensate them for the costs of treating smoking-related illnesses. The companies also agreed to advertising restrictions, including a ban on marketing to youth.

Lots of smaller tobacco companies did not participate in the settlement and were not subject to its restrictions. Kentucky agreed to charge those companies more taxes as a way to level the playing field with the bigger tobacco companies.

But in 2003, the big tobacco companies accused Kentucky of not collecting all of the taxes it was supposed to. As a result, they withheld some of Kentucky's annual payments. State officials and tobacco companies have been fighting over those disputed payments since 2003.

In September, a federal arbitrator ruled Kentucky did not do all it could to collect the taxes. Democratic Attorney General Jack Conway challenged that arbitration ruling in court. But the state was in danger of losing all of its tobacco settlement payments - tens of millions of dollars each year that paid for a range of agricultural, public health and early childhood education programs.

That's why in November, Conway said he began secret negotiations with the tobacco companies in hopes of reaching a settlement.

"There was no end in sight," Conway said. "Given the time, value of money and the needs of this state and the agricultural community and our health community right now, I think it's a good deal for the state."

According to the terms of the agreement - which Conway signed on Wednesday - Kentucky will get $110.4 million of the disputed payments in the 2014 fiscal year, bringing the state's total payments to $158.7 million. Going forward, tobacco companies will pay Kentucky 45 percent of the disputed payments.

Kentucky is the 23rd state to settle this dispute with the tobacco companies.

"By joining 22 other states in settling, Kentucky escapes that chaotic landscape of future legal battles as well as saves itself from the financial and administrative cost of litigating these decades-old events," Beshear said.

Denise F. Keane, executive vice president and general counsel of Altria - the parent company of Philip Morris - called the settlement good for both parties.

"We have always said we are open to resolving these disputes in a manner that makes sense to the states and to us, and that remains the case," she said in a news release.

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