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Supreme Court Is Asked to Strike Down Tobacco Settlement

Posted By Camilo Rodriguez On November 17, 2010 @ 5:00 pm In Legal | Comments Disabled

Last week the Competitive Enterprise Institute [1], a Washington-based free-market advocacy group, filed a petition with the U.S. Supreme Court to review the 1998 tobacco Master Settlement Agreement [2] on the grounds it violates federal antitrust laws and is unconstitutional.

The tobacco MSA is the result of 46 state attorneys general striking a deal with the four major tobacco companies in 1998 to settle Medicaid lawsuits over tobacco-related health care costs. Tobacco companies agreed to fork over $246 billion to the states over 25 years and adhere to restrictions on advertising, marketing and promotion of cigarettes.

Never mind that smoking already generates huge sums of tax revenues and saves taxpayers’ dollars on entitlement expenses when smokers die before they can draw benefits. The New England Journal of Medicine [3] put it this way:

“If people stopped smoking, there would be a savings in health care costs, but only in the short term. Eventually, smoking cessation would lead to increased health care costs.”

In its filing, CEI argues that the Big Tobacco companies saw an opportunity to solidify their respective shares of the market against competition while avoiding future lawsuits  by the government.  By settling, state attorneys general and Big Tobacco now share the goal of keeping major companies profitable, so they can continue funding state budgets.

“The state AGs imposed a massive national sales tax on cigarettes, without a single elected legislator at any level of government voting for it,” according to CEI general counsel Sam Kazman. “This is a major power grab by state AGs at the expense of citizens.”

The plaintiffs, a discount tobacco company, a tobacco shop and an individual smoker, are represented by the lead counsel Erik Jaffe in the case. The petition to the Supreme Court is a long time coming after five years of litigation; the legal challenge primarily rests on the Constitution’s Compact Clause which states, “No State shall, without the Consent of Congress … enter into any Agreement or Compact with another State.”

CEI argues that the multi-state tobacco settlement clearly violates that provision and sets an alarming precedent of government using litigation rather than legislation to impose taxes and regulations. The MSA also puts smaller competitors, who were not part of the state lawsuits or settlements negotiations, in peril by requiring them to make major escrow payments to the states.

By no means the worst part of this scheme, but also noteworthy, is that funds from the tobacco companies go to an anti-smoking advocacy group, American Legacy Foundation, creators of TheTruth.com [4] commercials. Aimed at young people, the campaign relies on hyperbole and sensational ads to convince Americans not to smoke.

Camilo Rodriguez is currently a member of the Young Leaders Program at the Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm [5]


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URL to article: http://blog.heritage.org/2010/11/17/supreme-court-is-asked-to-strike-down-tobacco-settlement/

URLs in this post:

[1] Competitive Enterprise Institute: http://cei.org/msa

[2] Master Settlement Agreement: http://www.naag.org/tobacco.php

[3] The New England Journal of Medicine: http://www.nejm.org/doi/full/10.1056/NEJM199710093371506

[4] TheTruth.com: http://www.thetruth.com/

[5] http://www.heritage.org/about/departments/ylp.cfm: http://www.heritage.org/about/departments/ylp.cfm

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