Court to consider high-stakes tobacco fight

big tobacco (Large)
R.J. Reynolds wants off the hook after it sold four brands.

Two decades after Florida reached a landmark legal settlement with tobacco companies, an appeals court is slated to hear arguments Tuesday in a dispute about more than $100 million in payments.

R.J. Reynolds Tobacco Co. wants the 4th District Court of Appeal to overturn a ruling that said the company is responsible for making payments to the state related to four brands of cigarettes: Salem, Winston, Kool and Maverick.

R.J. Reynolds was part of the 1997 settlement in which cigarette makers agreed to pay hundreds of millions of dollars a year to the state because of smoking-related health costs and, in exchange, received liability protections. An R.J. Reynolds parent company in 2015 sold the four cigarette brands to ITG Brands, LLC, which was not part of the settlement. As a result of the sale, R.J. Reynolds contends it is no longer responsible for making payments linked to the four brands.

A Palm Beach County circuit judge, however, ruled in 2017 that R.J. Reynolds remained responsible for the payments. R.J. Reynolds then appealed what it said in a brief was a $102 million judgment “plus annual payments in perpetuity.”

“The impact of the trial court’s unsupportable construction of the (settlement agreement) is severe: Reynolds faces a judgment requiring it to pay $102 million, plus payments in perpetuity amounting to millions of dollars annually, by including brands Reynolds no longer manufactures, sells, or ships in the calculation of its annual settlement liability — contrary to the express terms of the (the settlement),” a brief filed last year by the company’s attorneys said.

But attorneys for the state contend the South Florida appeals court should uphold the circuit judge’s ruling, saying that R.J. Reynolds made $7 billion in selling the brands to ITG Brands, which is known as Imperial Brands, while also maintaining the liability protections that were included in the settlement.

“Under Reynolds’ proposed interpretation, Reynolds would continue to enjoy a release from liability for ongoing harms associated with the sale of cigarettes sold under the transferred brands before the (settlement) was executed, even though no one would be responsible for providing the ‘perpetual’ payment stream intended to address those harms,” the state said in a brief last year.

Florida filed a lawsuit in 1995 against R.J. Reynolds and four other tobacco companies, pointing to the state’s health-care costs stemming from cigarette smoking. The settlement ultimately led to the defendants making an initial payment of $750 million and agreeing to pay $440 million a year, with that amount subject to adjustments, according to the state brief.

R.J. Reynolds said in a brief filed last year, for example, that it had paid $4.1 billion to the state.

The appeals-court fight stems, at least in part, from the 2015 purchase by Reynolds American, Inc., a R.J. Reynolds parent company, of Lorillard, Inc., another cigarette maker, in a $27 billion deal. The four brands of cigarettes were sold to ITG Brands because of Federal Trade Commission concerns about the merger, according to the R.J. Reynolds court brief.

In 2017, the state went to circuit court to try to enforce the settlement agreement to continue receiving payments stemming from the four brands. In finding that R.J. Reynolds was responsible for the payments, the circuit judge ruled that ITG Brands “had not expressly or impliedly assumed responsibility for the payment obligations,” according to the state brief filed last year.

The case involves issues such as interpretations of the settlement, with R.J. Reynolds arguing that payments focus on market share.

“Once Reynolds stopped manufacturing, selling, and shipping any acquired brands for domestic consumption, those cigarettes were no longer part of Reynolds’ market share,” the company’s attorneys argued in the brief last year.

The case also has drawn arguments from ITG Brands and Philip Morris USA, another cigarette company that was part of the 1997 settlement. ITG Brands contends the appeals court should uphold the circuit judge’s ruling that R.J. Reynolds is responsible for the disputed payments.

“Black letter contract and corporate law establish that an entity that acquires assets does not automatically become liable for the contractual obligations of the seller with respect to those assets. Rather, it must agree to such liability. ITGB (ITG Brands) made no such agreement,” ITG Brands’ attorneys wrote in a brief.

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Republished with permission from the News Service of Florida.

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