A North Carolina judge ruled Dec. 23 that tobacco companies don't have to make their final quarterly payment toward the 2004 Phase II payments and, furthermore, he granted them a refund of all payments made in 2004.
Judge Ben Tenille, in whose court the tobacco companies landed after filing a lawsuit in the wake of the tobacco buyout legislation passed Oct. 22, believes the legal issues involved left him no choice but to rule in favor of the tobacco companies.
He was ever mindful of the timing of his ruling.
"It would be far more pleasing to the Court to play the role of Santa's helper on this twenty-third day of December rather than be subjected to the inevitable comparison to the Grinch. The Court recognizes all too well that the delay between when the Phase II checks would have been received and the date contracts are signed under FETRA (permitting farmers to obtain financing of their buyout benefits) will impose hardship on small farmers in particular," Tenille wrote. "Congress could have avoided that hardship by passing FETRA earlier in the year. The Secretary of Agriculture can ameliorate the impact by swift completion of the contracting process."
Part of the issue, according to Tenille's ruling, is that farmers ultimately receive a greater benefit from the buyout than from the Phase II payments.
Tenille wrote: "If the benefit of the buyout had been less than the 2004 annual payment plus the remaining 2005-2010 payments, the tobacco farmers were protected. Since it was far greater than that, the Tobacco Companies are legally entitled to the benefit of their bargain - a reduction in the amount owed in the year of enactment."
The decision likely is a financial nightmare for many tobacco growers who were counting on 2004 Phase II payments this month to make up for a year of hurricanes and other weather-related disasters.
Tenille also addressed the issue of delayed payments as farmers must now wait for the buyout payments to be figured and released.
"The 'gap' in the timing of payments and thus in receipt of benefits by farmers was created by the fact that Congress passed the legislation at the end of the year," Tenille wrote. "This Court is not taking away any benefit Congress intended to bestow on tobacco farmers. Rather, the Court is enforcing a bargain made in connection with the establishment of the Trust and agreement to Amendment One."
Amendment One of the original settlement that created the Phase II payments says: "If in any year Congress passed a buyout plan to be paid for by the Tobacco Companies that was greater than the then remaining trust payments due, including payments due for the year of passage, all remaining payments including the payment for the year of passage were reduced."
Tenille also suggests Congress revisit the issue.
"There are equitable arguments to be made for rewriting the agreement to compensate for the loss of the 2004 payment. After all, the tobacco companies changed the economics of the quota system by switching to a contract system and purchasing more foreign tobacco," Tenille wrote. "In the last analysis, however, that approach requires the Court to rewrite the agreement based upon what it perceives the equities to be. That is not what courts should do, and the public should not want them to do that. The parties should be free to write their own contracts without fear that some judge will later decide it should have been written differently."