The North Carolina Supreme Court found more than reasonable doubt to overturn a lower court ruling in favor of tobacco companies who filed suit last year to avoid paying 2004 Phase II payments.
The tobacco companies - Philip Morris, R.J. Reynolds and Lorillard - reasoned they didn't have to pay the final 2004 payment to the National Tobacco Growers Settlement (Phase II) Trust because the legislation authorizing the quota buyout was passed in that year. They also argued they should be repaid the other quarterly payments made in 2004. Under the settlement agreement that legislated the Phase II payments, those payments cease in the event of a quota buyout, in this case the Fair and Equitable Tobacco Reform Act of 2004.
In December, North Carolina Business Court Judge Ben Tennille affirmed the companies did not have to make a final, $106 million payment to growers in the last quarter of 2004, and should receive a refund of other payments - about $318 million - put into trust funds earlier that year for later distribution. Tennille agreed 2004 was the defining year. The state Supreme Court did not.
"The (lower) court held that Congress made FETRA effective in 2004 to
save Settlors from their 2004 Phase II Annual Payment," the court wrote in the opinion release Aug. 19. "Good reason exists to doubt this conclusion."
The state Supreme Court disagreed with the lower court on two counts. First, it did not agree that a future obligation tied to 2004 cigarette manufacturing would trigger a tax offset adjustment for 2004.
Congress specifically designated 2005
Secondly, the higher court wrote, Congress did not intend for the buyout legislation to become law in 2005. Generally, the court noted, a law takes effect on the date of its enactment unless Congress gives clear direction to the contrary.
In this case, Congress "went to the trouble of inserting an 'Effective Date' section in FETRA," the court noted.
Section 643 of FETRA says: "This title and the amendments made by this title shall apply to the 2005 and subsequent crops of each kind of tobacco."
The Court noted USDA seems to be acting on the same understanding, that is that the Act is effective in 2005.
"The U.S. Department of Agriculture's final rule on Tobacco Transition Assessments interprets FETRA's 'contradictory' provisions to mean Congress intended the first FETRA assessment to be due on 31 March 2005," the court wrote. "Assuming the Secretary is correct, it is even less likely FETRA was a 'change in law' for 2004."
Payment now due
The Supreme Court ruling means cigarette makers must pay $424 million to tobacco growers in 14 states as part of a multibillion-dollar anti-smoking settlement finalized in 1999.
The companies agreed to pay growers and quota-holders $5.1 billion over 12 years to compensate them for reduced demand, the so-called Phase II portion that grew out of the $206 billion settlement of anti-smoking lawsuits filed by 46 states against the four largest cigarette makers.
The ruling affected 80,000 tobacco growers and over 300,000 tobacco quota holders in North Carolina, Kentucky, Tennessee, South Carolina, Virginia, Georgia, Ohio, Indiana, Florida, Missouri, West Virginia, Alabama, Maryland and Pennsylvania. Those 14 tobacco-growing states and national trustee, JP Morgan Chase, filed the lawsuit to refute the manufacturers' claim to the Phase II funds.
Kentucky predicted a win
Kentucky growers didn't have to wait for their payments. Last June, the Kentucky General Assembly allotted $114 million to allow the state to make the Phase II payments while the lawsuit was argued.
In Tennessee, Agriculture Commissioner Ken Givens is anxious to get some $32 million in checks out to the 47,000 growers and quota holders in his state. Givens, who serves as vice-chairman of the Tennessee Tobacco Farmers Certifying Board, says that the state will work with the trustee to secure the release of funds as soon as possible.
"Barring any unforeseen legal action, we hope that funds can be made available as quickly as possible, and we will be working tirelessly toward that end," Givens says.
In Tennessee, the board has already certified the state's tobacco farmers and quota owners that are eligible to receive a payment. The board met last December and set a payment rate of 64 cents per pound for burley tobacco marketings and nearly 8 cents per pound for quota owned based on the 2003 crop year and pending full funding of the trust.