Big Tobacco ordered to pay full $800 million to New York under landmark 1998 agreement

Attorney General Eric T. Schneiderman announced this week a panel of arbitrators threw out Big Tobacco's $800 million claim against New York and instead ordered the companies to pay the state more than $92 million that they had withheld from their 2003 annual payment due under the 1998 landmark tobacco master settlement agreement. The panel of three retired federal judges - Fern Smith, William Bassler and Abner Mikva - rejected Big Tobacco's demand for a dramatic reduction in its annual payment to New York, finding instead the state had fully complied with its agreement obligations and was entitled to its entire payment. This precedent-setting decision is expected to protect the state from many billions of dollars in future claims.

"This ruling is a huge victory for all New Yorkers, and I applaud the panel for denying Big Tobacco's efforts to avoid responsibility for illnesses caused by cigarettes - and paid for by taxpayers," Schneiderman said. "Big Tobacco companies contribute to the deaths of thousands of people every year, in large part by luring more and more young people onto cigarettes. Finally, these companies will be required to reimburse the state for money spent treating New Yorkers made ill by their deadly product." 

Under New York's escrow statute, only sales of cigarettes on which New York state excise taxes have been paid trigger the escrow requirement. However, for more than 50 years, with the full knowledge of the participating manufacturers ("PMs") and specifically up to and including 2003, New York did not require state excise taxes to be paid on cigarette sales to or on Indian reservations. Consequently, the state did not seek to have non-participating manufacturers ("NPMs") make escrow deposits for their untaxed sales in the state. In rejecting the tobacco companies' claims, the panel fully recognized New York's long-standing policy of not taxing cigarette sales on Indian reservations. 

The case was handled by a team of lawyers from the tobacco compliance bureau headed by Assistant Attorney General Louis Willenken, together with Assistant Attorney General Sarah Evans and Bureau Chief Dana Biberman, under the supervision of First Deputy Attorney General of Affirmative Litigation Janet Sabel.