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[ATG] State appeals tobacco arbitration ruling
Start Date: 12/4/2013Start Time: 12:00 AM
End Date: 12/4/2013
Entry Description

INDIANAPOLIS -- Today Indiana Attorney General Greg Zoeller’s office appealed the recent arbitration panel ruling that reduces by $62.8 million the amount tobacco companies pay to Indiana to offset the costs of smoking-related illnesses.

As the lawyer for State government, Zoeller contends the arbitration panel of three retired federal judges exceeded their authority under law and the process they used prejudiced Indiana’s case.  The panel unfairly judged Indiana by using a new legal definition they created after the fact and imposed retroactively; and the panel based their ruling on erroneous findings and disregarded the State’s own laws.  After consulting with the legislative and executive branches, Zoeller’s office today appealed the arbitration panel’s ruling by filing a “motion to vacate” in Marion County Civil Superior Court in Indianapolis.  That court retains jurisdiction over the 1998 Master Settlement Agreement between Indiana and the major tobacco companies, and has jurisdiction to hear this appeal of the arbitration panel’s ruling.

Zoeller’s office asks the Marion County court to vacate the arbitration panel’s entire award, or, in the alternative, modify the amount received.  Zoeller seeks a reallocation of the amount tobacco companies pay Indiana and other states, so that Indiana would receive an amount closer to the $131.2 million payment originally projected and not the $68.4 million Indiana would otherwise receive next April as a result of the panel’s actions.  Settlement monies that tobacco companies pay Indiana under the MSA indirectly reimburse the State for the medical costs to taxpayers of smoking-related diseases such as lung cancer, heart disease and emphysema; and the funds are used for tobacco-cessation efforts.

“Fifteen years after signing the Master Settlement Agreement that was intended to bring some closure to the issue, the big tobacco companies continue to wage a legal battle against Indiana and other states to reduce their settlement payment for the consequences of their product on the costs of health care for our citizens.  Triggered by the tobacco companies themselves, this arbitration process was extremely complex, and the panel’s fundamentally flawed ruling treated Indiana unfairly compared to similar states. Through this legal action we seek ultimately to restore the tobacco payments to Indiana to more equitable levels,” Attorney General Zoeller said.

At issue in the arbitration panel’s hearings was how “diligently” Indiana enforced the MSA in 2003.  In the motion, Indiana objects strenuously to the arbitration panel’s creating a new definition of “diligent enforcement” after more than a year of hearings were complete and applying it retroactively long after Indiana had finished presenting its case.  Moreover, 20 other states that settled rather than continue with the laborious arbitration process were not held to the newly-created “diligent enforcement” standard Indiana was subjected to.  Their settlement also adversely affected the allocation of payment reductions to non-settling states.  The motion notes the panel got basic facts wrong in their analysis of enforcement efforts Indiana officials undertook going back to 2002.  See this excerpt from page 24 of the motion to vacate:

“In addition to irrationally faulting Indiana for things it did not do (incorrectly asserting that it did not establish its Tobacco Enforcement Unit until October 2003) and not acknowledging the many positive things it did do (filing 14 lawsuits when other states filed none), the panel manifestly disregarded the very framework it used to determine whether a state was diligent or not.  Thus, the panel applied its own factors in an entirely arbitrary and internally inconsistent fashion, or departed from them entirely.”

A hearing date has not yet been scheduled on the state’s motion to vacate.  Among the defendants are the major tobacco companies often referred to as the “Participating Manufacturers” or PMs including the corporate parent of Philip Morris Tobacco Company, the R.J. Reynolds Tobacco Company, the Lorillard Tobacco Company and several other cigarette manufacturers.

NOTE:
The State of Indiana’s Motion to Vacate the Final Arbitration Award is attached.  For more detail on the legal arguments, please see these excerpts:

Paragraphs 6 and 7 on pages 2 and 3.
Paragraph 11 on page 4.
Paragraph 13 on page 5.
Paragraph 4 on pages 19 and 20.
Paragraph 3 on page 23.

For more information on the panel’s earlier ruling, see the “Tobacco Arbitration – Frequently Asked Questions” fact sheet at this link.

 

 
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Contact Information:
Name: Bryan Corbin
Phone: 317.233.3970
Email: Bryan.Corbin@atg.in.gov
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