Attorney General Stumbo Announces Supreme Court Ruling in Favor of Tobacco Growers

FRANKFORT KY (August 19, 2005) - The Office of the Attorney General prevailed today in forcing tobacco companies to pay Kentucky money owed under the tobacco Master Settlement Agreement. Lead counsel for Kentucky, Assistant Attorney General Michael Plumley, successfully represented the Kentucky Settlement Trust Corporation. The North Carolina Supreme Court unanimously found in favor of Kentucky and 13 other tobacco-growing states by requiring the major tobacco companies to make their $424 million 2004 payment under the terms of the National Tobacco Growers Trust Settlement Agreement.

“I am very proud of this court victory by my Office,” Stumbo said. “The interest and penalties will increase the overdue payments to at least $124 million, which is $10 million more than the Kentucky General Assembly distributed to farmers. This is money that Kentucky sorely needs. My Office will continue its aggressive strategy to recoup money owed to the people of the Commonwealth.”

In the 1998 Master Settlement Agreement, the major cigarette manufacturers agreed to pay 46 states $206 billion over 25 years. The following year, in a deal known as Phase II, they agreed to pay tobacco growers in fourteen states $5.1 billion over 12 years to address economic impacts on tobacco-growing communities.

Besides Kentucky, Alabama, Florida, Georgia, Indiana, Maryland, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia and West Virginia were parties to the Grower Trust. More than 150,000 Kentucky growers have received Trust payments since 1999.

When Congress passed the $10 billion buyout legislation last year, which will pay growers the equivalent of about five years of sales, the tobacco companies (Philip Morris, RJ Reynolds and Lorillard) argued that it ended their Phase II obligation and refused to pay for 2004. Since buyout payments had not yet started, many tobacco growers were adversely affected by the companies’ actions.

The North Carolina Supreme Court found that the Trust Agreement did not allow the companies to avoid their obligation to pay tobacco farmers. The Court found unanimously that the purpose of the Phase II Trust was to provide tobacco growers “...a steady stream of supplemental income until at least 2010.” The Court concluded that the tobacco buyout was effective in 2005 and did not end the Trust payment requirements in 2004, as the companies had argued.

The Kentucky General Assembly passed a provision in early 2005 which made $114 million in payments to Phase II growers in June. This appropriation will be covered by the payments ordered by the North Carolina Supreme Court.