Attorney General petitions Supreme Court over tobacco payments
Foregoes Court of Appeals due to urgency of matter

FRANKFORT, KY (Thursday, January 06, 2005) – Attorney General Greg Stumbo announced today that the Office of the Attorney General filed a petition late yesterday afternoon in the Supreme Court of North Carolina asking for an expedited review of Judge Ben Tennille’s December 23, 2004 ruling (North Carolina Business Court) that the federal “tobacco quota buyout” entitles the tobacco companies to an offset against their 2004 payments under the National Tobacco Grower Settlement Trust Agreement. Although an appeal has already been filed in the North Carolina Court of Appeals regarding this decision, the document filed yesterday seeks to bypass any determination by the Court of Appeals and asks the Supreme Court for a review of the decision due to the fact that delaying the final decision of this case would cause significant harm to thousands of people. The Attorney General filed the petition on behalf of the Kentucky Settlement Trust Corporation, the Phase II certification Board, along with the Boards of six other states and the Phase II Trustee (JPMorgan Chase Bank).

Ultimately, this appeal will decide whether approximately $424 million will go to hundreds of thousands of tobacco farmers or whether the money will go back to tobacco companies. If upheld, the judge’s ruling will refund payments made by tobacco companies under the Trust Agreement for 2004 (also referred to as Phase II payments) and will leave tobacco farmers without the payment they have been expecting to receive in late 2004 or early 2005. The last payment made to tobacco farmers under the Trust Agreement was December 30, 2003.

In the petition, the Attorney General argues that the elimination of this payment is causing a severe hardship for farmers and their communities because of the unexpected gap in payments. Although the Trust Agreement specifies that the amount each tobacco company must contribute in a given year can be reduced in response to certain governmental obligations, such as the new “buyout” law, the petition argues that since no payments have actually been made by the tobacco companies during 2004 toward any governmental obligation, then no refund of Trust payments is entitled for 2004.

“Every day that payments to tobacco farmers are delayed adds to the hardship of thousands of Kentuckians who have made financial commitments based on the receipt of these payments. That is why we are taking this matter straight to the Supreme Court for resolution,” said Stumbo.

While the “buyout” legislation (The Fair and Equitable Tobacco Reform Act of 2004, or FETRA) was still pending in Congress, Attorney General Stumbo wrote a letter to key legislators urging them to provide an effective date in the legislation. Had an effective date of January 1, 2005 been added to the bill as requested by Stumbo, the 2004 Phase II payments to tobacco farmers may not have been threatened.

The Trust Agreement (Phase II) was formed in the wake of the 1998 Master Settlement Agreement (MSA) to compensate tobacco farmers and quota holders for the adverse effects they were expected to suffer due to changes in the tobacco industry. The Trust Agreement requires the tobacco companies to pay hundreds of millions of dollars into the Trust each year from 1999 through 2010. Each year since 1999, the Trust has distributed these funds to tobacco farmers. The MSA resolved fraud and antitrust lawsuits that state attorneys general had filed or could have filed against tobacco companies. The Trust Agreement became effective in August 1999 through a consent order entered in the Wake County Superior Court (North Carolina). The Trust Agreement makes Wake County Superior Court the only trial court that can resolve disputes related to the Trust Agreement.