Montana Reaches Tobacco Company Settlement of $100 Million

HELENA — Montana will recover more than $49 million in payments and interest wrongly withheld by tobacco companies that were due under a 1998 settlement and has reached an agreement with the companies to not challenge the state’s annual payments for another 10 years, Attorney General Tim Fox said Monday.

The value of the settlement, with interest and penalty payments, is more than $100 million, Fox said.

“I am pleased to achieve this immediate payment of the funds rightfully due Montana and forever protect the remedy struck over 20 years ago when Montana entered into the Master Settlement Agreement,” Fox said. “Montana needs these resources now more than ever to pursue its work in smoking prevention and cessation, help the disabled and seniors, fund critical public health programs and insure Montana’s children through the Children’s Heath Insurance Program.”

The decision is precedent-setting, Fox said, and may give other states an avenue to pursue in settling similar cases.

Tobacco companies make annual payments to states under a 1998 settlement of lawsuits that alleged the companies denied the detrimental health effects of their products, causing government-funded medical programs to spend additional money to care for those with tobacco-related illness.

The settlement — reached with Philip Morris Inc., R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Co., Lorillard Tobacco Co., Leggett Group Inc. and Commonwealth Brands, Inc. — also prevents marketing tobacco products to children.

Since the early 2000s, the companies had been withholding about 10% of each annual payment alleging that the states weren’t collecting taxes from the sale of tobacco products made by companies that were not involved in the settlement. The taxes, required under the settlement, were meant to “level the playing field,” Fox said.

In 2018, while litigating the state’s shortage in the 2004 settlement payment, attorneys for Montana learned the tobacco companies had no evidence that Montana wasn’t collecting the payments from the non-participating companies.

“The whole system that they had developed, the conspiracy that they had developed, was to keep the money from the states … and then make us laboriously and expensively litigate each payment year,” said David Paoli, a Missoula attorney who has been involved in the case dating back to the initial settlement agreement.

That led the state to file a complaint in April alleging violation of the covenant of good faith and fair dealing along with a complaint under the false claims act, which included the leverage of a possible award of triple damages.

After a two-day mediation in October, the companies agreed to settle the Montana case and to fully pay the state’s annual payments for the next 10 years. The companies also agreed not to ever challenge Montana payments again based on allegations that the state is not enforcing its tobacco tax laws.

Many states have settled the withholding issue with the tobacco companies and have agreed to lesser payments, Fox said. The 10 who have not yet settled are: Idaho, Iowa, Illinois, Massachusetts, Maryland, Missouri, New Mexico, Ohio, Washington and Wisconsin, said Anne Yates, an assistant attorney general.

Montana’s annual settlement payments have ranged from $24 million to $35 million over the past decade, not including the money that has been withheld. The state received $24.1 million this year, but the companies withheld another $4.5 million, Yates said.

Montana’s settlement includes another $4.5 million payment to the state general fund and millions of dollars in attorneys’ fees and court costs, Fox said.

Officials with R.J. Reynolds Tobacco Co. did not immediately respond to an email seeking comment and officials with Altria Group, which owns Philip Morris USA, did not immediately return a phone call seeking comment.