Tobacco industry settlement
The Tobacco Industry Settlement, primarily encapsulated in the Master Settlement Agreement (MSA) of 1998, emerged in response to significant lawsuits against major tobacco companies by U.S. states seeking to recover Medicaid costs related to smoking-related illnesses. This legal action followed a series of state laws that restricted tobacco companies from claiming that their tax contributions offset these costs, ultimately leading to a settlement estimated at $246 billion over 25 years. The MSA not only required substantial financial payments from the tobacco industry but also imposed strict limitations on tobacco marketing practices, especially targeting youth, by funding anti-smoking campaigns through organizations like the American Legacy Foundation.
The settlement is notable for being the largest of its kind in history and has influenced the legal landscape beyond the tobacco industry, prompting similar multistate lawsuits across various sectors. However, the distribution of settlement funds has sparked debate, as states varied in their use of these funds, with some applying them to public health initiatives while others allocated the money towards budget balancing. While smoking rates in the U.S. have generally declined since the settlement, the direct impact of the MSA on these rates remains uncertain, intertwining with broader societal changes in attitudes towards smoking and increased cigarette taxation.
Tobacco industry settlement
The Event The largest civil settlement in U.S. history is signed by major tobacco companies and states’ attorneys general
Date Signed in 1998
The successful series of lawsuits against large tobacco companies for reimbursement of Medicaid claims became a highly successful method of enabling government to be more accountable to citizens and of providing much-needed funds for individual states.
In the late 1990’s, major tobacco companies were faced with billion-dollar lawsuits. By 1998, nearly all of the U.S. states’ attorneys general had filed lawsuits against these companies to recover state Medicaid costs associated with smoking-related diseases. Soon, all of the states followed suit and came eventually to settle their cases with the tobacco industry. Ultimately, this resulted in the huge financial settlements guaranteed by the Master Settlement Agreement (MSA) and restricted tobacco marketing and advertising.
The Master Settlement Agreement
At first, the individual state lawsuits were considered to be long shots because they had to prove that smoking actually was the root cause of all the illnesses involved in the Medicaid claims and that smokers did not know that smoking was dangerous to their health. Besides, tobacco companies claimed that Medicaid costs were offset by individual states’ cigarette taxes. This all changed, however, in 1994, when Florida passed the Medicaid Third-Party Liability Act forbidding tobacco companies from claiming these defenses. In effect, the new statute enabled the state of Florida to easily sue cigarette manufacturers. Simultaneously, in Mississippi it became illegal for tobacco companies to argue that cigarette taxes offset Medicaid costs. Thus, in 1997, the tobacco industry decided to settle the state lawsuits to avoid further financial losses.
While Florida, Minnesota, Mississippi, and Texas settled separately, in November of 1998 the nation’s leading cigarette manufacturers, Philip Morris USA, R. J. Reynolds Tobacco Company, Brown and Williamson Tobacco Corporation, Lorillard Tobacco Company, and forty other original participating manufacturers (OPMs) signed the MSA with the attorneys general of forty-six states, five U.S. territories, and the District of Columbia. The settlement was estimated to be $246 billion paid out over twenty-five years and did not include the estimated $13 billion awarded to the trial lawyers. The MSA ultimately exempted the major tobacco companies (known as “big tobacco”) from tort liability from state governments. Initial payments to the various states totaled more than $10 billion. The tobacco industry settlement was the largest settlement in history; indeed, it has been called the largest privately handled rearrangement of capital in world history.
In addition, despite First Amendment considerations, the MSA imposed restrictions on tobacco marketing and advertising, whose methods had been harshly criticized for enticing teenagers to smoke. Tobacco companies were to pay for advertisements that discouraged adolescents from smoking. The agreement also created, and currently funds, the American Legacy Foundation, an antismoking program designed to help reduce smoking in the United States.
Ultimately, to get their share of the large tobacco financial windfall, all the states, even those who were opposed to the tobacco lawsuits, were forced to sign the MSA. The settlement also allowed for the rise of small tobacco manufacturers who were placed in a position to undersell the big tobacco giants. In addition, to ensure that tobacco companies continued to make payments to the states, a small number of states’ attorneys general fought to regulate this new-found wealth by imposing additional taxes on emerging smaller tobacco companies that were not named in the MSA. In addition, individual states agreed not to bring lawsuits on any grounds against tobacco manufacturers in the future.
Impact
What has come to be known as the “tobacco model” has had far-reaching consequences on all U.S. industries, not just those concerned with tobacco manufacturing. Legal scholars claim that the series of successful tobacco industry lawsuits simply enabled government to become more accountable to the people. In addition, the 1998 tobacco settlement led to a trend in multistate lawsuits that successfully targeted various industries. For instance, investigations into the banking industry have led to billion-dollar settlements; the pharmaceutical industry has been sued to rectify the disparity between prices charged to Medicaid and Medicare, while various utilities have been sued to reduce carbon dioxide emissions. The National Association of Attorneys General continues to coordinate enforcement of the tobacco settlement.
Although state officials banded together against tobacco companies, problems sprang up in individual states regarding how the settlement funds were to be spent. While some states used the money to prevent smoking among teenagers and to help establish smoking bans, others used settlement money to balance state budgets and lower income taxes. The majority of states have not continued to utilize the tobacco settlement funds for smoking cessation programs. Also, although the national rate of smoking has declined, it remains unclear whether the multistate tobacco settlement had a direct impact on smoking or whether higher cigarette taxes and changing public attitudes toward smoking contributed to the decreasing numbers of smokers.
Bibliography
Derthick, Martha A. Up in Smoke: From Legislation to Litigation in Tobacco Politics. Washington D.C.: CQ Press, 2004. Attempts to demonstrate how states were more interested in raising tax revenue than in controlling tobacco, how the tobacco lawsuits produced flawed public policy, and how little has been done to improve overall health.
Rabin, Robert L., ed. Regulating Tobacco. New York: Oxford University Press, 2001. A collection of wide-ranging essays written by law, political, and public health scholars concerning the regulation of tobacco through politics, taxes, marketing, and litigation.
Snell, Clete. Peddling Poison: The Tobacco Industry and Kids. Westport, Conn.: Praeger, 2005. Overview of the tobacco industry’s efforts to attract young consumers and the government’s efforts to curtail them. Focuses on the tobacco settlements of the 1990’s, various individual and class-action lawsuits, and antismoking programs.