The 2011 Master Settlement Agreement (MSA) payments from participating tobacco companies were made in April, as usual. Altria, the nation's largest cigarette manufacturer and parent of Philip Morris, paid $3.5 billion, roughly half of the total annual payment due to the states. However, unlike past years, $267 million of that total was deposited into the "Disputed Payments Account," established under the MSA, causing a shortfall in the amount the states expected to receive.
The Disputed Payments Account, created as part of the MSA, enables tobacco companies to challenge the amount of their annual assessments. Under the agreement, if the tobacco companies can prove they lost market share due to the existence of the MSA itself, and that the member states have failed to rigorously enforce the MSA, a portion of the payments due each year may be rebated to the cigarette producers.
In arbitration, the tobacco companies made the case that market share diminished as a direct result of the MSA. However, the second test - adequate state enforcement against non-participating manufacturers - remains unresolved for each year going back to 2003. As a result, there are more than $3 billion in tobacco settlement payments now sitting in the Disputed Payments Account awaiting a final arbitration ruling. This has been a slow and tedious process.
Arbitration for 2003 is currently underway. Decisions on the following years, 2004 to the present, are not expected anytime soon and have yet to be scheduled. No resolution of those years is expected until sometime after 2012. To date, we have seen no evidence that state enforcement has been lax.
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