Idaho Attorney General Raúl Labrador reached a new settlement with tobacco companies to immediately get a big chunk of disputed funds, but it will leave millions on the table.
That’s instead of duking it out in litigation that can last over a decade.
Idaho’s settlement — reached in March — resolved years of complicated litigation, and it’s similar to ones 38 other states and territories reached, the Idaho Office of the Attorney General says.
Those are long-running cases over disputed payments by cigarette manufacturers, stemming from a quirk in a massive 1998 settlement. That earlier deal, called the Master Settlement Agreement, requires a handful of the largest cigarette manufacturers to pay states billions of dollars annually.
Instead of risking arbitration panels potentially denying Idaho full access to around $58 million in disputed payments by major cigarette manufacturers, Idaho’s new deal settles for $37 million — and an even higher share of future disputed funds.
“This settlement avoids decades of expensive litigation and eliminates risk that could threaten millions of dollars of Idaho’s annual … payment” from the original 1998 settlement, Labrador said in an April news release. “I’m committed to ensuring that the tobacco companies meet their obligations to Idaho under the (Master Settlement Agreement) without delay or uncertainty.”
As a result, Idaho is expecting a more “even payment stream year to year” from the settlement, Deputy Attorney General John Olson told a panel of lawmakers last week in a presentation before the Joint Millennium Fund Committee. The committee recommends how Idaho should spend its tobacco settlement funds.
Idaho lawmakers are gearing up to dole out more of the tobacco settlement funds toward youth drug prevention efforts, Boise State Public Radio reported. Over the years, Idaho lawmakers have directed the funds toward a range of issues, including toward public health districts, substance abuse treatment, the Idaho Meth Project and more, according to reports by the Idaho State Treasurer.
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New settlement resolves decades of litigation over disputed tobacco company payments
In 1998, Idaho and states across the U.S. reached the landmark Master Settlement Agreement meant to reduce smoking.
The settlement set up decades of payments by tobacco companies to states. But some of those payments went into disputed accounts that states would have to arbitrate to access.
That stems from the “non-participating manufacturer adjustment,” one of several adjustments in the 1998 master settlement agreement, Olson told lawmakers last week.
Each year, tobacco companies claim that the adjustment applies to reduce their payments to states, Olson explained, pooling about $3 million to $5 million of Idaho’s tobacco settlement payments into the disputed fund annually.
Idaho has spent years litigating to access those funds. Just this year, Idaho was litigating to access disputed funds from 2005, Olson said.
Whether Idaho would win in arbitration depended on if it could convince an arbitration panel of judges that Idaho “diligently” enforced the terms of its law passed in accordance with the 1998 settlement.
James Simeri, the chief of the attorney general’s office’s Consumer Protection Division, which handles the litigation, told the Idaho Capital Sun in an interview that the settlement eliminated the risk of losing disputed funds. And it means Idaho will receive payments now, rather than waiting a decade or longer for litigation over individual years’ payments to resolve, he said.
“The attorney general’s looking out for the people of Idaho,” Simeri said. “And getting most of the money, but not all the money, but eliminating the risk of losing the money — seems desirable on the whole, in the circumstances, given the risks.”
And the office had to pay attorneys and staff for the litigation, he added.
Why Idaho reached the new tobacco settlement
This year, Idaho is getting around $74 million in tobacco settlement funds. That includes the up-front payments for past disputed funds that the new settlement secured, along with Idaho’s $23.3 million payment originating from the 1998 settlement this year, Olson told lawmakers.
When Idaho reached the new settlement, around $58 million was in its disputed payments account from funds withheld through 2020, Simeri told the Sun in an email.
The new settlement also sets Idaho up to receive 75% of future disputed payments from 2015 through 2031, according to a February letter by Labrador, outlining the new settlement.
In the past, Idaho has won in arbitration. But the Attorney General’s Office says future success isn’t guaranteed, referencing a recent loss for the state of Washington.
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If Idaho lost its arbitration for those disputed funds, it could lose access to those funds — and maybe even lose more, through a reallocation provision in the settlement, Simeri told the Sun.
“It’s less than you could have gotten with a total victory. But if you compare it to a total defeat, it’s a lot more,” Simeri told the Sun in an interview.
Whether settling over the disputed funds is beneficial “is in the eyes of the beholder,” Brett DeLange, former chief of the Idaho Office of the Attorney General’s Consumer Protection Division, told the Sun in an interview.
He thinks some states are essentially saying: “‘a bird in the hand is worth two in the bush.’ … That having a lesser amount now is better than waiting so long to get the full amount.”
And he praised Olson and David Young — two Idaho deputy attorneys general on the tobacco settlement litigation — as “outstanding lawyers.”
