Tobacco.org

• STATE OF MONTANA v. PHILIP MORRIS, INC., et al.,  

 “participating manufacturers” (PMs), while the tobacco companies that are not signatories to the MSA are known as “non-participating manufacturers” (NPMs).

¶3 In exchange for the Settling States’ release of all claims, the PMs agreed to certain marketing restrictions and to make annual payments to the Settling States “for the advancement of public health” and “the implementation of important tobacco-related public health measures.” The PMs do not make payments directly to individual Settling States; rather, each PM is required to make a single, nationwide payment into an escrow account, and the amounts are then allocated among the Settling States. Each PM’s individual contribution to the account is based on its market share. Likewise, each Settling State receives an “allocable share” of the sum of all payments made by the PMs in the year in question. Montana’s allocable share is 0.4247591%. The State received $24.8 million in MSA funds in 2006; $25.8 million in 2007; and $34.6 million in 2008.

¶4 The MSA assigns several responsibilities to an “Independent Auditor,” which is defined as “a major, nationally recognized, certified public accounting firm.”3 Specifically, the Independent Auditor

shall calculate and determine the amount of all payments owed pursuant to [the MSA], the adjustments, reductions and offsets thereto (and all resulting carry-forwards, if any), the allocation of such payments, adjustments, reductions, offsets and carry-forwards among the Participating Manufacturers and among the Settling States, and shall perform all other calculations in connection with the foregoing . . . .

In calculating the PMs’ annual payments, the Independent Auditor takes the base amount owed by the PMs for the calendar year and then applies a series of adjustments, , , ,

¶6 The present litigation concerns the PMs’ annual payments for 2006. The PMs had lost the requisite percentage of market share in 2003, and an economic consulting firm

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had determined that the disadvantages imposed by the MSA were a “significant factor” contributing to that loss. Thus, the PMs asked the Independent Auditor to offset their 2006 payments by the amount of the 2003 NPM Adjustment. In response, the Settling States contended that they each had enacted Qualifying Statutes which were in full force and effect in 2003 and that the Independent Auditor should presume, in the absence of substantial evidence to the contrary, that state officials had “diligently enforced” those statutes. The PMs, however, argued that the Independent Auditor must “presume just the opposite,” i.e., that the statutes had not been diligently enforced.

¶7 The Independent Auditor declined to apply the NPM Adjustment to the PMs’ 2006 payments. . . .

the dispute in the present case, as framed in the State’s motion, is whether Montana diligently enforced a Qualifying Statute. We reject the PMs’ attempts to repackage the dispute in this case as something it clearly is not. . . .

¶28 The District Court erred in granting the PMs’ motion to compel arbitration. We accordingly reverse the District Court’s order and remand this case for further proceedings consistent with this Opinion.

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