The Attorney General's Office brought tobacco firms back to court on Monday because of their alleged refusal to release tobacco settlement funds due the Commonwealth.
Assistant attorney general Brian Caldwell, the CNMI's consumer counsel, said that R.J. Reynolds Tobacco and Lorillard Tobacco are illegally withholding some $63,000 owed the CNMI under the tobacco litigation master settlement agreement.
Other tobacco companies, including Philip Morris, have also indicated belief that they are entitled to similar withholdings. If unchallenged, the manufacturers' present refusal to pay the settlement funds could deprive the CNMI of over $525,000 in needed revenue, Caldwell said.
Tobacco settlement funds support the government's health programs that educate the youth on smoking prevention and help adults quit smoking. These funds also pay for health care costs the CNMI continues to incur in combating smoking-related illnesses.
Caldwell urged the Superior Court to enforce the terms of the tobacco settlement deal against RJR and Lorillard. He also asked for a clarification on the payment obligations of tobacco firms participating in the settlement.
In a motion filed Monday, Caldwell recalled that the Commonwealth, along with 51 other states and territories, sued tobacco companies over marketing strategies that intentionally targeted minors and concealed the adverse health impacts of smoking and the addictiveness of nicotine.
The lawsuit ended in a settlement agreement that placed restrictions on tobacco marketing and promotion. The settlement also required participating tobacco firms to fund a national foundation devoted to educating the public about the dangers of tobacco use, and to pay substantial annual monetary settlement payments based upon the companies' cigarette sales in the United States.
The CNMI's portion of these annual payments is only eight-thousandths of one percent (0.0084376 percent) of the total. This share typically amounts to over $550,000 a year, due each April 15.
According to Caldwell, the CNMI has received about $3.8 million in tobacco settlement funds. The Commonwealth is expected to receive an additional $16.5 million over the next 18 years.
Caldwell said that the annual payments are calculated using a complex set of formulas and adjustments. One of the adjustments allows participating companies to deduct from their total payments a certain amount that they lost to firms that have not signed on the settlement agreement.
An independent auditor has found that the potential non-participating manufacturer adjustment for 2003 was approximately $1.2 billion from the full amount owed the settling states.
If multiplied by the CNMI's share percentage, the NPM adjustment “would reduce the Commonwealth's annual payment by approximately $95,000, and could under certain circumstances, consume the entire $525,000 approximate annual payment owed the Commonwealth,” Caldwell said.
RJR and Lorillard have now applied the 2003 NPM adjustment in their 2005 payments by withholding some $63,000 due the Commonwealth.
Other companies, including Philip Morris, plan to apply the adjustment through offsets against future years' payments.
He argued, however, that the tobacco manufacturers cannot claim the NPM adjustment until it has been proven that the CNMI failed to pass and “diligently enforce” legislation on the tobacco industry. He said the CNMI has taken numerous efforts to fulfill its obligations under the settlement agreement.
Caldwell asked the court to declare that the CNMI diligently enforced the provisions of its tobacco law during the entire calendar 2003 and to require the manufacturers to make payments to the Commonwealth.
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