05/27/2021
To***co Cos. To Pay $200M To End Texas' Settlement Fight
Texas notified a federal court Wednesday that R.J. Reynolds To***co Co. and fellow to***co company ITG Brands LLC have agreed to pay a total of more than $200 million to end the state's suit to enforce a 1998 to***co settlement agreement.
Reynolds agreed to pay Texas roughly $173 million in funds owed to the state under the 1998 to***co master settlement for the years 2015 through 2020, plus $2.5 million in attorney fees. ITG agreed to pay Texas about $19 million for payments owed to the state in 2020, according to court documents. Reynolds has also agreed to pay about $17 million to to***co giant Philip Morris USA Inc., which joined the dispute and sided with Texas.
The settlement agreement filed in the Eastern District of Texas on Wednesday ends litigation launched by Texas in January 2019 after both Reynolds and ITG refused to make annual payments under the 1998 settlement agreement. That agreement requires to***co companies to pay annual amounts based on their cigarette sales in the state to cover costs incurred by Texas for to***co-related health issues.
Reynolds sold its Winston, Salem, Kool and Maverick cigarette brands to ITG in 2015, after which both companies denied responsibility and refused to make the payments, according to court documents. ITG, which was not a party to the original litigation, claimed it didn't assume any payment obligations through the sale.
Under Wednesday's agreement, ITG has agreed to assume all obligations and benefits for the four brands moving forward.
Counsel for the parties did not immediately respond to requests for comment Wednesday.
Texas originally sued The American To***co Co., Reynolds and nine other to***co companies, including Philip Morris, in 1996 for not being truthful about the dangers of smoking. Those claims were settled in 1998 for more than $15 billion, which included annual payments based upon sales in the state.
But after the 2015 deal between Reynolds and ITG, Texas moved in January 2019 to enforce the 1998 settlement agreement and reopened the litigation.
The Texas attorney general told the federal court in its motion to enforce the settlement that ITG owed the state about $125 million after its 2015 acquisition of the four brands, saying it had taken over the obligation to make payments under the settlement Reynolds had signed on to.
Philip Morris joined the reopened case, arguing in a February 2019 filing that ITG's faulty accounting practices in reporting sales to PricewaterhouseCoopers — the accounting firm responsible for calculating settlement payments — had "improperly shifted over $60 million" in its payment obligations to Philip Morris.
In February 2020, U.S. District Judge Rodney Gilstrap ruled that Reynolds couldn't escape its obligation to make payments after its sale of the four brands to ITG.
The 2015 sale of the Reynolds brands to ITG was part of a divestment deal to get Federal Trade Commission approval for a $47 billion takeover of Reynolds by British American To***co PLC. The FTC was concerned that the transaction would make it easier for Reynolds and Philip Morris USA owner Altria Group Inc. to coordinate cigarette sales as the only two major competitors in the market.
Texas is represented by Christopher D. Hilton and Cynthia A. Morales of the Office of the Texas Attorney General.
