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Philip Morris USA Makes its Full Master Settlement Agreement Payment of $3.5 billion
RICHMOND, VA (March 30, 2007) - Today, Philip Morris USA (PM USA) made its full annual Master Settlement Agreement (MSA) payment of $3.5 billion. This amount includes approximately $400 million that PM USA disputes it owes as a result of the 2004 Non-Participating Manufacturer (NPM) adjustment.
As it did last year with respect to the 2003 NPM adjustment, PM USA has elected to pay the disputed money to the states, although it had the right under the Master Settlement Agreement to put the disputed money into the Disputed Payments Account.
"Philip Morris USA hopes that its gesture will facilitate an expeditious resolution of the Non-Participating Manufacturer adjustment dispute, whether by settlement or by the efficient arbitration process specified by the Master Settlement Agreement," said Denise Keane, executive vice president and general counsel, Philip Morris USA.
PM USA and the other Original Participating Manufacturers believe that the dispute over the NPM adjustment, including the States' claims to have diligently enforced their qualifying escrow statutes, is subject to binding arbitration pursuant to the Master Settlement Agreement's arbitration clause.
Forty-nine states have asserted that this dispute, including their diligent enforcement claims, is to be determined by the state courts. More than three dozen courts have agreed with our position that arbitration is the required forum for this dispute; only one state trial court has disagreed (North Dakota trial court).
Since 1997, PM USA has paid more than $38 billion to the states (MSA and Previously Settled States combined).
For more information please visit our
Tobacco Settlement Agreements page.
The NPM Adjustment Proceedings BackgroundThe Master Settlement Agreement is a contract between Participating Manufacturers and the Settling States that establishes certain rights and obligations for each of the parties.
The amount each Original Participating Manufacturer pays each year under the agreement is determined by a complex formula. One component of that formula is the Non-Participating Manufacturer adjustment, which is potentially available in the event that all of the Participating Manufacturers in the aggregate lose more than two percentage points of market share compared to 1997.
For the years 2003 and 2004, an economic consulting firm (The Brattle Group) appointed under the Master Settlement Agreement has rendered its final and non-appealable decision that the MSA was a "significant factor contributing to" the market share loss of the Participating Manufacturers for 2003 and 2004. As a result, the Original Participating Manufacturers are entitled to a Non-Participating Manufacturer Adjustment to their 2003 and 2004 payments. States that prove they have diligently enforced their qualifying escrow statutes during all of 2003 and 2004 will be able to avoid application of the Adjustment to their payments.
