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Philip Morris USA And Other Manufacturers Prevail In Decade-Long Settlement Payment Dispute

An arbitration panel has determined that 6 out of 15 states failed in 2003 to diligently enforce laws that require escrow payments from the cigarette manufacturers that have not signed the Master Settlement Agreement (MSA). The states enacted these Non-Participating Manufacturer (NPM) escrow laws after the MSA was signed in 1998. Manufacturers that participate in the MSA, such as Philip Morris USA (PM USA), receive downward adjustments in their MSA payments if, among other things, states fail to diligently enforce NPM escrow laws.

As a result, Philip Morris USA expects to receive a credit of approximately $145 million, plus interest, against next year’s MSA payment. This was the full remaining amount available to PM USA in the 2003 arbitration.

“Today’s decision sends a strong message about the importance of diligently enforcing the laws that apply to non-participating manufacturers,” said Denise Keane, executive vice president and general counsel of Altria Group, speaking on behalf of PM USA.

The panel’s decision does not affect the 22 states and jurisdictions that joined a December 2012 settlement of the NPM adjustment disputes. “The non-diligent states could have avoided today’s result altogether had they either diligently enforced their escrow statutes or joined December’s settlement of these issues,” said Ms. Keane.

States that joined this settlement received more than $1 billion in net additional cash payments from the release of their portion of disputed MSA funds that had been set aside in a separate account. In addition, these states are protected from any further downward adjustments in their MSA payments based on NPM adjustment disputes for the years 2003 through 2012. States that did not join the December 2012 settlement still face NPM adjustment disputes for years 2004 through 2012.

Ms. Keane added, “We are fully prepared to move forward with the arbitration for the 2004 dispute, and for all of the remaining years as well. That being said, we remain open to resolving these disputes in a way that makes sense for us and the states that did not join the settlement.”

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