Title: State ex rel. Greitens v. American Tobacco Co.

State: missouri

Issuer: Missouri Supreme Court

Document:

SUPREME COURT OF MISSOURI 
en banc 
STATE ex rel. ERIC GREITENS, 
) 
) 
Appellant/Cross-Respondent, 
) 
) 
v. 
) 
No. SC95422 
) 
AMERICAN TOBACCO CO., et al., 
) 
) 
Respondents/Cross-Appellants, 
) 
) 
and 
) 
) 
COMMONWEALTH BRANDS, INC., 
 
) 
et al.,  
) 
) 
 Appellants. 
) 
APPEAL FROM THE CIRCUIT COURT OF THE CITY OF ST. LOUIS 
The Honorable Jimmie M. Edwards, Judge 
This case concerns disputes between Missouri and certain tobacco companies 
arising out of the Master Settlement Agreement (“MSA”).  Tobacco manufacturers that 
participated in the MSA (“PMs”), Missouri, and other states arbitrated a dispute arising 
out of the MSA.  One dispute concerned the application of the Non-Participating 
Manufacturer Adjustment (“NPM Adjustment”), a provision in the MSA that reduces the 
Opinion issued February 14, 2017
2 
 
amount the PMs must pay to states that failed to diligently enforce certain legislation 
during a relevant year.  During the arbitration proceedings, more than 20 states and the 
PMs entered into a partial settlement agreement.  Missouri and other states did not join 
the settlement.  The arbitration panel (“the Panel”) issued a Stipulated Partial Settlement 
and Award (“Award”), which gave effect to the partial settlement and directed how the 
NPM Adjustment would be allocated among non-settling states in light of the settlement.   
The Panel ultimately found that Missouri was not diligent in enforcing its 
legislative enactment and, consequently, the NPM Adjustment applied to reduce 
Missouri’s payment from the PMs for the year in question.   
Missouri filed motions with the Circuit Court of the City of St. Louis seeking 
relief from the Panel’s decisions.1  Missouri asked for vacatur or modification of the 
Panel’s Award, arguing the Award improperly amended the MSA in a manner that 
materially and adversely impacted Missouri’s legal interests under the contract.  Missouri 
also moved to compel the PMs to engage in a single-state arbitration with Missouri over 
another dispute regarding application of the NPM Adjustment in a subsequent year.  The 
trial court overruled Missouri’s motion to compel single-state arbitration, but modified 
the Award as requested by Missouri.   
Missouri appeals from the trial court’s judgment overruling its motion to compel 
single-state arbitration, arguing the MSA does not contain any provisions indicating that 
                                              
1 This case was originally filed with Missouri’s previous governor, Jeremiah “Jay” Nixon, named 
as relator for the State of Missouri.  Since the time this case was filed, the voters of Missouri 
elected a new governor, Eric Greitens, and a motion to substitute Governor Greitens as the 
relator in this case has been sustained. 
3 
 
the parties agreed to arbitrate their disputes in a nationwide or multistate forum.  This 
Court disagrees and finds that the text and structure of the MSA demonstrate the parties 
intended to arbitrate disputes relating to the NPM Adjustment in a multistate arbitration 
proceeding.  Because the dispute for which Missouri sought to compel single-state 
arbitration concerns the NPM Adjustment dispute, the trial court correctly refused to 
compel single-state arbitration.       
In their cross-appeal, the PMs argue that the trial court erred in modifying the 
Panel’s Award because the Panel interpreted the parties’ contract and, under the 
applicable standard of review, courts of this state are not permitted to review the merits of 
the Panel’s interpretation.  If the Panel’s Award had interpreted ambiguous provisions of 
the MSA, the PMs would be correct.  However, this Court finds that the relevant terms of 
the MSA were unambiguous and that the Panel exceeded its powers by amending those 
terms without the consent of Missouri and other states that were materially and 
negatively affected by the amendment.  As a result, the Panel’s Award was appropriately 
modified so that it no longer affects Missouri’s contractual rights and expectations under 
the MSA.  
The judgment of the trial court is affirmed.  
 
 
 
 
 
4 
 
Factual Background 
 
  In 1998, 52 U.S. states and territories2 entered into the MSA with the PMs.3  
Under the MSA, the states released the PMs from tobacco-related consumer protection 
and product liability lawsuits in return for the PMs’ agreement to limit certain advertising 
and legislative activities and to make annual payments to the states in perpetuity.  Non-
participating manufacturers (“NPMs”) are tobacco companies that did not agree to the 
MSA. 
The PMs’ annual MSA payments are subject to a number of adjustments, which 
must be calculated by an Independent Auditor (“Auditor”).  Once the Auditor calculates 
the amount the PMs are required to pay the states under the MSA for a given year, the 
PMs make payments to an escrow agent, who then apportions and distributes the funds to 
the states according to their contractually negotiated “allocable shares.”4 
One of the adjustments to the PMs’ annual payments is the NPM Adjustment.  To 
ensure the PMs did not lose market share to the NPMs, the drafters of the MSA included 
the NPM Adjustment, which reduces the amount the PMs must pay the states if: (1) the 
PMs’ share of the national market for cigarettes decreases by two percentage points as 
                                              
2 The MSA states include 46 U.S. states, five U.S. territories, and the District of Columbia.  This 
opinion will refer to these jurisdictions collectively as “states.” 
3 PMs include both original participating manufacturers (“OPMs”), which are primarily large 
tobacco companies that negotiated the MSA with the states, and tobacco manufacturers that 
joined the agreement after it was made (“subsequent participating manufacturers,” or “SPMs”).  
OPMs and SPMs have submitted separate briefs to this Court.  As their interests and arguments 
align in all issues raised in this appeal, the Court will address their arguments together. 
4 Missouri’s allocable share is 2.2746011% of the PMs’ annual payments.   
5 
 
compared to pre-MSA levels and (2) the MSA was a “significant factor” contributing to 
the national market share loss.  If the Auditor concludes these conditions are met in a 
payment year, the NPM Adjustment amount may be deducted from every state’s MSA 
payment on a pro rata basis according to the state’s allocable share.  A state may avoid 
having its MSA payment reduced, however, by showing that it enacted and “diligently 
enforced” legislation (referred to as a “qualifying statute”) requiring the NPMs to escrow 
funds on a per-cigarette basis that is roughly equivalent to the PMs’ per-cigarette 
payment under the MSA.5  The allocable shares of the NPM Adjustment of “diligent” 
states are then “reallocated” among the remaining, “non-diligent” states on a pro rata 
basis.   
A dispute arose over the NPM Adjustment for the 2003 MSA Payment.  The 
Auditor determined that the two preliminary conditions for application of the NPM 
Adjustment were satisfied in 2003 but declined to apply the adjustment because the 
states’ diligence had not yet been determined.  The Auditor sent the dispute to binding 
arbitration in accordance with the arbitration clause of the MSA.  Missouri and other 
affected states refused to arbitrate and filed declaratory judgment actions in their 
respective state courts for a determination regarding the meaning of the term “diligently 
enforced” as used in the NPM Adjustment provisions of the MSA.  The PMs moved to 
compel arbitration in these actions under the arbitration clause of the MSA, which 
                                              
5 The qualifying statute is intended to mitigate the market disadvantage the PMs incurred by 
agreeing to the terms of the MSA.  When properly enforced, the qualifying statute also compels 
non-participating manufacturers to maintain sufficient funds to pay future tobacco-related 
judgments in favor of the states.  
6 
 
provides that any dispute, controversy, or claim “arising out of or relating to” any 
calculations or determinations made by the Auditor “shall be submitted to binding 
arbitration.”  MSA § XI(c).  Because the 2003 NPM Adjustment dispute arose out of and 
related to calculations or determinations made by the Auditor for the PMs’ 2003 MSA 
payments, the trial court ordered Missouri to arbitrate its challenge to the application of 
the NPM Adjustment to the 2003 MSA Payment.    
Missouri and 50 other states ultimately agreed to collectively arbitrate the 2003 
NPM Adjustment dispute with the PMs pursuant to the Agreement Regarding Arbitration 
(“ARA”).6  The PMs incentivized the states to join the multistate arbitration by offering a 
liability reduction of 20 percent for any state ultimately found not diligent and agreeing to 
release certain funds held in a disputed payments account.   
At the initiation of the multistate arbitration, all states claimed they had diligently 
enforced their qualifying statutes, yet the PMs originally contested the diligence of every 
state.  Before the Panel heard arguments regarding the diligence of individual states, 
however, the PMs issued a “no-contest” determination as to 16 states (“no-contest 
states”).   
The Panel then held diligence hearings for the remaining contested states, starting 
with Missouri.  At the outset of its hearing, Missouri sought to reserve the opportunity to 
challenge the diligence of any remaining contested states should the PMs decide to stop 
                                              
6 Because Montana’s courts were alone in concluding that the 2003 NPM Adjustment dispute 
was not arbitrable, Montana was the only MSA state that did not participate in the 2003 
Arbitration.    
7 
 
contesting the diligence of any state later in the arbitration proceedings.  The Panel 
agreed that Missouri would be given that opportunity should the situation arise.  At the 
diligence hearing, Missouri and the PMs introduced evidence regarding Missouri’s 
attempts to enforce its qualifying statute in 2003 and presented fact witnesses who 
discussed the intended meaning of the term “diligently enforced” as used in the MSA.   
As the Panel proceeded with the state-specific diligence hearings, the PMs and 22 
states (“Term Sheet States”) reached an agreement to settle disputes regarding the NPM 
Adjustment for 2003 and subsequent years (the “Term Sheet Settlement”).7  Only two of 
the Term Sheet States were no-contest states.   
Missouri and other non-Term Sheet States objected to the settlement, arguing that 
it negatively affected their rights under the MSA.  Despite those objections, the Panel 
entered its Award giving effect to the Term Sheet Settlement.  Because the NPM 
Adjustment provisions of the MSA were silent as to how the Panel should proceed after a 
partial settlement, the Panel applied a common law pro rata judgement reduction method 
to the NPM Adjustment, reducing the available NPM Adjustment amount by the 
aggregated shares of the Term Sheet States.  The Panel determined that the non-Term 
Sheet States would not be prejudiced by the Term Sheet Settlement if the NPM 
Adjustment was reduced according to this judgment reduction scheme.  The Panel’s order 
                                              
7 All states were invited to sign the Term Sheet.  Originally 19 states signed the Term Sheet 
Settlement, and three more states decided to join the settlement at some later point in the 
arbitration proceedings.   
Missouri indicates that several states were allowed to join the Term Sheet Settlement 
after the arbitration was closed as well.  Missouri attempted to pass legislation that would have 
permitted it to join in the settlement, but was unsuccessful in doing so.  
8 
 
then directed the Auditor to treat Term Sheet States as “not subject to” the NPM 
Adjustment for purposes of the allocation and reallocation provisions of the MSA.  The 
diligence of contested Term Sheet States was never determined by the Panel.   
The Panel then issued its final awards determining the diligence of the 15 
contested, non-Term Sheet States.  It concluded that Missouri and five other states had 
not been diligent in enforcing their qualifying statutes, while the remaining states were 
diligent.  As a result, Missouri and the other states found not diligent bore their own 
allocated share of the NPM Adjustment as well as the shares reallocated from the no-
contest states (excluding the two no-contest states that agreed to the Term Sheet 
Settlement) and the nine contested states found diligent by the Panel.  Missouri’s MSA 
payment for 2003 was reduced by an additional $50 million due to its liability for the 
reallocated shares of the NPM Adjustment from the no-contest states and the states found 
diligent by the Panel.  
Missouri moved to vacate the Panel’s finding that Missouri was not diligent in 
enforcing its qualifying statute in the Circuit Court of the City of St. Louis, and asked the 
trial court to modify the Award by treating the Term Sheet States as “non-diligent” for 
purposes of calculating Missouri’s liability for the NPM Adjustment.  Missouri also 
sought an order from the trial court compelling single-state arbitration between Missouri 
and the PMs on the issue of the application of the 2004 NPM Adjustment to Missouri’s 
2004 MSA Payment.8   
                                              
8 As it did for the 2003 payments, the Auditor determined that the two preliminary conditions for 
application of the NPM Adjustment were present in 2004 but declined to apply the adjustment to 
9 
 
The trial court overruled Missouri’s motion to vacate the Panel’s final non-
diligence determination9 and its motion to compel single-state arbitration.  The trial court 
did, however, modify the Panel’s Award because it found that the Award erroneously 
violated the procedure for amending the MSA.  The MSA prohibits amendments unless 
they are executed in writing by all states affected by the amendment.  The trial court 
concluded that the Award effectively amended the MSA without the consent of the non-
Term Sheet States by releasing the Term Sheet States from the NPM Adjustment 
allocation and reallocation provisions of the MSA.  This amendment adversely affected 
Missouri and other non-diligent, non-Term Sheet States, according to the trial court, 
because their liability for the reallocated NPM Adjustment was substantially increased 
due to the significant reduction in potentially non-diligent states.  Consequently, the trial 
court modified the Award and instructed the Auditor to treat as “non-diligent” the 20 
Term Sheet States whose diligence was contested, but not proven, when calculating the 
NPM Adjustment applicable to Missouri’s share of the PMs’ MSA payments for 2003.  
Missouri appeals the trial court’s decision not to compel single-state arbitration 
between the PMs and Missouri.  The PMs cross-appeal from the trial court’s modification 
of the Panel’s Award for the 2003 NPM Adjustment.10 
                                              
the PMs’ payments in the absence of diligence determinations for the states.  The Auditor again 
sent the dispute to binding arbitration, and the PMs again sought to initiate multistate arbitration 
proceedings with the states. 
9 Missouri does not challenge this ruling on appeal.  
10 This Court has jurisdiction pursuant to article V, section 10 of the Missouri Constitution.  
 
10 
 
Discussion 
A.  Modification of Award 
1.  Collateral Estoppel 
As a preliminary matter, Missouri argues that the PMs are collaterally estopped 
from relitigating the issue of whether the Panel exceeded its powers in entering the 
Award because appellate courts in Pennsylvania and Maryland have already decided that 
issue against the PMs.  See Maryland v. Philip Morris, Inc., 123 A.3d 660, 680 (Md. Ct. 
Spec. App. 2015), cert. denied 132 A.3d 195 (Md. 2016), cert. denied sub nom. R.J. 
Reynolds Tobacco Co. v. Maryland, 137 S. Ct. 295 (2016); Pennsylvania ex rel. Kane v. 
Philip Morris USA, Inc., 114 A.3d 37 (Pa. Commw. Ct. 2015), appeal denied, 129 A.3d 
1244 (Pa. 2015), cert. denied sub nom. R.J. Reynolds Tobacco Co. v. Kane, 137 S. Ct. 
292 (2016).  Under collateral estoppel, also known as issue preclusion, a court’s decision 
about an issue of fact or law that is necessary to the court’s judgment may preclude 
relitigation of that issue in a lawsuit about a different cause of action involving a party to 
the first case.  Allen v. McCurry, 449 U.S. 90, 94 (1980).  The preclusive effect of a 
judgment is generally determined by laws of the jurisdiction in which the judgment was 
rendered.  Strobehn v. Mason, 397 S.W.3d 487, 494 (Mo. App. 2013) (citing 
RESTATEMENT (2D) OF CONFLICT OF LAWS § 95 (1971)).  Because the decisions on which 
Missouri relies were issued by courts in Maryland and Pennsylvania, this Court will look 
to the laws of those states to determine the preclusive effect of those decisions on the 
present proceedings.   
11 
 
Missouri’s position that two appellate court decisions issued during the pendency 
of this appeal should collaterally estop the PMs from pursuing this legal issue is 
untenable.  First, as the PMs point out, decisions from other courts about this issue are 
inconsistent.  While Missouri’s brief focuses exclusively on the appellate court decisions 
in Pennsylvania and Maryland holding that the Panel exceeded its powers, an unappealed 
trial court order from Colorado reached the opposite conclusion.  Colorado ex. rel. 
Suthers, No. 1997CV3432 (Colo. D. Ct. Feb. 11, 2014).  When prior decisions on the 
issue are inconsistent, it would be unfair to apply non-mutual collateral estoppel because 
doing so would give preclusive effect to decisions that are favorable to the party seeking 
preclusion while ignoring any unfavorable decisions.  Parklane Hosiery Co. v. Shore, 439 
U.S. 322, 330 (1979) (“Allowing offensive collateral estoppel may also be unfair to a 
defendant if the judgment relied upon as a basis for the estoppel is itself inconsistent with 
one or more previous judgments in favor of the defendant.”); see also Garrity v. Md. 
State Bd. of Plumbing, 135 A.3d 452, 460 (Md. 2016); Office of Disciplinary Counsel v. 
Kiesewetter, 889 A.2d 47, 52 (Pa. 2005); Bi-State Dev. Agency v. Whelan Sec. Co., 679 
S.W.2d 332, 336-37 (Mo. App. 1984).   
Second, applying non-mutual, offensive collateral estoppel in the manner sought 
by Missouri would deprive the PMs of the opportunity to fully and fairly litigate this 
issue because of the unique structure of the MSA.  Colandrea v. Wilde Lake Cmty. Ass’n, 
761 A.2d 899, 909 (Md. 2000) (party against whom preclusion is sought must have had a 
fair opportunity to litigate the issue); Office of Disciplinary Counsel v. Duffield, 644 A.2d 
1186, 1189 (Pa. 1994) (for collateral estoppel to apply, the party must have had a full and 
12 
 
fair opportunity to litigate the issue in the prior proceeding); see also James v. Paul, 49 
S.W.3d 678, 682 (Mo. banc 2001) (the party against whom collateral estoppel is asserted 
must have been given a full and fair opportunity to litigate the issue in the prior suit).  
Under the dispute resolution provisions of the MSA, any non-arbitrable dispute must be 
litigated in the designated MSA court of each state, even if the dispute concerns issues 
common to many or all states.  The PMs are required to litigate their claims against each 
state individually, and a decision favorable to the PMs by one court could not bind other 
states or collaterally estop them from relitigating the same issues against the PMs in their 
own state courts.  Allowing the states, based on one or two favorable decisions, to 
collaterally estop the PMs nationwide when the PMs have no opportunity to do the same 
would be manifestly unfair.   
The PMs are not precluded from litigating the issue of whether the Panel exceeded 
its powers when it entered its Award.   
2.  Standard of Review  
 
This Court will affirm the trial court’s judgment unless there is no substantial 
evidence to support it, it is against the weight of the evidence, or it erroneously declares 
or applies the law.  Eaton v. CMH Homes, Inc., 461 S.W.3d 426, 431 (Mo. banc 2015).  
Whether the Panel exceeded its power is a legal question subject to de novo review.  
Behnen v. A.G. Edwards & Sons, Inc., 285 S.W.3d 777, 779 (Mo. App. 2009).   
The parties agree that the Federal Arbitration Act (“FAA”), codified at 9 U.S.C.   
§ 1 et. seq., provides the governing standard for this Court’s review of the Panel’s 
13 
 
Award.11  Both parties point to Oxford Health Plans LLC v. Sutter as the United States 
Supreme Court’s most recent, controlling statement of the applicable standard of review 
for this case.  133 S. Ct. 2064 (2013).   
The FAA limits judicial review of arbitration awards to maintain arbitration’s 
ability to provide efficient and streamlined dispute resolution outside of “full-bore” legal 
proceedings.  Id. at 2068.  Courts may vacate an arbitrator’s award under the FAA “only 
in very unusual circumstances.”  Id.  Under the FAA, a court may vacate an arbitration 
award when: (1) the award was “procured by corruption, fraud, or undue means”; (2) the 
arbitrators demonstrated partiality or corruption; (3) the arbitrators committed 
misconduct in “refusing to postpone a hearing” or “to hear evidence pertinent and 
material to the controversy”; (4) “the arbitrators exceeded their powers, or so imperfectly 
executed them that a mutual, final, and definite award upon the subject matter submitted 
was not made”; and (5) a person who was not a party to an arbitration in an 
administrative context is “adversely affected or aggrieved by the award.”  9 U.S.C.          
§ 10(a)(1)-(4), (c). 
                                              
11 The FAA governs arbitration agreements that involve interstate commerce, which certainly 
includes the MSA.  See 9 U.S.C. § 2.  Additionally, the MSA required that the 2003 NPM 
Adjustment arbitration proceed under the FAA.  MSA § XI(c).  The MSA also provided, 
however, that disputes between a state and the PMs will be governed by the laws of the state.  
MSA § XVIII(n).  These provisions create some uncertainty as to whether the FAA or state 
arbitration law applies to the issues presently before this Court.   
Because of this uncertainty, Missouri moved to vacate or modify the Panel’s Award 
under both the FAA and Missouri law (9 U.S.C. § 10(a)(3)-(4) and sections 435.405.1, 
435.370(2), RSMo 2000), and the trial court cited to both federal and state statutes in its 
judgment.  As Missouri notes in its substitute brief, the language of the FAA and Missouri’s 
equivalent statute is “nearly identical,” and both parties base their arguments to this Court on the 
FAA and case law interpreting its provisions. 
14 
 
Missouri moved for vacatur or modification of the Panel’s Award under 9 U.S.C. 
§ 10(a)(4).12  This statute imposes a high bar to attain the relief Missouri seeks.  To show 
that the Panel “exceed[ed] [its] powers,” Missouri must prove that the Panel “act[ed] 
outside the scope of [its] contractually delegated authority” by issuing an award reflecting 
the Panel’s “own notions of economic justice” rather than “drawing its essence from the 
contract.”  Oxford Health, 133 S. Ct. at 2068 (internal quotations and alterations omitted).  
Under this standard, it is not enough to show that the Panel made even a serious mistake 
in construing the provisions of the MSA that were subject to binding arbitration.  Id.  
“Because the parties bargained for the arbitrator’s construction of [those portions of] their 
agreement, an arbitral decision even arguably construing or applying the contract must 
stand, regardless of a court’s view of its (de)merits.”  Id. (internal quotations omitted). 
                                              
12  Missouri also cited Missouri’s similar statutory enactment, section 435.405.1(3), which 
provides:  
 
1. Upon application of a party, the court shall vacate an award where: 
(1) The award was procured by corruption, fraud or other undue means; 
(2) There was evident partiality by an arbitrator appointed as a neutral or 
corruption in any of the arbitrators or misconduct prejudicing the rights of any 
party; 
(3) The arbitrators exceeded their powers; 
(4) The arbitrators refused to postpone the hearing upon sufficient cause being 
shown therefor or refused to hear evidence material to the controversy or 
otherwise so conducted the hearing, contrary to the provisions of section 435.370, 
as to prejudice substantially the rights of a party; or 
(5) There was no arbitration agreement and the issue was not adversely 
determined in proceedings pursuant to section 435.355 and the party did not 
participate in the arbitration hearing without raising the objection; but the fact that 
the relief was such that it could not or would not be granted by a court of law or 
equity is not ground for vacating or refusing to confirm the award.  
15 
 
The PMs argue that the trial court impermissibly modified the Award by 
reviewing the merits of the Panel’s interpretation of the MSA under a more lenient 
“clearly erroneous” standard rather than the FAA standard set out above.  The PMs base 
this argument on the trial court’s conclusion that the Panel’s use of a common law 
judgment reduction method to reduce the amount of the NPM Adjustment by the 
allocable shares of the Term Sheet States was “clearly erroneous as it violates the MSA’s 
procedure for amending the MSA.”  Despite the trial court’s perhaps confusing use of the 
words “clearly erroneous,” the trial court did not apply a clearly erroneous standard of 
review to the Panel’s Award.  Prior to this isolated statement on which the PMs solely 
rely for this argument, the trial court clearly articulated the FAA’s standard of review in 
its judgment before considering the claims raised by the parties.  Read in context, the trial 
court applied the FAA standard of review when it agreed with Missouri’s argument that 
the Panel “exceeded [its] authority” by amending the MSA without the consent of 
Missouri and other states.   
Even if the trial court had applied an incorrect standard of review, appellate courts 
are “primarily concerned with the correctness of the trial court’s result, not the route 
taken by the trial court to reach that result,” and the trial court’s judgment must be 
“affirmed if cognizable under any theory,” regardless of whether the trial court’s 
reasoning is wrong or insufficient.  Rouner v. Wise, 446 S.W.3d 242, 249 (Mo. banc 
2014).   
 
 
16 
 
3.  Analysis 
As the Supreme Court stated in Oxford Health, the only question presented by the 
PMs’ appeal is “whether the arbitrator (even arguably) interpreted the parties’ contract, 
not whether [the Panel] got its meaning right or wrong.”  133 S. Ct. at 2068.  To 
determine whether the Panel interpreted or amended the MSA, this Court begins with the 
text of the parties’ agreement.   
The MSA’s arbitration clause submits any dispute or claim “arising out of or 
relating to calculations performed by, or any determination made by, the Independent 
Auditor,” including the NPM Adjustment, to binding arbitration.  MSA § 11(c).  Under 
the MSA’s arbitration agreement, the Panel had the power to determine any questions 
arising from or relating to the Auditor’s calculation of the 2003 NPM Adjustment, 
including how the adjustment should be calculated and distributed after some of the states 
settled with the PMs. 
The NPM Adjustment decreases the PMs’ payments to the states if the PMs lose a 
certain amount of market share to non-participating tobacco manufacturers due to the 
MSA.  MSA § IX(d)(1)(A).  If the conditions for applying the NPM Adjustment are met 
in a given year, the MSA provides that the adjustment “shall apply” to the payments of 
the states.  MSA § IX(d)(2)(A).  The MSA contains an exception under which states may 
avoid reduction of their annual payments if they enacted and diligently enforced 
qualifying statutes in the relevant year.  MSA § IX(d)(2)(B).  States that diligently 
enforced their qualifying statutes receive payments from the PMs that are “not subject to” 
an NPM Adjustment.  MSA § IX(d)(2)(B).  The diligent states’ shares of the NPM 
17 
 
Adjustment, however, do not disappear: “The aggregate amount of the NPM Adjustments 
that would have applied to the Allocated Payments of the [diligent states] shall be 
reallocated among all other [states] pro rata in proportion to their respective Allocable 
Shares.”  MSA § IX(d)(2)(C).   
The MSA does not specify what should be done when some states and the PMs 
decide to settle a dispute about imposing the NPM Adjustment, as occurred here.  In the 
absence of express provisions in the MSA, the Panel looked to common law judgment 
reduction methods to address the partial settlement.  Noting that the MSA called for “pro 
rata” reallocation of the diligent states’ shares of the NPM Adjustment among non-
diligent states, the Panel selected a common law pro rata judgment reduction method to 
reduce the amount of the total NPM Adjustment by the collective shares of the states that 
agreed to the Term Sheet Settlement.  It then instructed the Auditor to treat the Term 
Sheet States as “not subject to” the allocation and reallocation provisions of the MSA. 
The PMs argue that, in so doing, the Panel appropriately interpreted the MSA and 
that, as a result, the merits of the Panel’s interpretation are not subject to review by the 
courts of this state.  The PMs also contend that, even if the Court could review the 
Award, the Panel reasonably and correctly interpreted the MSA in issuing the Award.  
Missouri, on the other hand, contends that the Panel exceeded its powers by substituting 
the express provisions of the MSA with the Panel’s own notions of economic justice and 
amending the MSA without the consent of Missouri and other non-Term Sheet States. 
Considering the parties’ well-reasoned arguments, this Court agrees with 
Missouri.  After finding that the MSA did not explicitly set forth procedures to follow in 
18 
 
the event of a partial settlement of an NPM Adjustment dispute, the Panel immediately 
turned to background law to “fill the gap,” explaining at length why it found one common 
law judgment reduction method more fitting than two others.  But the Panel failed to first 
consider whether the MSA’s silence actually created an ambiguity requiring the Panel to 
resort to such default legal rules to construe the contract.   
A contract’s silence about an issue does not necessarily create an ambiguity.  See 
Morelock-Ross Props., Inc. v. English Vill. Not-for-Profit Sewer Corp., 308 S.W.3d 275, 
280 (Mo. App. 2010) (silence in a contract does not create an ambiguity, especially when 
both parties are “sophisticated bargainers”).  A contract is ambiguous only if its terms are 
susceptible of more than one meaning such that “reasonable [parties] may fairly and 
honestly differ in their construction of the terms.”  Eisenberg v. Redd, 38 S.W.3d 409, 
411 (Mo. banc 2001).  An arbitrator may interpret ambiguous language, but the arbitrator 
cannot “disregard or modify unambiguous contract provisions.”  Mo. River Servs., Inc. v. 
Omaha Tribe of Neb., 267 F.3d 848, 855 (8th Cir. 2001) (internal quotations omitted).  If 
an arbitrator “interprets unambiguous language in any way different from its plain 
meaning, the arbitrator amends or alters the agreement and acts without authority.”  Id. 
(internal quotations and alterations omitted).   
The MSA’s provisions for the distribution of the NPM Adjustment were not 
ambiguous.  The MSA clearly and unambiguously provided that only states found to have 
diligently enforced their qualifying statutes would be treated as “not subject to” the NPM 
Adjustment.  “All” other states would be responsible for (1) their own allocated shares of 
19 
 
the NPM Adjustment and (2) their proportionate share of the aggregated reallocated 
shares of the diligent states.   
The fact of a partial settlement did not create an ambiguity in these terms, nor did 
it prevent the Panel from following the procedures dictated by the NPM Adjustment 
provisions.  Contradicting the express contract terms, the Panel’s Award instead deemed 
the contested Term Sheet States as “not subject to” the allocation and reallocation 
provisions of the MSA without first finding that they had diligently enforced their 
qualifying statutes.  And in place of the MSA’s allocation and reallocation terms, the 
Panel substituted a common law judgment reduction scheme to reduce the NPM 
Adjustment amount by the aggregated shares of the Term Sheet States.  Because the 
MSA’s NPM Adjustment provisions were not ambiguous, the Panel’s deviation from 
those express terms effectively amended the MSA, substituting its own notions of 
economic justice for the clear provisions of the MSA. 13   
                                              
13 The parties debate whether a number of preliminary rulings by the Panel influence the 
question of whether the Panel’s Award constitutes an interpretation of the MSA or an 
amendment thereto.  Missouri argues that the Panel’s ruling placing the burden of proof of 
showing diligence on the states demonstrates the Panel originally interpreted the MSA as 
imposing the NPM Adjustment on states unless and until the states proved their diligence.  The 
PMs respond the Panel also ruled, at the urging of Missouri and other states, that the MSA does 
not create a legal presumption that the states were not diligent in enforcing their qualifying 
statutes, so the Panel’s refusal to treat all contested Term Sheet States as “non-diligent” was 
consistent with the Panel’s earlier interpretation of the MSA.   
Whether the Panel’s Award was consistent with its earlier rulings is not the question 
before this Court.  It is because the Panel excused the contested Term Sheet States from 
diligence determinations and from the MSA’s allocation and reallocation provisions, thereby 
materially modifying the MSA’s NPM Adjustment distribution scheme without the consent of 
Missouri and other non-settling states, that the Award exceeded the Panel’s powers.  That 
conclusion does not depend on the parties’ prior arguments to the Panel or on the Panel’s 
preliminary rulings.   
20 
 
Further, the MSA provides that the parties’ agreement may only be amended “by a 
written instrument executed by all [PMs] affected by the amendment and by all [states] 
affected by the amendment.”  MSA § XVIII(j) (emphasis added).  Contradicting this clear 
and unambiguous term, the Panel’s Award amended the MSA by treating contested Term 
Sheet States as “not subject to” the NPM Adjustment and replacing the MSA’s 
unambiguous allocation and reallocation provisions with a common law judgment 
reduction scheme without the consent of Missouri and other affected states.  
  The Award effectively excused the 20 contested Term Sheet States from any 
determination of their diligence, then mandated that they be treated as “not subject to” the 
allocation and reallocation provisions of the MSA.14  This action significantly altered the 
calculation and effect of the NPM Adjustment.  When the parties entered the MSA, they 
bargained for allocation of the NPM Adjustment among all the states, which could then 
be reallocated from diligent to non-diligent states.  Under that distribution plan, non-
diligent states bear not only their own allocated share of the adjustment, but also a 
proportionate amount of any adjustment reallocated from states found to be diligent.  
                                              
14 The PMs claim Missouri and other states that objected to the Term Sheet Settlement did not 
ask the Panel to conduct diligence hearings for contested Term Sheet States, but instead only 
asked that all such states be considered “non-diligent” for purposes of calculating the reallocated 
NPM Adjustment.  The PMs argue Missouri should not now be heard to complain that this was 
error when Missouri did not raise that argument during the arbitration proceedings.   
The PMs’ claim is not supported by the record.  States objecting to the Term Sheet 
Settlement, including Missouri, filed a brief in which they asked for the chance to contest the 
diligence of contested Term Sheet States should the Panel decide to give effect to the Term Sheet 
Settlement without treating contested Term Sheet States as “non-diligent” for purposes of 
calculating the reallocated NPM adjustment.  Missouri did seek diligence determinations of 
contested Term Sheet States before the Panel.  Moreover, any arguments Missouri raised during 
the arbitration proceedings do not affect the scope of the Panel’s power, which is the question 
before this Court. 
21 
 
Consequently, as the number of diligent states rises, the burden on the non-diligent states 
increases, not only because more of the adjustment is being reallocated, but also because 
the pool of non-diligent states decreases.  Because of the way the MSA’s reallocation 
provisions function, the number of states that might be found not diligent is extremely 
important to the potential liability the states have for the NPM Adjustment.   
The Panel seemingly acknowledged the Term Sheet Settlement could have an 
adverse impact on the non-Term Sheet States and implemented a common law judgment 
reduction method to remove the Term Sheet States’ allocable shares from the NPM 
Adjustment that would be allocated among the non-Term Sheet States.  While the Panel’s 
judgment reduction ensured the non-Term Sheet States would not be allocated any NPM 
Adjustment originally attributable to Term Sheet States, it failed to account in any way 
for the removal of the Term Sheet States from the pool of potentially non-diligent states 
that would share the reallocated adjustment.  By directing the Auditor to treat the 
contested Term Sheet States as “not subject to” the reallocation provisions of the MSA, 
the Panel removed them from the potential pool of states that would bear the reallocated 
NPM adjustment without first finding that the Term Sheet States were diligent.  As noted 
above, the Panel’s decision not to determine the diligence of the contested Term Sheet 
States and instead to treat them as “not subject to” the allocation and reallocation 
provisions of the MSA contradicts the express terms of the MSA and effectively amends 
the parties’ agreed-upon method for distributing liability for the NPM Adjustment among 
the states. 
22 
 
The Panel’s amendment to the MSA significantly altered the rights and 
expectations of all parties to the MSA, and there is no doubt that Missouri was materially 
affected by the amendment.  Of the states that participated in the 2003 NPM Adjustment 
arbitration, 16 states were deemed diligent because no party contested their enforcement 
efforts.  This left 35 contested states, and 20 of the contested states signed the Term Sheet 
Settlement, thereby avoiding any liability for reallocated NPM adjustment under the 
Award.  The Panel’s Award reduced the number of potentially non-diligent states by 
more than half when it excluded the Term Sheet States from the allocation and 
reallocation provisions of the MSA.  Ultimately, only Missouri and five other states that 
were also found to be non-diligent shared the burden of the allocated and reallocated 
amounts of the NPM Adjustment.  Even after the Panel reduced the total amount of the 
NPM Adjustment for 2003 by the aggregated shares of the Term Sheet States, Missouri’s 
payment from the PMs for 2003 was reduced by approximately $50 million dollars due to 
the reallocated NPM Adjustment.      
Missouri provides extensive calculations demonstrating that, unless more than 
two-thirds of the Term Sheet States had been found diligent by the Panel, Missouri would 
have fared better under the unaltered terms of the MSA—even without any judgment 
reduction—than it did under the Panel’s Award.  Because no diligence determinations 
were made for the Term Sheet States, these numbers are only hypothetical.  However, 
Missouri’s calculations demonstrate that the Panel’s amendment of the NPM Adjustment 
provisions significantly altered the bargained-for expectations and obligations of the 
PMs, the Term Sheet States, and the non-Term Sheet States.  
23 
 
  Because Missouri was affected by the Panel’s Award amending the NPM Adjustment 
provisions of the MSA, Missouri’s consent to the amendment was required under section 
XVIII(j) of the MSA.  Consequently, the Panel’s Award contradicted clear and 
unambiguous amendment provisions of the MSA, and the Panel exceeded its powers.   
In conclusion, this Court finds that the Panel exceeded its powers by issuing an 
award reflecting its own notions of economic justice and amending the MSA without the 
consent of all affected parties.  As the trial court correctly noted, the only way to prevent 
the Award from affecting Missouri’s rights under the MSA is to treat the 20 contested 
Term Sheet States as not diligent when calculating the amount of the 2003 NPM 
Adjustment for which Missouri is liable.15  This result is consistent with decisions issued 
by the Court of Special Appeals of Maryland and the Commonwealth Court of 
Pennsylvania, which are the only appellate courts of other states that have so far 
considered this issue.  Maryland, 123 A.3d 660; Pennsylvania ex rel. Kane, 114 A.3d 37.   
 
                                              
15 The PMs claim that this “all non-diligent approach” improperly gives a “windfall” to Missouri 
because, in all probability, some of the contested Term Sheet States would have been found 
diligent.  Because the Panel did not hold diligence hearings for those states and the arbitration is 
now closed, there is no way to determine how many of the states, if any, would have been found 
diligent, and, therefore, there is no way to determine whether or to what extent this Court’s 
ruling may unduly benefit Missouri.  This Court cannot require the Panel to reopen arbitration 
proceedings to conduct diligence hearings for all contested Term Sheet States.  As discussed at 
length in this opinion, the Panel’s decision to treat all contested Term Sheet States as “not 
subject to” the NPM Adjustment dispute improperly amended the express provisions of the MSA 
without the consent of all affected parties, including Missouri.  At this point, the only way to 
prevent the Panel’s unauthorized amendment from adversely affecting Missouri is to calculate its 
payment as though the contested Term Sheet States had been found not diligent. 
 
24 
 
B.  Single-State Arbitration 
1.  Standard of Review 
The trial court’s judgment will be affirmed unless there is no substantial evidence 
to support it, it is against the weight of the evidence, or it erroneously declares or applies 
the law.  Eaton, 461 S.W.3d at 431.  Whether the trial court should have granted a motion 
to compel arbitration is a question of law subject to de novo review.  Ellis v. JF Enters., 
LLC, 482 S.W.3d 417, 419 (Mo. banc 2016).    
A trial court’s judgment is against the weight of the evidence only if the court 
could not reasonably have found, from the record at trial, the existence of a fact that is 
necessary to sustain the judgment.  Ivie v. Smith, 439 S.W.3d 189, 206 (Mo. banc 2014).  
This standard serves only to check the trial court’s “potential abuse of power in weighing 
the evidence, and an appellate court will reverse only in rare cases, when it has a firm 
belief that the decree or judgment is wrong.”  Id.  When considering whether a judgment 
is against the weight of the evidence, this Court defers to the trial court’s findings 
regarding contested facts.  Id.  Fact issues for which no specific findings are made shall 
be presumed to have been found in accordance with the result reached.  Rule 73.01; 
J.A.R. v. D.G.R., 426 S.W.3d 624, 626 (Mo. banc 2014).  When the evidence poses two 
reasonable but different conclusions, appellate courts are obligated to defer to the trial 
court’s assessment of the evidence.  J.A.R., 426 S.W.3d at 626.   
2.  Analysis 
Missouri argues the trial court erred in overruling Missouri’s motion to compel 
single-state arbitration.  It first contends the trial court’s judgment misapplies the Federal 
25 
 
Arbitration Act (FAA) and federal case law by inferring Missouri’s consent to a specific 
arbitration procedure—multistate arbitration—solely from the fact of Missouri’s 
agreement to arbitrate.  
Courts examine arbitration agreements as they would any other contractual 
agreement, and the customary rules of state contract law and contract interpretation 
apply.  Triarch Indus., Inc. v. Crabtree, 158 S.W.3d 772, 776 (Mo. banc 2005).  When 
construing an arbitration clause, courts must ascertain the intent of the parties and give 
effect to that intent.  Id.  The parties’ intent is presumably manifested in the plain, 
ordinary, and usual meaning of the contract’s terms.  Dunn Indus. Grp., Inc. v. City of 
Sugar Creek, 112 S.W.3d 421, 428 (Mo. banc 2003).  A contract is ambiguous only if its 
terms are susceptible to fair and honest differences in interpretation.  Id.  If a contract is 
unambiguous, the parties’ intent may be gathered from the terms of the contract alone, 
and no extrinsic evidence may be introduced to contradict the terms of the contract or to 
create an ambiguity.  Id. at 428-29. 
At the heart of the FAA is the principle that arbitration is a matter of consent.  
Stolt-Neilsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 681 (2010).  Parties may 
structure arbitration agreements as they see fit and may limit the scope of arbitration, 
select the rules under which the arbitration is to proceed, and establish qualifications for 
arbitrators.  Id. at 683.  Parties may also “specify with whom they choose to arbitrate their 
disputes.”  Id.  (emphasis in original).  
 
Missouri argues that Stolt-Nielsen mandates single-state arbitration here because 
the MSA’s arbitration clause does not provide a basis to find that the parties agreed to 
26 
 
multistate arbitration proceedings.  In Stolt-Neilsen, an arbitration panel ordered the 
parties to participate in class arbitration at the request of one party and contrary to the 
wishes of the other.  Id. at 668.  During the arbitration, the parties stipulated that the 
arbitration clause was “silent” regarding class arbitration, meaning that “no agreement” 
was reached about that issue.  Id. at 668-69.  Nonetheless, the arbitration panel ordered 
class arbitration.  Id. at 669.  The United States Supreme Court reversed, holding a party 
may not be compelled to submit to class arbitration “unless there is a contractual basis for 
concluding that the party agreed to do so.”  Id. at 684 (emphasis in original).  Although 
the Supreme Court acknowledged that, in some contexts, “it is appropriate to presume 
that parties [to an arbitration agreement] implicitly authorize the arbitrator to adopt such 
procedures as are necessary to give effect to the parties’ agreement,” an implicit 
agreement to class arbitration cannot be inferred “solely from the fact of the parties’ 
agreement to arbitrate.”  Id. at 684-85.  Because the parties concurred that they had 
reached no agreement regarding class proceedings, the Supreme Court held there was no 
basis in the parties’ contract to compel participation in class arbitration.  Id. at 687.     
 
Stolt-Nielsen cannot be read as disapproving or impeding arbitration agreements 
that contemplate consolidated or class arbitration proceedings.  As the United States 
Supreme Court later explained of its holding in Stolt-Nielsen: “We overturned the arbitral 
decision there because it lacked any contractual basis for ordering class procedures, not 
because it lacked . . . a ‘sufficient’ one.”16  Oxford Health, 133 S. Ct. at 2069 (emphasis 
                                              
16 This Court notes that the Supreme Court in Stolt-Nielsen and Oxford Health reviewed 
decisions made by arbitrators to permit class arbitration under the highly deferential standard of 
27 
 
in original).  Because the parties in Stolt-Nielsen stipulated that they had reached no 
agreement on class arbitration, the panel’s decision could not have been based on the 
parties’ intent or the terms of the parties’ contract.  Id. at 2069-70.  This case is unlike 
Stolt-Nielsen, as it does not concern class arbitration, nor did the parties here stipulate 
that they had never reached an agreement on multistate arbitration proceedings. 
Moreover, the text and structure of the MSA provide a sufficient basis to conclude 
that the states and the PMs contemplated and agreed to multistate arbitrations, even 
though the MSA does not explicitly require such procedures.  The MSA’s arbitration 
clause requires that any “dispute” arising out of or relating to the Auditor’s payment 
determinations or calculations be submitted to binding arbitration.  MSA § XI(c).  Should 
an arbitrable dispute develop, the MSA directs “the two sides to the dispute” to select one 
arbitrator each.  Id.  
The parties agree the present dispute is subject to arbitration.  They also agree the 
nature of the arbitration required by the MSA depends on the nature of the dispute to be 
arbitrated.  Where the parties disagree is the nature of the present dispute.  Missouri 
acknowledges the two conditions for imposing the NPM Adjustment were met in 2004.  
All that remains for an arbitration panel to decide, Missouri contends, is “whether 
Missouri diligently enforced its qualifying statute in 2004.”  According to Missouri, the 
                                              
review required by the FAA.  Here, the question of whether the trial court correctly applied the 
law in overruling Missouri’s motion to compel single-state arbitration is subject to de novo 
review.  Ellis, 482 S.W.3d at 419.  The Supreme Court’s analysis in Stolt-Nielsen and Oxford 
Health is still instructive for purposes of determining whether there is a sufficient basis in the 
MSA to conclude the parties agreed to participate in multistate arbitration proceedings.  
28 
 
“two sides” to that dispute are Missouri, on one side, and the PMs on the other.  Missouri 
claims other states have no place in this dispute, although it acknowledges other states 
have an adverse interest in Missouri’s diligence determination because of the reallocation 
provisions of the MSA.  Even if other states are interested parties in Missouri’s diligence 
hearing, Missouri reasons, other states should not be considered to be on the same “side” 
as Missouri with regard to that question.  
 
The PMs characterize the dispute more broadly as whether they are entitled to an 
NPM Adjustment for the 2004 payment year and argue the “two sides” to that dispute are 
the states opposing the adjustment on one side and the PMs advocating for the adjustment 
on the other.    
This Court agrees with the PMs that the present dispute is whether the Auditor 
should have reduced the PMs’ 2004 MSA payments by applying the NPM Adjustment.  
Missouri’s individual diligence determination is but one part of that overarching matter.  
As was true for the 2003 payment year, the Auditor concluded that the NPM Adjustment 
could not be applied to the PMs’ 2004 MSA payments even though the two preliminary 
conditions had been met because there had been no state diligence determinations. 17  The 
states sought this determination from the Auditor, while the PMs opposed it.  Although 
the states may have competing interests in the diligence inquiries, they have a unified 
interest in the central dispute, which is whether the Auditor should have applied the NPM 
                                              
17 As the PMs point out, if every state diligently enforced its qualifying statute in 2004, there 
would be no NPM Adjustment to the PMs’ payments for that year.   
29 
 
Adjustment for 2004, as well as in a number of preliminary matters that will arise in any 
arbitration of this issue.18   
Missouri also argues the trial court’s construction of the arbitration agreement 
improperly renders the words “to the dispute” superfluous by concluding the PMs and the 
states, collectively, are the “two sides” to the current dispute.  See State ex rel. Riverside 
Pipeline Co. v. Pub. Serv. Comm’n, 215 S.W.3d 76, 84 (Mo. banc 2007) (courts must 
construe a contract so as not to render any terms meaningless).  The trial court’s 
judgement does not require all PMs and all states to be party to every abitrable dispute 
under the MSA, as Missouri’s argument assumes.  Instead, it found that, in the context of 
the present dispute, the “two sides to the dispute” envisioned in the arbitration agreement 
are the PMs and the states because of the “interconnectedness” of the states’ diligence 
determinations.  In other words, the trial court concluded, as this Court now concludes, 
the present dispute extends much further than the narrow issue of Missouri’s diligent 
enforcement.  In these circumstances, the text of the MSA arbitration agreement 
contemplates a single, multistate arbitration proceeding between all of the PMs and all of 
the states.  
                                              
18 In 2003, such preliminary matters included: (1) whether the states or the PMs would carry the 
burden of proof regarding the diligence determinations; (2) whether the Panel should presume 
states were not diligent in enforcing their qualifying statutes; and (3) what conclusion should be 
drawn regarding the diligence of a state whose diligence is not contested by the PMs or any other 
state.  It stands to reason that an arbitration panel for the 2004 dispute will have to consider 
whether to follow the 2003 Panel’s findings about these issues, make new determinations about 
these issues, or rule on other preliminary matters.   
30 
 
The structure of the MSA also provides a contractual basis for compelling 
multistate arbitration.  The MSA allocates the NPM Adjustment among the states and 
then reallocates shares from diligent states to non-diligent ones.  These provisions 
guarantee the states’ diligence inquiries are, indeed, interconnected, as a determination 
that one state is diligent increases the reallocated share of the NPM Adjustment borne by 
states found non-diligent.  As the trial court noted, this structure ensures that every state 
has an interest in the diligence determination of every other state.  Consequently, if 
diligence determinations proceeded in single-state arbitration, all states would have to be 
given the opportunity to intervene in every state-specific diligence hearing to protect their 
interests in limiting their potential liability for reallocated shares of the NPM Adjustment.  
Additionally, the rules and standards applied by individual, single-state arbitration panels 
could vary greatly, which in turn could unfairly benefit some states and disadvantage 
others.  A multistate arbitration proceeding under a uniform set of rules is needed to 
produce consistent and fair results for all parties to this dispute.  While Missouri correctly 
notes that concerns of expeditious and efficient dispute resolution cannot override the 
parties’ intent, the absurdity that would result from single-state arbitrations of diligence 
determinations supports the MSA’s language and structure, which contemplate multistate 
arbitration of disputes related to NPM Adjustments.   
Finally, the Court observes that its holding on this issue is consistent with opinions 
from appellate courts across the country that have overwhelmingly concluded that 
diligence determinations connected to the imposition of the 2003 and 2004 NPM 
Adjustments must proceed in a multistate arbitration.  See, e.g., Pennsylvania ex rel. 
31 
 
Kane v. Philip Morris, Inc., 128 A.3d 334, 348-53 (Pa. Commw. Ct. 2015); Maryland v. 
Philip Morris, Inc., 123 A.3d 660, 683-86 (Md. Ct. Spec. App. 2015);  Alabama ex rel. 
Riley v. Lorillard Tobacco Co., 1 So. 3d 1, 13-14 (Ala. 2008); Connecticut v. Philip 
Morris, Inc., 905 A.2d 42, 50 (Conn. 2006); Illinois v. Lorillard Tobacco Co., 865 
N.E.2d 546, 554 (Ill. App. Ct. 2007); Indiana ex rel. Carter v. Philip Morris Tobacco 
Co., 879 N.E.2d 1212, 1220 (Ind. Ct. App. 2008); Maryland v. Philip Morris, Inc., 944 
A.2d 1167, 1180-81 (Md. Ct. Spec. App. 2008); Massachusetts v. Philip Morris, Inc., 
864 N.E.2d 505, 512 (Mass. 2007); New Mexico v. Am. Tobacco Co., 194 P.3d 749, 754-
55 (N.M. Ct. App. 2008); Vermont v. Phillip Morris USA Inc., 945 A.2d 887, 894-95 (Vt. 
2008); McGraw v. Am. Tobacco Co., 681 S.E.2d 96, 108-12 (W.Va. 2009).   
Next, Missouri argues the trial court’s judgment requiring multistate arbitration is 
against the weight of the evidence regarding the parties’ course of dealing.19  
Specifically, Missouri claims that the Agreement Regarding Arbitration (“ARA”), in 
which the states agreed to multistate arbitration of the 2003 NPM Adjustment dispute, 
proves that Missouri and other states are not obligated to submit to multistate arbitration 
under the MSA because they voluntarily agreed to a nationwide arbitration for 2003 only 
after the PMs offered attractive incentives for the states to participate.   
                                              
19 Missouri’s first point on appeal contains multiple arguments, including that the trial court’s 
judgment misapplied federal and state law and was against the weight of the evidence.  Although 
the Court gratuitously addresses the substance of Missouri’s arguments, Rule 84.04(d) prohibits 
a point relied on that groups together multiple contentions not related to a single issue, and such 
a point is subject to dismissal.  Mo. Bankers Ass’n, Inc. v. St. Louis Cnty., 448 S.W.3d 267, 271 
n.5 (Mo. banc 2014).  
32 
 
The PMs dispute this characterization of the evidence.  They point out that the 
ARA was signed in 2008, by which time numerous courts had ordered states to arbitrate 
the 2003 NPM Adjustment dispute and related diligence determinations before one, 
nationwide arbitration panel.20  The PMs contend that, despite such court orders, many 
states still refused to promptly cooperate in the arbitral process, leading the PMs to offer 
inducements to the states to expedite the dispute toward resolution in the contractually 
mandated forum.      
The PMs’ argument is logical and supported by the evidence.  The ARA 
demonstrates that the PMs were willing to incentivize the states to join the multistate 
proceedings, but such willingness alone does not prove the states were otherwise free to 
abstain from participating in multistate arbitration.  To the contrary, the chronological 
sequence of events shows many of the states were already under court order to participate 
in the nationwide 2003 arbitration before the parties signed the ARA.  The record 
indicates, then, that the ARA was intended to induce the states to expediently do what 
was already contractually required of them.  The trial court’s judgment finding that the 
MSA requires multistate arbitration of the 2004 NPM Adjustment dispute, including 
Missouri’s diligence determination, is not against the weight of the evidence.   
Missouri next argues it should not have to participate in multistate arbitration of 
the 2004 NPM Adjustment dispute because actions taken by the PMs have rendered 
                                              
20 See, e.g., Alabama, 1 So. 3d at 13-14; Connecticut, 905 A.2d at 50; Illinois, 865 N.E.2d at 554; 
Indiana, 879 N.E.2d at 1220; Maryland., 944 A.2d at 1180-81; Massachusetts, 448 N.E.2d at 
512; New Mexico, 194 P.3d at 754-55; Vermont, 945 A.2d at 894-95. 
33 
 
“single, nationwide arbitration of all [s]tates’ diligent enforcement claims both 
unnecessary and impossible.”  Missouri contends that, as a result of the Term Sheet 
Settlement between the PMs and 22 states,21 the Auditor will be instructed in the proper 
calculation and application of the 2004 NPM Adjustment by numerous “decision-
makers,” not just a single arbitration panel.   
As discussed above, arbitration is a matter of consent, wherein the parties’ 
intentions control.  Stolt-Nielsen, 559 U.S. at 681.  Courts must, therefore, “rigorously 
enforce” arbitration agreements according to their terms.  Am. Exp. Co. v. Italian Colors 
                                              
21 Missouri also claims that, in addition to the Term Sheet Settlement, other actions taken by the 
PMs will cause as many as 11 different decision-makers to influence the Auditor’s application of 
the 2004 NPM Adjustment.  To support this argument, Missouri includes facts regarding: (1) the 
multistate arbitration of the 2004 NPM Adjustment dispute, which will allegedly proceed before 
four arbitrators sitting as two panels due to the PMs’ inability to agree on an arbitrator and (2) a 
settlement between the PMs and New York.  The PMs filed a motion to strike the sections of 
Missouri’s reply brief and appendix including these facts, contending these portions of 
Missouri’s filings involve newly raised facts outside the record on appeal.  Missouri responds 
that this Court can consider facts from the documents attached in the appendix, even if those 
documents are not part of the record on appeal, because the records only recently became 
available and Rule 84.04(h)(3) allows the appendix to present “matters pertinent to the issues 
discussed in the brief such as copies of exhibits, excerpts from the written record, and copies of 
new cases or other pertinent authorities.”   
The Court ordered the motion to be taken with the case and now sustains the motion to 
strike.  The facts included by Missouri in its reply brief and accompanying appendix are not 
“copies of exhibits, excerpts from the written record, copies of new cases, or other pertinent 
authorities.”  Instead, they are presented as new evidence.  As this Court has previously held, 
“Rule 84.04(h) does not authorize inclusion of evidence outside the record on appeal.”  In re 
Adoption of C.M.B.R., 332 S.W.3d 793, 823 (Mo. banc 2011).  Missouri has not sought judicial 
notice of these factual matters, nor do the disputed materials contain facts of common knowledge 
or such indisputable facts of which the Court could take judicial notice.  English v. Old Am. Ins. 
Co., 426 S.W.2d 33, 41 (Mo. 1968).  Consequently, the sections of Missouri’s reply brief and 
accompanying appendix recounting these facts are stricken from the briefs.   
 
 
 
 
 
 
34 
 
Rest., 133 S. Ct. 2304, 2309 (2013) (internal quotations omitted).  The fact that some 
states have settled their disputes regarding the 2004 NPM Adjustment does not change 
the text and structure of the MSA, which require multistate arbitration of this dispute. 
In arguing the Term Sheet Settlement renders nationwide or multistate arbitration 
“unnecessary and impossible,” Missouri incorrectly assumes every party to the MSA, 
including Term Sheet States, must be party to an arbitration about the 2004 NPM 
Adjustment.  Due to the settlement, however, Term Sheet States no longer have an active 
dispute with the PMs over the 2004 NPM Adjustment.  Missouri fails to explain why the 
MSA requires participation from states with no present interest in the outcome of the 
proceeding, nor does Missouri explain why the absence of the Term Sheet States would 
prevent all interested parties from resolving their disputes.  To the extent that Missouri 
and other non-Term Sheet States may experience some difficulty or inefficiency from the 
absence of the Term Sheet States at the 2004 arbitration, that hardship cannot override 
the language and structure of the MSA.  See Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 
213, 220-21 (1985) (holding the preeminent concern of the FAA is to enforce private 
arbitration agreements according to their terms, even when doing so results in a more 
complicated or less efficient resolution of claims); see also State ex rel. Mo. Highway & 
Transp. Comm’n v. Gillespie, 86 S.W.3d 459, 467 (Mo. App. 2002) (“Courts will not 
interfere with a contract simply because it may work a hardship or later seem unfair to 
one of the parties.”).  
Finally, Missouri argues it was unfairly prejudiced by the multistate arbitration 
proceedings for the 2003 NPM Adjustment dispute because other states were allowed to 
35 
 
present evidence of Missouri’s diligent enforcement efforts during their own state-
specific hearings when Missouri was not present and had no notice that such evidence 
would be adduced.  Missouri contends the Panel inappropriately considered this evidence 
in concluding that Missouri was not diligent in enforcing its qualifying statute.  Missouri 
claims that it was denied due process and a fair hearing as a result, and that it will be 
subjected to the same prejudice if forced to participate in a multistate arbitration 
proceeding for the 2004 MSA payment year.   
As noted above, Missouri’s fairness concerns cannot override the language and 
structure of the MSA, which require multistate arbitration proceedings.  This Court must 
enforce the terms of the MSA as the parties intended and cannot protect Missouri from 
unanticipated or unpleasant repercussions of its own agreement.  See Gillespie, 86 
S.W.3d at 467; Ricks v. Mo. Local Gov’t Emps.’ Ret. Sys., 981 S.W.2d 585, 595 (Mo. 
App. 1998) (appellate courts do not interfere “with either the allocation of risks or the 
rights and obligations validly agreed to by the parties on the basis of a regrettable 
result”).   
Further, Missouri has not shown it was prejudiced by any alleged unfairness or 
misconduct during the 2003 arbitration.  Missouri argued in the trial court for vacatur of 
the Panel’s final determination that Missouri was not diligent because of the allegedly 
unfair and prejudicial actions of the Panel in considering “ex parte communications.”  
Although Missouri’s briefs note that vacatur of an award may be appropriate when an 
arbitrator commits misconduct by receiving ex parte communications, considering 
evidence that is not properly presented at the hearings, or refusing to receive pertinent 
36 
 
and material evidence, Missouri does not actually appeal the trial court’s judgment 
affirming the Panel’s non-diligent determination for Missouri.  In refusing to vacate the 
Panel’s final non-diligence determination, the trial court concluded that Missouri had not 
shown the Panel was unduly influenced by any ex parte communications and that there 
was “abundant evidence” presented in Missouri’s diligence hearing to support the Panel’s 
finding that Missouri was not diligent.  Additionally, Missouri characterizes the other 
states’ comments regarding Missouri’s diligence as “ex parte communications,” but those 
statements were made on the record in formal hearings and, while Missouri was 
apparently not notified that it would be the subject of some discussion at the hearings, it 
was given notice of, and the opportunity to be present at, each of those diligence 
hearings.   
While the Court acknowledges Missouri’s concerns regarding the procedural 
fairness of a multistate arbitration forum for NPM Adjustment disputes, it has not shown 
it was prejudiced by any unfair proceedings or arbitral misconduct in the 2003 arbitration, 
nor has Missouri shown the 2004 arbitration must necessarily suffer from the same 
defects of which Missouri here complains.  Ultimately, this Court must enforce the terms 
of the MSA as agreed to by the parties, and those terms require multistate arbitration of 
the 2004 NPM Adjustment dispute. 
 
 
 
 
37 
 
Conclusion 
 
The judgment of the trial court is affirmed.   
 
______________________________ 
Mary R. Russell, Judge 
 
 
Breckenridge, C.J., Fischer and Draper, JJ., concur.  
Stith and Wilson, JJ., not participating.