IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Commonwealth of Pennsylvania :

By Kathleen G. Kane, Attorney General,:

Appellant :

:

v. : No. 2422 C.D. 2014

: Argued: October 6, 2015

Philip Morris, Inc.; RJ Reynolds :

Tobacco Company; Brown & :

Williamson Tobacco Corporation; :

B.A.T. Industries, PLC; The American :

Tobacco Company, Inc.; C/O Brown & :

Williamson Tobacco Corporation; :

Lorillard Tobacco Company; Liggett :

Group, Inc.; United States Tobacco :

Company; The Tobacco Institute, Inc.; :

The Council For Tobacco Research :

U.S.A., Inc.; Smokeless Tobacco :

Council, Inc., and Hill & Knowlton, :

Inc. :

BEFORE: HONORABLE DAN PELLEGRINI, President Judge

HONORABLE ROBERT SIMPSON, Judge

HONORABLE ROCHELLE S. FRIEDMAN, Senior Judge

OPINION 

BY JUDGE SIMPSON FILED: November 18, 2015

In this tobacco litigation appeal, the Commonwealth asks whether the 

Court of Common Pleas of Philadelphia County1(trial court) erred by denying its 

motion to compel single-state arbitration to determine whether it diligently 

enforced its qualifying statute in 2004 and by granting the motion to compel 

 

1

The Honorable Patricia A. McInerney presided. 
2

multistate arbitration filed by the participating tobacco manufacturers (PMs)2to the 

1998 Master Settlement Agreement (MSA). The Commonwealth contends the 

MSA does not provide for multistate arbitration to decide its diligence because 

Pennsylvania is not on the same side as other states, and such a reading undermines 

the Commonwealth’s sovereign rights. PMs assert the Commonwealth’s appeal of 

the trial court’s interlocutory orders should be quashed for lack of jurisdiction. 

Upon determining we have jurisdiction over the Commonwealth’s appeal, we 

affirm. 

I. Background

In 1998, 52 states and territories (Settling States), including 

Pennsylvania, entered into the MSA with PMs. The MSA settled litigation against 

the tobacco industry for recovery of the Settling States’ tobacco-related health-care 

costs.3 The tobacco manufacturers that did not participate in the MSA are known 

as nonparticipating manufacturers (NPMs). 

 

2

PMs comprise two groups of tobacco manufacturers: Original Participating 

Manufacturers (OPMs) and Subsequent Participating Manufacturers (SPMs). OPMs were the 

original tobacco companies to settle the claims filed against them by the states and enter the

MSA; SPMs, which were not named in the original suit, entered the MSA at a later date. OPMs 

include Philip Morris USA, Inc., R.J. Reynolds Tobacco Company, and Lorillard Tobacco 

Company. SPMs participating in this appeal include Liggett Group LLC, Brown & Williamson 

Tobacco Corporation, and C/O Brown & Williamson Tobacco Corporation. OPMs and SPMs 

filed separate briefs. 

3

The history of the tobacco litigation and details of the MSA agreement were discussed 

in depth in Commonwealth ex rel. Kane v. Philip Morris USA, Inc., 114 A.3d 37 (Pa. Cmwlth. 

2015) (en banc). 
3

Pursuant to the MSA, PMs agreed, among other things, to make 

substantial annual payments to the Settling States in perpetuity in exchange for 

release from civil liability. PMs do not make the payments directly to the Settling 

States; rather, PMs make a single, aggregate payment (MSA Payment) to an 

Independent Auditor in an amount calculated and determined by the Auditor. The 

Auditor then allocates the MSA Payment among the Settling States by making 

individual annual payments (Allocated Payment) in an amount based on each 

State’s pre-set allocable share.

The annual MSA Payment is subject to a downward adjustment 

known as the NPM Adjustment, which provides the MSA Payment may be 

lowered by a percentage if it is determined PMs lost market share to NPMs as a 

result of PMs’ compliance with the MSA. The NPM Adjustment is divided among 

all of the Settling States, according to each State’s allocable share, in each year 

where the NPM Adjustment applies, unless the State meets the diligence exception. 

Section IX(d)(2)(A) of the MSA. 

Under the diligence exception, Settling States may avoid the NPM 

Adjustment if, during the year at issue, they “diligently enforced” a “qualifying 

statute,” which “effectively and fully neutralizes the cost disadvantages that [PMs] 

experience vis-à-vis [NPMs] within such Settling State as a result of the provisions 

of [the MSA].” Sections IX(d)(2)(B), (E) of the MSA. Pennsylvania’s qualifying 

statute is the Tobacco Settlement Agreement Act (TSAA).

4

 

 

4 Act of June 22, 2000, P.L. 394, No. 54, as amended, 35 P.S. §§5671-5675.
4

Thus, a diligent State is spared an NPM Adjustment which reduces its 

Allocated Payment. In contrast, a non-diligent State receives a larger downward 

NPM Adjustment, and thus a smaller Allocated Payment, under the MSA’s 

Reallocation Provision. Specifically, the amount of the NPM Adjustment that 

would have otherwise applied to that diligent Settling State’s Allocated Payment is 

“reallocated among all [non-diligent] Settling States pro rata in proportion to their 

respective Allocable Shares ....” Section IX(d)(2)(C) of the MSA. As the number 

of non-diligent States decrease, the reallocation share of the NPM Adjustment 

increases, and vice versa. A non-diligent State’s potential NPM Adjustment is 

capped at the amount of its MSA Payment. 

The parties further agreed that “[a]ny dispute, controversy or claim 

arising out of or relating to calculations performed by, or any determinations made 

by, the Independent Auditor,” including NPM adjustments, “shall be submitted to 

binding arbitration.” Section XI(c) of the MSA. The arbitration panel shall be 

comprised of three neutral arbitrators. Id. “Each of the two sides to the dispute 

shall select one arbitrator. The two arbitrators so selected shall select the third 

arbitrator.” Id. 

Despite the enactment of qualifying statutes by all Settling States, 

PMs experienced market share loss attributable to their compliance with the MSA. 

The NPM Adjustments for 1999-2002 were resolved by settlement as to all 

Settling States, but the NPM Adjustment for 2003 (and subsequent years) was not. 

This case pertains to the NPM Adjustment dispute for 2004. 
5

By way of further background, the 2003 dispute went to arbitration. 

Before arbitration commenced, Pennsylvania and other Settling States disputed 

whether the determination of a State’s diligent enforcement was subject to 

arbitration. The Commonwealth filed a motion in the trial court seeking a 

declaration that it diligently enforced its qualifying statute in 2003, and that the 

Independent Auditor properly determined the 2003 NPM Adjustment should not be 

applied. In response, PMs filed a motion to compel arbitration, which the trial 

court (the Honorable William J. Manfredi) granted. Reproduced Record (R.R.) at 

191a. Judge Manfredi concluded the MSA provided for arbitration, and it 

explained Pennsylvania, along with the other Settling States, were compelled to 

join in the selection of a single arbitrator. 

With the courts of every Settling State (but Montana) similarly 

ordering arbitration of the 2003 NPM Adjustment dispute, PMs and most of the 

Settling States, including Pennsylvania, entered an Agreement Regarding 

Arbitration (ARA). The parties agreed to multistate arbitration for the 2003 NPM 

Adjustment dispute. As part of the ARA, PMs agreed to reduce the liability of 

Settling States determined non-diligent, by 20%. The ARA did not address 

arbitration terms for future years. 

With regard to the current 2004 NPM Adjustment dispute, in June 

2014, the Commonwealth filed a motion to compel single-state arbitration to 

determine its diligence for 2004 in the trial court. PMs responded by filing a 

motion to compel multistate arbitration. The parties briefed and argued their 

respective motions. Ultimately, the trial court denied the Commonwealth’s motion 
6

and granted PMs’ motion. The trial court later issued an opinion detailing why all 

issues related to the 2004 NPM Adjustment dispute must be decided in one 

multistate arbitration proceeding. 

The Commonwealth filed an application to certify the orders for 

interlocutory appeal by permission, which the trial court denied. The 

Commonwealth also timely filed a notice of appeal from both orders, asserting 

appellate jurisdiction under Rules 311(a)(8) and 313 of the Pennsylvania Rules of 

Appellate Procedure. This Court directed the parties to address the appealability of 

the trial court’s orders in their principal briefs on the merits. Commonwealth Ct. 

Order, 4/17/15, at 1. 

II. Issues

On appeal,5the Commonwealth asserts this Court has jurisdiction to 

hear its interlocutory appeal as of right pursuant to Pa. R.A.P. 311(a)(8) and 

Section 7320(a)(1) of the Uniform Arbitration Act (UAA), 

42 Pa. C.S. §7320(a)(1), because the trial court denied its motion to compel 

arbitration. The Commonwealth also maintains the trial court’s orders are 

appealable as collateral orders under Pa. R.A.P. 313. 

In turn, PMs argue the appeal should be quashed for lack of 

jurisdiction because the appeals are interlocutory and do not qualify for any 

 

5 With regard to jurisdictional questions and other questions of law, our standard of 

review is de novo, and our scope of review is plenary. Mercury Trucking, Inc. v. Pa. Pub. Util. 

Comm'n, 55 A.3d 1056 (Pa. 2012); Philip Morris. 
7

exception. According to PMs, the trial court’s orders do not: (1) deny an arbitral 

resolution of the parties’ dispute, but merely resolve the manner of arbitration by 

compelling multistate arbitration; or (2) meet the definition of a collateral order.

With regard to the merits, the Commonwealth contends the dispute 

over whether Pennsylvania diligently enforced the provisions of its qualifying 

statute must be arbitrated in a single-state proceeding with the Commonwealth on 

one side and the PMs on the other. In this dispute, the Commonwealth maintains it

is not on the same side as other Settling States in challenging their own diligent 

enforcement. The Commonwealth further claims that compelling multistate 

arbitration of this dispute is contrary to numerous MSA provisions designed to 

respect the sovereignty of the Commonwealth. 

III. Discussion

A. Jurisdiction

1. Contentions

Before reaching the merits, we first address the issue of the Court’s 

jurisdiction to hear the Commonwealth’s appeal. The Commonwealth asserts that 

denials of motions to compel arbitration are immediately appealable as of right

under Pa. R.A.P. 311(a)(8) and Section 7320(a)(1) of the UAA. Because the trial 

court denied the Commonwealth’s motion to compel single-state arbitration, the 

Commonwealth contends the order is plainly subject to immediate appeal as of 

right. 

In addition, the Commonwealth asserts both orders are properly 

subject to appeal as collateral orders under Pa. R.A.P. 313. Under Rule 313 an 

order is collateral if: (1) the order is separable from and collateral to the main cause 
8

of action; (2) the right involved is too important to be denied review; and, (3) the 

question presented is such that, if review is postponed until final judgment in the 

case, the claim will be irreparably lost. 

In this regard, the Commonwealth contends the order directing 

multistate arbitration is collateral to the broader action itself. According to the 

Commonwealth, the main cause of action is the original suit against PMs for 

tobacco-related healthcare costs, which the parties settled in the MSA. This action 

arises from the terms of the MSA and the Commonwealth’s diligence 

responsibilities. The dispute of whether the arbitration should be a single-state 

proceeding between Pennsylvania and PMs plainly raises a collateral and separate 

question from the underlying merits of the main case.

Next, the Commonwealth maintains the denial of its right to singlestate arbitration raises important issues warranting immediate review. Although 

multiple Settling States joined the MSA, the agreement recognized that each State 

would maintain its own separate rights. Under the MSA, each State designates its 

own state court, which will be responsible for interpreting and enforcing the MSA 

in regard to disputes with that State. And each of those state courts is to look to its 

own state law. All of this was done out of recognition that each State is a 

sovereign entity and no State would allow itself to be subject to the courts or the 

law of a sister State. By ordering the Commonwealth to participate in multistate 

arbitration, the Commonwealth will be forced to forfeit many of its sovereign 

rights, including the independent selection of an arbitrator and negotiation of 

arbitration terms as these would be joint decisions made with sister States. 
9

Arbitrators presiding over a multistate proceeding will apply generic legal 

principles as opposed to Pennsylvania law. 

Finally, the Commonwealth asserts this appeal is its only meaningful 

opportunity to challenge the trial court’s orders. A similar arbitration for the 2003 

NPM Adjustment lasted almost half a decade. If this Court declines review, the 

Commonwealth would be forced to arbitrate the 2004 issue through to its 

completion, spending hundreds of hours and millions of dollars in the process, only 

to try to reargue this point years later. In the meantime, the Commonwealth would 

have lost its sovereign right to arbitrate this issue separately. Thus, appeal of this 

collateral issue is necessary now. 

PMs respond the Commonwealth’s appeal must be quashed for lack of 

appellate jurisdiction. An appeal may be taken as of right from an order denying

an application to compel arbitration. However, there is no corresponding statutory 

authority that permits a party to appeal an order that compels arbitration. Although 

the trial court denied the Commonwealth’s motion, it granted PMs’ motion. In so 

doing, the trial court compelled the parties to arbitrate in a multistate proceeding. 

The end result is the Commonwealth must participate in arbitration. An 

interlocutory ruling that resolves merely the manner of arbitrating a dispute is not 

immediately appealable under Rule 311(a)(8). Thus, the orders are clearly 

interlocutory and not immediately appealable. 

Moreover, PMs maintain the trial court’s orders are not appealable as 

collateral orders under Pa. R.A.P. 313 because they do not satisfy the Rule’s three 
10

conditions, which are stringent. First, PMs contend the orders are not separable 

from and collateral to the main cause of action. Contrary to the Commonwealth’s 

assertions, the main cause of action is not the original suit brought against OPMs 

17 years ago, which was settled by the MSA and court-approved consent decree. 

The settlement and consent decree extinguished all underlying claims. The trial 

court’s jurisdiction at this point concerns only actions to enforce and apply the 

MSA. Indeed, that is the only jurisdiction the trial court has ever had over most of 

the SPMs, that were never parties to the original litigation, but that joined the MSA 

after settlement. The issue of whether the MSA requires single-state or multistate 

arbitration is not collateral to the main action, it is the main action. 

Second, PMs argue the right involved is not too important. To meet 

this test, the issue must involve deeply rooted public policy concerns, and it must 

affect someone other than the parties to the case themselves. The question here 

concerns merely the manner of arbitrating a dispute under the parties’ contract. It 

affects only the immediate litigants. Moreover, the question involved – the manner 

of arbitrating disputes under the MSA – is not a serious and unsettled question, and 

it does not impact public policy. Indeed, both this Court and the Supreme Court 

declined to hear an interlocutory appeal of the Judge Manfredi’s 2006 order 

compelling the Commonwealth to arbitrate rather than litigate the 2003 NPM 

Adjustment dispute – an issue far more important than the manner in which 

arbitration is conducted. 

And third, PMs contend the claim will not be irreparably lost if not 

immediately addressed. The Commonwealth admits it would have an opportunity, 
11

after multistate arbitration, “to try to reargue” its single-state position. Appellee 

OPMs’ Br. at 22 (quoting Appellant’s Br. at 4). The temporary, but ultimately 

redressable, deprivation of a right is the opposite of an irreparable loss. 

In reply, the Commonwealth reasserts that the trial court denied its 

motion to compel single-state arbitration. A straightforward application of Section 

7320(a)(1) of the UAA and Pa. R.A.P. 311(a)(8) gives this Court jurisdiction. In 

addition, the Commonwealth responds it meets the three-part test for appeal of a 

collateral order. According to the Commonwealth, PMs never clearly explain what 

they think is the main cause of action. Regardless of whether the main cause of 

action is the underlying merits of the Commonwealth’s pre-settlement claims, the 

enforcement of the MSA as a whole, or the 2004 NPM Adjustment dispute, this 

appeal regarding the nature of the arbitration forum concerns a separate and 

collateral issue. As the issue implicates the Commonwealth’s sovereign rights, it is 

too important to be denied review. Finally, the Commonwealth asserts litigating a 

multistate arbitration is extremely expensive. Although the Commonwealth could 

later challenge the arbitrator’s ruling, the time and money spent arbitrating in the 

interim would be irreparably lost. 

2. Analysis

a) Appeal of Interlocutory Orders as of Right

Rule 311(a)(8) of the Pennsylvania Rules of Appellate Procedure 

governs interlocutory appeals as of right. It provides an appeal may be taken as of 

right from an order which is made immediately appealable by another statute or 

general rule. Pa. R.A.P. 311(a)(8). The statutory authorization is found in the 

UAA. Specifically, Section 7320 of the UAA provides:
12

(a) General rule.--An appeal may be taken from:

(1) A court order denying an application to compel 

arbitration made under section 7304 (relating to 

proceedings to compel or stay arbitration).

(2) A court order granting an application to stay 

arbitration made under section 7304(b).

(3) A court order confirming or denying confirmation of 

an award.

(4) A court order modifying or correcting an award.

(5) A court order vacating an award without directing a 

rehearing.

(6) A final judgment or decree of a court entered 

pursuant to the provisions of this subchapter.

42 Pa. C.S. §7320 (emphasis added). The UAA provides no corollary for an 

immediate appeal from an order compelling arbitration. Id.; Maleski v. Mutual 

Fire, Marine & Inland Ins. Co., 633 A.2d 1143 (Pa. 1993).

It is well-settled that an order compelling arbitration is not a final, 

appealable order. Maleski; Rosy v. Nat'l Grange Mut. Ins. Co., 771 A.2d 60 (Pa. 

Super. 2001). When a trial court compels arbitration, the action is stayed pending 

arbitration, and the trial court retains jurisdiction and supervision over the 

arbitration. Maleski. The trial court does not address the merits of the parties’ 

claims but merely transfers their dispute to another forum in accordance with the 

arbitration provision of the underlying contract. Fastuca v. L.W. Molnar & 

Assocs., 950 A.2d 980 (Pa. Super. 2008), aff'd, 10 A.3d 1230 (Pa. 2011). 

Consequently, an appellate court lacks jurisdiction to determine the merits. 

Maleski. 
13

As the Supreme Court explained, an order compelling arbitration is 

not appealable because “the parties are not forced ‘out of court.’” Id. at 1145 

(quoting Gardner v. Prudential Ins. Co., 481 A.2d 654, 655 (Pa. Super. 1984)).

“[A]n order compelling arbitration forces the parties into, rather than out of, court.” 

Id.; accord Rosy.

Here, the trial court entered two orders: one denying the 

Commonwealth’s motion to compel single-state arbitration, the other granting 

PMs’ motion to compel multistate arbitration. Although the trial court technically 

denied the Commonwealth’s motion, it did not force the parties out of court. See

Maleski. The trial court’s orders merely directed the manner of arbitration. The 

end result is the matter is headed to arbitration. Thus, the trial court’s orders did 

not trigger the right of appeal under Pa. R.A.P. 311(a)(8) and Section 7320 of the 

UAA. 

b) Collateral Orders

Next, we examine whether the trial court’s orders are appealable as 

collateral orders. Pursuant to Rule 313(a) of the Pennsylvania Rules of Appellate 

Procedure, “[a]n appeal may be taken as of right from a collateral order of an 

administrative agency or lower court.” Rule 313(b) defines a “collateral order” as 

one that is “[(1)] separable from and collateral to the main cause of action [(2)] 

where the right involved is too important to be denied review and [(3)] the question 

presented is such that if review is postponed until final judgment in the case, the 

claim will be irreparably lost.” Pa. R.A.P. 313(b) (clause numbers added). 
14

The collateral order doctrine must be narrowly construed, and all three 

prongs must be met before collateral appellate review is allowed. Rae v. Pa.

Funeral Dirs. Ass'n, 977 A.2d 1121 (Pa. 2009); Mortg. Elec. Registration Sys., Inc. 

v. Malehorn, 16 A.3d 1138 (Pa. Super. 2011). “Narrow application prevents the 

collateral order rule from subsuming the fundamental general precept that only 

final orders are appealable and from causing litigation to be interrupted and 

delayed by piecemeal review of trial court decisions.” Brophy v. Phila. Gas Works 

& Phila. Facilities Mgmt. Corp., 921 A.2d 80, 87 (Pa. Cmwlth. 2007). If “an order 

satisfies Rule 313's three-pronged test,” we “may exercise appellate jurisdiction 

where the order is not final.” Rae, 977 A.2d at 1125.

In determining whether an order is separable from and collateral to the 

main cause of action, the Court must first decide whether review of the order 

implicates the merits of the main cause of action. Commonwealth v. Wright, 78 

A.3d 1070 (Pa. 2013). In other words, we examine “whether the issues appealed 

can be addressed without analysis of the underlying claims on the merits.” 

Brophy, 921 A.2d at 87. Where review of the order in question does not implicate 

or affect the merits of the underlying dispute, it is separable from and collateral to 

the main cause of action. Wright; see, e.g., Miravich v. Twp. of Exeter

(Pa. Cmwlth., No. 2066 C.D. 2013, filed July 24, 2014), 2014 WL 3697542 (the 

main cause of action was review of a preliminary subdivision plan but the issue of 

which tribunal should do so was separable therefrom).6

 

6

Section 414 of this Court's Internal Operating Procedures authorizes the citation of 

unreported panel decisions issued after January 15, 2008, for their persuasive value, but not as 

binding precedent. 210 Pa. Code §69.414.
15

As for the second prong, “[a]n issue is important if the interests that 

would potentially go unprotected without immediate appellate review of that issue 

are significant relative to the efficiency interests sought to be advanced by the final 

judgment rule.” Geniviva v. Frisk, 725 A.2d 1209, 1213 (Pa. 1999) (quoting In re 

Ford Motor Co., 110 F.3d 954, 959 (3d Cir. 1997)). “[I]t is not sufficient that the 

issue be important to the particular parties. Rather[,] it must involve rights deeply 

rooted in public policy going beyond the particular litigation at hand.” Id. at 1214. 

Generally, the implication of due process concerns is too important to be denied 

review. See Commonwealth v. Sabula, 46 A.3d 1287 (Pa. Super. 2012); see also

Miravich (holding a party’s due process right to have the case heard before a 

tribunal having jurisdiction over the matter satisfied the second prong). 

Finally, with regard to the third prong of the analysis, we ask

“whether a right is ‘adequately vindicable’ or ‘effectively reviewable.’” Geniviva, 

725 A.2d at 1213 (quoting Digital Equip. Corp. v. Desktop Direct, Inc., 511 U.S. 

863, 878-79 (1994)). This question “cannot be answered without a judgment about 

the value interests that would be lost through rigorous application of a final 

judgment requirement.” Id. For instance, the substantial cost a party would incur 

in defending a claim may equate to an irreparable loss of a right to avoid the 

burden entirely. See Pridgen v. Parker Hannifin Corp., 905 A.2d 422 (Pa. 2006); 

Yorty v. PJM Interconnection, L.L.C., 79 A.3d 655 (Pa. Super. 2013).

As discussed above, an order compelling arbitration is generally not 

appealable as an interlocutory order under Pa. R.A.P. 311(a)(8) and Section 7320 

of the UAA. However, such an order may be appealable as a collateral order in 
16

limited circumstances. See, e.g., Gilyard v. Redev. Auth. of Phila., 780 A.2d 793 

(Pa. Cmwlth. 2001); U.S. Auto. Assoc. v. Shears, 692 A.2d 161 (Pa. Super. 1997) 

(en banc) (USAA). 

In USAA, our Superior Court found an order compelling arbitration 

appealable as a collateral order under Rule 313. There, an automobile insurer for a 

car registered in another state sought a declaratory judgment that the policy 

provided no uninsured motorist (UM) benefits for a pedestrian injured by the 

insured’s stolen car in Pennsylvania. The pedestrian moved to compel arbitration 

of the dispute. The trial court determined the failure to provide coverage was 

actionable as a tort, and it compelled arbitration of the dispute. 

On appeal, the Superior Court determined that “without question, the 

order to compel arbitration [was] collateral to the main cause of action - the 

declaratory judgment action ....” Id. at 163. Further, “the question of whether a 

court may order an out-of-state insurer to submit to arbitration on a newly-created 

tort [was] an important one.” Id. Finally, the Court decided that “going forward 

with the arbitration will result in the loss of appellate review, which means that 

[insurer’s] claim under the declaratory judgment action will be irreparably lost.” 

Id. Thus, the Superior Court concluded the order was appealable even though it 

was interlocutory. Id.

Similarly, in Gilyard, we determined an appeal from a trial court order 

remanding an eminent domain matter to an arbitrator was appealable as a collateral 

order. The statute required that all appeals from the board of viewers be heard 
17

only by a trial court, not by arbitration. The trial court’s remand order would have 

mooted the statutory provision barring arbitration. Thus, we concluded the right 

involved was too important to be denied review, and the claim would have been 

irreparably lost. 

Notwithstanding, unless all three prongs are met, we may not exercise 

appellate jurisdiction. Rae; Mortg. Elec.; Rosy. For example, in Rosy, passengers 

injured in a collision petitioned to compel the insurer of the vehicle in which they 

were riding to arbitrate their claims. The Court determined an order compelling 

arbitration was not an order separable from and collateral to the main cause of 

action. Unlike in USAA, Rosy did not involve a new cause of action, and the 

issues did not have wide-reaching impact that would otherwise evade review. 

Unlike in Gilyard, the order compelling arbitration in Rosy did not have the 

significant effect of mooting a statutory provision barring arbitration. Thus, the 

Court quashed the appeal because the order to arbitrate did not meet the collateral 

order test. Rosy. 

Here, we conclude the Commonwealth satisfies the collateral order 

test. First, with regard to separability, the main cause of action is the resolution of 

the 2004 NPM Adjustment dispute under the terms of the MSA. The main cause 

of action is not, as advanced by the Commonwealth, the underlying merits of the 

Commonwealth’s 1997 claims against the OPMs. This is because the parties 

settled the 1997 claims by entering into the MSA. 
18

The 2004 NPM Adjustment dispute is essentially the same as the 2003 

NPM Adjustment dispute, in which the parties agreed:

[T]here is a dispute between the Settling States and the 

[PMs] regarding whether under the [MSA] the [PMs] are

entitled to a 2003 NPM Adjustment, including whether 

the Settling States diligently enforced [q]ualifying 

[s]tatutes during 2003 such that the 2003 NPM 

Adjustment does not apply to their Allocated Payments 

or to the corresponding MSA payments made by the 

[SPMs].

R.R. at 200a (ARA). The trial court correctly identified the issue in the order 

granting PMs’ motion to compel multistate arbitration as “whether [PMs] are 

entitled to a 2004 NPM Adjustment, including the Commonwealth’s claim that it 

diligently enforced its [q]ualifying [s]tatute in 2004.” Tr. Ct. Order, 11/25/14. 

The trial court’s orders, specifying that Pennsylvania must participate 

in multistate arbitration with other Settling States, can be separated from the main 

cause of action. Significantly, the determination of this appeal regarding the 

proper arbitration forum does not have the potential to decide any issues in the

substantive merits of the case, such as diligent enforcement. In other words, the 

issue regarding the manner of arbitration may be addressed without any analysis of 

the main cause of action. 

As for the second prong, this appeal concerns whether and to what 

extent the Commonwealth surrendered its sovereign rights to take part in litigation 

over the NPM Adjustment dispute. The Commonwealth’s inherent sovereign 

power to exercise jurisdiction over MSA disputes is implicated in this appeal. At 
19

stake is the Commonwealth’s ability to proceed in single-state arbitration pursuant 

to state law, including the independent selection of its own arbitrator and 

negotiation of the arbitration terms. This implicates the Commonwealth’s due 

process right to have the matter heard before the tribunal having jurisdiction. See

Miravich. By declining review at this juncture, the Commonwealth would be 

forced to participate in multistate arbitration before it could reassert its right to 

single-state arbitration. The issue is important not only to the parties of the MSA, 

but to the public at large because the sovereign power in our government belongs 

to the people. See Commonwealth ex rel. Attorney Gen., to Use of Sch. Dist. of 

Patton v. Barnett, 48 A. 976 (Pa. 1901). Thus, the Commonwealth’s sovereign 

rights implicate broad public policy interests requiring immediate resolution. 

Finally, with regard to the third prong of the analysis, the 

Commonwealth concedes it will have an opportunity, after multistate arbitration, to 

reargue its single-state position. Appellant’s Br. at 4. Ordinarily, the temporary, 

but ultimately redressable, deprivation of a right does not constitute an irreparable 

loss. However, if this Court declines immediate review, the Commonwealth will 

be forced to proceed in relatively more complex, expensive arbitration through to 

its completion. In the process, it will exhaust substantial resources, and its right to 

avoid the enhanced burden will be lost. See Pridgen. Should the Commonwealth

ultimately prevail on this issue in a later appeal, the victory will be hollow as it will 

have already arbitrated its diligence in a multistate proceeding. 
20

For these reasons, we conclude the trial court’s orders are collateral 

orders under Pa. R.A.P. 313. Thus, this Court has appellate jurisdiction over the 

Commonwealth’s appeal. 

B. Multistate or Single-State Arbitration

1. Contentions

Turning to the merits of the appeal, the Commonwealth argues the 

MSA does not provide for multistate arbitration to decide its diligence.7 

Agreements to arbitrate must be strictly construed. Relying on Stolt-Nielsen S.A. 

v. AnimalFeeds International Corp., 599 U.S. 662 (2010), the Commonwealth 

argues it cannot be compelled to submit to multistate arbitration without a clear 

statement in the agreement expressly authorizing multistate, consolidation or class 

arbitration. There is no contractual basis in the MSA for multistate arbitration. In 

fact, the Commonwealth asserts, PMs implicitly recognized there was no right to 

compel multistate arbitration when they agreed to reduce the liability of States 

found non-diligent to entice them to sign the ARA for the 2003 dispute. 

Specifically, Section XI(c) of the MSA requires arbitration between 

“two sides to the dispute.” According to the Commonwealth, the only dispute at 

issue is whether the Commonwealth diligently enforced its qualifying statute in 

2004. As to that dispute, there are only two sides: PMs and the Commonwealth. 

The trial court erred in determining the dispute was between PMs on one side and 

all Settling States on the other. 

 

7

The Commonwealth no longer challenges that disputes related to the NPM Adjustment, 

including the Commonwealth’s defense of diligent enforcement of its qualifying statue, are 

subject to arbitration. 
21

The Commonwealth maintains it is not on the same side as the other 

Settling States for purposes of its diligence determination. The MSA’s reallocation 

scheme pits state against state. This is because the more states that are found nondiligent, the lesser the share of the NPM Adjustment for non-diligent States. 

Conversely, the more states found diligent, the greater the burden for those found 

non-diligent. As a result of this reallocation scheme, the Commonwealth’s 

interests are directly opposed to the interests of the other States. Thus, the Settling 

States are not on the “same side.” 

PMs counter the simple text of the MSA’s arbitration provision and 

the interconnectedness of the Settling States based on the MSA’s reallocation of 

the NPM Adjustment demand multistate arbitration. As the trial court aptly 

recognized, the dispute is whether PMs are entitled to an NPM Adjustment for 

2004, regardless of whether a particular state diligently enforced its qualifying 

statute during that year. 

PMs explain, just as in 2003, the Independent Auditor refused to 

apply the NPM Adjustment for 2004 based on the Settling States’ objections. 

Indeed, all Settling States asked the Auditor to deny the NPM Adjustment for 

2004. Thus, the core dispute is whether the Auditor should have reduced PMs’ 

MSA Payment for 2004. This dispute is more than whether a particular State can 

successfully claim it diligently enforced its qualifying statute in 2004, which is 

merely a subsidiary issue to the main dispute. 
22

The main dispute that triggered the MSA’s arbitration provision is 

whether PMs are entitled to an NPM Adjustment for 2004. This is clearly a 

multistate dispute, and all Settling States are all on the same side with PMs on the 

other side. This dispute necessarily embraces all subsidiary issues, including 

whether a particular State diligently enforced its qualifying statute. Although 

Settling States may have competing interests in the diligent enforcement issue, 

they are squarely aligned on the overarching main issue. 

As for the Commonwealth’s position that each State should have its 

own separate diligence arbitration, PMs maintain this would produce an absurdly 

complicated process for resolving all issues on the NPM Adjustment dispute. Such 

a divided process would hinder resolution of common issues, such as discovery 

procedures, the effect of bankruptcy of certain PMs, or the proper determination of 

interest on NPM Adjustment amounts. 

Moreover, PMs assert, the application of the diligent enforcement 

defense affects all other States. Separate resolution of diligent enforcement 

disputes would be fraught with inequitable and inconsistent results and would 

likely result in the development of 52 sets of payment rules. States, affected by 

another State’s diligent enforcement arbitration would have the right to intervene. 

Intervention “would lead to an absurd result of a large number of separate 

arbitrations, and separate arbitration panels, being required to resolve a single 

year’s NPM Adjustment dispute that involves all of the same parties and same 

issues.” Appellee OPM’s Br. at 32 (quoting Tr. Ct., Slip Op., 2/23/15, at 26.). 
23

According to PMs, the bottom line is that the 2004 NPM Adjustment 

is in dispute, regardless of the particular subsidiary issues that may arise out of or 

relate to it. This calls for multistate arbitration of the entire dispute, not piecemeal 

arbitration of its subparts. The reason is simple: a nationwide proceeding would 

permit all parties to attend and fully and effectively participate; a single set of 

discovery procedures would govern; and, common issues would be determined, 

with participation of all parties. A multistate arbitration ensures fairness for all 

parties. To hold otherwise is contrary to both the spirit and plain language of the 

MSA. 

Finally, contrary to the Commonwealth’s assertions, PMs maintain

they did not implicitly recognize there was no right to compel multistate diligence 

arbitration. PMs concede they offered a financial incentive to the States to sign the 

ARA for the sole purpose of moving the process along as many states, including 

Pennsylvania fought arbitration. 

The Commonwealth replies the only relevant dispute at this time is 

whether it diligently enforced its qualifying statute. In this regard, the 

Commonwealth does not share a “side” with any other Settling State. The general 

dispute over whether PMs are entitled to a NPM Adjustment for 2004 was already 

determined. What remains is whether the 2004 NPM Adjustment can be taken out 

of the Commonwealth’s Allocated Payment, which depends on the 

Commonwealth’s diligence. 
24

The Commonwealth adds PMs’ concerns regarding single-state 

arbitration are significantly overstated. Twenty-four Settling States settled their 

diligence claims for 2004, and 17 others agreed to participate in multistate 

arbitration. Only a handful of states, including Pennsylvania, seek single-state 

arbitration. 

2. Analysis

“[A]rbitration agreements are to be strictly construed and not 

extended by implication.” Highmark Inc. v. Hosp. Service Ass'n of N.E. Pa., 785 

A.2d 93, 98 (Pa. Super. 2001). In construing the language of an arbitration 

provision, courts rely on the rules of contract construction. Quiles v. Fin. Exch. 

Co., 879 A.2d 281 (Pa. Super. 2005); Highmark. Courts must adopt “an 

interpretation that gives paramount importance to the intent of the parties and 

ascribes the most reasonable, probable, and natural conduct to the parties.” Quiles, 

879 A.2d at 287 (quoting Highmark, 785 A.2d at 98). “[T]he ultimate goal is to 

ascertain and give effect to the intent of the parties as reasonably manifested by the 

language of their written agreement.” Id. (citation omitted). Mindful of these 

principles, we examine the MSA’s arbitration provision. 

Section XI(c) of the MSA provides, with emphasis added: 

Any dispute, controversy or claim arising out of or 

relating to calculations performed by, or any 

determinations made by, the Independent Auditor 

(including, without limitation, any dispute concerning the 

operation or application of any of the adjustments, 

reductions, offsets, carry-forwards and allocations 

described in subsection IX(j) or subsection XI(i)) shall be 

submitted to binding arbitration before a panel of three 
25

neutral arbitrators, each of whom shall be a former 

Article III federal judge. ....

Subsection IX(j) specifically addresses application of the NPM Adjustment. When 

such a dispute arises, “[e]ach of the two sides to the dispute shall select one 

arbitrator. The two arbitrators so selected shall select the third arbitrator.” Section 

XI(c) of the MSA (emphasis added). 

In addition, Section IX(d)(2) of the MSA provides:

The NPM Adjustment ... shall apply to the Allocated 

Payments of all Settling States, except ... [a] Settling 

State’s Allocated Payment shall not be subject to an 

NPM Adjustment ... if such Settling State continuously 

had a [q]ualifying [s]tatute ... in full force and effect 

during the entire calendar year immediately preceding the 

year in which the payment in question is due, and 

diligently enforced the provisions of such statute during 

such entire calendar year .... 

Settling States retain jurisdiction for purposes of implementing and 

enforcing the MSA. See Sections II(p), VII(a), XVIII(n) & Ex. D of the MSA. 

For example, Section II(p) defines the “court” as “the respective court in each 

Settling State ....” In Section VII(a), the parties agreed the court shall have 

jurisdiction for the purposes of implementing and enforcing the MSA. Section 

XVIII(n) provides the MSA “shall be governed by the laws of the relevant Settling 

State, without regard to the conflict of law rules of such Settling State.” Finally, 

the parties agreed state-court jurisdiction extended to the subject matters asserted 

in each Settling State’s originating lawsuits identified in Exhibit D to the MSA. 

Section VII(a) & Ex. D of the MSA. 
26

However, these provisions do not affect the arbitration of certain 

disputes. The MSA specifically excepts arbitral disputes, namely disputes relating 

to the Independent Auditor’s calculations or determinations regarding the NPM 

Adjustment, from state-court litigation. Section VII(a) of the MSA (state-court 

litigation of MSA disputes is required “except as provided in ... §XI(c) ....”). 

Moreover, the issue of whether the NPM Adjustment disputes must be 

arbitrated was previously settled in connection with the 2003 dispute. Thus, in 

2006, the Commonwealth filed an action in the trial court seeking a declaration 

that it diligently enforced its qualifying statute in 2003, and it was entitled to its 

full allocable share of the MSA Payment for that year. PMs responded by filing a 

motion to compel arbitration, arguing the question of diligence was subject to 

arbitration per the terms of the MSA and should be resolved by a uniform set of 

rules. Judge Manfredi agreed. He determined the dispute was subject to 

arbitration under the MSA because it concerned the operation and application of 

the NPM Adjustment. He therefore granted PMs’ motion and dismissed the 

Commonwealth’s motion. 

In reaching his conclusion, Judge Manfredi relied on the terms of the 

MSA, which he observed were the result of “lengthy negotiations between 

sophisticated parties.” R.R. at 197a. He opined:

[W]hether there was diligent enforcement of the 

[q]ualifying [s]tatute is a dispute which the courts of the 

various settling states, generally, and this court, in 

particular, are most qualified to address. In an arbitration 

proceeding under the MSA, as many as 52 separate

‘Settling States’, with competing interests, will be 

compelled to join in the selection of a single arbitrator, to 
27

sit with an arbitrator selected by the PMs, who share a 

unity of interest, and a third arbitrator selected by the first 

two. Moreover, the issue of ‘diligence’ in enforcement of 

the [q]ualifying [s]tatute is very much a local one. The 

vagaries of population size and distribution, geography, 

market penetration by NPMs, to name but a few factors, 

must be taken into account in determining whether a state 

has been diligent. Simply put: that which constitutes 

diligence in our sister state of North Dakota will 

assuredly be far different from diligence in our neighbor 

New York. 

That being said, the court reluctantly finds that the 

scale nonetheless tips in favor of arbitration. As noted, 

these were highly sophisticated parties, with the 

assistance and counsel of armies of highly paid lawyers. 

Under the circumstances presented, the hereinbefore 

cited legal authorities compel the court to leave the 

parties to their bargain, however, flawed and ill 

conceived it may be. ....

R.R. at 198a (emphasis added). Although Judge Manfredi questioned the wisdom 

of multistate arbitration, he nevertheless determined that is how the parties agreed 

to resolve NPM Adjustment disputes. Although Judge Manfredi’s comments 

regarding the multistate arbitration are non-binding dicta, his interpretation of the 

MSA is nevertheless persuasive. 

Here, as in 2003, the 2004 dispute arises out of the determinations

made by the Independent Auditor regarding that year’s NPM Adjustment. More 

particularly, the dispute arose when the Independent Auditor refused to apply the 

NPM Adjustment at the request of the Settling States. Section XI(c) of the MSA, 

which mandates arbitration, clearly extends to “[a]ny dispute, controversy or claim 

arising out of or relating to ... any determinations made by, the Independent 

Auditor,” including the NPM Adjustment. 
28

As to the NPM Adjustment dispute, there are “two sides” to the 

dispute. On one side, PMs contend they are entitled to an NPM Adjustment; on the 

other side, the Settling States oppose application of the NPM Adjustment. 

The Commonwealth concedes two preconditions for application of the 

NPM Adjustment were met for 2004 -- the PMs lost market share and the losses 

were attributable to market disadvantages as a result of the MSA. According to the 

Commonwealth, all that remains to be determined is whether a particular Settling 

State diligently enforced its qualifying statute, which it argues is a state-specific 

determination. In this regard, the Commonwealth claims it is not on the same side 

as the other Settling States. It argues the Independent Auditor’s post-diligence 

calculation of the NPM Adjustment is not a significant part of the dispute because 

the mathematical formula is set forth in the MSA. 

The Commonwealth’s argument is not persuasive. The diligence 

dispute is just one part of the overall NPM Adjustment dispute. See

Commonwealth ex rel. Kane v. Philip Morris USA, Inc., 114 A.3d 37 (Pa. Cmwlth. 

2015) (en banc) (explaining operation of diligence exception to NPM Adjustment 

and the MSA’s Reallocation Provision). The MSA’s arbitration provision is 

broadly written to encompass any controversy arising out of or related to the 

Independent Auditor’s determination and calculation of the NPM Adjustment. 

Section XI(c) of the MSA. By its own terms, the clause must be read broadly to 

include all claims related to such determinations and calculations. Whether a 

particular State diligently enforced its qualifying statute arises from and relates to 

the Independent Auditor’s NPM Adjustment determination that PMs are entitled to 
29

an NPM Adjustment and the calculation as to how much. All of the Settling States 

that did not settle the 2004 NPM Adjustment dispute share the same interest in 

upholding the Independent Auditor’s refusal to apply the 2004 NPM Adjustment. 

Although we recognize that some Settling States may have competing 

interests as a result of the Reallocation Provision, this does not alter the fact that 

the non-settling Settling States are squarely aligned on the same side of the dispute 

over the Independent Auditor’s determination and calculation of the 2004 NPM 

Adjustment. Intertwined within this dispute is each Settling State’s diligent 

enforcement. 

Moreover, the structure of the MSA supports the interpretation that 

the diligence issue cannot be treated as a separate, stand-alone dispute. 

Application of the diligent enforcement defense for any Settling State affects all 

other Settling States. As we recently explained in Philip Morris with regard to the 

Reallocation Provision of the MSA, “as the number of diligent states increase, the 

burden on non-diligent states increases. This is because an increase in the number 

of diligent states means that there is more adjustment reallocated among a smaller 

group.” Id. at 44. Although Section IX(d)(2) provides the mathematical formula, 

the Independent Auditor cannot calculate the NPM Adjustment without knowing 

the diligence determinations of all Settling States. Because Settling States have an 

interest in the diligence determinations of other States, the issue of diligence as it 

relates to the calculation of the NPM Adjustment is a multistate concern, not just a 

State-specific issue. As the trial court aptly observed, “because of the 

interconnectedness of the State’s diligent enforcement determinations, a single 
30

decision maker has the best chances of producing consistent awards” for all 

interested states. Tr. Ct., Slip Op., at 25. Indeed, other courts grappling with this 

very issue have reached this same conclusion.8 

Although we recognize the challenges presented by multistate 

arbitration, we believe greater complications would occur by allowing fragmented

single-state arbitration. As the trial court noted, allowing each Settling State to 

have its own diligence separately arbitrated would produce “an absurdly 

complicated process for resolving all the issues that NPM Adjustments present.” 

Tr. Ct., Slip Op., at 25. 

More particularly, the process would entail separate proceedings 

before separate arbitration panels in various locations, at varying speeds, to 

determine each State’s diligence for the purpose of calculating the NPM 

Adjustment. “And, because ... every State has an interest in the decision on 

 

8

See Indiana, ex rel. Carter v. Philip Morris Tobacco Co., 879 N.E.2d 1212 (Ind. Ct. 

App. 2008) (holding this nationwide effect creates the need for a single decision-maker to apply 

a single set of rules equally to each Settling State); Maryland v. Philip Morris Inc., 944 A.2d 

1167, 1180 (Md. Ct. Spec. App. 2008) (reallocation makes having a single decision-maker 

vitally important); New Mexico ex rel. King v. Am. Tobacco Co., 194 P.3d 749 (N.M. Ct. App. 

2008) (finding a compelling logic to having the disputes handled by a single arbitration panel, 

guided by one clearly articulated set of rules, where all parties can fully and effectively 

participate); New York v. Philip Morris Inc., 869 N.E.2d 636 (N.Y. 2007) (a single panel can be 

guided by one clearly articulated set of rules that apply universally in a process where all parties 

can fully and effectively participate); but cf. Missouri v. Am. Tobacco Co. (Mo. Ct. App., No. 

ED 101542, filed September 22, 2015) 2015 WL 5576135 (nationwide arbitration was not 

intended by the parties in drafting the MSA); Montana ex rel. Bullock v. Philip Morris, Inc., 217 

P.3d 475 (Mont. 2009) (PMs capable of negotiating a nationwide forum requirement, but no such 

language appears in the MSA). 
31

diligence for every other State, each of ... [the non-settling] States would need to 

be able to intervene in every other State’s proceeding ... to protect itself.” Id. at 26 

(internal quotation and citation omitted). “This would lead to an absurd result of a 

large number of separate arbitrations, and separate arbitration panels, being 

required to resolve a single year’s NPM Adjustment dispute that involves all of the 

same parties and issues.” Id. The obvious disadvantage of separate, parallel 

proceedings is the risk of inconsistent results.9 Such complications can be readily 

avoided by a nationwide arbitration involving all interested parties, as envisioned 

by the MSA. Submitting the dispute to a single nationwide arbitration panel, 

chosen by the Settling States and PMs, and guided by a uniform set of rules, 

affords all interested parties the opportunity to be heard on a level playing field. 

Nevertheless, relying on Stolt-Nielsen, the Commonwealth maintains 

it cannot be compelled to submit to multistate arbitration without express 

authorization in the MSA. In Stolt-Nielsen, petitioners challenged the submission 

of their antitrust claims to class arbitration. The parties’ arbitration clause was 

silent with respect to class arbitration. The parties stipulated there was no 

agreement authorizing class proceedings. Because of the stipulation, an intention 

to authorize class arbitration could not be inferred from the arbitration agreement. 

As a result, the U.S. Supreme Court determined the parties’ agreement did not 

 

9

See Alabama ex rel. Riley v. Lorillard Tobacco Co., 1 So.3d 1, 14 (Ala. 2008) 

(“conducting 52 separate arbitration proceedings would likely be fraught with the same type of 

inequitable and inconsistent results that would arise were the individual state courts to resolve 

this dispute.”); Connecticut v. Philip Morris, Inc., 905 A.2d 42, 47 (Conn. 2006) (“If 

interpretations of such rules were left exclusively to the courts of the individual settling states ... 

fifty-two different sets of payment rules might emerge ....”). 
32

require class arbitration. Id. Without agreement, the parties could not be 

compelled to submit their dispute to class arbitration. Id.; see Oxford Health Plans 

LLC v. Sutter, __ U.S. __, 133 S.Ct. 2064 (2013). 

However, the Commonwealth’s reliance on Stolt-Nielsen is 

misplaced. Significantly, there is no stipulation that the MSA precludes multistate 

arbitration. Although the MSA does not expressly specify multistate arbitration, a 

reasonable interpretation of the MSA is that the same arbitration panel selected to 

determine the parties’ NPM Adjustment dispute will determine all issues related 

thereto, including the Settling States’ diligent enforcement. Unlike in StoltNielsen, the parties’ intention to resolve all issues relating to and arising from the 

NPM Adjustment dispute by multistate arbitration can be inferred from the MSA. 

Moreover, this case does not involve a class action arbitration as in 

Stolt-Nielsen. In a class action, a tribunal adjudicates the rights of absent or 

unnamed parties based on evidence common to the class. See id. There are no 

absent or unnamed parties because each Settling State participates as a party. 

In the same way, the Commonwealth argues it cannot be compelled to 

participate in “consolidated” arbitration without its express consent. However, we 

are not dealing with a court-ordered consolidation of multiple, separate 

arbitrations. Rather, the trial court compelled the Commonwealth to participate in 

the single, nationwide arbitration of the 2004 NPM Adjustment dispute and all

issues related to and arising therefrom. Tr. Ct., Slip Op., at 29. More particularly, 
33

the trial court ordered “the Commonwealth to participate in a single arbitration, 

under a single contract, regarding a single dispute.” Id. at 28. 

Even if the trial court’s opinion could be viewed as consolidating 

“separate” arbitrations, arbitrations may be consolidated where the parties agreed 

to do so. See Certain Underwriters at Lloyd's v. Century Indem. Co. (E.D.Pa., No. 

CIV.A.05-2809, filed August 1, 2005) 2005 WL 1941652. Such agreements may 

be express or implied. Id.; see Children’s Hosp. of Phila. v. Am. Arbitration 

Ass’n, 331 A.2d 848 (Pa. Super. 1974) (consent implied where multiple contracts 

contained identical arbitration clauses and the two arbitrations involved the 

allocation of a potentially shared responsibility). In this case, all parties to the 

MSA agreed to the arbitration of the NPM Adjustment disputes. The MSA evinces 

an intention that one nationwide arbitration panel will resolve such disputes. 

Finally, with regard to the Commonwealth’s argument that the ARA 

and multistate arbitration process used for the 2003 NPM Adjustment dispute did 

not set the precedent for disputes arising thereafter, we agree. The ARA dealt with 

the manner of arbitration for 2003 only. The parties agreed to multistate 

arbitration, and they did not fully litigate the manner of arbitration. Although the 

ARA does not direct the manner of arbitration for 2004 or beyond, the MSA does. 

Both the structure and reasonable interpretation of the MSA require a uniform 

determination by a single, nationwide arbitration panel. 
34

C. Sovereignty

1. Contentions

Next the Commonwealth maintains the use of a multistate process 

undermines its sovereign rights. The MSA contains numerous provisions designed 

to protect the sovereign rights of each Settling State. The trial court’s 

determination that the MSA requires multistate arbitration is at odds with the 

recognition of sovereignty elsewhere in the MSA. The Commonwealth gave up 

only narrow slices of its sovereignty. The Court must protect those rights it did not 

relinquish. 

The Commonwealth reiterates its position that it agreed to arbitrate 

certain matters along with other parties only if they were on the same side of the 

dispute. The Commonwealth is not on the same side as other Settling States for 

purposes of the diligence determination. Consequently, it should not have to 

mutually choose one arbitrator with other States as though they were on the same 

side. 

According to the Commonwealth, multistate arbitration puts the PMs 

at an unfair advantage as they will be before the same panel of arbitrators on 

multiple occasions, whereas the Commonwealth will be there only once. Further, 

use of a multistate arbitration panel creates prejudice in terms of hearing time. In 

the 2003 arbitration, each state received only 11 hours to make their diligence case 

before the arbitration panel. This was because the use of one arbitration panel to 

hear 15 different cases necessitated shorter hearing times. 
35

Finally, the Commonwealth asserts, Pennsylvania’s law, TSAA, is 

different from other States’ qualifying statutes.10 Instead of focusing on each 

State’s laws, efforts and particular circumstances, a multistate arbitration panel is

placed in a situation where comparisons are inherent. It serves little purpose 

comparing and contrasting State’s enforcement efforts. Indeed, comparisons are 

inappropriate when each State’s diligence is analyzed according to that State’s 

particular circumstances. Yet, in multistate arbitration, comparisons between 

States are inevitable and inherently unfair. 

PMs counter the relevant issue is what Section XI(c) of the MSA 

means in the context of a dispute over the Independent Auditor’s determination 

regarding the NPM Adjustment. The arbitration provision dictates that NPM 

Adjustment disputes and all issues related thereto be decided by arbitration. All 

parties, including Pennsylvania, agreed to these terms. Although other provisions 

state that the MSA is governed by the laws of the relevant Settling State, the 

arbitration for payment-related disputes is not one of them. See Sections VII & 

XI(c) of the MSA. 

By invoking sovereignty, the Commonwealth disregards the 

provisions of the MSA to which it voluntarily agreed, and it argues a different, 

special set of rules should apply to it. However, PMs advance, the 

Commonwealth’s sovereignty is respected when the courts follow the clear terms 

of the MSA and reasonable interpretation of those terms. Moreover, no general 

 

10 The Commonwealth does not explain how the TSAA differs from other States’ 

qualifying statutes. 
36

state sovereignty principle trumps the express language to which the 

Commonwealth agreed. Although there may be some difference between States’ 

qualifying statutes, all are based on the MSA’s model qualifying statute. 

Like any other party to a contract, the Commonwealth is bound by 

and should be held to its agreement. Multistate arbitration is the only reasonable 

interpretation of the MSA based on its plain terms and structure of the MSA. 

The Commonwealth replies it is not asking the Court to change the 

language of the contract to protect its sovereignty. Rather, it asks this Court to 

enforce the plain meaning of “[e]ach side of the two sides to the dispute.” Section 

XI(c) of the MSA. 

2. Analysis

The MSA recognizes and protects the Settling States’ sovereign rights 

in numerous respects. Specifically, under the MSA, each State designates its own 

state court, which is responsible for implementing and enforcing the MSA with

regard to disputes within that State. See Sections II(p), VII(a), XVIII(n) & Ex. D 

of the MSA. And each of those state courts is to look to its own state law. See id.

The effect is that no Settling State is subject to the courts or the law of a sister 

State. Further, Section XVIII(j) of the MSA requires that any amendment to the 

MSA must be executed by all States affected by the amendment. See Philip 

Morris. 

As discussed above, the parties did not agree to resolve all disputes in 

state court. The MSA’s arbitration provision dictates that NPM Adjustment 
37

disputes, and all issues arising from and related thereto, are to be decided by 

arbitration. Section XI(c) of the MSA; see Section VII(a) of the MSA. 

Specifically, Section XI(c) of the MSA requires “[a]ny dispute, controversy, or 

claim arising out of or relating to” the payment determinations or calculations 

“made by ... the Independent Auditor” must be arbitrated, including “any dispute 

concerning the operation or application of any of the adjustments.” Section XI(c) 

further provides: “Each of the two sides to the dispute shall select one arbitrator.” 

Id. As the trial court aptly noted, “it is the plain text of that provision that makes 

the nature of the arbitration dependent on the nature of the dispute, not some stateby-state default.” Tr. Ct., Slip Op., at 34. The nature of the dispute is whether 

PMs are entitled to an NPM Adjustment for 2004, not merely one State’s diligent 

enforcement defense for that year. Id. As to this dispute, there are two sides –

Settling States on one, PMs on the other. Thus, multistate arbitration is the only 

reasonable interpretation of the MSA’s terms. 

Contrary to the Commonwealth’s assertions, its sovereign rights are 

not undermined by the application of multistate arbitration. The Commonwealth

voluntarily agreed to the terms of the MSA after “lengthy negotiations between 

sophisticated parties.” R.R. at 197a. Its sovereignty is respected when the courts 

follow the clear terms of the MSA and a reasonable interpretation of them. 

IV. Conclusion

In sum, this Court has jurisdiction over the Commonwealth’s appeal 

of the trial court’s orders as they are collateral orders. As to the merits of the 

Commonwealth’s appeal, we conclude multistate arbitration of the NPM 
38

Adjustment dispute, which includes whether the Commonwealth diligently 

enforced its qualifying statute, is the only reasonable interpretation of the MSA. 

We reject the Commonwealth’s sovereign rights argument because the 

Commonwealth willingly agreed to the terms of the MSA and a reasonable 

interpretation of them. 

Accordingly, we affirm the orders of the trial court compelling the 

Commonwealth to participate in multistate arbitration. 

 

ROBERT SIMPSON, Judge

Judges Cohn Jubelirer and McCullough did not participate in the decision in this 

case. 
IN THE COMMONWEALTH COURT OF PENNSYLVANIA

Commonwealth of Pennsylvania :

By Kathleen G. Kane, Attorney General,:

Appellant :

:

v. : No. 2422 C.D. 2014

:

Philip Morris, Inc.; RJ Reynolds :

Tobacco Company; Brown & :

Williamson Tobacco Corporation; :

B.A.T. Industries, PLC; The American :

Tobacco Company, Inc.; C/O Brown & :

Williamson Tobacco Corporation; :

Lorillard Tobacco Company; Liggett :

Group, Inc.; United States Tobacco :

Company; The Tobacco Institute, Inc.; :

The Council For Tobacco Research :

U.S.A., Inc.; Smokeless Tobacco :

Council, Inc., and Hill & Knowlton, :

Inc. :

O R D E R

AND NOW, this 18th day of November, 2015, the orders of the Court 

of Common Pleas of Philadelphia County are AFFIRMED.

 

ROBERT SIMPSON, Judge