Opinion ID: 623239
Heading Depth: 2
Heading Rank: 2

Heading: Plaintiff Becomes a Party to the MSA

Text: Plaintiff entered the tobacco market in 2000, two years after the MSA’s execution. Plaintiff originally operated as an NPM in a few states, including Kentucky, Florida, and North Carolina. It paid into state escrow accounts, but the states began to amend their escrow statutes to make the escrow payments more burdensome. Ultimately, Plaintiff determined that it would be more profitable to operate as an SPM. Plaintiff joined the MSA in 2004 by negotiating its Adherence Agreement (AA) with Attorneys General Defendants. The AA outlined Plaintiff’s mandatory back-payment amount and the payment amounts it would make going forward. These payment amounts were determined, in part, based on Plaintiff’s two-percent share in the national tobacco market (the largest share among NPMs at the time). According to Plaintiff, during negotiations for the AA, Attorneys General Defendants failed to explain the extent of the payment reductions granted to grandfathered SPMs and denied Plaintiff access to this information on the grounds that other PMs’ payment arrangements were confidential. Plaintiff also claims that it was assured that Attorneys General Defendants enforced their Escrow Statutes (thereby confirming to Plaintiff that it would be more beneficial to join the MSA) and that the No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 6 LMFN clause would not prevent Plaintiff’s ability to obtain more favorable terms under the MSA if it sought to do so at a later date. After joining the MSA, Plaintiff became dissatisfied with the disparate treatment afforded the other tobacco companies, such as the lack of back-payments for the OPMs and the reduced payment obligations available to eligible grandfathered SPMs. Plaintiff’s per-carton payment obligation to Attorneys General Defendants was higher than the obligations of the OPMs and some SPMs. Plaintiff eventually was unable to meet its back-payment obligations and its payments going forward, as was required by its AA. In an attempt to renegotiate its position under the MSA, Plaintiff sought to execute an Amended Adherence Agreement (AAA) with Attorneys General Defendants. The AAA was more favorable to Plaintiff than the AA because it lessened Plaintiff’s payment obligations. According to Plaintiff, however, the AAA did not contain more favorable terms than the OPMs or grandfathered SPMs had under the MSA. Initially, Attorneys General Defendants were willing to execute the AAA. However, the PMs learned of the proposed AAA’s terms and sent written notice to Attorneys General Defendants to remind them of the LMFN clause. Specifically, the PMs noted that if the AAA contained more favorable terms than the PMs had under the MSA, the LMFN clause would be triggered and the PMs would seek to receive the beneficial AAA terms. Attorneys General Defendants requested that the PMs waive any LMFN rights that they may have if the AAA was executed, but the PMs refused to waive their rights. Based upon this knowledge, Attorneys General Defendants declined to execute the AAA with Plaintiff. As a result, Plaintiff remains a party to the MSA through its original AA. Plaintiff initiated the present civil action alleging that Manufacturer Defendants violated two antitrust provisions of the Sherman Act by assisting with the creation of the allegedly discriminatory MSA and by invoking their allegedly baseless LMFN rights. Plaintiff also raised claims against Attorneys General Defendants, asserting that the MSA violates the Equal Protection Clause, Due Process Clause, Commerce Clause, and No. 10-5043 VIBO Corp., Inc. v. Conway, et al. Page 7 Compact Clause of the United States Constitution. Finally, Plaintiff raised a fraudulent inducement claim against Attorneys General Defendants for allegedly failing to provide Plaintiff with material information regarding the payment terms of the other PMs during its AA negotiations.