Opinion ID: 171009
Heading Depth: 2
Heading Rank: 3

Heading: Allocable Share Amendment

Text: The Allocable Share Amendment (Amendment) at issue in these cases concerned the second manner in which escrowed funds can be releasedrefunding escrowed funds in excess of the amount an NPM would have had to pay under the MSA in a given year. The originally enacted escrow statutes permitted an NPM to obtain a refund of the amount the NPM paid into the escrow fund to the extent that a tobacco product manufacturer establishes that the amount it was required to place into escrow in a particular year was greater than the State's allocable share of the total payments that such manufacturer would have been required to make in that year under the [MSA] ... had it been a participating manufacturer. (Emphasis added.) See also Kan. Stat. § 50-6a03(b)(2)(B); Okla. Stat. tit. 37, § 600.23(B)(2). The settling states agreed to divide the annual MSA payment among themselves according to each state's preset allocable share, rather than according to the volume of sales made in a particular state in a given year. See Miller, supra, at 464. An NPM's payments into a state's escrow fund, on the other hand, were dependent on the number of cigarettes that the NPM sold in that state in a given year. Nevertheless, the originally enacted escrow statute based any refund of those escrowed funds payments on that state's allocable share of the national MSA payment. This refund provision, then, assumed an NPM would sell its cigarettes nationally. See id. at 469. Rather than selling cigarettes nationally, however, several NPMs instead concentrated their sales in just a few states. See id. Because the originally enacted escrow statute refunded escrow funds to the extent those funds exceeded each state's allocable share of the national MSA payment, NPMs were able to obtain refunds of most of the monies they had paid into a state's escrow fund. To illustrate, if an NPM only sold cigarettes in Kansas in 2006, the Kansas escrow statute would require that NPM to pay into the Kansas escrow fund $.0167539 for each cigarette the NPM sold in that state. See Kan. Stat. § 50-6a03(b)(1)(D). Pursuant to the refund provision in the originally enacted Kansas escrow statute, however, the NPM could obtain a refund of all but .8336712% of those payments. One commentator further explains that the calculations under the [originally enacted escrow] statutes were based on an assumption that a nonparticipating manufacturer sold cigarettes nationally. When this was the case, the statutes functioned as intended, permitting the NPM to obtain a refund of excess amounts placed in escrow in each state. However, when an NPM followed a regional sales strategy, as several did, the original escrow statutes allowed the NPM to obtain a refund that was much larger than intended. Miller, supra, at 469 (footnotes omitted). The Allocable Share Amendment (Amendment) revised the originally enacted escrow statute's refund calculation to remove the reference to the enacting state's allocable share of the annual MSA payments. The amended statute, therefore, now provides that an NPM will be entitled to a refund [t]o the extent that a tobacco product manufacturer establishes that the amount it was required to place into escrow, based on units sold in the state... in a particular year, was greater than the [MSA] payments, as determined pursuant to section IX(i) of that agreement including, after final determination of all adjustments, that such manufacturer would have been required to make based on such units sold had it been a participating manufacturer, the excess shall be released from escrow and revert back to such tobacco product manufacturer. Kan. Stat, § 50-6a03(b)(2)(B) (2005); see also Okla. Stat. tit. 37; § 600.23(B)(2). [5] Thus, an NPM still has to pay annually into a state's escrow fund an amount calculated by multiplying the number of cigarettes the NPM sells in that state during the year in question by the same per-cigarette amount for that year as set forth in the state's escrow statute. The NPM can obtain a refund to the extent those escrowed funds are greater than the amount that the NPM would have had to pay under the MSA for that same year, based upon that same number of cigarettes sold. One of Plaintiffs' complaints is that, under the Allocable Share Amendment, Kansas and Oklahoma get to keep more of an NPM's payment than if that manufacturer had been participating in the MSA. The reason for this is that Oklahoma, for example, gets just over 1% of the annual MSA payment made to all settling states. That percentage is fixed and will never change. Therefore, it may not accurately reflect the percentage of national cigarette sales made in Oklahoma for a given year. So even if 2% of the national cigarette sales for a given year occurred in Oklahoma, Oklahoma still receives only 1% of the annual MSA payment for that year. On the other hand, because an NPM's escrow payments are based upon the specific number of cigarettes the NPM sells in Oklahoma during that same year, that amount could increase (or decrease) from the amount represented by 1% of the MSA payment Oklahoma would have received, had the NPM instead joined the MSA. For most of Plaintiffs' theories of recovery, the fact that Kansas and Oklahoma might receive more from an NPM than if the NPM had chosen to join the MSA does not matter. What is relevant to Plaintiffs' theories is the amount that the NPM must pay. And that amount should, on a per-cigarette basis, be roughly the same as the per-cigarette cost to a manufacturer making payments under the MSA.