Opinion ID: 1536130
Heading Depth: 2
Heading Rank: 1

Heading: The Master Settlement Agreement (MSA)

Text: [¶ 2] In the mid-1990s, the State and forty-five other states and six territories sued the major U.S. cigarette companies. In 1998, the civil action commenced by the State was settled when the Superior Court ( Kravchuk, C.J. ) entered a consent decree and final judgment approving the MSA. The MSA similarly settled the claims alleged by the other states and territories (collectively, Settling States). [¶ 3] Pursuant to the MSA, the Settling States released past and future claims against Participating Manufacturers. Participating Manufacturers include both Original Participating Manufacturers and Subsequent Participating Manufacturers. Original Participating Manufacturers are the companies that originally joined the MSA. Subsequent Participating Manufacturers are companies that later signed the MSA. In exchange for the release of claims, the Participating Manufacturers agreed to numerous marketing limitations, other restrictions, and to make substantial annual payments to the Settling States based on their national cigarette sales. [¶ 4] The MSA provides that an Independent Auditor shall calculate and determine the amount of all payments owed pursuant to the MSA. To determine the amount of each Participating Manufacturer's payment, the Independent Auditor begins with a base amount, then applies various adjustments and reductions.
[¶ 5] Among these adjustments is a Non-Participating Manufacturer Adjustment. A Non-Participating Manufacturer is a tobacco product manufacturer that is not bound by the terms of the MSA. If applied, the Non-Participating Manufacturer Adjustment can reduce the Participating Manufacturers' annual payments. The Non-Participating Manufacturer Adjustment takes effect only if two conditions are met: (1) if the Participating Manufacturers' total market share (based on 1997 levels) decreased more than two percentage points in the calendar year for which the payment is calculated (referred to as a Market Share Loss), and (2) if a group of economic consultants determines that the MSA was a significant factor contributing to the Market Share Loss. [¶ 6] The MSA, however, provides a safe-harbor for the Settling States to avoid application of the Non-Participating Manufacturer Adjustment. If the Settling State had a Qualifying Statute in full force and effect for the entire year before the payment is due and the Settling State has diligently enforced the statute, then the Settling State's allocated payment is not subject to the Non-Participating Manufacturer Adjustment. [¶ 7] A Qualifying Statute is a law that neutralizes the costs and other disadvantages that Participating Manufacturers experience because they, unlike the Non-Participating Manufacturers, agreed to the terms of the MSA. If a Settling State is not subject to the Non-Participating Manufacturer Adjustment because it diligently enforced its Qualifying Statute, then the amount of the Non-Participating Manufacturer Adjustment is reallocated on a pro-rata basis to the Settling States that did not diligently enforce their Qualifying Statutes.