Vice Squad
Monday, February 23, 2004
Aren't Settlements Supposed to Be Voluntary?

The 1998 settlement (available, in all its 285-page glory, from this website) between Big Tobacco and state attorneys general recognized that the future settlement payments (based on market share) would be put at risk if new or non-settling firms increased their own market share. So the settlement, remarkably, required states that wanted to protect their future payments from the settling firms to enact a model law that would mandate firms not participating in the settlement to make payments similar to those made by the settling firms -- whew -- ostensibly to create a fund from which future claims (from litigation) could be paid. The actual language in the model statute really is amazing: "It would be contrary to the policy of the State if tobacco product manufacturers who determine not to enter into such a settlement could use a resulting cost advantage to derive large, short-term profits in the years before liability may arise without ensuring that the State will have an eventual source of recovery from them if they are proven to have acted culpably. It is thus in the interest of the State to require that such manufacturers establish a reserve fund to guarantee a source of compensation and to prevent such manufacturers from deriving large, short-term profits and then becoming judgment-proof before liability may arise."

I find this amazing: "if they are proven to have acted culpably." With such a standard, the state (oh, I mean, State) should require that all of us set up a large escrow account, in case we later misbehave and do not have the funds to pay adequate recompense.

But why mention it today? Well, once again we are seeing news articles about state concerns that the existing measures to prevent "avoidance" of the agreement are proving insufficient; here are samples from Pennsylvania, West Virginia, and Florida (this last not a signatory to the master settlement, but one of four states to sign a separate agreement). So, as Vice Squad has mentioned before, states are looking for further measures to ensure that their stream of settlement payments are not unduly disturbed.

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