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Commonwealth Brands Launches Legal Challenge to Attorneys General

BOWLING GREEN, Ky. -- Commonwealth Brands Inc., a cigarette manufacturer based here, filed a motion to force New York State Attorney General Eliot Spitzer and the attorneys general of Connecticut, New Mexico, Arkansas and Virginia to fulfill obligations they undertook in the historic settlement that they and 41 other states agreed to in 1998 with Commonwealth and other tobacco companies.

The motion claims that because the attorneys general have not kept the promises they made in the settlement, there has been a huge increase in the number of "renegade" companies selling very cheap cigarettes. Since they are not subject to the marketing restrictions of the Master Settlement Agreement (MSA), they have made a practice of marketing to youths.

In filing the "motion to arbitrate," Spencer Coates, Commonwealth Brands' chairman, called on Spitzer and the other attorneys general to enforce statutes that "effectively and fully neutralize" the cost disadvantages between manufacturers who chose to join the MSA and those who have refused to join. He claimed their failure to do so has meant that an estimated 10 to 15 percent of the market is now in the hands of tobacco companies that are not participating in the settlement.

The motion also claims that the failure to enforce has also significantly reduced state revenues expected from the settlement. The National Association of Attorneys General estimates that the states lost $600 million in 2004 alone due to the growth of these "renegade" companies.

"Spitzer's lack of enforcement not only has resulted in some companies selling at artificially low prices, it has also greatly reduced the collection of the settlement fees by the states," said Coates. "This should be a source of great concern to American taxpayers, many of whom have had to face budget cuts and tax increases because of the dire fiscal situation many states have been facing in recent years."

The MSA was designed to reduce teen smoking, limit tobacco advertising and reimburse the states for the costs they incurred treating their citizens suffering from tobacco-related illnesses. The tobacco companies that are parties to the agreement include the Big Four -- Philip Morris, Brown & Williamson, R.J. Reynolds and Lorillard -- that were originally parties to suits by the states, as well as a number of smaller companies, like Commonwealth, which were never sued but voluntarily chose to join the agreement.

The remaining non-participating manufacturers (NPMs) -- the so-called "renegades" -- refused to sign but are supposed to make similar payments under legislation enacted in New York and the other states that joined in the agreement. The agreement imposes steep penalties on states that do not "diligently enforce" these statutes against the NPMs.

According to Coates, "The AGs have failed to collect the payments due from these companies. They have also refused to honor their agreement to arbitrate the issue, and so have virtually dared us to challenge them in court. That is what we are doing with this motion."
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