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The $206 Billion Settlement That Transformed The Tabacco Industry

Article Written By: Rdu Dillion

Edited By: Jenna Jokhani

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Twenty-two years ago, the largest class-action lawsuit of all time took place in the United States. The 1998 tobacco master settlement agreement went down in legal history for its staggering sum of $206 billion USD, a figure previously unprecedented in any legal settlement.

While by technical terms not a class action, as it comprised of various cases which were brought forward by 46 state attorney generals on behalf of their states against numerous tobacco makers, it is typically referred to as one due to its immense proportions and similarity to the typical class action.

Four major tobacco companies- Philip Morris, R.J. Reynolds, Lorillard, and Brown & Williamson settled a court case with 46 states and the district of Columbia for the hefty costs incurred by the states from having to treat a range of smoking-related illnesses from emphysema to lung cancer to low birth weight in their Medicaid programs. The companies agreed to curtail or cease certain marketing practices such as those aimed at youth- the Marlboro man and Joe Camel as well as to pay, in perpetuity, a variety of annual payments to the 46 states in compensation for a certain proportion of the medical costs of caring for persons with smoking-related illnesses.

The most commendable part of the suit, however, was the win-win aspect of the resolution, where only consumers, in whose name the class action suits were filed, would lose out.

The litigation was mostly in return for tax increases on cigarettes. The deal constituted a tax increase that would warrant a loss of around $1 billion per year in profits for the companies while yielding the government about $13 billion a year in revenues. Meanwhile, as smoking would be on a steady decline, the price hike would allow companies to settle lawsuits cheaply in addition to being protected from future private litigation. The respective state governments would raise taxes under the concept of "settlement payments," and the lawyers would be able to argue for contingency fees based on tax collections instead of the much smaller cost to companies.

Despite the magnitude of its success, the master settlement agreement has been subjected to various criticisms over the years, most commonly criticized for being far too lenient on the major tobacco companies. Prominent anti-smoking advocate William Godshall encapsulated this sentiment perfectly in his speech at the National Tobacco Control Conference- "With unprecedented future legal protection granted by the state A.G.s in exchange for money, it appears that the tobacco industry has emerged from the state lawsuits even more powerful".

Others allege that the major tobacco companies were given preferential treatment over their smaller market counterparts as certain specific restrictions on pricing as a result of the suit make it far more difficult for independent growers to have any hope of competing with "Big Tobacco". In regards to this claim, twelve states so far have successfully fought against this argument in court but to no success during the last two years and the enforcement of the master settlement agreement continues ubiquitously to this day.



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