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NEW YORK -- With last week's filing of a motion to force attorneys general from five states to fulfill obligations they undertook in the 1998 Master Settlement Agreement (MSA), Bowling Green, Ky.-based cigarette manufacturer Commonwealth Brands Inc. is confident its counterparts have zero basis in disputing its motion to arbitrate.
"Essentially, we filed motions to compel arbitration, which is what (the MSA) calls for with this kind of dispute relating to the amount of payments due," Spencer Coates, Commonwealth Brands' chairman, told CSNews. "Of course, the states have come out and said they're doing their jobs and the claims are baseless, which is absolute hypocrisy."
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 less expensive cigarettes. Since they are not subject to the marketing restrictions of the MSA, they have made a practice of marketing to youths.
"I think the numbers themselves will show that the share of non-participating manufacturers (NPMs) has grown from virtually zero in 1998 to roughly 15 percent today," said Coates. "Frankly, our plan in court is going to say, 'If you don't have anything to be concerned about as far as diligent enforcement is concerned, why are you worried about arbitration?' We're pretty confident about what we know," he concluded.
In filing the "motion to arbitrate," Coates called on the 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.
According to Brian Maddox, managing director of media relations for the New York-based Financial Dynamics Business Communications firm representing Commonwealth, the capital markets are starting to take notice of the motion. "With Mr. Coates appearing on CNN Financial News, the revenue shortfalls of the states have been recognized," said Maddox. "The capital markets are seeing this progression as positive, because it suggests that the revenues might be collected as hoped."