Lawsuit Against Tobacco Settlement Proceeds

Federal Court Hears MSA Lawsuit Amid Embarrassments Over Settlement Spending

Washington, D.C., February 6, 2008—A lawsuit challenging the 46-state tobacco “Master Settlement Agreement” (MSA) proceeds today, amid fresh reports of states misspending settlement revenue.

The lawsuit, brought by the Competitive Enterprise Institute, is the subject of a hearing in federal district court on Monday. The lawsuit seeks to overturn the $246 billion tobacco settlement reached by state attorneys general and major tobacco companies in 1998.

“The tobacco settlement was an unconstitutional, corrupt power grab by state attorneys general and trial lawyers,” said Sam Kazman, CEI General Counsel. “The corrupt, backroom tobacco deal imposed a massive, permanent tax on consumers and funded countless wasteful government programs, without helping a single sick smoker,” said Kazman.

The case against the settlement proceeds just as new reports emerged about wasteful spending of the settlement money. In Virginia, for example, lawmakers have questioned whether more than $1 billion in settlement money had been spent well (see story). In fact, the Government Accountability Office reports annually on how states are spending settlement money and found that very little of it goes to health or smoking-related programs.

The CEI lawsuit alleges that the tobacco Master Settlement Agreement violates the Compact Clause of the Constitution, which explicitly prohibits states from entering into agreements (“compacts”) with one another without the consent of Congress.

“We want to send a message to states and to attorneys general, in particular, that they are not above the law,” said Kazman. “The Founding Fathers wanted to explicitly put Congress in charge of the power of states to form multi-state agreements. Looking at the tobacco settlement, which was used to force even the most reluctant states to join, it’s understandable why the Founders were suspicious of multi-state agreements.”