N.C. Supreme Court Decision Denies Payment to Md. Tobacco Farmers

ANNAPOLIS, MD (Nov. 8, 2009) – Agriculture Secretary Buddy Hance announced that the North Carolina Supreme Court ruled against Maryland on Nov. 6, effectively denying any further payment to Maryland tobacco farmers from the nation’s largest tobacco companies under the 1999 National Tobacco Growers Settlement Trust (also referred to as the “Phase II” settlement). The case would have required Philip Morris, USA, Inc., R.J. Reynolds Tobacco Company, and Lorillard Tobacco Company to make payments through 2010 totaling about $13 million for the benefit of Maryland farmers, and $9 million for Pennsylvania farmers.

“We are disappointed that the Supreme Court decision in favor of the large tobacco companies and allowing them back out of their agreement thereby inflicting a huge economic loss to Maryland tobacco growers,” said Maryland Agriculture Secretary Buddy Hance. “We appreciate the insight offered by Justices Hudson and Timmons-Goodson, who wrote dissenting opinions in favor of Maryland farmers.”

The States of Maryland and Pennsylvania filed an appeal on Jan. 20, 2009, with the Supreme Court of North Carolina to hold the nation’s largest tobacco companies accountable to a 1999 Trust Agreement. The agreement between the tobacco companies and tobacco-grower states was intended to address the adverse economic consequences of the 1998 Master Settlement Agreement. The controversy centers on a provision in the Agreement that states that the payments to the farmers could end in the event of federal legislation benefiting tobacco growers and quota owners. The tobacco companies contended they no longer needed to make payments to Maryland and Pennsylvania farmers after Congress passed the Fair and Equitable Tobacco Reform Act (FETRA) in 2004. The legislation provided payments to tobacco farmers who produced tobacco under the federally-regulated quota system. Maryland and Pennsylvania did not receive FETRA payments because they did not produce quota tobacco. When the tobacco companies stopped paying, Maryland and Pennsylvania pursued action in the North Carolina court.

Despite the fact that farmers in other tobacco growing states benefited from FETRA because they participate in the tobacco quota system, the tobacco companies asserted that they no longer had to make Trust payments for the benefit of Maryland and Pennsylvania farmers. The North Carolina lower court ruled that FETRA did not affect the tobacco companies’ obligation under the 1999 Agreement and must still make payments to Maryland and Pennsylvania.

Source: Maryland Department of Agriculture

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