R.J. Reynolds Tobacco Co. v. State
| Decision Date | 29 July 2020 |
| Docket Number | No. 4D18-2616, No. 4D18-2715,4D18-2616 |
| Parties | R.J. REYNOLDS TOBACCO COMPANY, Appellant, v. STATE of Florida and Philip Morris USA Inc., Appellees. Philip Morris USA Inc., Appellant, v. ITG Brands, LLC, Appellee. |
| Court | Florida District Court of Appeals |
Elliot H. Scherker, Brigid F. Cech Samole, and Stephanie L. Varela of Greenberg Traurig, P.A., Miami, for appellant R.J. Reynolds Tobacco Company.
Paul Vizcarrondo and Ben M. Germana of Wachtell, Lipton, Rosen & Katz, New York, New York, and David P. Ackerman and E. Raul Novoa Jr. of Akerman LLP, West Palm Beach, for appellee Philip Morris USA Inc.
Ashley Moody, Attorney General, Amit Agarwal, Solicitor General, Edward M. Wenger, Chief Deputy Solicitor General, and Russell Kent, Special Counsel for Litigation, Office of the Attorney General, Tallahassee; and Scott B. Cosgrove and Jeremy L. Kahn of León Cosgrove, LLP, Coral Gables, for appellee State of Florida.
Elizabeth B. McCallum and Robert J. Brookhiser Jr. of Baker & Hostetler, LLP, Washington, D.C., and James V. Etscorn and Robert W. Thielhelm Jr. of Baker & Hostetler, LLP, Orlando, for appellee ITG Brands, LLC.
This is a tale of two contracts. One contract, the Florida Settlement Agreement ("FSA") entered in 1997, in which appellant Reynolds agreed to make large payments to the State of Florida in perpetuity, based on the future sales of its brands of cigarettes in order to settle all claims of liability resulting from past and future medical costs to the state. The other contract, the Asset Purchase Agreement ("APA"), entered in 2014, where Reynolds sold four brands of cigarettes to ITG Brands for seven billion dollars. Reynolds now claims that due to the sale of these four brands, it is no longer required to pay the state under the contract it agreed to in 1997. It claims the cigarettes sold under these four brands are no longer the responsibility of Reynolds since they are no longer part of Reynolds's market share and that ITG, the new owner of these brands, had agreed to use "reasonable best efforts" to become part of the FSA.
We find that the second contract, the APA, between Reynolds and ITG did not in any way vitiate the responsibilities and obligations of Reynolds under the first contract, the FSA, to the State of Florida. We find the FSA to be a clear and unambiguous contract which required any amendment to the contract to be in writing and agreed to by all the parties to the contract. We find that the FSA required payments in perpetuity in exchange for the release of liability for past and future medical bills payable by the State of Florida.
We find, simply put, that a contract is a contract, and that Reynolds continues to be liable under the contract it signed with the State of Florida. Thus, we affirm.
In 1995, Florida filed a complaint against major tobacco companies, including Reynolds, Philip Morris, and others, to recoup healthcare costs incurred by the State of Florida due to the consumption of cigarettes. The parties settled the complaint from which came the Florida Settlement Agreement ("FSA") in 1997. The settlement was "binding upon all Settling Defendants and their successors and assigns." The "Settling Defendants" were defined as "those Defendants in this Action that are signatories to this Settlement Agreement," like Reynolds and Philip Morris. The Settling Defendants would make an initial payment and then annual payments in perpetuity based on their Market Share of the sales of cigarettes as follows in the FSA:
"Market Share," in turn, was defined as "a Settling Defendant's respective share of sales of Cigarettes, by number of individual Cigarettes shipped in the United States for domestic consumption ...."
In exchange for the payments in perpetuity from the Settling Defendants, Florida released the settling tobacco companies from past as well as future liability. At one point in the agreement, it stated that "[t]he payments to be made by Settling Defendants under the Settlement Agreement and this Stipulation of Amendment are in settlement of all of the State of Florida's claims for damages incurred by the State in the year of payment or earlier years related to the subject matter of this Action ...." At another point in the agreement, it stated that the payments in perpetuity were "to reimburse the State of Florida for medical expenses incurred by the State ...."
Merged as part of the FSA was a Florida Fee Payment Agreement, in which the Settling Defendants agreed to pay Florida's attorneys’ fees. The fees due and owing would be made by the Settling Defendants in pro rata proportion to their respective Market Share, just like the method outlined in the FSA. A merger clause stated:
The Settlement Agreement (including this Stipulation of Amendment, Florida Fee Payment Agreement and the Consent Decree) contains an entire, complete and integrated statement of each and every term and provision agreed to by and among the parties hereto relating in any way to the settlement of the tobacco litigation brought by the State of Florida, and is not subject to any condition not provided for herein.
Significantly, the FSA could be "amended only by a writing executed by all signatories hereto and any provision hereof may be waived only by an instrument in writing executed by the waiving party." There is no evidence in this record of any writing executed by any of the parties waiving or changing any of the terms of the FSA with respect to Reynolds's liability for payments.
The FSA, unlike a prior settlement agreement negotiated a year before between Liggett and the State of Florida, and the Master Settlement Agreement between 46 states and the Settling Defendants, did not include a provision for brand transfer. The Liggett Agreement and the Master Settlement Agreement both required that the party acquiring a brand transfer agree to be bound by all the obligations of the Settling Defendant. No such requirement releasing the Settling Defendant or obligating the acquiring defendant is present in the FSA.
In 2014, Reynolds entered into an Asset Purchase Agreement ("APA") with ITG, a non-Settling Defendant, to sell four brands of cigarettes, including Winston, KOOL, Salem, and Maverick, referred to as the "Acquired Brands," for seven billion dollars. Reynolds divested itself of the brands as a result of antitrust considerations that arose from a previous merger with Liggett. ITG agreed to "purchase, acquire and accept" all of Reynolds's "right, title and interest" in the Acquired Brands. Part of the "right, title and interest" acquired by ITG were "all benefits and credits under the State Settlements in respect of the Acquired Brands that relate to the period after the Closing Date." Additionally, ITG was to assume "all Liabilities under the State Settlements in respect of the Acquired Tobacco Cigarette Brands that relate to the period after the Closing Date." An exhibit to the APA stated that ITG was to "use its reasonable best efforts to reach agreements with each of the Previously Settled States, by which [ITG] will assume, as of the Closing, the obligations of a Settling Defendant under the ... Agreement with each such State."
Another exhibit to the APA stated that ITG would receive the benefit of a Previously Settled States Reduction:
Section 4.1 The Acquiror's assumption of the obligations of an OPM [Original Participating Manufacturer] with respect to the Acquired Tobacco Cigarette Brands includes receiving the benefit of the credits and reductions and other calculations applied to brands owned by an OPM under the MSA [Master Settlement Agreement] with respect to the period after the Closing. This includes, without limitation, receiving the benefit of the Previously Settled States Reduction.
Following the execution of the APA, neither Reynolds nor ITG made the required annual payment to the State of Florida for the Acquired Brands pursuant to the FSA. ITG never executed an amendment to the FSA to become a party to the FSA. Reynolds, although it discontinued annual payments to the State of Florida pursuant to the FSA,...
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