State v. Am. Tobacco Co.
| Decision Date | 25 February 2020 |
| Docket Number | CIVIL ACTION NO. 5:96-CV-00091-JRG |
| Citation | 441 F.Supp.3d 397 |
| Parties | The State of TEXAS, Plaintiff, v. AMERICAN TOBACCO CO., Philip Morris USA, Imperial Tobacco Group Brands, LLC, R.J. Reynolds Tobacco Company et al., Defendants. |
| Court | U.S. District Court — Eastern District of Texas |
Ken Paxton, Attorney General of Texas, Jeffrey C. Mateer, First Assistant Attorney General, Darren L. McCarty, Deputy Attorney General for Civil Litigation, Joshua R. Godbey, Division Chief, Financial Litigation and Charitable Trusts Division, Elizabeth J. Brown Fore, Lead Attorney, Deputy Division Chief, Office of Attorney General, General Litigation Division, Texas State Bar No. 24001795, Cynthia A. Morales, Assistant Attorney General, Texas State Bar No. 14417420, Financial Litigation and Charitable Trusts Division, Christopher D. Hilton, Assistant Attorney General, Texas Bar No. 24087727, General Litigation Division, Lesli G. Ginn, Special Counsel for Civil Litigation, Texas Bar No. 24050664, Special Litigation Unit, Chad Ennis, Assistant Attorney General, Texas Bar No. 24045834, General Litigation Division, Austin, TX, for Plaintiff.
Mary-Olga Lovett, Texas Bar No. 00789289, Rene Trevino, Texas Bar No. 24051447, Katherine G. Treistman, Texas Bar No. 00796632, Aimee Housinger, Texas Bar No. 24083203, Greenberg Traurig, LLP, Houston TX, Jesse W. Wainwright, Greenberg Traurig, LLP, Texas Bar No. 00000049, Austin, TX, for Defendants R.J. Reynolds Tobacco Co.
Kelly Tidwell, Geoffrey P. Culbertson, Patton, Tidwell & Culbertson, LLP, Texarkana, TX, Elizabeth B. McCallum, Robert J. Brookhiser, Jr., Baker & Hostetler LLP, Washington, D.C., for Defendants ITG Brands, LLC.
Michael C. Smith, Siebman, Forrest, Burg & Smith, LLP, Marshall, TX, Paul Vizcarrondo, Jr., Ian Boczko, Steven P. Winter, David P.T. Webb, Wachtell, Lipton, Rosen & Katz, New York, NY, for Defendants Philip Morris USA.
Table of Contents
In January of 1998, faced with potentially crippling liability and a fellow tobacco manufacturer who had decided to cooperate with the State of Texas ("Texas"), the nation's remaining major tobacco manufacturers agreed to settle all claims with Texas on the eve of a trial set to begin in the United States District Court for the Eastern District of Texas, Texarkana Division.1 Over twenty years later, this Court now confronts disputes emanating from that settlement.
The Texas Comprehensive Settlement Agreement and Release ("Texas Settlement") provides that each settling defendant would make annual payments to Texas in perpetuity. After being amended twice, the final Texas Settlement provided that payments to Texas would be based on the number of cigarettes sold each year, in order to proportionately compensate Texas for the money it spends providing medical treatment to its citizens suffering from illnesses caused by the accused tobacco products. The Texas Settlement payments were perpetual by design to continually reimburse Texas for the increase in its citizens' healthcare costs. In exchange for these perpetual payments, Texas furnished each settling defendant with an equally perpetual release from liability—Texas forever waived any claims related to the use of or exposure to their tobacco products.
The Texas Settlement framework largely functioned as anticipated for seventeen years. However, in 2015, one of the settling manufacturers—R.J. Reynolds Tobacco Company ("Reynolds")—informed Texas that it no longer intended to make Texas Settlement payments regarding a sizeable number of cigarettes. Reynolds explained that it had sold four of its major brands—Winston, Salem, Kool, and Maverick ("Acquired Brands")—for approximately seven billion dollars, and that it would no longer make payments to Texas for those brands.2 The purchaser-by-assignment of the Acquired Brands, Imperial Tobacco Group Brands, LLC ("Imperial"), similarly disclaimed any intent to compensate Texas under the Texas Settlement for the sale of cigarettes produced under the Acquired Brands. According to Reynolds and Imperial, liability for the annual sales of those sixteen billion cigarettes had been extinguished by virtue of the contract assigning those brands to Imperial. Reynolds disclaimed liability because it no longer owned the Acquired Brands; Imperial disclaimed liability because it is not a signatory to the Texas Settlement. Instead, Reynolds and Imperial took the position that Texas must file a new lawsuit against Imperial if it wanted to be compensated for sales under the Acquired Brands going forward.
Texas disagreed. After sending a formal demand to Imperial and Reynolds, Texas filed its Motion to Enforce the Texas Settlement ("Texas' Motion to Enforce"). Texas claims that nothing in the Texas Settlement gives settling defendants, such as Reynolds, the power to unilaterally extinguish their liability, and Texas advances theories of contract liability applicable to both Reynolds and Imperial. Texas urges that under well-settled Texas law, a contracting party cannot unilaterally eliminate its obligations under a contract via an assignment to a third party. Texas also emphasizes that the Texas Settlement expressly binds successors and assigns, and Imperial acknowledges itself to be an "assign" of the Acquired Brands in the contract by which it purchased those brands. Finally, Texas urges that the central purposes of the Texas Settlement—finality and medical reimbursement—would be undercut if a settling defendant could eliminate its obligations under the Texas Settlement, while still profiting from the sales of those same cigarettes via a sale of the brands themselves.
Philip Morris USA ("PMUSA"), the only remaining settling defendant3 from the Texas Settlement (besides Reynolds) filed a similar Motion to Enforce the Texas Settlement ("PMUSA's Motion to Enforce") (collectively, "Motions to Enforce"). PMUSA based its motion on injuries it claims arise from Reynolds' wrongful distortion of the relative payment allocation system created within the Texas Settlement. PMUSA asserts that the less Reynolds pays, the more it pays. PMUSA also represents that if this Court recognizes a route for Reynolds to escape the obligations imposed by the Texas Settlement, PMUSA will likely do the same.
The Texas Settlement is a contract, and the role of this Court in interpreting that contract is to ascertain the expressed intent of its parties. As such, the question presented by the Motions to Enforce is whether the signatories to the Texas Settlement expressed an intent to allow the settling tobacco manufacturers to unilaterally extinguish their payment obligations under the Texas Settlement by selling the brands which form the subject matter of the Texas Settlement. For the reasons described herein, the Court concludes they did not.
Accordingly, having considered the Motions to Enforce, and for the reasons set forth herein, Texas' Motion to Enforce (Dkt. No. 2214) is GRANTED-IN-PART , DENIED-IN-PART , and CARRIED-IN-PART to the extent and as set forth herein. For the same reasons, PMUSA's Motion to Enforce (Dkt. No. 2222) is GRANTED-IN-PART , DENIED-IN-PART , and CARRIED-IN-PART to the extent and as set forth herein.4
Texas filed the litigation which gave rise to the Texas Settlement on March 28, 1996. Texas alleged that medical research increasingly showed that consumption of tobacco products had harmful health consequences and that Texas had spent significant sums of money through its delivery of Medicaid and other state-level healthcare programs to "citizens who suffer, or have suffered, from tobacco related injuries, disease or sickness" resulting from the settling defendants' tobacco sales. Original Complaint...
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