NCSL Tobacco Settlement Update

NCSL Tobacco Settlement Update
October 26, 1999

What is state-specific finality? State-specific finality occurs when a state court gives final approval to the state's settlement and consent decree. This must be a final approval. The consent decree implements the provisions of the settlement in the state. Legal challenges to the consent decree in a state are possible. All the time available to appeal the court's decision must have expired, or alternatively, if approval of the settlement is appealed, state-specific finality cannot be attained until a final decision regarding approval of the settlement has been rendered by the court of jurisdiction in the state. When state-specific finality is attained, the state becomes vested and funds deposited in the Master Settlement Agreement (MSA) escrow account can be transferred to a special account, within the MSA escrow account, established specifically for the state. If a state fails to obtain state-specific finality by December 31, 2001, its participation in the settlement is terminated.

What is final approval? The final approval date for the MSA is the earlier of June 30, 2000 or the date when 80 percent of the settling states have obtained state-specific finality and those states represent 80% of the settlement payments to states. No funds can be dispersed from the MSA escrow to the states until final approval is attained. If the requisite number of states have not reached state-specific finality before June 30, 2000, the funds will become available to all states that have reached state-specific finality on June 30, 2000.

How many states have state-specific finality and how much of the total payments do they represent? To date, 44 states (includes American Samoa, Northern Mariana Islands, Guam, the U.S. Virgin Islands and Puerto Rico) have attained state-specific finality. They represent 79.7 percent of the settlement payments to states. The following states do not have state-specific finality: Alabama, Arkansas, Arizona, Missouri, New Jersey, Pennsylvania, Tennessee, and Virginia.

When may final approval occur? Virginia is very close to attaining state-specific finality. If the state court rejects the last remaining appeal as anticipated, Virginia would attain state-specific finality in November. This means that final approval would occur in November or December of this year, because 80 percent of the states representing at least 80 percent of the settlement payments will have attained state-specific finality.

After final approval occurs, when will states receive their funds? After final approval occurs, the settling states and the participating manufacturers are to immediately notify the Independent Auditor (Pricewaterhouse Coopers). The Independent Auditor is responsible for calculating and making payments to the states. After the Independent Auditor has been notified, the auditor must officially notify each settling state that final approval has occurred and the amount of funds in its escrow account. Settling states and participating manufacturers have 10 days to dispute the information included in the Independent Auditor's notice. If the settling states and participating manufacturers agree that final approval has occurred and the payment amount for each state is correct, the Independent Auditor is to instruct the Escrow Agent, Citibank, to disburse the funds to the states that have attained state-specific finality. If a dispute does occur, the Independent Auditor will instruct the Escrow Agent to credit the disputed amount into the "Disputed Payments Account" and to disburse the remaining amount to the settling states.

How many payments have the participating manufacturers made into the escrow account? The first payment ($2.4 billion) was made on December 28, 1998.

What account is the money sent to? The National Association of Attorneys General (NAAG) recently requested wire transfer information from the Attorney General in each of the settling states. The Attorney General is the "Notice Party" in each state and will have access to a secured website where up-to-date information will be made available to states. You should contact your Attorney General to get state-specific information.

NCSL Staff Contact:

Joy Johnson Wilson at 202/624-8689