ILNews

State must arbitrate with tobacco companies

Jennifer Nelson
January 1, 2008
Keywords
Back to TopCommentsE-mailPrintBookmark and Share
States involved in a settlement agreement with certain tobacco companies to recover health care costs for smoking-related illnesses must participate in a single, national arbitration panel when arbitrating issues, ruled the Indiana Court of Appeals today.

In State of Indiana, ex rel., Stephen R. Carter, Attorney General of Indiana v. Philip Morris Tobacco Company, et al., No. 49A02-0706-CV-494, the state appealed the trial court order requiring Indiana to arbitrate with Philip Morris and other tobacco companies the decision of the independent auditor to not apply a particular adjustment for 2003 regarding a master settlement agreement.

In the late 1990s, certain states - including Indiana - created a master settlement agreement (MSA) with certain tobacco companies in order for the states to receive health care costs for smoking-related illnesses developed by the states' residents. Other tobacco companies later became parties to the agreement. All of the participating manufacturers (PMs) were required to make substantial annual payments based upon certain data and calculations set forth in the MSA.

An independent auditor is required to calculate the amount of all payments owed under the MSA and also determines any applicable adjustments or reductions.

In 2003, the independent auditor did not apply a non-participating manufacturers (NPM) adjustment to the PMs' payments. The NPM adjustment potentially reduces the annual payment of the PMs in compensation for their market share loss to NPMs.

The settling states agreed with the auditor's final calculations for 2003, but the PMs moved the trial court to compel arbitration of the matter. The trial court held a hearing and determined the matter should be arbitrated per the MSA. The state filed a motion to correct error, which the trial court denied.

Indiana appealed, arguing the trial court erred when it ordered the state to participate in arbitration pursuant to the MSA; also, the state believed the trial court erred when it ordered arbitration by a single, national arbitration panel.

The arbitration clause in the MSA states any dispute, controversy, or claim arising out of or relating to calculations made by the independent auditor shall be submitted to binding arbitration before a panel of three, neutral arbitrators. The state argued that this issue is not arbitrational because the state had enforced a qualifying statute, which allowed for the denial of the NPM adjustment, and the enforcement of the qualifying statute is not arbitrational.

Senior Judge George Hoffman Jr. wrote in the opinion that under the MSA, the NPM adjustment is an arbitration issue because the NPM adjustment is a calculation determined by the independent auditor. The dispute between the settling states and the tobacco companies arose out of the auditor's calculation, which must be arbitrated per the MSA. In fact, the independent auditor is charged with making the determination of the state's diligent enforcement of its qualifying statute because it is a part of the NPM adjustment determination.

In regards to the state claim that the trial court erred in ordering it to arbitrate the issue by a single, national panel instead of a panel of three, neutral arbitrators, the state cited the arbitration clause in the MSA that stated each of the two sides of the dispute select an arbitrator, and those two arbitrators then pick the third one.

Senior Judge Hoffman wrote the language and the structure of the MSA require that the dispute must be submitted to a single, national arbitration panel, expressly providing "each of the two sides to the dispute shall select one arbitrator." The two sides in the dispute are the settling states - not just Indiana - and the PMs.

"If the parties had meant for each Settling State to have its own arbitrator or arbitration panel, this sub-section of the MSA would not have specified a panel of only three arbitrators, which clearly indicates a national arbitration," he wrote.

Also, the MSA is an agreement of nationwide concern with national effect and structure. The language as well as the structure of the MSA requires disputes such as this to be determined by a single, national arbitration panel, Senior Judge Hoffman wrote.
ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Hmmmmm ..... How does the good doctor's spells work on tyrants and unelected bureacrats with nearly unchecked power employing in closed hearings employing ad hoc procedures? Just askin'. ... Happy independence day to any and all out there who are "free" ... Unlike me.

  2. Today, I want to use this opportunity to tell everyone about Dr agbuza of agbuzaodera(at)gmail. com, on how he help me reunited with my husband after 2 months of divorce.My husband divorce me because he saw another woman in his office and he said to me that he is no longer in love with me anymore and decide to divorce me.I seek help from the Net and i saw good talk about Dr agbuza and i contact him and explain my problem to him and he cast a spell for me which i use to get my husband back within 2 days.am totally happy because there is no reparations and side-effect. If you need his help Email him at agbuzaodera(at)gmail. com

  3. The practitioners and judges who hail E-filing as the Saviour of the West need to contain their respective excitements. E-filing is federal court requires the practitioner to cram his motion practice into pigeonholes created by IT people. Compound motions or those seeking alternative relief are effectively barred, unless the practitioner wants to receive a tart note from some functionary admonishing about the "problem". E-filing is just another method by which courts and judges transfer their burden to practitioners, who are the really the only powerless components of the system. Of COURSE it is easier for the court to require all of its imput to conform to certain formats, but this imposition does NOT improve the quality of the practice of law and does NOT improve the ability of the practitioner to advocate for his client or to fashion pleadings that exactly conform to his client's best interests. And we should be very wary of the disingenuous pablum about the costs. The courts will find a way to stick it to the practitioner. Lake County is a VERY good example of this rapaciousness. Any one who does not believe this is invited to review the various special fees that system imposes upon practitioners- as practitioners- and upon each case ON TOP of the court costs normal in every case manually filed. Jurisprudence according to Aldous Huxley.

  4. Any attorneys who practice in federal court should be able to say the same as I can ... efiling is great. I have been doing it in fed court since it started way back. Pacer has its drawbacks, but the ability to hit an e-docket and pull up anything and everything onscreen is a huge plus for a litigator, eps the sole practitioner, who lacks a filing clerk and the paralegal support of large firms. Were I an Indiana attorney I would welcome this great step forward.

  5. Can we get full disclosure on lobbyist's payments to legislatures such as Mr Buck? AS long as there are idiots that are disrespectful of neighbors and intent on shooting fireworks every night, some kind of regulations are needed.

ADVERTISEMENT