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Koster Letter to GA on Escrow Statute

Koster Letter to GA on Escrow Statute

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Published by: nphillips0304 on Mar 30, 2012
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03/30/2012

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ATTORNEYGENERALOFMISSOURI
CHRISKOSTER
ATTORNEYGENERAL
JEFFERSONCITY
65102
P.O.Box
899
(573)751-3321
January25,2012TheHonorableRobertMayerStateSenator,District25StateCapitol,Room326JeffersonCity,MO65101DearSenatorMayer,Iwritetoaskyoutoenactlegislationrepealingalong-standingflawinthestate'stobaccoescrowstatute.FailingtoactmayalreadyhavecostMissourimillionsofdollarsintobaccopayments.Asyouknow,Missouriand45otherStatessignedaMasterSettlementAgreement(MSA)in1998toresolveclaimsagainstseveraltobaccocompaniesforthecostoftreatingthediseasescausedbytheirproducts.UndertheMSA,thesetobaccocompaniesagreedtoeducatethepubliconsmoking-relatedhealthrisks,toforgoalladvertisingtochildren,andtomakeannualpaymentstothestates(includingapproximately$150milliontoMissourieachyear).TobaccocompaniesthatrefusetosigntheMSAarenotboundbyitsadvertisingrestrictions.Norhasanystate,includingMissouri,releasedthesenon-signatorycompaniesfromtheirliabilityforthedamagetheirproductshavecausedthepublichealth,includingongoingcoststoourstate'sMedicaidfund.ToensurethatfundsareavailabletopayanyclaimsMissouriandtheotherstatesmaybringagainstthesenon-signatorycompaniesinthefuture,theMSAincludedmodelescrowlegislation.Eachstate,includingMissouri,enactedanescrowstatuterequiringnon-signatorycompaniestoplaceaportionoftheirannualrevenuesinaqualifiedescrowaccounttopayfuturejudgments.AlltobaccomanufacturersmusteitherjointheMSAorcomplywiththisescrowlaw.Unfortunately,agapinthelaw'sdraftingledtounintendedconsequences,allowingnon-signatorycompaniestogamethesysteminMissouri.Thisflaw,calledtheAllocableShareRelease,allowsnon-signatorytobaccomanufacturersthatconcentrate
 
TheHonorableRobertMayerPage2theirsalesinonlyafewstatestorecovernearlytheirentiredepositattheendofeachyear,defeatingtheverypurposeofthelaw.The45otherstatesthatsignedtheMSArepealedthiserroneousprovisionyearsago.Missouristandsaloneinitscoddlingofthesenon-signatorycigaretteproducers.Since2002,bothAttorneyGeneralNixonandIhaveconsistentlypetitionedtheGeneralAssemblytocorrectthiserror.Becauseyouhavenotdoneso,non-signatorytobaccomanufacturersareallegedtohavedisproportionatelyconcentratedtheircigarettesalesinMissouriandcontinuetoharmourcitizenswithoutanyenforceableobligationtopayforthedamagetheycause.Butbeyondjustthecosttothepublichealth,theMissourilegislature'sfailuretorepealtheAllocableShareReleaseprovisionoftheescrowstatutemayalsocostourstatemillionsofdollarsinannualMSApayments.ThetobaccocompaniesthatmakethosepaymentshaveraisedseriousallegationsthatMissourihasnotdiligentlyenforceditsescrowstatute.Innosmallpart,theycomplainthatthesenon-signatorycompanieswhichconcentratetheirsalesinMissouriarestillabletorecovernearlyalloftheirescrowpaymentseachyear.Inshort,thefailuretorepealtheAllocableShareReleasehasallowedsignatorycompaniestocontesttheirpreviouspaymentstoMissouriinanattempttoclawbackmillionsofdollarsfromtheGeneralAssembly.TheAttorneyGeneral'sofficeiscurrentlylitigatingthisissue.InApril,Missourientersarbitrationhearingsregardingthe2004tobaccopayments.IfMissouriwinsthisarbitration,thestatusquoremains.IfMissourilosesthisarbitration,morethan$100millionofstaterevenuecouldbelostfromthe2004MSApaymentalone.Ifthathappens,Missouriwillsurelybesuedforthesamepaymentsin2005,2006,2007,2008,2009,2010,2011and2012.Thelosstoourstatefromthoseyears'paymentscouldtotalmorethan$1billion.Simplyput,theGeneralAssembly'sinactionoverthelastdecadehasplacedourstateinterribleandunnecessaryperil.Unfortunately,it'salreadytoolatetoeliminatethatriskforfiscalyears2004to2012.Whateverdamageisattributabletolegislativeinactionduringthoseyearshasalreadyoccurred,andthereisnothingthatcanbedonetofixitnow.Theresolutionoftheseyears'enforcementeffortswillbedecidedinthecourtsorinanegotiatingroom.WhatIamaskingisthatyouaddressthisriskforfiscalyears2013andbeyond.WhiletheAttorneyGeneral'sOfficeunderthen-AttorneyGeneralNixon,aswellasunderthecurrentadministration,hasaggressivelyenforcedtheescrowstatuteasit

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