Cigarette Makers Conspired to Cut U.S. Tobacco Buying, Suit Charges
Philip Morris Cos. and other leading U.S. cigarette makers were accused in a suit of illegally conspiring to cut tobacco purchases from U.S. farmers--costing the growers billions of dollars.
The suit, seeking $69 billion, was filed in federal court in Washington and claims the companies that control the tobacco market have worked together for years to reduce their purchases of the domestic tobacco crop.
U.S. farmers sell their tobacco at auction and the cigarette companies are the only bidders, said Alexander Pires, an attorney for the farmers. The tobacco industry conspired to reduce federal quotas that control domestic tobacco production, a move designed to let the industry purchase cheaper tobacco from overseas and boost profits, Pires claims.
“To accomplish this goal . . . [tobacco companies] resorted to the same sort of misleading, deceitful and fraudulent conduct successfully utilized on previous occasions,” the suit claims.
While Philip Morris said it had not seen the complaint, general counsel Philip Barrington said the company believes the claims are “entirely hollow.”
“Unfortunately, it appears that a lawyer is trying to mislead some growers into thinking they have a case against tobacco companies,” Barrington said.
Brown & Williamson, a unit of British American Tobacco, said that most tobacco growers do not support the lawsuit, which will hurt the farmers more than help them.
“The lawyers themselves are the only ones likely to win in this litigation,” the company said in a statement.
The suit claims that companies sought to end the government regulatory system without any intervention by Congress. Lawyers claim that as far back as the mid-1980s, the companies conspired to create a “monopsony,” where one buyer can dictate prices to many farmers.
Pires said the companies have made up for buying less domestic tobacco leaf by importing more from Argentina, Mexico and other countries that produce it less expensively.
The suit seeks class-action status on behalf of 500,000 farmers in 14 states who have lost income, Pires added.
The tobacco industry has faced legal challenges in the past year from individual smokers, union health plans, wholesalers and the federal government, which is suing in an attempt to recover more than $20 billion a year that it claims to have spent treating smoking-related illnesses.
The nation’s four largest tobacco companies, Philip Morris, R.J. Reynolds Tobacco Holdings Inc., Brown & Williamson Tobacco Co., and Lorillard Inc., agreed in January 1999 to establish the National Tobacco Grower Settlement Trust to help tobacco farmers hurt by the November 1998 master agreement.
The farmers’ settlement, separate from a $206-billion accord with 40 states, will be paid out to farmers over 12 years. The four tobacco companies were named as defendants in the case.
Also listed as co-conspirators in the suit are the attorneys general of the 14 tobacco-growing states: Alabama, Florida, Georgia, Indiana, Kentucky, Maryland, Missouri, North Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia and West Virginia.
Philip Morris shares slipped 12 cents to $19 on the New York Stock Exchange on Wednesday, while RJR Tobacco inched up 6 cents to $20, and Loews, which owns Lorillard, added 44 cents to $48.88. British American Tobacco gained 25 cents to $9.31.
