Tobacco Firms Balk at Payment

States and tobacco companies appear headed toward a legal showdown over more than $1 billion that the states say is owed under a 1998 agreement.

State attorneys general released the findings Tuesday of a study by an independent economic firm that found that the major cigarette companies have lost market share to smaller companies that were not part of the settlement with 46 states, including California.

The analysis by Brattle Group found that the settlement, which set marketing restrictions on the companies and required payments to states, was a “significant factor” contributing to the loss of market share for the large companies.

That finding is one of several determinations that would be necessary for the tobacco firms to reduce their annual payments to states under the agreement.

This year’s payment of $6.5 billion is due April 17. The tobacco companies contend that they should be able to reduce that by about $1.2 billion.

“We urge the companies to make their full payment on April 17,” said Idaho’s attorney general, Lawrence Wasden, in a telephone interview. “We believe that the states have good evidence to show that they have diligently enforced.”

Wasden said the companies would be entitled to a reduction only if states did not adequately enforce laws requiring cigarette makers outside the settlement to put money in escrow for future legal obligations.

The big cigarette manufacturers say the issue should go to arbitration and that they should pay less until that process is over.

“We think it’s clear that not all states were diligently enforcing the statutes,” said Charles Blixt, general counsel for R.J. Reynolds Tobacco Co. He said that was why companies that were not part of the settlement grew as they did.