Government-Tobacco Cartel Challenged In Court


Washington, D.C., August 2, 2005—The Competitive Enterprise Institute on Tuesday filed a constitutional challenge to the 1998 tobacco settlement.

The suit alleges that the agreement between 46 states and major tobacco companies is unconstitutional because it violates the Compact Clause of the Constitution:

No State shall, without the Consent of Congress … enter into any Agreement or Compact with another State.  (Article I, Section 10)

The Compact Clause was meant to prevent states from collectively encroaching on federal power or ganging up on other states.  The tobacco settlement set up a national government/tobacco cartel that harmed consumers and small businesses by increasing cigarette prices and restricting competition.

According to the terms of the settlement, major tobacco companies would make annual payments to the states in perpetuity, with an estimated cost of $206 billion over 25 years.  Small tobacco companies that were never part of the settlement are nonetheless required to make separate payments to the states.

“The tobacco settlement was a major government power grab at the expense of taxpayers and the rule of law,” said CEI President Fred L. Smith, Jr.

“This lucrative backroom deal between state attorneys general and the trial bar has created a new model for targeting other politically incorrect industries and their customers,” said Sam Kazman, CEI General Counsel.

“The States became business partners in establishing one of the most effective and destructive cartels in the history of the Nation,” the complaint alleges.

The suit was filed in the U.S. District Court for the Western District of Louisiana on behalf of a distributor; two small tobacco manufacturers; a tobacco store; and an individual smoker, against the state’s attorney general, Charles C. Foti, Jr.

Download a copy of the complaint here.