Lawsuit Against Government-Tobacco Cartel Brought to Supreme Court

Washington, D.C., November 9, 2010 — After five years of litigation, a new challenge to the $200 billion backroom deal between major tobacco companies and 46 state attorneys general has been filed with the U.S. Supreme Court. CEI’s petition for Supreme Court review, filed yesterday, alleges that the tobacco “Master Settlement Agreement” violates the constitutional provision against multi-state agreements that have not been approved by Congress.

“The tobacco settlement was hatched in a smoke-free backroom between tobacco companies and state attorneys general,” said Sam Kazman, CEI General Counsel. “The state AGs imposed a massive national sales tax on cigarettes, without a single elected legislator at any level of government voting for it. This was a major power grab by state AGs at the expense of citizens.”

CEI’s challenge to the tobacco settlement focuses on the Constitution’s Compact Clause (Article I, Section 10):

“No State shall, without the Consent of Congress …enter into any Agreement or Compact with another State, or with a foreign Power ….”

The Compact Clause was specifically aimed at preventing states from collectively encroaching on federal power or from ganging up on the citizens of other states. The tobacco settlement, a multi-state compact, plainly violates that provision. The settlement set a dangerous precedent in disregarding constitutional protections against government power. The deal also violates federal antitrust laws, setting up a national tobacco cartel that allows Big Tobacco to raise prices while severely restricting its competitors.

According to the terms of the deal, major tobacco companies would make annual payments to the states in perpetuity, with an estimated cost of over $200 billion over 25 years. Even small tobacco companies that were never part of the state lawsuits or subsequent settlements are required to make major escrow payments to the states.

“The MSA is an economic, political, and legal abomination backed by powerful vested interests and upheld by inadequate and destructive legal reasoning,” the cert petition alleges.

The plaintiffs in the case are a discount tobacco company, a tobacco shop, and an individual smoker. Erik Jaffe is lead counsel in the case, assisted by former federal appellate judge and Stanford constitutional law professor Michael McConnell, and CEI attorneys Hans Bader and Sam Kazman.

         S&M Brands v. Caldwell – Fifth Circuit Ruling Affirming Dismissal, August 10, 2010

         CEI press release and district court filing, August 2005

         “Compacts and Collusion,” by Michael S. Greve, American Enterprise Institute

         “The States’ Tobacco Addiction,” by George F. Will

         Fact and Comment by Steve Forbes – see Poleaxing Smoke-Blowing Pols’ Plaintiffs’-Bar Payoff

         “Tobacco Deal-Breaker?,” The Wall Street Journal

         “Unconstitutional Cartel,” by former Colorado Treasurer Mark Hillman, for the Wall Street Journal

         “Up in Smoke,” by Investors Business Daily

         “Can a Little Lawsuit Shut Down a Big Tobacco Racket?,” by Jonathan Rauch

         Cato Institute policy analysis, “Restraining State Attorneys General, Curbing Government Lawsuit Abuse,” by Michael DeBow