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Office of the Vermont Attorney General

Attorney General TJ Donovan Settles Arbitration Claims with Tobacco Companies

March 15, 2018

Vermont to Receive $28 Million; State Clears Backlog of Diligent Enforcement Disputes

AG, Governor, and Lawmakers Pledge Funds to Combat Opiate Epidemic

Attorney General TJ Donovan announced a settlement today with major tobacco companies in connection with the “Master Settlement Agreement” (MSA) that will bring approximately $28 million to Vermont. The Attorney General was joined by Governor Phil Scott, State Treasurer Beth Pearce, House Speaker Mitzi Johnson and President of the Senate Tim Ashe. Vermont lawmakers also announced their intention to use half of the settlement funds to combat the opioid epidemic in Vermont.

The current $28 million settlement resolves fourteen separate disputes between the State of Vermont and tobacco companies. The MSA requires signatory tobacco companies to collectively pay Vermont millions of dollars annually, in perpetuity. In return, Vermont must “diligently enforce” laws against smaller tobacco companies that are not parties to the MSA. If Vermont fails to diligently enforce those laws in a given calendar year, it stands to lose a substantial portion, or potentially all, of its annual MSA payment for that year. Disputes over this diligent enforcement go to arbitration. The tobacco companies and the states are currently in dispute over every year from 2004 through 2017.

States and tobacco companies signed the MSA in 1998 to settle states’ claims that major tobacco companies—including Philip Morris and R.J. Reynolds—were deceiving the public about the health consequences of smoking. Under the MSA, Vermont will receive millions of dollars from these tobacco companies, in perpetuity. For example, Vermont’s 2017 payment was about $34 million.

“Vermont has always diligently enforced its tobacco laws, and we will continue to do so,” said Attorney General T.J. Donovan. “This is a good resolution for our state.” Through this settlement, the State was able to negotiate a more favorable outcome, bringing money to Vermont now, rather than spending decades defending these disputes.

The Vermont legislature will determine how the settlement funds will be spent. Donovan noted, “With these settlement funds, we have a tremendous opportunity to make a positive impact. I want to thank House and Senate leaders for their commitment to allocating half of this settlement for fighting the opiate crisis in Vermont and the Governor for his support of the use of these funds.”

The settlement payment will add approximately $28 million to Vermont’s regular MSA annual payment, due in April. The precise amount of the settlement will be determined by an independent auditor using formulas provided in the MSA and settlement documents.

Last modified: March 15, 2018