A.B. Coker Co., Inc., S&M Brands, Inc., CLP, Inc., Tobacco Discount House #1, Inc., and Mark Heacock v. Charles C. Foti, Jr., in his official capacity as Attorney General, State of Louisiana

This case challenges the Master Settlement Agreement of 1998 (MSA), through which the four major tobacco companies (the Majors) and the States became business partners in establishing one of the most effective and destructive cartels in the history of the Nation.

During the 1990s, state Attorneys General filed dozens of suits against the Majors alleging decades of fraud that cost the States billions of dollars in increased Medicaid expenses. Faced with the risk of verdicts that could drive them into bankruptcy, the Majors agreed to a settlement that transformed the States from adversaries into business partners. Thus, the MSA was born.

The MSA is a collective agreement among the state Attorneys General and the Majors that settled virtually all of the state lawsuits against the Majors by giving the States an ongoing share in the tobacco business. While the MSA disposed of all of the pending lawsuits with the strokes of several pens, States would receive their share of hundreds of billions of dollars in future tobacco revenues if, and only if, they each passed identical laws enforcing a tobacco cartel among the Majors and any other companies that joined the agreement. With their Attorneys General having already forfeited their legal claims and faced with billions of dollars dangling before them, State legislatures quickly fell in line. They passed statutes insulating the majors from price competition by imposing new “escrow” payment obligations on any non-participating manufacturer (NPM). Such escrow payments effectively exceeded the per-cigarette cost to the Majors of the MSA and thus erected barriers to entry and expansion that ensured the Majors would maintain their market shares despite their dramatic price increases to pay off the States. The settlement of the Majors’ massive potential liability thus was converted into a joint cartel under which the States received vast payoffs while the Majors were able to raise their prices well beyond the amount required for those payments.