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RJR Owes for Former Brands Under Landmark 1998 Tobacco Deal

Feb. 26, 2020, 10:49 PM

RJ Reynolds Tobacco Co. owes Texas hundreds of millions of dollars for former brands under the 1998 tobacco settlement that resolved health claims between the states and cigarette makers.

The ruling Tuesday by U.S. District Judge Rodney Gilstrap in Marshall, Texas, applied to four cigarette brands RJR sold to Imperial Tobacco Group Brands LLC in 2015 for more than $7 billion: Winston, Salem, Kool and Maverick. The state sued RJR, which still makes Camel and other brands, in 2019 for missed payments.

The landmark 1998 deal called for the tobacco companies to pay some $206 billion to states to compensate for health-care and other costs incurred by smoking-related illnesses. Liability was apportioned by market share, and the four brands at issue accounted for 7.5% of cigarette sales.

“Reynolds accepted a perpetual release in return for agreeing to make perpetual payments,” Gilstrap said in a 92-page decision. “Reynolds remains as liable today as it was when it entered into the Texas Settlement in 1998.”

Kayleigh Lovvern, a spokeswoman for the Texas attorney general’s office said Wednesday the company is on the hook for “hundreds of millions in past and future payments” as a result of Gilstrap’s ruling.

Industry Consolidation

The judge said the parties who negotiated the 1998 settlement likely did not anticipate the wave of consolidation that would transform the tobacco industry. RJR, now called Reynolds American Inc., was acquired by British American Tobacco PLC for $49 billion.

But Gilstrap chastised the company for arguing that its “responsibility to continue its payments to address the misery and costs visited upon the people of Texas by those brands had been snuffed out” by its sale of the brands.

According to Gilstrap’s decision, RJR claimed to have assigned liability to Imperial as part of the brands’ sale, but the payments to Texas simply stopped in 2015.

The judge said Imperial’s possible liability would be determined in a separate proceeding in Delaware.

(Adds details from ruling)

To contact the reporter on this story:
Laurel Calkins in New York at lcalkins@bloomberg.net

To contact the editors responsible for this story:
David Glovin at dglovin@bloomberg.net

Anthony Lin

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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