North Carolina Supreme Court to Decide on Expediting Appeal of 2004 Phase II Payment Denial

RICHMOND (January 6, 2005) - The Virginia Tobacco Certification Board, Inc, a private corporation that administers the National Tobacco Grower Settlement Trust in Virginia, today announced that it has joined with its counterparts in 13 other tobacco-growing states to file a motion to expedite the appeal of a ruling that frees cigarette manufacturers from making 2004 contributions of up to $422 million to the Trust, commonly known as the Phase II Trust.

The Phase II Trust was created as part of the national tobacco liability litigation settlement to aid tobacco growers and quota holders in the 14 tobacco-growing states. On December 31, 2004, the Trust was scheduled to make the fifth of 12 annual Phase II payments to more than 340,000 tobacco growers and quota holders around the country, including over 42,000 Virginia payees.

On December 22, 2004, Judge Ben Tennille of the North Carolina Superior Court ruled that the three major cigarette manufacturers are not required to make 2004 payments into the Phase II Trust. The state certification boards and Trustee, JPMorgan Chase, challenged that ruling the next day, filing, as required, in the North Carolina Court of Appeals, the state’s intermediate appellate court.

In a trust agreement signed in 1999, the three companies, Philip Morris Inc., R.J. Reynolds Tobacco Company, and Lorillard Tobacco Company, pledged to deposit a Base Payment in 2004 totaling up to $500 million. That payment, as adjusted, was scheduled to exceed $422 million. On October 22, 2004, President Bush signed the Fair and Equitable Tobacco Reform Act, commonly known as the tobacco quota buyout law. The tobacco companies argued that the buyout barred their obligation to make further Phase II payments. By the terms of the Trust, the North Carolina courts are the only ones with jurisdiction over Phase II Trust disputes.

In his decision, Judge Tennille recommended that the North Carolina Supreme Court take up immediate review of his ruling, bypassing the Court of Appeals. “[T]he issues decided here…are as important as any the Supreme Court is likely to see in the future and they deserve expedited treatment. Timing is critical,” he wrote. The expedited appeal to the higher court, authorized by North Carolina law, would shave months of time from the appellate process. The North Carolina Supreme Court has discretion whether or not to speed up the appeal.