North Carolina Supreme Court to Expedite Appeal of 2004 Phase II Payment Denial 

RICHMOND (January 21, 2005) – The Virginia Tobacco Certification Board, Inc, a private corporation that administers the National Tobacco Grower Settlement Trust in Virginia, learned today that the North Carolina Supreme court has taken the rare action of granting the motion it filed, along with its counterparts in 13 other tobacco-growing states, 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.

“We’re very appreciative that the Justices of the North Carolina Supreme Court have decided to fast track the appeal,” said Commissioner J. Carlton Courter, Vice-Chairman of the Virginia Phase II Board. “Our hard working tobacco community is pleased to know that swifter resolution of this dispute will be forthcoming.”

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 in the North Carolina Court of Appeals, the state’s intermediate appellate court. The North Carolina Supreme Court has now decided to bypass the intermediate court, and rule directly on the appeal, a path it has taken in only a few cases in history. The Court has also speeded up the briefing and argument schedule. It is possible that oral argument on the case might be scheduled as early as May 2005.

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.

Because Judge Tennille stayed release of the Phase II Trust funds pending appeal, there will be no Phase II payments in 2004 unless and until Judge Tennille’s decision is overturned in the courts.