North Carolina Supreme Court Rules Against Tobacco Companies Denying 2004 Phase II Payments 

RICHMOND (August 19, 2005) – The Virginia Tobacco Certification Board, Inc, a private corporation that administers the National Tobacco Grower Settlement Trust in Virginia, announced today that the North Carolina Supreme Court reversed the state’s Business Court and ruled that cigarette manufacturers are in fact obligated to make the 2004 contributions of up to $424 million to the Trust, commonly known as the Phase II Trust.

“We’re very pleased the North Carolina Supreme Court has interpreted the federal buyout legislation the same way we do in the grower community,” said Don Anderson, Virginia Tobacco Certification Board member. “These payments will go a long way in helping and meeting the needs of the farmers and quota holders who have put on hold for much of the past year.”

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 sixth of 12 annual Phase II payments to more than 340,000 tobacco growers and quota holders around the country, including more than 42,000 Virginians.

On December 22, 2004, Judge Ben Tennille of the North Carolina Superior Court ruled that the four major cigarette manufacturers were not required to make 2004 payments into the Phase II Trust. The state certification boards and the trustee, JPMorgan Chase, challenged that and appealed that ruling the next day.

In a trust agreement signed in 1999, the four major tobacco companies, Philip Morris Inc., R.J. Reynolds Tobacco Company, Lorillard Tobacco Company and Brown & Williamson (now part of R.J. Reynolds) agreed to contribute an annual payment, which in 2004 would have exceeded $424 million. On October 22, 2004, President Bush signed the Fair and Equitable Tobacco Reform Act (FETRA), commonly known as the tobacco quota buyout law. The tobacco companies argued that the buyout relieved them of any obligation to make further Phase II payments, including that due in 2004. By the terms of the Trust, the North Carolina courts have exclusive jurisdiction over Phase II Trust disputes.

A copy of today’s opinion by the North Carolina Supreme Court can be found at www.aoc.state.nc.us/www/public/html/opinions.htm.