N.C. jurist orders release of Phase 2 money from trust fund

GREENSBORO, N.C. (October 6, 2005) - Tobacco growers in 14 states should be paid $318 million as part of 1998's settlement between states and cigarette makers while litigation continues, a judge ruled yesterday.

The pending legal matter is whether farmers are entitled to more money.

The tobacco companies fought unsuccessfully in North Carolina courts for a refund, arguing that the compensation due to farmers was overridden by last year's passage of a $10 billion federal buyout of tobacco quotas.

The quota allowed farmers to grow a specific amount of tobacco and ended with the buyout. In the farm economy, quotas added value to land and were used as loan collateral.

John Ray Davis, executive director of the state's certification board, said a farmer who had a 3,000-pound tobacco allotment would receive about $450.

The ruling means that more than 42,000 farmers and tobacco quota owners in Virginia stand to receive about $28 million in payments they had expected early this year.

North Carolina Business Court Judge Ben Tennille also ruled that the bank holding the money as trustee could pay $114 million directly to the state of Kentucky, which approved legislation that paid its growers the money before the case was settled.

In total, the money represents payments by cigarette makers for the first three quarters of 2004.

The companies continue to dispute whether they should make a final payment of $106 million that was due for the fourth quarter of 2004.

The North Carolina Supreme Court ruled last month that the companies must make payments for 2004 because during that time they had not started paying for the quota buyout.

That ruling affected 80,000 tobacco growers and more than 300,000 tobacco quota holders in Virginia, North Carolina, Kentucky, Tennessee, South Carolina, Georgia, Ohio, Indiana, Florida, Missouri, West Virginia, Alabama, Maryland and Pennsylvania.

An agreement between the 14 states and the companies gave legal jurisdiction to courts in North Carolina, which is the nation's leading tobacco state, to decide the issue.

Tennille said he would hear arguments this month over the final round of disputed payments.

The payments stem from a $206 billion settlement of anti-smoking lawsuits that were filed by 46 states against the cigarette makers. After that settlement, the tobacco companies agreed to a second part of the deal -- Phase 2 -- which would compensate tobacco growers and quota-holders for reduced tobacco demand by paying them $5.1 billion over 12 years.

The agreement provided for a reduction or stop in the payments if the losses were made good in some other way, such as the $10.1 billion tobacco-quota buyout approved by Congress last year.

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