Iowa attorney general sues tobacco companies over $133M in withheld payments

DES MOINES — Iowa Attorney General Tom Miller is suing tobacco companies to recover $133 million in withheld payments stemming from the 1998 Master Settlement Agreement, he announced in a news conference Thursday.

The lawsuit, filed in the Polk County District Court, charges that major tobacco companies, including Philip Morris and R.J. Reynolds, have withheld millions of dollars in payments that were specified in the settlement.

“We have fought, and won, these legal battles for years, and there is no end to these disputes in sight,” Miller, a Democrat, said in a news release. “We now must escalate the matter and force the tobacco companies to pay what they owe the state of Iowa.”

The Master Settlement Agreement, entered into by major tobacco companies and the attorneys general of 46 states, required the companies to pay millions of dollars every year to the participating states, as well as curtail their advertising campaigns in those states.

The states, in return, agreed not to sue for further health damages.

Iowa has received $1.41 billion in payments over the last 24 years, but Miller said the companies have withheld portions of the money for years in what he characterized as false claims.

According to the lawsuit, the tobacco companies have disputed Iowa’s enforcement of provisions of the 1998 settlement every year since 2003, withholding money and forcing the state into multiple yearslong arbitration processes to recover the money.

“This is a calculated strategy to permanently and fraudulently decrease or avoid part of defendants’ payment obligations,” the lawsuit states.

The provision at issue is a requirement for companies that didn’t participate in the settlement — known as non-participating manufacturers — to pay money into escrow in case they get sued, Miller said.

Participating companies can withhold portions of payments to states claiming that the state did not “diligently enforce” this provision, which is the reason the companies are withholding funds from Iowa.

The state won arbitration and collected withheld payments from 2003 in 2014 and won arbitration over withheld payments from 2004 in 2021, but that money hasn’t been paid.

In 2021, the arbitration panel ruled that Iowa had diligently enforced its laws on non-participating tobacco companies.

“Eighteen years later, we still haven't been paid what we had coming,” Miller said.

The state is currently in arbitration for the years 2005 through 2007, Miller said in the release.

In response to previous arbitration included in the lawsuit, Philip Morris and R.J. Reynolds contended that the growth of non-participating manufacturers, their market share, and the price of their products were evidence Iowa was not enforcing the terms of the settlement.

The lawsuit states that those factors “unquestionably do not apply” to Iowa, and that Iowa winning two previous arbitrations prove that was not true.

The lawsuit is seeking to recover punitive damages for up to three times the actual damages under Iowa’s False Claims Act, as well as attorney fees and other costs, according to the release.

The plan to sue the companies follows a similar lawsuit the state of Montana filed in 2020. In the Montana suit, the state claimed the companies withheld $43 million in payments since 2006.

Former Montana Attorney General Tim Fox, who filed the state's lawsuit and left office in 2021, has joined the legal team as outside counsel for Iowa's lawsuit.

Altria Group, the parent company of Philip Morris, did not immediately respond to a request for comment.