Last summer, we wrote about the Iowa Attorney General’s $133 million suit against the tobacco manufacturers that are signatories to the Master Settlement Agreement (MSA).  Brought in Iowa state court, this suit alleged that those manufacturers (commonly referred to as “Participating Manufacturers”) acted in bad faith by disputing (and delaying the ultimate payment of) the amounts they owe to the state under the MSA. On August 22, 2023, Iowa compromised its past and future claims under the lawsuit and joined 37 other states that have settled similar disputes. Iowa Attorney General Brenna Bird announced that the state reached a settlement with the Participating Manufacturers that will result in the state receiving payments of more than $171 million over the next six years.  

The protracted dispute centered around a provision of the MSA known as the “NPM Adjustment.” The MSA requires the Participating Manufacturers to make substantial annual payments to MSA states. Part of the MSA bargain between the Participating Manufacturers and the settling states requires the states to pass and “diligently enforce” statutes that obligate non-participating manufacturers (“NPMs”) to make similar payments into escrow accounts.

To ensure that states keep up their end the bargain, the MSA allows Participating Manufacturers to dispute the amount they owe to a state if the state fails to diligently enforce its NPM escrow statutes. Such disputes are subject to arbitration, and Iowa has been involved in NPM Adjustment arbitrations for the years 2004 through 2007. As the Iowa press release related: “Iowa was one of only nine states that was still litigating this dispute in slow-moving and massive arbitration proceedings. Before this settlement, Iowa and those States had still been fighting over the annual payment amounts from over 18 years ago and had not been paid any of those disputed amounts.”

Iowa’s Tobacco Settlement Authority Act provides for the issuance of bonds to fund capital projects, debt services, and attorneys fees related to the MSA; such bonds were secured by a pledge of all or a portion of the state’s share of MSA payments. Iowa now states that it will use 78% of the payments to pay down the state’s debt to bondholders and deposit the rest in the State Treasury’s Rebuild Iowa Infrastructure Fund.

Eight states continue to arbitrate the matter. New Mexico brought a similar lawsuit as Iowa that has yet to be resolved.