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North Dakota to receive $34 million in tobacco settlement

BISMARCK--A settlement agreement involving major tobacco companies will release more than $34 million from an escrow account to North Dakota, the state attorney general's office announced Tuesday.

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iStock photo

BISMARCK-A settlement agreement involving major tobacco companies will release more than $34 million from an escrow account to North Dakota, the state attorney general's office announced Tuesday.

The agreement settles a decade-long dispute between the state and the major tobacco companies over enforcement of the 1998 Tobacco Master Settlement Agreement (MSA). The agreement requires the tobacco companies to make annual payments to the 46 states that signed on to the agreement, including North Dakota.

The MSA settled state litigation against the four major tobacco companies for health care costs and other damages imposed upon the states by cigarette smoking, according to the National Association of Attorney Generals.

The payment provisions of the MSA were designed to compensate the states, in part, for the billions of dollars in health care costs associated with treating tobacco-related diseases under state Medicaid programs. To date, states have received more than $50 billion in settlement payments, the NAAG said.

"This is a win-win proposition for North Dakota. We will see an immediate payment of more than $34 million, and will also eliminate the need for an expensive arbitration process year after year," Stenehjem said in a statement.

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In addition to paying the states annually, the tobacco companies must permanently restrict their advertising, promotion and marketing of cigarettes, the NAAG said.

The tobacco companies have withheld part of their combined annual settlement payments, claiming the states, including North Dakota, had not diligently enforced a specific tobacco-control statute, the attorney general's office states in a press release. The adjustment, which is subject to arbitration, has forced North Dakota "to devote considerable resources and money to prove it diligently enforced its laws." North Dakota won its first arbitration dispute, concerning funds withheld in 2003. If it had not won, the state risked losing more than $20 million.

Without the settlement, North Dakota was scheduled to arbitrate the 2004 payment dispute this month, which was worth around $23 million.

"By settling the dispute for 2004, and all potential disputes through 2017, the settlement agreement resolves all disputes concerning past annual payments, and eliminates decades of potential litigation," Stenehjem said.

Under the terms of the structured settlement, the tobacco companies are required to release 100 percent of the disputed payments held in escrow.

In addition to the lump sum payment, North Dakota will continue to receive the annual payments due under the MSA.

In return, the tobacco companies receive a partial credit on the next five years of annual payments. The tobacco companies are also required to release the state from any claims to the balance of annual payments for a certain number of years, which they might otherwise be able to arbitrate on an ongoing basis over the course of many years or even decades.

"If North Dakota had been forced to continue with these annual arbitrations, it risked losing the entire annual payment for any year it was found non-diligent," Stenehjem added.

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Through the end of the 2015-17 biennium, North Dakota has received more than $470 million in tobacco settlement payments.

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