State asks Phila. judge to overturn tobacco settlement ruling

PHILADELPHIA A ruling last year that potentially stripped Pennsylvania of hundreds of millions of dollars it was getting as part of the sweeping settlement with tobacco companies was legally flawed, attorneys for the state told a Philadelphia judge Friday.

Lawyer Robert Loeb said the arbitration panel of retired judges that made the decision last year was "bamboozled" by tobacco company attorneys who contended that Pennsylvania failed to enforce laws for collecting tobacco taxes and other payments.

"We're not seeking something we don't deserve," Loeb told Common Pleas Court Judge Patricia A. McInerney in a hearing in City Hall. "We're not trying to take money from other states."

The arbitration panel determined that Pennsylvania failed to properly enforce escrow settlement provisions and, among other things, did not properly tax loose-leaf tobacco, used in "roll your own" cigarettes.

Pennsylvania Attorney General Kathleen Kane wants the judge to vacate the arbitration panel's award, arguing that the state enforced the agreement and that the companies miscalculated the percentage of sales of roll-your-own tobacco.

State officials say the decision could deprive the commonwealth of more than $200 million this year, slashing the funding for several health programs and initiatives.

Attorneys for the tobacco companies said both sides had agreed to binding arbitration with the goal of avoiding future lengthy court battles. They said that the panel's decision overrides state laws and that it must be upheld unless it could be proved the members had acted in bad faith - an argument the state disputed.

Peter J. Biersteker, a lawyer for RJ Reynolds, said the state was seeking a windfall.

"It takes chutzpah for Pennsylvania to show up here," he argued.

McInerney was not expected to rule Friday.

The 1998 settlement with four of the nation's largest tobacco manufacturers stipulated that 46 states and the District of Columbia were to receive an estimated $206 billion over 25 years. The panel's ruling on the settlement disputes involved 15 states, nine of which won favorable decisions. The panel found that six, including Pennsylvania, failed to diligently enforce contractual provisions.

The tobacco companies' payment to Pennsylvania is due April 14.

The state is also asking that if the panel's decision is upheld, the cost of compensating the companies be divided among the states that settled, as well as those that were found to be non-diligent.

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