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Tobacco companies sue to snuff out Oregon's new ‘equity assessment’

Companies are challenging a new state law in court, saying payments to account for the health effects of cigarettes would be unfair and unconstitutional
March 28, 2024

Tobacco companies have sued Oregon in state and federal court, claiming legislation approved in 2023 to collect funds from the sale of their products violates their rights.

Grand River Enterprises Six Nations Ltd, a Canadian firm that markets cigarettes in 52 countries around the world, sued Oregon Attorney General Ellen Rosenblum in U.S. District Court in Eugene on Thursday. The suit calls the new law “fundamentally unfair,” arguing it “runs roughshod over … limits on state power—and thus over the rights those limits protect.”

Similarly, in December Oklahoma-based Excaliber International, Ltd, LLC filed its own suit against Rosenblum in Marion County Circuit Court, saying the law violates the Oregon Constitution because it’s a tax but lacked the required two-thirds-vote in the Legislature. The law  “imposes a penalty … by legislative fiat, and for that reason deprives the (companies) of their right to a jury trial," the suit claimed.

A spokesperson for Rosenblum defended the law.

“This is not a tax. The assessment has a strong public health purpose by requiring cigarette manufacturers to build health care costs into the price of their cigarettes, which will raise retail prices and reduce youth smoking,” they wrote in an email

At issue? An obscure provision in a highly publicized national settlement with several major tobacco manufacturers in 1998 over smoking-related illnesses. 

The settlement allowed states to collect funds from manufacturers who had not been sued and had not signed the settlement. But in litigation around the country, some of the companies who haven’t signed the agreement have gone to court to argue it’s not fair to tax them as if they did.

“Big loophole”

In 2023, state lawmakers approved a bill intended to address an odd Oregon wrinkle of the situation — one that Rosenblum press release called a “big loophole.” The goal: make it easier for the state to spend funds collected from tobacco companies that hadn’t signed the settlement. Then the Oregon Health Authority could use it in support of public health.

Under previous Oregon law, rather than funding public health efforts or contributing to higher tobacco prices as other settlement cash did, payments from non-settlement tobacco manufacturers had accumulated in an escrow account.

The funds could only be tapped if the companies were sued by the state. The companies could withdraw interest earned on their escrow funds, and, if not tapped, the funds would revert back to the companies after 25 years.

As of last year’s legislative session, the account was up to $43 million, according to the state.

The companies that paid “treat the escrow accounts as investments,” wrote lobbyists for the Oregon Department of Justice in testimony on the bill. “Rather than forcing (companies) to internalize the costs of their harmful products, the escrow accounts provide another income stream.”

Oregon Health Authority officials, meanwhile, noted that smoking cessation efforts had been disproportionately successful with people who are not making poverty wages, and far less so with low-income people enrolled in the Oregon Health Plan.

The bill, HB 2128, passed the Oregon House narrowly and the Senate overwhelmingly. It called for the non-settlement companies to make direct payments of about $4 million a year to be spent by the Oregon Health Authority on public health. The payments were called “equity assessments,” meaning they would treat the no-settlement tobacco firms the same as those who were making payments under the settlement.

“Prevention efforts have never been well funded, and we know that prevention works. And by giving the money to local public health, you ensure that every community in Oregon will reap the benefits. With teenage vaping everywhere you look, we need to ramp up our efforts to ensure we do not have another generation of smokers with increased health care costs,” said Sarah Lochner, executive director of the Oregon Coalition of Local Health Officials, in testimony on the bill.

Suits sound similar themes

The two tobacco companies filed their cases independently using different law firms. But both complain that they are being discriminated against — much as their representatives did in testimony on HB 2128. 

The suit by Grand River Enterprises says the escrow payments were intended to be “security against potential future wrongdoing,” not payments to the state.

And both suits note that some cigarette makers that, like them, did not get sued, are not having to make the same payments — so the assessments are inequitable.

That argument refers to the fact that some cigarette makers were given the opportunity to be exempted from the payments if they signed on to certain terms in the national settlement within 90 days after it was reached.

The state has not yet replied to Grand River Enterprises in federal court.

But in state court, it replied to Excaliber International’s suit by filing a motion calling on the judge to throw out the case while citing the legislative history of the bill.

The motion will be heard on May 8.

You can reach Nick Budnick at [email protected] or via @NickBudnick.