New Mexico Sues Tobacco Companies Over Settlement Payments

ALBUQUERQUE, N.M. (AP) — New Mexico is suing more than a dozen tobacco companies, accusing them of conspiracy and breach of contract.

Attorney General Hector Balderas announced the legal challenge Tuesday, claiming that the companies have been withholding portions of annual payments that are due under a multi-state tobacco settlement that ended dozens of lawsuits that sought reimbursement for health care costs associated with smoking-related illnesses.

New Mexico's complaint centers on a specific provision of the 1998 settlement, saying abuse of that clause by the companies has resulted in the state losing out on more than $84 million over the last 14 years.

“There is no end to these baseless delay tactics, and it is time to force the tobacco companies to pay New Mexico what they owe for damages — funding much-needed health initiatives,” Balderas said in a statement.

The companies did not immediately return messages seeking comment on New Mexico's lawsuit.

Under the settlement, each company is obligated to make a payment to New Mexico each year. Instead, the attorney general's office says the companies file disputes every year that result in a percentage of the payment being withheld, triggering an arbitration process that can span years.

For example, the arbitration over 2004 payments wrapped up last month and arbitration concerning 2005-2007 payments has just begun.

With average annual payments ranging between $30 million and $40 million, state officials said that covers less than 5% of the New Mexico health care costs that are directly attributable to smoking. They estimated the price tag of smoking-related health care costs in 2021 at more than $980 million.

Montana mounted a similar legal challenge in 2020. It was successful in recovering more than $49 million in payments and interest wrongly withheld by tobacco companies and reached an agreement with the companies to not challenge that state’s annual payments for another decade.

In New Mexico, officials say the amount of settlement payments withheld grows each year.

According to the complaint, the defendants — which include tobacco giants Philip Morris and R.J. Reynolds — do not disclose to New Mexico exactly how much they are withholding or where the withheld funds are held. Withholding practices also can change from year to year.

State prosecutors say with this lack of transparency, New Mexico’s best estimate is that defendants withhold between $6 million and $9 million each year.

“This conspiracy is a calculated strategy to permanently and fraudulently decrease defendants’ contractual payments under the (settlement agreement) and to frustrate the purposes of the (settlement agreement),” the complaint reads.

The attorney general's office said many states have renegotiated with the tobacco companies over the years to avoid continued arbitration over annual payments, giving way to more favorable terms for the companies.

Only eight states continue to pursue full payment of what they are due under the settlement, New Mexico officials said.