McGraw's tobacco plan won't work, lawyer argues

By Steve Korris | Mar 6, 2009


CHARLESTON – America doesn't have enough retired federal judges to arbitrate tobacco tax disputes the way West Virginia Attorney General Darrell McGraw proposes to do it.

McGraw favors separate arbitration proceedings in each state, while tobacco company lawyer Steve Patton of Chicago prefers a single nationwide arbitration.

Kanawha Circuit Judge Irene Berger ordered West Virginia to join nationwide arbitration in 2007. McGraw petitioned to overturn her decision at the Supreme Court of Appeals.

At oral arguments on Feb. 24, Patton told the Justices that the tax agreement between states and tobacco companies requires arbitration of disputes by three retired judges.

Each side would choose a judge, and the two judges would pick a third.

If every state set up a panel, the supply of retired federal judges would run out.

"I think there's 121 of them out there still alive," Patton said.

Tobacco companies seek a reduction of their payments, claiming states haven't diligently enforced the agreement.

The agreement provides for downward adjustments if companies that signed the agreement lose market share to companies that didn't sign it.

Companies can't obtain adjustments until they prove that states didn't diligently enforce a provision requiring states to restrict competition.

Nationwide, billions of dollars depend on resolution of the dispute.

West Virginia could lose $58 million in payments for 2003, the only year involved in the dispute currently before the Supreme Court of Appeals.

Tobacco companies have already prepared to dispute payments since 2003.

Price Waterhouse accounting firm, independent auditor of the agreement, has declined to declare that states didn't diligently enforce the agreement.

At oral arguments, assistant attorney general Ron Brown said nationwide arbitration appears nowhere in the agreement.

"It is a state specific issue," he said.

Chief Justice Brent Benjamin said that if arbitration proceeded state by state, "You will get inconsistencies that states will exploit."

Brown said West Virginia's interests are opposed to interests of other states. He said a ruling that West Virginia diligently enforced the agreement would be adverse to other states.

Patton said every court that has heard the argument for state arbitration has rejected it.

He said, "With conflicting decisions this whole thing falls apart."

He said each state would intervene in every other arbitration.

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