The recent Florida Supreme Court ruling that R.J. Reynolds must continue tobacco settlement payments to the state, despite having sold the cigarette brands in question, is a warning to settling parties that their agreements will be strictly construed, write Agustin Rodriguez and Dascher Pasco at Troutman Pepper.
This cautionary tale is important as state attorneys general and other regulators continue to resolve disputes via individual or multistate settlement agreements.
In December 2020, the Florida Supreme Court refused to take up R.J. Reynolds Tobacco Co.’s appeal of a ruling requiring the company to continue to make annual tobacco settlement payments to the state of Florida.
The court’s refusal to hear the case leaves in place, in perpetuity, Reynolds’ obligations to make payments under Florida’s 1997 tobacco settlement agreement on the volumes of certain cigarette brands that Reynolds sold to ITG Brands after its acquisition of Lorillard in 2015.
As a result, Reynolds’ parent company, British American Tobacco, took a $555 million charge and stands to owe more than $75 million per year in unanticipated settlement payments going forward.
In their article, Rodriguez and Pasco explore the background of the case and the lessons that companies should draw from the episode.
“As demonstrated by the Reynolds case in Florida, a settlement agreement is a binding contract between the parties with effects that may very well impact future business decisions,” they write.
“In order to ensure future contracts have the desired effect, parties should not only carefully consider any past settlement’s requirements but also ensure that the later contracts clearly and adequately express the parties’ desired outcome.”