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Monday, October 21, 2013
Ind. Gov't. - More on "State to lose $63M in tobacco payments next year"
INDIANAPOLIS – The state is set to lose $63 million in tobacco payments next year after an arbitration panel determined it had not worked hard enough to collect funds from cigarette companies that weren’t part of the original deal.The Arbitation Panel's Final Award re: State of Indiana
The ruling – issued last month by a three-judge panel – will reduce Indiana’s payment from $131 million to $68 million.
And there’s the potential for the state to lose even more. The recent ruling addresses claims from payments in 2003; the years 2004 through 2012 remain in dispute. * * *
Forty-six states, including Indiana, signed what was called a master settlement agreement in 1998 with four of the largest cigarette manufacturers in the United States. Since then, another 40 or so tobacco companies have joined the settlement, which requires the companies to make annual payments to states.
The amounts paid vary depending on the state and manufacturer and vary by year. They are primarily based on the number of cigarettes sold.
The settlement allows companies to reduce the amount they pay to states if they’ve lost market share to cigarette manufacturers that aren’t part of the agreement. States were to be exempt from the cuts if they enacted – and enforced – laws that imposed obligations on any non-participating companies that sold cigarettes within their borders.
But the arbitration panel ruled in September that Indiana and five other states had failed to diligently collect those payments and therefore the participating tobacco companies could reduce what they paid to the states.
Rep. Charlie Brown, the ranking Democrat on the House Public Health Committee, said the state’s tobacco payments have been used to pay for programs designed to stop smoking, help support community health centers, provide matching money for the Children’s Health Insurance Program, and finance sickle cell anemia research.
“What is disturbing about this decision is that it appears to be tied to our state’s complete failure to pursue compliance from those cigarette manufacturers that chose not to be a part of the original settlement,” said Brown, who was the author of the original bill that defined the uses of tobacco settlement money.
“Indiana was asked to make an effort to get companies that did not sign the agreement to make payments into an escrow fund if they chose to do business here,” Brown said. “Obviously, they didn’t try hard enough.”
Denise Keane, executive vice president and general counsel of Altria Group, which owns Philip Morris USA, said last month that the decision “sends a strong message about the importance of diligently enforcing the laws that apply to non-participating manufacturers.”
The panel’s decision did not affect 22 states and jurisdictions that joined had a December 2012 settlement of the master settlement disputes. But Indiana and 14 other states opted to take the issue to arbitration instead of settling.
The arbitration panel ruled in favor of nine states, saying they had done what was necessary to meet the terms of the master settlement. But Indiana and five other states lost.
“The non-diligent states could have avoided (the) result altogether had they either diligently enforced their escrow statutes or joined December’s settlement of these issues,” Keane said last month.
The ILB has obtained from the Attorney General's office a copy of the 23-page, Sept. 11, 2013 final award document.
The findings and conclusions specific to Indiana begin on p. 18. Notice first that the attorneys for Indiana are identified as Church, Church, Hittle & Antrim.
In answer to my question, Bryan Corbin, public information officer for the attorney general's office, said:
Former Attorney General Steve Carter is serving as consultant to the State in the arbitration matter rather than as outside counsel.The witnesses for Indiana are listed. Remember that this arbitration focuses on events that took place in the year 2003. The 9 witnesses include Greg Zoeller, who was then "Chief of Advisory Section". They do not include Steve Carter, who was the Indiana Attorney General in 2003.
Pages 20-23 set out the "factors considered in the determination of diligent enforcement" and an analysis of how Indiana was graded for each of the factors. If you have read this so far, you should read pp. 20-23 for yourself. Basically, the conclusions are that for the year 2003: A) Indiana's collection rate was one of the lowest; b) few lawsuits were filed and no judgments were enforced; c) Indiana had no program to track noncompliance; d) resources were not allocated to enforcement; e) Indiana did little to prevent non-compliant nonparticipating members from future sales; f) "Although Indiana did pass some significant supporting legislation, there was little effort in utilizing it"; g) "Indiana sent too few demand or notice letters, and had no formal enforcement processes in place until late in the game"; h)"Although representatives from Indiana purportedly attended several NAAG conferences, there was no evidence of contribution to or ideas adopted from that group."
What role did former-Attorney General Carter play?
From the Jan. 25, 2010 issue of Indiana Legislative Insight (used with permission)
Carter's (very) little legal billsThe ILB has accessed the contract with Mr. Carter discussed in the 2010 ILI story. It is a $35,000 contract that began on Jan. 15, 2010 and ended on April 15, 2010. Carter's duties, as specified in the contract:
Ex-AG to arbitrate tobacco deal for State
No other members of the media were around for this month's meeting of the State Ethics Commission at which former Attorney General Steve Carter (R) sought a Formal Advisory Opinion from the panel that would allow him to represent the State of Indiana in arbitration against non-participating tobacco
manufacturers (NPMs) under the 1998 Tobacco Master Settlement Agreement (MSA).
MSA terms require cigarette makers to make an annual payment to offset health care costs allegedly caused by their products. Other costs are assessed based upon an independent accounting analysis to ensure a level of fair competition between all companies, and 2003 payments are being challenged on the basis of whether states were diligently enforcing certain statutes against NPMs.
At stake: some $1.1 billion. However, the National Association of Attorneys General (NAAG) explains, "arbitration could resolve underlying legal issues and create precedents for disputes over potential NPM Adjustments for 2004-2008" that could total yet another $4.1 billion.
Carter received approval from the Ethics Commission for the work on behalf of the Office of the Attorney General to handle the arbitration work before a trio of former federal judges in the complex proceedings that will determine whether each state has diligently enforced MSA provisions against the non-participating tobacco companies. No conflict existed with his previous service.
Other states have hired outside law firms and found the cost of gearing up for arbitration – ramping up to speed with the MSA's 10-year history, forging a relationship with the NAAG five-attorney team overseeing state efforts (and which will present the general case overview before the individual states appear), working with the MSA participating manufacturers, and understanding the nature of the arbitration process – has resulted in "some real sticker shock," Attorney General Greg Zoeller (R) tells us.
General Zoeller explored retaining outside counsel – including former federal judges – before concluding that Carter's MSA history, his work as NAAG's president, and his understanding of the nature of the non-legal policy decision that an AG has to make made him the ideal person to handle the matter for the state (other AGs are reportedly envious of the Carter hire!).
Carter will contract with the State for a retainer of $10,000 per month – the "cheapest [arrangement] I've heard from any of my colleagues," proclaims Zoeller, who also points to the "value-added of eight years of experience" that his predecessor brings to the table, the likes of which other states are having to fund as they bring their outside counsel up to speed.
While we understand that expectations are for less than four months worth of work, no one – including the tobacco companies – should assume the State would set an arbitrary, up-front cap on resources devoted to protecting its interests.
Since the arbitration process itself is novel, it's too early to have a complete read on the length of the arrangement, and Carter or another attorney or entity could be involved for a period beyond the initial period contemplated.
Is there a conflict with former AG Carter representing the State? Neither the Ethics Commission in Formal Advisory Opinion 10-I-2 nor the Attorney General believe so. Zoeller tells us that he approached Carter to do the work for the State, and was not solicited by Carter for it. The AG sees the State as benefiting from Carter's experience, knowledge, and lack of the conflicts that he (and his colleagues) found permeating potentially qualified outside law firms. Carter, however, is "not adverse to the state and never has been," says Zoeller. "If he was going to be representing the tobacco companies, I would have shown up at the Ethics Commission‰ to oppose him, the AG says.
Uncertain today: whether Carter may also take on work for any other states. The former AG tells us that he has not talked with any other states about doing so.
WHEREAS, the State desires to engage Consultant to provide expertise and advice on the proper structure and strategy of the State's presentation in a unique national tobacco arbitration proceeding of critical importance to Indiana (the "Professional Services'). As the State's Attorney General for eight years, the Consultant offers unique qualifications for the required duties set forth.The remainder of the contract looks to be the standard, state-required boilerplate.
NOW THEREFORE, in consideration of the premises and the mutual promises and covenants set forth below, it is agreed by and between the State and Consultant as follows:
1. Duties of Consultant. Consultant shall perform the Professional Services as requested by the State. Consultant shall execute its responsibilities by following and applying the highest professional standards.
But this turns out to be not the only such contract between the AG's office and Mr. Carter. As shown below, in a screen-shot from the state's contracts database, it was the first of ten such contracts and amendments, the most recent of which expires this year. The ten contracts total $886,000.*
Contract #2, which expired June 20, 2010, amends the scope of work in the original contract:
Paragraph I (Duties of Consultant) is hereby deleted in its entirety and replaced with the following:Here is the scope of work in the current contract (#10):
I. Duties or Consultant. Consultant shall perform the Professional Services as requested by the State. Consultant shall work with the Office of the Attorney General to prepare the state for its presentation in the national arbitration proceeding. Work will include, but not be limited to, matters related to the selection of the arbitration panel, the adoption of the rules of arbitration that will be employed by the panel, filing of the state's initial documents with the panel (including the Statement of Claim) and preparation for attendance at the initial conference of the panel, the various states, and the participating manufacturers. Consultant shall execute its responsibilities by following and applying the highest professional standards.
1. Scope of Services. Consultant shall work with the Office of the Attorney General to prepare the State in matters relating to the national tobacco arbitration proceedings as requested by the State. Consultant's duties shall include, but are not limited to: reviewing the applicability of orders issued by the 2003 arbitration panel; attending the Marion County Superior Court challenge to the pattial award issued by the 2003 arbitration panel; attending and participating in multi-state meetings regarding the 2004 arbitration proceedings; common case development with other states and the National Association of Attorneys General for current and future proceedings; reviewing settlement proposals; and reviewing and advising on negotiations and dispute resolution strategies (the "Services"). Consultant shall confer with personnel from the Office of the Attorney General and personnel from other states._________
*But that total may be misleading. Notice that some of these documents are contracts and some are amendments. It appears that the practice may have been to enter into a contract for an estimated amount, and then later amend the contract to reflect rates actually claimed. For instance, from contract #9:
Paragraph 2 ("Consideration and Payment") is hereby deleted in its entirety and replaced with the following:
2. Consideration and Payment.
Consultant shall be paid Twelve Thousand Dollars ($12,000.00) for July 1, 2012 through July 31, 2012. Consultant shall be paid Eleven Thousand Dollars ($11,000.00) for August 1,2012 through August 31, 2012. Consultant shall be paid Ten Thousand Dollars ($10,000.00) per month for September 1, 2012 through August 31, 2013. The maximum consulting fees payable under this Agreement shall not exceed One Hundred Forty-Three Thousand Dollars ($143,000.00). Consultant shall also be paid a daily rate of One Thousand Two Hundred Dollars ($1,200.00) or a half day rate of Six Hundred Dollars ($600.00) to attend, either in person or via remote electronic attendance, any scheduled arbitration hearings in various locations as determined by the national arbitration panel or any other necessary meetings outside of the State of Indiana. The maximum hearing fees payable under this agreement shall not exceed Sixty-Seven Thousand Eight Hundred Dollars ($67,800.00). Consultant shall be reimbursed for travel expenses consistent with paragraph 24 of this Agreement in an amount not to exceed Eight Thousand Dollars ($8,000.00). Total remuneration under this Agreement shall not exceed Two Hundred Eighteen Thousand Eight Hundred Dollars ($218,800.00). Consultant shall submit monthly invoices to the state showing the general description of the Professional Services rendered. All payments shall be made in arrears in accordance with Indiana law and state fiscal policies and procedures, and, as required by IC 4-13-2-14.8, by electronic funds transfer to the financial institution designated by the Contractor in writing unless a specific waiver has been obtained from the Auditor of the State. No payments will be made in advance of receiptof the goods or services that are the subject of this Contract except as permitted by IC 4-13-2-20. Consultant shall provide status updates as requested by the State.
Posted by Marcia Oddi on October 21, 2013 12:40 PM
Posted to Indiana Government