Suit says settlement made cartel

NEW ORLEANS — The 1998 legal settlement requiring major tobacco companies to pay $206 billion to the states who in return dropped suits seeking health cost reimbursement from the companies created a government-protected cartel that keeps cigarette prices artificially high, according to a lawsuit filed Tuesday by a tobacco distributor and two small cigarette makers.

The suit, brought by the Competitive Enterprise Institute, a Washington, D.C.-based free-market advocacy group, in U.S. District Court in Shreveport, is similar to suits filed in five other states by different challengers to the tobacco settlement pact.

The landmark agreement between 46 states and major tobacco companies, requiring payments to be made over 25 years, settled all of the states’ lawsuits over the public costs of treating ill smokers. However, to receive their shares, states were required to pass laws requiring nonparticipating cigarette-makers to make escrow payments.

In addition, Louisiana passed a law making it a crime to sell cigarettes made by any company not covered by the settlement that does not make escrow payments.

The plaintiffs in the Louisiana suit include a tobacco distribution company, two cigarette manufacturers not covered by the original settlement and now forced to make escrow payments and a smoker who claims he is forced to pay artificially high prices for cigarettes.

The suit alleges that the escrow payments drove up competitors’ costs and “erected barriers to entry and expansion that ensured the majors would maintain their market shares despite their dramatic price increases to pay off the states.”

In essence, the states have become the biggest stakeholders in the business of the major tobacco companies and have “used the power of government to protect their newfound allies,” the suit says.

It asks that the settlement be declared unconstitutional and for a ban against Louisiana enforcing the settlement or any of the state laws associated with it. The suit gives no indication whether the state would have to repay any of the settlement money.

Kris Wartelle, a spokeswoman for the Louisiana attorney general, said there would be no comment until the office was formally served with the lawsuit.