U.S. Supreme Court mulls antitrust tobacco trial

Steve Korris Sep. 28, 2006, 7:00am

WASHINGTON, D.C. – All last week U.S. Supreme Court Justices pondered a possible antitrust trial against 31 states with matching tobacco laws.

The Justices can either allow U.S. District Judge John Keenan in New York to hold trial over identical laws the states passed to carry out the national tobacco settlement of 1998, or the Justices can certify the case for their own review.

They talked it over it in closed conference Monday, Sept. 25.

The states want the Justices to block the trial, which could disrupt a deal that brings them billions a year.

In the suit Grand River Enterprises Six Nations Limited, Nationwide Tobacco and 3B Holdings claim the states violated the U.S. Constitution and the Sherman Act.

Grand River, a Canadian company, makes cigarettes. Nationwide Tobacco, a company in the state of Washington, distributes cigarettes made in the Philippines. 3B Holdings, also of Washington, makes loose tobacco.

They allege that states started or threatened enforcement actions against them for failure to establish escrow accounts that states require for companies that have not signed the master tobacco settlement agreement.

They sued in New York because the states and the tobacco companies negotiated for five months in New York

If Justices send the case back to Keenan, he will not hold the trial he expected to hold.

At first Keenan dismissed all claims and denied jurisdiction over all defendants but New York. He dismissed 30 attorneys general.

He wrote that the location of the negotiations was coincidental and fortuitous.

He reconsidered after reading a new decision from the Court of Appeals, Second Circuit, in a related case.

In a new order he allowed a Sherman Act claim, but by his previous order the claim applied only to New York.

Grand River and the other plaintiffs appealed to the Second Circuit, repeating their constitutional claims and challenging the dismissal of 30 states.

The Second Circuit in September 2005 upheld Keenan in dismissing all constitutional claims but one, and upheld him in allowing a Sherman Act claim.

After backing Keenan twice, the Second Circuit sprang a surprise on him. Chief Judge John Walker Jr., wrote that he could not dismiss the other 30 states.

Walker wrote, "We note that New York would not ordinarily be the proper forum to challenge another state's legislative and executive action."

"It is a rare event for the representatives of various sovereign states to assemble purposefully in New York to attempt to jointly settle related lawsuits and to agree to then pass individual state statutes," he wrote.

"…we see no reason why the negotiation and execution of the Master Settlement Agreement should be viewed any differently than an ordinary commercial contract," he wrote.

He also wrote that it was foreseeable that states would be subject to suit in New York.

The second Circuit also allowed a constitutional claim of extraterritorial legislation.

Walker wrote that plaintiffs stated a possible claim "…that the practical effect of the challenged statutes and the MSA is to control prices outside of the enacting states…"

He wrote that the claim would be consistent with a Sherman Act claim.

The attorneys general petitioned the Supreme Court in April for a writ of certiorari that would elevate the case for review by the Justices.

Illinois assistant attorney general Gary Feinerman submitted briefs for the states.

The Justices at their Monday conference reviewed petitions for certification in Grand River and other cases.

They certified some cases but as of Thursday they had announced no decision on Grand River. Their press office said they would announce no decisions Friday.

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