The Competitive Enterprise Institute (CEI) on Tuesday filed a constitutional challenge to the 1998 tobacco settlement in the U.S. District Court for the Western District of Louisiana on behalf of a distributor, two small tobacco manufacturers, a tobacco store and an individual smoker.

The suit, which takes aim at Louisiana's Attorney General, Charles C. Foti, Jr., alleges that the agreement between 46 states and major tobacco companies is unconstitutional because it violates the Compact Clause of the Constitution which states:

“No state shall, without the Consent of Congress … enter into any Agreement or Compact with another State.” (Article I, Section 10)

According to the CEI, the Compact Clause was meant to prevent states from collectively encroaching on federal power or ganging up on other states.

"The tobacco settlement set up a national government/tobacco cartel that harmed consumers and small businesses by increasing cigarette prices and restricting competition," according to a press release issued by CEI.

"Major tobacco companies would make annual payments to the states in perpetuity, with an estimated cost of $206 billion over 25 years.

"Small tobacco companies that were never part of the settlement are nonetheless required to make separate payments to the states."

CEI President Fred L. Smith, Jr. said, “The tobacco settlement was a major government power grab at the expense of taxpayers and the rule of law.”

“This lucrative backroom deal between state attorneys general and the trial bar has created a new model for targeting other politically incorrect industries and their customers,” said CEI’s general counsel, Sam Kazman.

“The states became business partners in establishing one of the most effective and destructive cartels in the history of the nation,” CEI's complaint alleges.

It also claims, “The winners in this scheme are the Majors and their new business partners, the States. The losers are tobacco consumers, non-participating manufacturers, distributors and dealers who wish to sell the products of such manufacturers, and the federal government, whose lawful authority over national and interstate affairs has been circumvented.

“This entire scheme is not only unseemly, it is unconstitutional. The agreement among the States, and with the Majors (tobacco companies), constitutes an unapproved interstate compact, which the Constitution expressly forbids. That compact is in express derogation of federal power in that it sets up a competing national entity to govern state conduct and lawmaking, regulates interstate commerce, violates federal statutes forbidding state regulation of tobacco advertising, and undermines the central policies of the antitrust laws."

The plaintiffs are seeking a judgment declaring the MSA, the qualifying statute, and the complementary statute to be unconstitutional on their face and as applied to plaintiffs; an injunction preliminarily and permanently enjoining defendant from implementing and enforcing the MSA, the qualifying statute, and the complementary statute; an injunction preliminarily and permanently enjoining defendant from requiring escrow deposits from the plaintiffs or preventing them from selling tobacco products produced by manufacturers that have not paid escrow deposits; award plaintiffs their attorneys’ fees and costs incurred in bringing this action; and, award such other relief as the Court shall deem just and proper.

The plaintiffs are represented by Billy J. Guin of Rountree, Cox & Guin in Shreveport, La.

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