Judge Says Cigarette Maker Should Pay Florida

The ruling Friday by a Delaware judge, Lori W. Will, came in a long-running legal battle between R.J. Reynolds and ITG Brands, LLC. The battle has centered on which company is responsible for making payments to Florida related to four cigarette brands — Salem, Winston, Kool and Maverick — that R.J. Reynolds’ parent company sold to ITG in a deal that was finalized in 2015.

The dispute has played out in Florida and Delaware courts and is rooted in a 1997 settlement that required tobacco companies to pay the state because of smoking-related health costs. In exchange for the payments, the companies received liability protections.

Will’s ruling said the industry made an initial payment of $750 million. Florida continues to receive more than $400 million a year under the settlement, according to an August report by state economists.

R.J. Reynolds has argued that IGT Brands is responsible for making payments to Florida stemming from sales of Salem, Winston, Kool and Maverick cigarettes. But IGT Brands has contended, at least in part, that it was required to make “reasonable best efforts” to join the settlement after buying the brands but otherwise was not obligated to make payments to Florida.

In a 51-page ruling, Will ruled that IGT Brands was responsible for the payments after the deal.

“If anything, it is ITG’s interpretation that would lead to an unreasonable outcome,” Will, who serves on the Delaware Court of Chancery, wrote. “Under ITG’s reading … ITG owns, sells products under, and derives the full benefit from the acquired brands — yet Reynolds would be obligated to make annual payments to Florida in connection with ITG’s sales without indemnification from ITG. In effect, Reynolds would subsidize the business of ITG, a competitor.”

Will’s ruling came more than two years after Florida’s 4th District Court of Appeal ruled that R.J. Reynolds remained on the hook for making payments related to the four brands. That ruling came in a lawsuit filed by the state to try to ensure the money was paid.

“We find, simply put, that a contract is a contract, and that Reynolds continues to be liable under the contract it signed with the state of Florida,” the appeals-court panel wrote in the July 2020 ruling.

The Florida Supreme Court declined to take up the case, effectively allowing the appeals-court decision to stand.

At the same time, R.J. Reynolds and IGT Brands were battling in Delaware. Will wrote that she was not bound by the Florida decision because the two companies were not adversaries in that case — unlike in the Delaware lawsuit.

Will did not determine how much IGT Brands would be responsible for paying, saying that will be decided later. But she wrote that the Florida “judgment on Reynolds amounts to over $170 million to date and tens of millions of dollars more each year in perpetuity.”