Leonard Violi

"The MSA is supposed to neutralize competition," said Leonard Violi, an attorney with the New York firm Windels Marx Lane & Mittendorf, which is representing the plaintiffs."What it does is treat manufacturers differently.These small manufacturers have to pay into an escrow fund despite the fact the states have no basis to impose this liability on them.These companies have not been found guilty of doing wrong, and nor have they been accused in any way of doing any wrong.The states can't say, `I'm the state, I've settled with one of your competitors and I've burdened them, so I want to burden you so you can't compete too much against them,'" Violi said.

According to the complaint, the MSA also violates the First Amendment rights of those that sign the agreement because they have restrictions placed on advertising.

"The Escrow Statutes and their enforcement unlawfully encroach upon [a nonparticipating manufacturer's] right to engage in constitutionally protected conduct, i.e., exercise of its First Amendment rights of free speech (advertising), petitioning, and association," the complaint states."Under the Escrow Statutes, NPMs must either join the MSA, or make substantial annual payments into escrow for the states' benefit for twenty-five years.A condition to joining the MSA, however, is that an NPM must give up these constitutionally protected rights in the manner prescribed by that agreement's terms.Thus, a manufacturer that chooses not to join the MSA must, in effect, pay to maintain and exercise these rights by making annual payments for the states' benefit."

Leonard Violi, Esq., Windels Marx Lane & Mittendorf, LLP

"When they wrote the MSA, it almost seems that the AGs [attorneys general] and the tobacco companies knew these escrow statutes would be declared illegal," said Leonard Violi, a lawyer with the New York City firm Windels Marx Lane & Mittendorf.

As described by one of Bedell's lawyers , Leonard Violi , a partner at New York's Windels Marx Lane & Mittendorf , the decision , A.D. Bedell Wholesale Co. v. Philip Morris , 263 F.3d 239 ( 3d Cir. 2001 ) leaves a gaping hole in the settlement's structure.

Last week , Bedell's lawyers filed a certiorari petition with the U.S. Supreme Court to hear the case on appeal.Although statistically the odds that the justices will take the case are slim , Violi expressed confidence that they will bite.

CARTEL ALLEGED

Bedell contends that the agreement illegally protects the market share of the participating tobacco companies -- who together control 98 percent of the market -- while they pay off the settlement.

Specifically , the sections Bedell complains of are the renegade clause , the settlement's primary mechanism for allocating payment responsibilities based on companies' production levels , and the provision calling for qualifying statutes , which are state laws passed pursuant to the agreement that require non-participating cigarette manufacturers to pay into escrow accounts moneys for each sale made.Bedell claims that the settlement and the qualifying statutes , which all the participating states have passed , create an output cartel that imposes draconian monetary penalties for increasing cigarette production , and effectively bars new entry into the market.
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As Violi pointed out , they hiked prices two more times , all told generating revenues of nearly $14 billion in the year 2000 , or over twice as much as they needed to fund the settlement payments for that year.

The tobacco companies contend that the cartel -- if indeed it is a cartel , which they dispute -- is inoculated from the antitrust laws under two legal tenets.First , they argue , the Noerr-Pennington doctrine permits them , as private competitors , to petition the states for an antitrust exemption..

The tobacco companies also claim immunity under Parker v. Brown , 317 U.S. 341 ( 1943 ) , which exempts from antitrust violations both states acting in their sovereign capacity and the private industries being acted upon.

ANTITRUST DOCTRINES