New Mexico Sues Tobacco Companies over Breach of Settlement Agreement

The state of New Mexico is currently suing several tobacco companies, alleging they conspired and breached contracts.

New Mexico Attorney General Hector Balderas announced a legal challenge on Tuesday, alleging that tobacco companies have been withholding annual payments required by a multi-state settlement that resolved dozens of lawsuits seeking reimbursement for healthcare costs related to smoking-related illnesses.

Complaints from New Mexico are focused on a specific provision of a 1998 settlement agreement, alleging that the company's abuse of that provision has resulted in the state losing over $84 million in the past 14 years.

In a statement, Balderrama said, "These baseless tactics of delay have no end, and now is the time to compel tobacco companies to pay the damages owed to New Mexico - providing funding for much-needed health initiatives.

The companies did not immediately respond to requests for comment regarding the lawsuit in the state of New Mexico.

According to a settlement agreement, each company is obligated to make annual payments to the state of New Mexico. However, the Attorney General's office claims that these companies often raise disputes every year, resulting in a certain percentage of payments being withheld and potentially leading to arbitration procedures that could last for years.

For example, the arbitration payment made in 2004 concluded last month, while the arbitration payments made from 2005 to 2007 have only recently begun.

Officials from the state government have stated that the average annual cost paid is between $30-40 million, which only covers less than 5% of New Mexico's healthcare costs directly attributed to smoking. They estimate that healthcare costs related to smoking will exceed $980 million by 2021.

In 2020, Montana launched a similar legal challenge and successfully retrieved over $49 million in payments that tobacco companies had wrongly withheld. The state also reached an agreement with these companies, ensuring they would not contest annual payments to Montana over the next ten years.

Officials in the state of New Mexico have stated that the amount of settlement money being withheld each year is increasing.

According to the lawsuit, defendants - including tobacco giants Philip Morris and RJ Reynolds - did not disclose to the state of New Mexico how much money they withheld or where the funds were held. The practice of withholding taxes may also vary from year to year.

According to state prosecutors, the best estimates suggest that defendants in New Mexico are withholding between $6 million and $9 million annually due to a lack of transparency. "This scheme is a calculated strategy designed to permanently and fraudulently reduce the contractual payments defendants are obligated to pay under settlement agreements, and to undermine the purpose of such agreements," the complaint stated.

The Office of the Attorney General has stated that many states have been renegotiating with tobacco companies for years to avoid continuing arbitration regarding annual payments and to concede more favorable terms to the companies.

Officials in New Mexico state that only eight states are still demanding full payment of the funds they are entitled to under a settlement agreement.

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