ALBUQUERQUE, NM (AP) — New Mexico is suing more than a dozen tobacco companies, accusing them of conspiracy and breach of contract.
Attorney General Hector Balderas announced the legal challenge on Tuesday, alleging that the companies withheld portions of annual payments due under a multi-state tobacco settlement that ended dozens of lawsuits seeking reimbursement for health care costs related to smoking-related illnesses was requested.
New Mexico’s complaint focuses on a specific provision of the 1998 settlement that the companies’ abuse of that clause resulted in the state losing more than $84 million over the past 14 years.
“There is no end to these baseless delaying tactics, and it’s time to force tobacco companies to pay New Mexico what they owe for damages — to fund much-needed public health initiatives,” Balderas said in a statement.
The companies did not immediately respond with a request for comment on New Mexico’s lawsuit.
As part of the settlement, each company is required to make a payment to New Mexico each year. Instead, according to the attorney general’s office, the companies file disputes each year that result in a percentage of the payment being withheld, triggering an arbitration process that can drag on for years.
For example, the arbitration for the 2004 payments was completed last month and the arbitration for the 2005-2007 payments has just begun.
With average annual payments ranging from $30 million to $40 million, state officials cover less than 5% of New Mexico’s healthcare costs that are directly related to smoking. They estimated the cost of health care costs from smoking to be more than $980 million in 2021.
Montana faced a similar legal challenge in 2020. It was successful in recovering more than $49 million in payments and interest wrongfully withheld by tobacco companies, and reached an agreement with the companies not to contest that state’s annual payments for another decade.
In New Mexico, officials say the amount of settlement payments withheld is increasing every year.
According to the complaint, the defendants — including tobacco giants Philip Morris and RJ Reynolds — do not disclose to New Mexico exactly how much they withhold or where the withheld funds are held. Withholding tax practices can also change from year to year.
Given this lack of transparency, prosecutors say New Mexico’s best estimate is that defendants withhold between $6 million and $9 million each year.
“This conspiracy is a calculated strategy to permanently and fraudulently reduce the defendants’ contractual payments under the (Settlement Agreement) and thwart the objectives of the (Settlement Agreement),” the complaint reads.
The attorney general’s office said many states have renegotiated with tobacco companies over the years to avoid continued arbitration over annual payments, giving way to more favorable terms for the companies.
Only eight states continue to seek full payment of their amounts due under the settlement, New Mexico officials said.