The Sixth Circuit Court of Appeals has affirmed the dismissal of a defunct tobacco manufacturer’s antitrust lawsuit against the 1998 master settlement agreement between states and tobacco companies. The plaintiff, Vibo Corp. dba General Tobacco, claimed that the other tobacco companies’ successfully lobbied the state attorneys general to block General Tobacco from amending its settlement terms, thereby illegal boycotting the plaintiff and concertedly refusing to deal.
The 1998 agreement ended litigation between several states and the four largest tobacco companies over the companies’ advertising strategies, which the states said misled consumers about the harmful effects of tobacco and targeted underage consumers.
Under the deal, the states’ AGs released their past and future claims against the tobacco companies in exchange for settlement payments, future annual disbursements, and restrictions on the companies’ ad and marketing campaigns. Although the agreement allowed other tobacco companies to join the agreement, the original parties were to receive the most favorable payment terms, and the agreement called for states to enact “escrow statutes” to require nonparticipating tobacco manufacturers to make annual deposits into escrow accounts.
In 2004, General Tobacco joined the master settlement agreement after negotiating the required adherence agreement with the AG defendants. It sought to amend the agreement, however, after it became unable to meet its payment obligations. The states refused to sign the amendment when other participating manufacturers objected and threatened to seek the same terms that General Tobacco sought. General Tobacco claims that the other manufacturers violated the Sherman Act by helping to create the allegedly discriminatory master settlement agreement and by invoking their allegedly baseless right to receive the same favorable terms it had sought. General Tobacco claims that it suffered a huge loss in market share and was forced to close its business operations.
In upholding the dismissal, the Sixth Circuit agreed with the Kentucky district court that the tobacco company defendants were immunized from the Sherman Act claims under the Noerr-Pennington doctrine, which protects petitioning the government for action that would violate antitrust law. The “bad intent or anti-competitive motivation” of private actors seeking government action, the court explained, is irrelevant to the doctrine’s application.
General Tobacco had invoked the sham exception to the Noerr-Pennington doctrine, arguing the companies’ efforts at settlement were actually an attempt to directly interfere with a competitor’s business relationships, but the Sixth Circuit shot down that reasoning, noting that the defendants petitioned for a specific outcome from the government — the rejection of the plaintiff’s amended agreement — and succeeded, placing the scenario outside the sham exception.
The appeals court also found that the manufacturer defendants are protected by extension of the AG defendants’ state-action immunity because they acted in their sovereign capacities regarding the master settlement agreement and not in their non-protected market-participant capacities.
The Sixth Circuit also upheld the dismissal of General Tobacco’s constitutional claims against the AGs, finding that General Tobacco waived those claims by signing the master settlement, and of the fraudulent inducement claim, on the grounds that General Tobacco did not properly allege that the AGs consented to be sued on state law claims in federal court.