March 2005

North Carolina Supreme Court to Hear Appeal of Business Court Ruling On Phase II Payments 

On December 23, 2004, the North Carolina Business Court issued a ruling ending Phase II payments to tobacco growers and quota holders under the 1998 Master Settlement Agreement with the major tobacco companies. The Business Court held that the passage of the tobacco buyout contained in the Fair and Equitable Tobacco Reform Act of 2004 triggered a clause in the Master Settlement Agreement providing for the end of Phase II payments if the tobacco companies became otherwise obligated to make payments to tobacco growers and quota holders. Thus, the final Phase II payments to be made under the Master Settlement Agreement have not been distributed, and the Business Court has ordered that the approximately $300 million already paid into the Phase II trust fund be refunded to the tobacco companies. About $160 million of this final Phase II payment would have been paid to North Carolina residents.

The North Carolina Supreme Court has now granted a request for a direct appeal of the Business Court’s decision, bypassing the North Carolina Court of Appeals. While this will shorten the time of appeal considerably, oral arguments are not likely to be heard until late Spring or early Summer 2005, and a final opinion might not be issued for several weeks thereafter. In the meantime, no Phase II payments will be made to any recipients.

Five of the seven justices of the North Carolina Supreme Court have publicly announced potential conflicts in ruling on the Phase II payments appeal, for reasons ranging from being a quota holder, owning shares of stock in a tobacco company, and having received campaign contributions from tobacco companies, growers, and quota holders. Justice George Wainwright, Jr. has announced he will recuse himself from the case because of his family’s substantial interests in tobacco allotments and quotas. The remaining justices have agreed to hear the appeal despite their potential conflicts in order to uphold the court’s constitutional duty to resolve legal disputes in North Carolina.

USDA Announces Application Period For Tobacco Transition Payment Program

On February 14, 2005, the United States Department of Agriculture (the “USDA”) announced that beginning March 14, 2005, quota owners and growers will need to apply for payments from the Tobacco Transition Payment Program which was created under last year’s Fair and Equitable Tobacco Reform Act of 2004. The application period will extend through June 17, 2005.

Prior to the commencement of this application period, all known quota holders and growers are to receive a letter from the USDA providing more detailed information on the program. This letter should also include a summary of the Farm Service Agency records establishing the base quota level for each quota holder and grower. If such information is inaccurate or incomplete, quota holders and growers will be requested to provide verifiable information to their USDA Service Center personnel upon application.

The regulations concerning payments to quota holders and growers for this program are now expected to be available later in March.

If you have any questions regarding this bulletin, or any other legal issues, please feel free to contact Greg Camp at 252.972.7068 or by e-mail at gscamp@poynerspruill.com.