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Tobacco Company ITG Brands On the Hook for Purchased Companys’ Settlements

  • Tobacco Company ITG Brands On the Hook for Purchased Companys’ Settlements

    Tobacco Company ITG Brands On the Hook for Purchased Companys’ Settlements

    The Delaware Court of Chancery officially blocked the tobacco company ITG Brands from trying to get its way out of a settlement involving the state of Florida and four brand of cigarettes the company purchased.
    The issue stemmed from a 1997 settlement reached between the state of Florida and a number of cigarette companies, including R.J. Tobacco Co. The initial suit alleged that tobacco firms misled the public on the potential effects of long-term smoking and required these business to pay approximately $750M initially and then continue payments based on their individual volume of tobacco sales within the state of Florida. This agreement was reached in conjunction with three other states before a master settlement was reached with the rest of the country in 1998.
    Nearly two decades later, ITG Brands purchased Reynolds, and automatically assumed responsibility for the payments laid out in the 1998 master settlement. However, the smaller agreement reached between the original 4 states never included a clause requiring any purchasers to assume responsibility. Due to this difference in the settlements, Florida has been fighting to obtain settlement funds from both of the companies.
    In pursuit of the funds, Florida sued Reynolds in a Florida Circuit Court, saying that it is owed at least $45M in sales for the cigarette brands Winston, Salem, Kool, and Maverick. In response, ITG pointed to its own Delaware lawsuit, which is hoping to prevent Reynolds from pursuing claims in Florida due to the wording in an exclusive forum provision within the companies’ purchase agreement. This agreement is governed by Delaware law.
    However, Chancellor Andre Bouchard decided to block ITG’s attempts to remove itself from the Florida suit, referring to four words in a provision within the asset purchase agreement. The agreement requires ITG to use its “reasonable best efforts” to reach settlements within the states not covered by the master settlement “on the same basis as the settling defendants prior to the closing.”
    ITG argued that “prior to the closing” required the company to only try and reach an agreement in the time prior to closing the deal with Reynolds. However, Bouchard interpreted the provision as to mean that ITG’s duties are the same as they were “prior to the closing” of the agreement. Bouchard thus rejected ITG’s attempt to require Reynolds to pay any settlement with Florida, and ruled that ITG must continue to pay any agreement previously decided.