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Citing both the broad language of the agreement, and the practical necessity of a unitary dispute resolution process for resolving disagreements over payment of tobacco settlement fees, the Supreme Judicial Court of Massachusetts has affirmed a decision giving broad effect to an expansively phrased arbitration provision.
The dispute in Commonwealth v. Philip Morris Inc., No. SJC-09889, 2007 WL 1168384 (Mass. April 23, 2007) arose from a decision by tobacco companies to withhold certain funds from their annual payments due to the states under a "Master Settlement Agreement" (MSA), which ended a host of lawsuits by states against those companies.
Specifically, the companies were disputing a decision on the part of an independent auditor to presume "diligent enforcement" of state statutes requiring Non-Participating Manufacturers (NPMs) to operate under rules similar to those imposed on participating tobacco companies. Without such diligent enforcement, the companies would have been allowed to lower their payments under an "NPM Adjustment" provision in the MSA.
In agreeing to compel arbitration, the Court cited first the broad language of the agreement itself, which read that "all disputes arising out of or relating to" the calculation of fees, expressing including the NPM Adjustment, would be settled through arbitration.
The Court also noted that the decision comports with "the broader structure of the settlement." Given that a decision on payments to one state effects the payments made to the others – and that leaving such decisions to various courts could lead to "fifty-two different sets of payment rules" – the Court affirmed the wisdom of creating a "uniform, nationwide set of rules" to be overseen by one arbitration panel.
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