RP cigarette maker ordered to pay $1.9M

The Superior Court has found a Philippine cigarette manufacturer owned by beer and tobacco magnate Lucio Tan liable to pay $1.9 million plus costs and fees to the CNMI government for not complying with local tobacco laws.

Presiding Judge Robert Naraja ordered Tan’s Fortune Tobacco Corp. to pay $1,435,351.32 in civil penalties plus interest at the rate of nine percent per annum to the CNMI.

Naraja directed Fortune Tobacco to establish within 15 days a “qualified escrow fund” and place into that fund $267,085.61 and $211,364.83 pertaining to the company’s obligations for calendar years 2003 and 2004, respectively.

The judge ordered Fortune Tobacco to pay Attorney General Pamela Brown her costs and fees incurred in this case.

Naraja probihited the tobacco company from selling its cigarettes in the CNMI, whether directly or through a distributor, retailer or similar intermediary, unless and until it complies fully with the Commonwealth Tobacco Escow Statute.

Fortune Tobacco manufactures, among other cigarette brands “Hope Luxury” and “Champion” which according to Attorney General’s Office were being sold in the CNMI.

Naraja said the tobacco manufacturer violated the Commonwealth Tobacco Escrow Statute, Public Law 12-45, as amended by P.L. 13-15 Section 3(B).

The judge said such violations were “knowing” within the meaning of the law.

The CNMI government, through Assistant Attorney General Brian Caldwell, filed the lawsuit in August 2005 against Fortune Tobacco to compel the company to comply with Public Law 13-15, which requires tobacco product manufacturers to meet certain obligations.

Fortune Tobacco decided to stop exporting their products to the CNMI after the AGO threatened the company last year to ban their products unless it will comply with local tobacco laws, according to court documents.

Fortunate Tobacco Corp., through its general counsel attorney Eduardo Ceniza, stated that they halted selling, exporting or otherwise distributing their cigarette products to the commonwealth immediately after they received a letter from the AGO.

“The volume of cigarette products that Fortune has been selling to dealers in the Marianas Islands is relatively small,” said Ceniza in his Sept. 8, 2004 letter to AGO.

Ceniza said the cost for putting up escrow funds as required by the CNMI laws will make it unprofitable for Fortune Tobacco to continue exporting its cigarette products to the Mariana Islands.

But Ceniza, in the defendant’s reply to the AGO letter, cited that Caldwell stated that Public Law 14-10 was passed on May 28, 2004.

Ceniza said all the cigarette products of Fortune Tobacco that are mentioned in the letter were shipped out of Manila, Philippines prior to the passage of the law and “certainly, before Fortune Tobacco became aware of the law.”

“We like to think that the cited laws do not have retroactive effect,” the Filipino lawyer asserted.

The government’s lawsuit alleged that in November 1998, the CNMI along with 46 states and four territories entered into a settlement agreement with leading tobacco product manufacturers known as the “master settlement agreement.”

Fortune Tobacco is considered a non-participating manufacturer, Caldwell said.

Caldwell said pursuant to P.L. 13-15, for each cigarette that is sold in the CNMI, a non-participating manufacturer must deposit money, including an amount to adjust for inflation, into a qualified escrow fund.

Caldwell said Fortune Tobacco has not placed any monies into a qualified escrow fund pursuant to the Commonwealth Tobacco Escrow Statute.

The government lawyer said that during the year 2003, Fortune Tobacco sold at least 13,700,000 units of cigarettes in the CNMI.

During the year 2004, the manufacturer sold at least 10,500,000 units of cigarettes in the CNMI.

Fortune Tobacco did not respond to the lawsuit, prompting the AGO to move the court to issue a default judgment. Naraja granted the AGO’s request.

The government also filed a similar lawsuit against another Philippine cigarette manufacturer, La Suerte Cigar & Cigarette Factory.