RP cigarette maker settles NMI lawsuit

A Philippine-based cigarette manufacturer has reached a settlement agreement with the CNMI government to resolve the Commonwealth’s lawsuit against the company for allegedly not complying with local tobacco laws.

Antonio B. Yao, vice president for operations of La Suerte Cigar and Cigarette Factory, and acting Attorney General Matthew T. Gregory entered into a consent decree.

Superior Court Presiding Judge Robert C. Naraja approved the consent decree yesterday.

Under the consent decree and final judgment, La Suerte acknowledges that it violated Public Law 13-15 or the Commonwealth Tobacco Escrow Statute, but denied that it did so knowingly.

Pursuant to the consent decree, La Suerte agreed to pay CNMI $4,873.83 in civil penalties for its unintentional violation of the Commonwealth Tobacco Escrow Statute.

La Suerte also agreed to establish a “qualified escrow fund” and to place in that fund $4,873.83 for calendar year 2003.

The court prohibited La Suerte from selling its cigarettes in the CNMI unless it fully complies with the escrow statute.

The statute, P.L. 13-15, prescribes that a tobacco manufacturer who is not a participant in the Tobacco Master Settlement Agreement shall place $.016 per cigarette sold, plus 13.362 percent for inflation, into a qualified escrow account.

The law also requires that by April 15 of each year, a non-participating manufacturer must certify to the Attorney General that it has established a qualified escrow fund and that it has deposited the proper amount of money into this fund for the sale of its cigarettes in the CNMI during the previous year.

La Suerte is not a signatory to the Tobacco Master Settlement Agreement and is therefore considered a non-participating manufacturer, subject to the provisions of P.L. 13-15.

In August 2005, the government sued La Suerte to compel the company to comply with P.L. 3-15.

The CNMI asked the court to find that La Suerte violated the statute by failing to timely deposit the required funds into a qualified escrow fund and for failing to certify to the AG that the company was in compliance within the meaning of the tobacco statute.

The Commonwealth, through assistant attorney general Brian R. Caldwell, asked the court to order the defendant to establish within 15 days a “qualified escrow fund.”

The government lawyer moved to prohibit La Suerte from selling its cigarettes in the CNMI whether directly or through a distributor, retailer or intermediaries unless or until it complies fully with the tobacco statute.

Caldwell demanded the imposition of a civil penalty for a knowing violation or for an unintentional violation, to be paid to the government’s general fund.

Caldwell stated in the complaint that the defendant manufactures cigarettes with brand names “Astro” and “Canon,” both of which are or were sold in the Commonwealth.

The CNMI, along with 46 states and four territories, entered into a settlement agreement in November 1998 with leading tobacco product manufacturers, entitled the “Master Settlement Agreement.”

The agreement was approved by the Superior Court. CNMI is a “settling state” of the agreement. La Suerte is considered a non-participating manufacturer, Caldwell said.

Caldwell said that, 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.

In 2003, Caldwell said, La Suerte sold at least 250,000 units of cigarettes in the Commonwealth as measured by the excise taxes collected by the CNMI Division of Customs, and as reported by licensed cigarette wholesalers within the commonwealth.

By April 15, 2004, La Suerte should have placed in an escrow fund an amount equal to $.0167539 times the number of units sold in the Commonwealth, he said.

In 2003, the estimated amount due is 250,000 units times $.0167539 for a subtotal of $4,188.48, Caldwell said.

The subtotal is subject to an inflation adjustment of 16.3627565 percent, resulting in a total amount of $4,873.83 due for 2003, he explained.

The government also filed the same lawsuit against Philippine-based Fortune Tobacco Corp. owned by beer and tobacco magnate Lucio Tan.

In December 2005, Naraja issued a default judgment that found the company liable to pay $1.9 million plus costs and fees to the government for not complying with local tobacco laws.

Fortune Tobacco manufactures, among other cigarette brands, “Hope Luxury” and “Champion,” which, according to AGO, were or are sold in the CNMI.