Phase II money to be released from tobacco trust fund

GREENSBORO, N.C. -- Tobacco growers in 14 states should be paid $318 million as part of 1998's settlement between states and cigarette makers while litigation continues on whether the farmers are entitled to more money, a judge ruled Wednesday.

The tobacco companies fought unsuccessfully in North Carolina courts for a refund, arguing that the compensation due to farmers was overridden by the passage of a $10 billion federal buyout of tobacco quotas.

The decision of North Carolina Business Court Judge Ben Tennille means as much as $125 million will be distributed to about 80,000 farmers and quota holders in North Carolina, said John Ray Davis, executive director of the state's certification board.

"They've been waiting a year and half for this money," Davis said. "It's going to be a shot in the arm. They call us daily asking about it."

Davis said a farmer who had a 3,000-pound tobacco allotment would receive about $450.

Tennille also ruled that the bank holding the money as trustee could pay $114 million directly to the state of Kentucky, which approved legislation that paid its growers the money before the case was settled.

In total, the money represents payments by cigarette makers for the first three quarters of 2004.

The companies continue to dispute whether they should make a final payment of $106 million that was due for the fourth quarter of 2004.

The North Carolina Supreme Court ruled last month that the companies must make payments for 2004 because during that time they had not started paying for the quota buyout.

An agreement between the 14 states and the companies gave legal jurisdiction to courts in North Carolina, the nation's leading tobacco state, to decide the issue.

Tennille said he would hear arguments this month over the final round of disputed payments.

The payments stem from a $206 billion settlement of anti-smoking lawsuits filed by 46 states against the cigarette makers. After that settlement, the tobacco companies agreed to a second part of the deal -- Phase II -- which would compensate tobacco growers and quota-holders for reduced tobacco demand by paying them $5.1 billion over 12 years.

The agreement provided for a reduction or stop in the payments if the losses were made good in some other way, such as the $10.1 billion tobacco-quota buyout approved by Congress last year.