The Maryland Attorney General?s office filed two civil actions against a North Carolina-based cigarette manufacturer Wednesday, alleging the company?s owner deliberately shuffled his operations to avoid paying $66 million into a fund established in a 1990s settlement between tobacco companies and state governments.
The office filed a petition in Baltimore Circuit Court seeking to strip Cutting Edge Inc. ? which is incorporated in Maryland but operates in North Carolina ? of its corporate charter under Maryland law. The other filing, an enforcement action, says owner Calvin Phelps is using Cutting Edge as a back door into the Master Settlement Agreement for his other tobacco company, Alternative Brands.
“Tobacco companies need to be held responsible for the health costs caused by the sale of their cigarettes in Maryland and across the United States,” Attorney General Douglas Gansler said in a news release. “These actions will help ensure that parties to the Master Settlement Agreement do not escape that responsibility and will protect our children from the dangers of smoking.”
Representatives of Cutting Edge declined to comment, saying the company?s spokeswoman was in Washington on business.
The Master Settlement Agreement, which grew from legal actions against big tobaccoin the 1990s, requires participating tobacco companies to make annual payments to the states and voluntarily limit their marketing and advertising.
All states require nonparticipating companies to make comparable payments in escrow. Nonparticipating companies are not as tightly bound to marketing and advertising restrictions, but participating companies get better tax advantages, Assistant Attorney General David Lapp said.
Companies must make back payments to 1998, the year MSA came to be, to gain membership.
Alternative Brands, which is not an MSA member, acquired Cutting Edge in 2005.
Phelps shifted a few of Alternative?s brands, including Tucson Cigarettes, over to Cutting Edge, which is an MSA member, “with the goal of avoiding payments to the governmental signatories to the MSA of more than $65.9 million,” the action alleges.
“This isn?t just about one company,” Lapp said. “It?s also about the integrity of the MSA because if this guy does what he?s attempting to do, it would undermine the whole agreement.”
