California on 18 April 2006 became one of the first states to sue cigarette-makers to force them to pay their share of the total of US$ 1.2 billion the companies say they do not owe because they lost business to discounters.

In 1998, tobacco companies settled lawsuits brought by states by agreeing to pay US$ 206 billion to provide medical care for ailing smokers. The settlement lets cigarette-makers cut their payments if they lose market share to rivals, often discounters, that did not sign the landmark accord.
Tobacco companies say discounters in 2003 won enough of their business to trigger the reduced payments. But the states say they still are owed the full amounts because they met another requirement: they "diligently" collected escrowed payments from non-signing companies.
California Attorney General Bill Lockyer in a statement said he had filed papers in San Diego County Court to prevent cigarette-makers from "taking back" at least US$ 154 million that they owe the state.
"Our case is rock solid, and I have no doubts that we will show that to the court's complete satisfaction," Lockyer said.
He added the "Big 3" tobacco companies – RJ Reynolds Tobacco Co., Lorillard, and Philip Morris – and 27 smaller firms are disputing a total of US$ 1.2 billion of payments they owe the states. New York state, which on 18 April 2006 said it too plans to sue the cigarette-makers to collect the disputed payments, took a different tack. Paul Larrabee, spokesman for New York Attorney General Eliot Spitzer, drew a distinction between the way industry leader and Marlboro-maker Philip Morris was handling the clash and the approach taken by RJ Reynolds, known for its Camel cigarettes, and Lorillard, which makes Newports.
Philip Morris did not put any of its US$ 3.4 billion payment into the special escrow account set up to handle disputes, Larrabee noted. In contrast, RJ Reynolds plunked US$ 647 million of its US$ 2.016 billion annual payment into the dispute account. Lorillard deposited US$ 108 million of its US$ 666 million into the escrow account.