A Delaware judge says cigarette manufacturer ITG Brands assumed liability for tobacco settlement payments to the state of Florida when it acquired four brands from Reynolds American in 2015, reports the Associated Press.
Vice Chancellor Lori Will ruled that ITG must compensate Reynolds American for losses due, granting summary judgment in Reynolds’ favour.
Reynolds sold the Kool, Winston, Salem and Maverick brands to ITG in 2014 to gain federal regulators’ approval of its acquisition of Lorillard Inc.
Before the sale closed, Reynolds American affiliate R.J. Reynolds Tobacco Co. was making payments under a pre-existing settlement agreement with Florida for reimbursement of smoking-related health care costs. After closing, Reynolds stopped making payments for the four brands it no longer owned.
The asset purchase agreement required ITG to use reasonable best efforts to join the Florida settlement and make annual payments to Florida for sales of the brands it acquired from Reynolds. ITG has yet to join the settlement agreement with Florida or make any payments, the report said.
Florida sued Reynolds and ITG and obtained a judgment requiring Reynolds to continue making payments based on ITG’s brands, unless and until ITG joined the Florida settlement agreement.
“That judgment on Reynolds amounts to over USD 170 million to date and tens of millions of dollars more each year into perpetuity,” Will noted. The “unambiguous terms” of the asset purchase agreement support Reynold’s arguments that ITG agreed to assume the liability imposed by the Florida judgment and must indemnify Reynolds, she concluded.