A judge in the US state of Delaware ordered ITG Brands, a subsidiary of Imperial Tobacco, to pay $251m in damages to Reynolds Tobacco, a subsidiary of British American Tobacco, which was ordered to reimburse Reynolds for costs it had already paid for not joining the settlement.
Key points:
1. A U.S. judge in Delaware ordered ITG Brands to pay $251 million to Reynolds Tobacco, with the amount not reduced because ITG Brands did not join the Florida settlement.
2. ITG Brands plans to appeal the ruling.
A Delaware judge on Monday ordered ITG Brands, a subsidiary of Imperial Tobacco, to pay $251 million to Reynolds American, a subsidiary of British American Tobacco. The ruling relates to a tobacco settlement in Florida involving four cigarette Brands ITG Brands acquired from Reynolds Reynolds Tobacco a decade ago.
Associate Justice Lori Will of the Delaware Court of Chancery rejected ITG Brands’ claim that the $251 million award – the full amount sought by Reynolds Tobacco – should not be reduced by the savings ITG Brands would have made by not joining the Florida settlement.
The case stems from Reynolds Tobacco’s June 2015 sale of the Kool, Maverick, Salem, and Winston Brands to ITG Brands as a way to win regulatory approval needed for its acquisition of smaller rival Lorillard Inc. Prior to the sale, RJ Reynolds had long made an annual payment to the state of Florida to cover tobacco-related medical costs, as the state accused tobacco manufacturers of misrepresenting the addictiveness and health risks of smoking.
ITG Brands plans to appeal the ruling
However, after the deal closed. Reynolds Tobacco stopped making payments based on the four Brands, and Florida sued Reynolds Tobacco and ITG Brands as a result, and in its judgment required Reynolds Tobacco to continue making payments until ITG Brands joined the settlement. Reynolds has paid Florida a related $251 million, covering the four brands from 2015 to 2023.
In October 2022, the court found that ITG Brands needed to compensate Reynolds, but the question of how to determine the amount of compensation is still pending. Weill noted that deducting $112.8 million in “profit adjustments” that ITG Brands saved from not participating in the Florida settlement would have disincentive for ITG Brands to join the settlement.
ITG Brands said in a statement that it disagreed with Weill’s finding of liability and damages and was confident in its grounds for appeal.
