(RTTNews) - North Carolina Supreme Court ruled in favor of three major tobacco companies Friday, effectively denying any further payment to Maryland tobacco farmers under the 1999 National Tobacco Growers Settlement Trust.

Under the settlement, which is also referred to as the 'Phase II' settlement, Philip Morris, USA, Inc. of Philip Morris International, Inc. (PM: News ), R.J. Reynolds Tobacco Co. (RAI: News ), and Lorillard Tobacco Co. (LO: News ) were to make payments through 2010 totaling about $13 million to Maryland farmers, and $9 million to Pennsylvania farmers.

In a statement, Maryland state Agriculture Secretary Buddy Hance stated, "We are disappointed that the Supreme Court decision in favor of the large tobacco companies and allowing them back out of their agreement thereby inflicting a huge economic loss to Maryland tobacco growers. We appreciate the insight offered by Justices Hudson and Timmons-Goodson, who wrote dissenting opinions in favor of Maryland farmers."

The trust agreement between the tobacco companies and tobacco-grower states was intended to address the adverse economic consequences of the 1998 Master Settlement Agreement, which has a provision that states that the payments to the farmers could end in the event of federal legislation benefiting tobacco growers and quota owners.

After Congress passed the Fair and Equitable Tobacco Reform Act, or FETRA, in 2004, the tobacco companies contended they no longer needed to make payments to farmers in these two states. The legislation provided payments to tobacco farmers who produced tobacco under the federally-regulated quota system, however, Maryland and Pennsylvania did not receive FETRA payments as they did not produce quota tobacco.
The tobacco companies asserted that they no longer had to make Trust payments for the benefit of Maryland and Pennsylvania farmers, despite the fact that farmers in other tobacco growing states benefited from FETRA because they participate in the tobacco quota system. The North Carolina lower court had ruled that FETRA did not affect the tobacco companies' obligation under the 1999 Agreement and must still make payments to Maryland and Pennsylvania.

When the tobacco companies stopped paying, Maryland and Pennsylvania pursued action in the North Carolina court, and the States filed an appeal on January 20, 2009, with the Supreme Court of North Carolina to hold the nation's largest tobacco companies accountable to the 1999 Trust Agreement.

PM closed Friday's regular trading session at $48.83, up $0.17 or 0.35%, on a volume of 6.5 million shares.

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