The state lost a preliminary round in the Nevada Supreme Court on Thursday in a legal dispute with big tobacco companies over payments of about $40 million stemming from a landmark 1998 national settlement.
The high court rejected a petition from the attorney general's office seeking to have the dispute over the money handled by a state court. Instead, the Supreme Court said the matter should be handled by a federal arbitration panel.
The Supreme Court decision upholds an earlier ruling by Washoe County District Judge Brent Adams. Justices said the lower court ruling didn't amount to "a manifest abuse of its discretion."
The 1998 settlement allowed cigarette companies to pay a percentage of revenues to states which promised not to sue over health issues caused by tobacco products. The tobacco companies are trying to reduce those payments, arguing that the states involved in the settlement didn't meet all terms of the settlement.
Senior Deputy Attorney General Victoria Oldenburg said that despite the Supreme Court's preliminary ruling she remains hopeful that Nevada ultimately will win the legal battle. Other states are involved in similar litigation.
Nevada already has collected about $35 million of the funds, as part of its 2003 payment from the tobacco companies.
If it wins the case, it could get another $5 million to $6 million as part of its 2006 payment. A loss would mean the tobacco companies wouldn't pay the 2006 money and could get back the 2003 funds.
The tobacco companies say the disputed amount is their money because of a provision in the settlement that allows the big cigarette makers to pay less if they have lost market share to smaller companies that weren't part of the settlement.
The states say the companies would be entitled to a reduction only if states didn't adequately enforce laws requiring cigarette makers outside the settlement to put money in escrow for future legal obligations " and states have been enforcing such laws.
"We believe we have diligently enforced our laws," Oldenberg said. "But we have no idea what a federal arbitration panel is going to decide" in setting a standard for such enforcement.
"I think we've met the standard," Oldenberg said. "We just don't know what it is, so we can't say with any level of certainty that we're going to prevail."