American Legacy Foundation v. Lorillard Tobacco Co.

886 A.2d 1, 2005 WL 5775806, 2005 Del. Ch. LEXIS 124
CourtCourt of Chancery of Delaware
DecidedAugust 22, 2005
DocketC.A. 19406
StatusPublished
Cited by29 cases

This text of 886 A.2d 1 (American Legacy Foundation v. Lorillard Tobacco Co.) is published on Counsel Stack Legal Research, covering Court of Chancery of Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
American Legacy Foundation v. Lorillard Tobacco Co., 886 A.2d 1, 2005 WL 5775806, 2005 Del. Ch. LEXIS 124 (Del. Ct. App. 2005).

Opinion

OPINION

LAMB, Vice Chancellor.

I.

This litigation arises out of the historic 1998 tobacco settlement between the nation’s largest tobacco companies and 46 of the states’ attorneys general. In the settlement, the tobacco companies agreed to fund a foundation charged with creating programs to reduce youth tobacco product usage in the United States. As part of its mission, the foundation created a series of television and radio ads under the brand “the truth.” 1

The settlement agreement imposes certain limits on the content of the foundation’s activities, including a requirement that its advertising not constitute a “per *8 sonal attack on, or vilification of’ any person or company. After the airing of one of the foundation’s radio ads in 2001, a tobacco company threatened to take legal action against the foundation. ■ Several months later, with the issue still unresolved and facing the threat of suit in multiple jurisdictions, the foundation filed an action in this court, seeking a declaration that none of its ads violate the settlement agreement. The tobacco company counterclaimed that the ads do violate the settlement agreement.

Both parties move for' summary judgment, arguing that there is no genuine issue of material fact. They both agree that the matter presented is a straightforward contractual issue that turns on the legal interpretation of the words of the settlement agreement.

The restrictive terms used in the settlement agreement do not have well defined legal meanings. Nevertheless, drawing upon numerous sources, including case law, law review articles, and dictionaries, the court is able to ascertain the meaning of those terms and, then, to analyze the disputed advertisements in light of those meanings. As a result of this analysis, and for the reasons discussed below, the foundation’s motion for summary judgment is granted and the tobacco company’s motion for summary judgment is denied.

II.

A. Background

The defendant is Lorillard Tobacco Company, the oldest tobacco company in the United States and a Delaware corporation. The plaintiff is American Legacy Foundation (“ALF”), a Delaware non-profit corporation formed pursuant to the terms of the Master Settlement Agreement (the “MSA”), a 1998 agreement whereby the nation’s largest tobacco companies settled lawsuits brought against them by the attorneys general of 46 states. The MSA requires that the tobacco signatories make collective Base Fund Payments of $25,000,000 per year for nine years. The MSA also requires the tobacco signatories to make collective payments in the amount of $250,000,000 in 1999 and $300,000,000 per year for the next four years for ALF’s National Public Education Fund (“NPEF”). These funds have been used by ALF to produce its ad campaigns.

ALF’s mission, as originally stated in the MSA and later incorporated into ALF’s bylaws, is to educate America’s youth about the dangers of tobacco products and to reduce the usage of tobacco products by young people. To fulfill its mission, ALF launched an advertising campaign universally known as “the truth” campaign. This campaign involved various television and radio ads aimed at young people that portray the negative side of tobacco products. To make sure that its ads were effective in reaching young people, ALF purposefully made them edgier and more confrontational than regular television and radio ads. Many ads could be described as “in your face” and “eye-catching.”

The funding provided to ALF pursuant to the MSA did not come without restrictions. A majority of ALF’s funding was earmarked for the public’s education (i.e.advertising), and the content of that advertising is made subject to both requirements and prohibitions. The MSA required that the advertising concern only the “addictiveness, health effects,, and social costs related to the use of tobacco products.” 2 The MSA also prohibited the advertising from being a personal attack *9 or a vilification of tobacco company employees or tobacco companies. 3

The relationship between ALF and the tobacco companies got off to a rocky start. In July 2001, Lorillard threatened litigation against ALF because of a radio ad that mentions Lorillard by name and implies that cigarettes contain dog urine. Lorillard initially threatened claims of defamation and unfair business practices against ALF, but later changed its position to assert that ALF’s ads were a breach of the MSA.

In a January 18, 2002 letter, Lorillard notified ALF that it intended to bring suit for a breach of the MSA. Lorillard could not, however, bring suit at that time due to a 30-day notice provision of the MSA. ALF, as a non-signatory to the MSA, was not similarly bound. Thus, after a Lorillard spokesman indicated that Lorillard might sue ALF in 46 different states, ALF sued first, filing this action in Delaware on February 13, 2002.

In its complaint, ALF seeks, a declaratory judgment that its advertisements do not violate Section VI(h) of the MSA. ALF also seeks injunctive relief on the theoiy that the continuing threat of litigation from Lorillard, especially the possibility that it may need to defend itself in multiple jurisdictions, threatened irreparable harm to its ability to continue its day-today operations.

Lorillard counterclaims that ALF’s advertisements violate Section VI(h) of the MSA.

B. Procedure

This opinion is the fourth in a series of opinions concerning the litigation between these parties. 4 In Lorillard I, the court held that ALF’s claims would be litigated in Delaware. 5 In Lorillard II, the court granted partial summary judgment in favor of Lorillard, finding that the MSA could be enforced against ALF even though it did not sign the agreement. In Lorillard III, the court granted a motion to compel certain documents, and denied a motion to compel other documents, all of which related to the contested advertisements.

Now, after years of litigation and several months before trial, both parties move for summary judgment, neither party contending that there is a material issue of fact. This opinion addresses those motions.

C. The Dispute

Section VI(h) of the MSA is at the center of the dispute between Lorillard and *10 ALF. That section, titled “Foundation Activities,” states, in relevant part, as follows:

The Foundation shall not engage in, nor shall any of the Foundation’s money be used to engage in, any political activities of lobbying, including, but not limited to, support of or opposition to candidates, ballot initiatives, referenda or other similar activities.

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Bluebook (online)
886 A.2d 1, 2005 WL 5775806, 2005 Del. Ch. LEXIS 124, Counsel Stack Legal Research, https://law.counselstack.com/opinion/american-legacy-foundation-v-lorillard-tobacco-co-delch-2005.