A Delaware judge on Monday ordered ITG Brands to pay rival cigarette maker Reynolds American $251.5 million in connection with a tobacco settlement in Florida after ITG acquired four cigarette brands from Reynolds a decade ago.
Vice Chancellor Lori Will of the Delaware Chancery Court rejected ITG's argument that the $251.5 million demanded by Reynolds should be reduced by the money Reynolds saved because ITG did not participate in the Florida settlement.
Reynolds is a unit of British American Tobacco $BATS (+0,2 %) while ITG is a unit of the British company Imperial Brands $IMB (-1,1 %) is. ITG has announced that it will appeal.
The case arose when Reynolds sold the Kool, Maverick, Salem and Winston brands to ITG in June 2015 so that Reynolds could get regulatory approval for its $25.8 billion purchase of smaller rival Lorillard.
Prior to the sale, Reynolds had made annual payments to Florida for many years as part of a settlement to cover tobacco-related health costs after the state accused cigarette makers of misrepresenting the addictive potential and health risks of smoking.
After the sale was finalized, however, Reynolds stopped making payments based on sales of the four brands it no longer owned.
Florida then sued Reynolds and ITG and obtained a judgment requiring Reynolds to make payments until ITG joined the settlement.
Reynolds paid Florida 251.5 million dollars for the four brands from 2015 to 2023.
Will determined in October 2022 that ITG is obligated to repay Reynolds, raising the question of the amount to be paid.
In his ruling Monday, Will said it would be "perverse" to reduce ITG's liability by the estimated $112.8 million in "profit adjustment" payments that Reynolds saved because ITG did not join the Florida settlement.
"Reducing Reynolds' damages as if ITG had joined the Florida settlement would prevent ITG from ever doing so," Will wrote.
ITG is based in Greensboro, North Carolina, and Reynolds is based in Winston-Salem, North Carolina.
In a statement, ITG said it disagreed with Will's findings on liability and damages and continues to stand by its arguments "as we seek reversal."
Reynolds and its attorneys did not immediately respond to requests for comment. The company's trademarks include Camel, Newport and Pall Mall.