CHARLESTON, W.Va. (Legal Newsline) - The West Virginia Supreme Court has upheld a Kanawha Circuit Court judge's ruling that Attorney General Darrell McGraw's office has to participate in a nationwide arbitration related to a monumental settlement with big tobacco companies.

In a unanimous ruling filed Monday, the justices said Kanawha Circuit Judge Irene Berger made no mistake in ordering the State to argue before a panel of federal judges that it has enforced a law meant to level the playing field between companies that participated in the $246 billion settlement and those that did not.

McGraw's office argued that whether or not it enforced a state law is a local matter and should not be subject to the arbitration. McGraw's office contended that it's a waste of tax dollars to send lawyers out of state to argue that it has enforced a state law.

But the tobacco companies said any dispute arising from calculations of the annual payments into an escrow account per the settlement are subject to arbitration. The companies contended that this language is clear in the 1998 settlement.

The dispute relates to an independent auditor's determination of the 2003 payments.

The auditor found that no adjustments would be made to decrease the payments to the states because each was enforcing the laws like West Virginia's, which requires companies that did not participate in the settlement to pay a per-cigarette tax into an escrow account to offset the alleged market share loss claimede by the settling companies.

The laws are meant to level the field for participating companies who argue they lost market share because of certain restrictions on things like advertising.

The companies contend that the adjustment to the 2003 calculations should have decreased that year's payments by more than $1 billion. The companies have withheld about $11 million from West Virginia pending the outcome of the arbitration.

Berger, in 2007, ruled that the so-called Master Settlement Agreement clearly states that these matters have to be arbitrated before a panel of three former federal judges.

The state Supreme Court called Berger's ruling "legally sound" and "correct" and cited numerous other state high courts that came to the same conclusions.

"All courts addressing arguments identical to those posed by the state against the requirement of a single, nationwide arbitration of the diligent enforcement determination have consistently and logically rejected the same," said the opinion by Chief Justice Brent Benjamin. "Both the structure and plain meaning of the MSA require a uniform determination of this issue due to the impact the determination relevant to one settling state will have upon all other settling states.

"Efficiency, logic and the plain meaning of the terms and structure of the MSA lead to the inescapable conclusion that all challenges to a diligent enforcement determination under the MSA are subject to arbitration before a single, nationwide, panel of three former (federal) judges."

Supreme Court case number: 33873