State v. Philip Morris USA Inc.

ELMORE, Judge,

dissenting.

For the following reasons, I respectfully dissent from the majority opinion reversing the Business Court.

This Court is bound by any decision issued by the Supreme Court. Dunn v. Pate, 334 N.C. 115, 118, 431 S.E.2d 178, 180 (1993). Even when we question a defunct holding or line of reasoning — which is not the case here — we cannot overrule the Supreme Court. See Cannon v. Miller, 313 N.C. 324, 324, 327 S.E.2d 888, 888 (1985) (vacating a Court of Appeals decision after observing “that the panel of Judges of the Court of Appeals to which this case was assigned has *263acted under a misapprehension of its authority to overrule decisions of the Supreme Court of North Carolina and its responsibility to follow those decisions, until otherwise ordered by the Supreme Court”). Here, we have been asked to interpret a contract that our Supreme Court has already interpreted. Accordingly, I believe that we, like the Business Court, are bound by the Supreme Court’s interpretation of that contract.

Settlors argue that the Business Court “misunderstood and inisapplied the Supreme Court’s decision” by failing to follow or apply the principles of contract interpretation set forth by the Supreme Court in Philip Morris I. “Instead of applying the Trust’s plain language, the Business Court went immediately to the ‘purpose’ of the Trust and held that purpose would be defeated if growers in Maryland and Pennsylvania did not receive their Trust payments.” Settlors contend that the Business Court should have “look[ed] first to the plain language of the TOA provision to discern the parties’ intent — and improperly began its analysis with what it perceived to be the Trust’s ‘general purpose.’ ” Settlors posit that the Business Court “rewrote the terms of the parties’ agreement to impose upon Settlors an additional payment obligation that does not appear in any provision of the Trust” and thereby “effectively wrote the TOA out of the Trust entirely as to Maryland and Pennsylvania.”

Settlors characterize the Supreme Court’s opinion as looking to the Trust’s purpose as an afterthought, and by doing so imply that a contract’s express purpose should have no effect on a court’s interpretation of that contract. Instead, they argue, meaning should be gleaned only by parsing that contract’s component pieces. I disagree with Settlors’ characterization and find it to be in opposition to both the Supreme Court’s opinion in Philip Morris I and traditional notions of contract interpretation.

The Supreme Court began its opinion by briefly reviewing the background of the Master Settlement Agreement and the Trust Agreement’s origins. In describing how the Trust Agreement operates, the Supreme Court started with the preamble, which “announces the purpose of the Trust: ‘[T]o provide aid to Tobacco Growers and Tobacco Quota Owners and thereby to ameliorate potential adverse economic consequences to the Grower States.’ ” Philip Morris I, 359 N.C. at 766, 618 S.E.2d at 221 (citation omitted; alteration in original). The Court then explained that “[t]he Trust accomplishes this objective through annual distributions to the beneficiaries. These distributions supplement the declining incomes of tobacco farmers as they *264adapt to an economy in which the MSA has dulled the appetite for tobacco.” Id. (citation omitted).

After explaining the Trust’s operation and the passage and impact of FETRA, the Court began its analysis by laying out the following ground rules for contract interpretation:

Interpreting a contract requires the court to examine the language of the contract itself for indications of the parties’ intent at the moment of execution. If the plain language of a contract is clear, the intention of the parties is inferred from the words of the contract. Intent is derived not from a particular contractual term but from the contract as a whole.

Id. at 773, 618 S.E.2d at 225 (quotations and citations omitted; emphasis added).

The Court then set out to “carefully inspect the provisions of the Phase II Trust to ascertain the parties’ intention at the time it was executed.” Id. at 773, 618 S.E.2d at 226. As Settlors point out in their briefs, the Court “look[ed] first to the plain language of the Tax Offset Adjustment provision to discern the intent of the parties.” Id. at 773, 618 S.E.2d at 227. After reviewing relevant portions of the TOA provision, the Court concluded that the trial court’s construction was improper and that the Trustees’ interpretation was correct. The Court then continued,

Furthermore, we very much doubt the trial court’s construction of the wording on pages A-5 to A-6 reflects the original understanding of the parties. The court would allow a Tax Offset Adjustment even if the government never collects the assessments due under a qualifying change of law and hence never spends them for the benefit of tobacco farmers. Under those circumstances, tobacco farmers would receive reduced distributions (or no distributions) from the Phase II Trust and nothing from the government. The negative financial implications of this scenario for tobacco farmers are obvious.

Id. at 777, 618 S.E.2d at 228 (emphases added). In its opinion, the Court repeatedly returned to how each party’s interpretation of the TOA provision would impact tobacco farmers. The TOA provision does not constitute the entire agreement between the parties; it constitutes one part of the larger Trust Agreement. The Court recognized that the proper interpretation of the TOA provision had to be consistent with the purpose and intent underlying the Trust Agreement. *265The Court’s review of the Trust Agreement’s purpose and the parties’ intent was not perfunctory, as Settlors claim; the Court stated that its interpretation “must be [considered] in the context of the entire Trust Agreement.” Id. (citation omitted; emphasis added).

The Court continued,

Certainly the most compelling reason for rejecting the trial court’s holding is that, taken to its logical extreme, it could defeat the express purpose of the Phase II Trust. As previously explained, the Trust was crafted to protect tobacco farmers from economic harm caused by the MSA. The Trust achieved this goal through annual distributions to the beneficiaries. These distributions were scheduled to furnish tobacco farmers a steady stream of supplemental income until at least 2010.

Id. at 779, 618 S.E.2d at 229 (emphases added). Two paragraphs later, the Court again emphasized the paramount importance of the Trust Agreement’s purpose:

[T]he Grower States entered into the Trust Agreement to obtain a regular source of supplemental income for tobacco farmers hurt by the economic repercussions of the MSA. Interpreting the Trust Agreement in a manner that could leave those individuals without this extra income for years runs squarely counter to the express purpose of the Trust.

Id. at 780, 618 S.E.2d at 229.

The Business Court read the Supreme Court’s opinion as “concise and unequivocal in its holding that the purpose of the Trust viewed as a whole was to provide a safety net for farmers impacted by the MSA.” North Carolina v. Philip Morris USA, Inc., 2007 NCBC LEXIS 7, at *9, 98 CVS 14377 (2007). The Business Court characterized Settlors’ interpretation of the TOA provision as unequivocally stating that there could be no state-by-state accounting:

The tobacco companies contend that under the Agreement they are obligated to pay up to a fixed amount and that if any Grower Governmental Obligation exceeds the balance then due under the Trust Agreement the companies have no further obligation under the Trust, even if some beneficiaries do not receive benefits under the Grower Governmental Obligation.

Id. at *13. The States, however, argued that the' TOA provisions unequivocally state that, if farmers do not receive the benefits of a *266Governmental Obligation, then the value of that Governmental Obligation is zero and the corresponding reduction in trust payments is zero. Id. The Business Court admitted that “[t]he TOA can be logically read to support the position of the tobacco companies” by “provid[ing] a cap on their total liability.” Id. However, the Business Court held that “such reading defeats the purpose of the Trust as far as the individual states that signed releases are concerned.” Id. The Business Court concluded that Settlors’ interpretation could not be correct because it violates the Trust’s express purpose, and therefore a state-by-state accounting of actual Governmental Obligations is appropriate.

Settlors point out that the Business Court based its decision almost exclusively on the Trust’s purpose as articulated by the Supreme Court. Although the Business Court’s decision does lack, significant textual analysis, the absence of that analysis does not mean that the Business Court reached the wrong conclusion or that its reliance on the Trust’s express purpose was misplaced.

There is no ambiguity as to the Trust Agreement’s purpose or the parties’ intentions; our Supreme Court has clearly set out both. As the Business Court noted, however, “the parties each read the same language, claiming it to be unambiguous, to support their interpretation of the Trust Agreement.” Id. at *11. Our Supreme Court has observed that

[w]hile [t]he fact that a dispute has arisen as to the parties’ interpretation of the contract is some indication that the language of the contract is at best, ambiguous, ambiguity ... is not established by the mere fact that the plaintiff makes a claim based upon a construction of its language which [his opponent] asserts is not its meaning.

Brown v. Lumbermens Mut. Casualty Co., 326 N.C. 387, 392, 390 S.E.2d 150, 153 (1990) (quotations and citations omitted). The ambiguity, if there is any, arises here only in the context of whether the TOA provision explicitly mandates or prohibits a state-by-state accounting of reductions resulting from Grower Governmental Obligations. When the contract is read as a whole, however, it is clear that the parties intent was to protect tobacco farmers from the economic harm caused by the MSA. I believe that the Business Court properly interpreted the Trust Agreement as a whole and concluded that the TOA requires Settlors to continue making payments to the *267Trust sufficient to meet the annual amounts allocated to Maryland and Pennsylvania under Section 1.03 of the Trust Agreement.

Had the Business Court concluded otherwise, the effective result would be that Maryland and Pennsylvania tobacco growers would receive no distributions. The Supreme Court rejected this outcome in Philip Morris I by looking at the potential economic effects if the TOA were read to allow “Tax Offset Adjustments absent the actual payment of a Governmental Obligation” as Settlors urged. Philip Morris I, 359 N.C. at 778, 618 S.E.2d at 228. The Court noted that the Business Court would have given

Settlors a Tax Offset Adjustment for 2004 regardless of when FETRA assessments are actually paid. Thus, had FETRA assessments been delayed until 2010, tobacco farmers would have been forced to endure the adverse economic consequences of the MSA for six years without the regular financial support the Phase II Trust was designed to supply.

Id. at 779, 618 S.E.2d at 229. The Court scorned this potential outcome as “run[ning] squarely counter to the express purpose of the Trust.” Id. at 780, 618 S.E.2d at 229. It seems incongruous to now change course and find this result acceptable.

Accordingly, I would hold that the trial court properly granted Maryland and Pennsylvania’s motion for summary judgment and properly denied Settlors’ motion for summary judgment.