Tobacco Case Reaffirms Confidentiality of NAAG Legal Advice

Oleg Kobelev, Tobacco Project Counsel

Oleg Kobelev, Tobacco Staff Attorney

In Tobaccoville USA v. McMaster, the South Carolina Supreme Court reaffirmed April 12 the attorney-client privilege between the state Attorneys General and the National Association of Attorneys General (NAAG). The Court also found for the first time that under South Carolina law the common interest doctrine protects exchanges of privileged information between NAAG and State Attorneys General.

Tobaccoville USA v. McMaster concerned an importer of cigarettes manufactured by a Canadian tobacco manufacturer that did not join the Master Settlement Agreement (MSA). The MSA is a landmark agreement between the Attorneys General of 46 states and all major tobacco companies to settle suits brought by the states to recover medical costs associated with smoking-related illnesses. Under the MSA, the states agreed to release permanently all claims for damages against the tobacco companies. In exchange, the tobacco companies agreed to a broad array of restrictions on the advertising, marketing and promotion of cigarettes. The companies also agreed to make annual payments to the states based on the number of cigarettes they sold during the prior year.

Like all other states that have signed the MSA, South Carolina enacted legislation requiring cigarette manufacturers who did not join the MSA (Non-Participating Manufacturers or NPMs) to make escrow payments. These payments are held in escrow accounts for the benefit of the state to satisfy potential judgments or settlements for smoking-related health care costs. Under other South Carolina legislation, cigarette manufacturers may sell cigarettes in the state only if the South Carolina Attorney General certifies them as a tobacco product manufacturer. If an NPM certified to sell cigarettes in South Carolina does so, it must make escrow payments for the cigarettes it sells in the state.

Between 2004 and 2006, Tobaccoville received this certification and made escrow payments to South Carolina in respect of the Canadian cigarettes it imported. In early 2007, however, the South Carolina Attorney General determined that Tobaccoville no longer qualified as a tobacco product manufacturer. Tobaccoville challenged that determination in South Carolina administrative law court. As a part of that lawsuit, Tobaccoville sought discovery of numerous confidential documents shared among NAAG, the South Carolina Attorney General, and other state Attorney General offices. Tobaccoville argued that these documents were not covered by attorney-client privilege because neither NAAG nor other state Attorney General offices were retained as counsel for South Carolina.

On appeal, the South Carolina Supreme Court held that “while the relationship the AG has with NAAG is not a traditional attorney-client relationship . . . these communications may be covered by the attorney-client privilege.” The Court noted that as a paying member of NAAG, the South Carolina Attorney General has in the past sought legal advice and consultation from NAAG attorneys regarding tobacco enforcement matters. The Court also found instructive a determination by a federal district court in Grand River Enterprises Six Nations v. King that similar NAAG documents were protected by attorney-client privilege. The Court held that in “in this very narrow factual scenario” the documents shared between NAAG’s attorneys and South Carolina Attorney General were privileged.

The court next turned to whether the South Carolina Attorney General waived the attorney-client privilege by sharing privileged documents with other states. The South Carolina Attorney General argued that under the common interest doctrine, exchanges of privileged information among parties with shared interests – as occurred with the documents the South Carolina Attorney General had shared with other states – should not waive the privilege. As evidence of their shared interest, the Attorney General submitted a Common Interest Agreement between the states that memorialized their common interest and their intent to maintain confidentiality of information shared among them.

The South Carolina Supreme Court recognized that application of the common interest doctrine was an issue of first impression in South Carolina. The Court held the doctrine applicable “for the narrow factual scenario where several states are parties to a settlement agreement, the state laws that regulate and enforce that settlement all have the same provisions, the attorneys general of those states are involved in coordinating regulation and enforcement, and the settling states have executed a common interest agreement.” The Court noted that the South Carolina Attorney General shared a common interest with other state Attorneys General in matters related to the MSA. The Court found that the state Attorneys General and NAAG “are working together to have uniform tobacco regulations and enforcement of the MSA.” Based on these circumstances, the Court concluded that the attorney-client privilege was not waived when the South Carolina Attorney General shared documents with other state Attorneys General.

Like the similar decision in Grand River Enterprises Six Nations, this case reaffirms and protects the confidentiality of legal advice provided by NAAG to its members, thus enabling NAAG to perform its core mission: “To facilitate interaction among Attorneys General as peers and to facilitate the enhanced performance of Attorneys General and their staffs.” The decision recognizes the value of interstate cooperation on issues related to tobacco enforcement and the important role NAAG plays in facilitating this cooperation. Finally, Tobaccoville establishes a new legal precedent in South Carolina by adopting the common interest doctrine as an exception to the waiver of an existing privilege.

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