By Daniel Kelley
PHILADELPHIA (Reuters) - Lawyers for the state of Pennsylvania asked a judge on Friday to throw out an arbitration ruling that could cost the state hundreds of millions of dollars from the landmark 1998 settlement with the nation's tobacco companies.
Under the settlement, the nation's four largest tobacco companies promised to pay nearly $200 billion over 25 years to 46 states to settle lawsuits that claimed cigarette-related public health costs.
In exchange, states were required to pass laws to stop companies that declined to settle from gaining an economic advantage over their competitors.
A September 2013 arbitration ruling found that six states - including Pennsylvania - failed to "diligently enforce" that law in 2003. As a consequence, those states could lose some of their share of the tobacco settlement fund. Pennsylvania receives roughly $320 million annually from the fund.
In Pennsylvania Common Court on Friday, lawyers for the state of Pennsylvania argued the arbitration ruling should be thrown out, claiming the state did a proper job of enforcing the law.
The Pennsylvania case could have national ramifications because the arbitration only dealt with 2003. Pennsylvania's lawyers worry that if tobacco companies seek to claw back payments for later years, it could cost the state billions and lead to litigation for other years and involve other states.
"This has ramifications throughout a nine-year period," said Robert Loeb, an Orrick, Herrington & Sutcliffe attorney who represents the state of Pennsylvania.
States have used the tobacco settlement funds on a variety of purposes. While many states used the money for health initiatives and to encourage Americans to quit smoking, others used the money to reduce taxes or on education and social services.
In addition to Pennsylvania, the other states named in the arbitration ruling are Indiana, Kentucky, Missouri, New Mexico, and Maryland. All six states could see payments from the tobacco settlement fall by a combined $500 million, according to a report by the National Association of State Budget Officers.
Pennsylvania Common Court Pleas Judge Patricia McInerney did not issue a ruling and did not discuss a timeline for doing so.
(Editing by Barbara Goldberg and Ken Wills)