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Lawsuit Challenging State's Reallocation Of Tobacco Funds May Proceed, Court Rules

HARRISBURG, Pa. - (Mealey's) In a 5-2 en banc ruling, the Pennsylvania Commonwealth Court on June 27 dismissed most preliminary objections to a lawsuit filed by 75 participants of a now-unfunded health insurance program who are challenging the constitutionality of the state's redirection of tobacco settlement money from specific programs to the state's General Fund (Sheryl Sears, et al. v. Tom Corbett, et al., No. 121 MD 2011, Pa. Cmwth.). 

(Opinion available. Document #28-120718-010Z.)

In March 2011, Sheryl Sears and 74 other plaintiffs filed a class action petition in the Commonwealth Court against Gov. Tom Corbett, a state budget secretary, the Treasury Department, the speaker of the House of Representatives, the House itself, the Senate president pro tempore and the Senate.  The plaintiffs are all former recipients of adultBasic, a low-cost health insurance program for certain qualifying adults in Pennsylvania. 

AdultBasic was funded by proceeds from Pennsylvania's annual share of the $206 billion 1998 Master Settlement Agreement (MSA) between the federal government and 46 state governments and five major tobacco manufacturers.  The state's 2001 Tobacco Settlement Agreement (TSA) created a Health Endowment Account for Long-Term Hope (HEALTH program), which allocated money to be used in the adultBasic program, among other programs. 

In 2010 and 2011, the state enacted two laws that transferred $250 million from the Tobacco Settlement Fund into the state's General Fund and redirected monies for adultBasic elsewhere, ending the program in February 2011. 

Lawsuit Filed 

Sears and the other plaintiffs seek declaratory, mandamus and equitable relief for alleged violations of the TSA and the Pennsylvania Constitution.  They ultimately seek to have tobacco settlement money redeposited in accordance with the TSA, to have the Tobacco Settlement Fund reimbursed for lost monies and to have the adultBasic program reinstated retroactively. 

The defendants filed preliminary objections, arguing that the plaintiffs' amended complaint was insufficient as a matter of law and fails to set forth a claim as to any purported violations of the state constitution.  They also argue that adultBasic is not an entitlement program. 

The defendants also argued that they have sovereign immunity.  They also say that the constitution permits them to adjust the formula for allocating tobacco settlement monies. 

Sovereign Immunity For Some 

The Commonwealth Court majority said that the House and Senate defendants acted in accordance with two laws that facilitated the transfer of money.  Citing its own case law, the majority said sovereign immunity bars relief against those defendants. 

However, the majority said a question remains about the constitutionality of the laws.  If it finds them to be unconstitutional, it said it could direct the governor to "refrain from enforcing this legislation." 

Therefore, the majority said that the claims against the governor "are not within the rule of immunity." 

Not An Entitlement Challenge 

The majority said that the petitioners are not alleging that adultBasic is an entitlement or asserting a claim to state funds.  Instead, it said they are challenging the redirection of MSA monies away from the Tobacco Settlement Fund.   

The section of the TSA cited by the plaintiffs contains no language that would preclude them from challenging "the allegedly unlawful redirection of these MSA monies," the majority said. 

However, the majority sustained the defendants' argument that the redirection of tobacco money violated Article III, Section 3, of the Pennsylvania Constitution, which seeks to prevent "sneak" legislation.  The majority said neither of the two laws at issue appropriated any fund. 

Instead, the majority said that the two laws implemented the state operating budget for their respective fiscal years. 

'Nondescript' References 

But the majority also said one of the two laws references the fund in a "general and nondescript manner, merely stating 'FURTHER PROVIDING FOR THE TOBACCO SETTLEMENT FUND.'  This language provides no indication as to the substantial impact of the Act on the Fund or its provisions." 

The second law, the majority said, makes no reference at all to the fund. 

"Moreover, it is evident from both titles that these Acts refer to multiple diverse subjects unrelated to the Commonwealth's operating budget for the respective fiscal years," the majority continued, saying the preliminary objections in this regard are overruled. 

Impact Substantial 

The majority rejected the defendants' argument that the redirection of tobacco money was only temporary and that the TSA was not changed.  The court said the impact was "quite substantial" to adultBasic and all programs funded by the money. 

In addition, the majority said the impact is "not limited to the respective fiscal years; instead, the impact of these Acts will be felt by many programs well into the future."  More importantly, the majority said that none of the provisions in the TSA "specifically authorized the General Assembly to redirect these monies." 

The majority rejected the defendants' argument that Article III, Section 24, of the state constitution allows appropriations of money made by law on warrant to state officials.  The majority said the plaintiffs are not seeking to have the state treasury make a payment in the absence of an appropriation but are seeking compliance with the TSA, which requires continuing appropriation of tobacco money to various programs. 

The majority said that the plaintiffs are not saying that the state is "forever constrained" from reallocating tobacco money.  Instead, it says they are challenging the manner in which the defendants exercised their power, possibly in violation of the constitution. 

Can't Order Legislation 

The majority did agree with the defendants that the plaintiffs are barred by Article III, Section 15, of the state constitution, which prohibits the questioning of members of the General Assembly.  It said that an order requiring the General Assembly to enact new legislation or refrain from enacting future legislation is foreclosed by the constitution's speech and debate clause. 

The majority also agreed with the defendants that the plaintiffs lack standing to challenge any provisions of the fiscal code amendments unrelated to adultBasic. 

Finally, the majority agreed with the plaintiffs that their use of a class action cannot be challenged until the proceedings are closed. 

In a footnote, the majority said that the doctrine of laches does not apply because the plaintiffs did not have a valid cause of action until the adultBasic program was terminated. 


Judge Patricia A. McCullough wrote the opinion.  Joining the majority were Judges Bonnie Brigance Leadbetter, Dan Pelligrini, Mary Hannah Leavitt and P. Kevin Brobson. 

Judge Cohn Jubelier did not participate in the decision. 

Judge Robert Simpson dissented, joined by Judge Bernard L. McGinley, saying he would sustain the preliminary objections for a demurrer and dismiss the second amended complaint with prejudice.  Judge Simpson said the TSA language does not enable the defendants to return money from the General Fund to an account for adultBasic. 

The defendants must respond to the surviving issues within 30 days. 


The plaintiffs are represented by William R. Caroselli and Susan A. Meredith of Caroselli, Beachler, McTiernan & Conboy in Pittsburgh and David S. Senoff and Lauren C. Fantini of Caroselli Beachler in Philadelphia.   

The General Assembly defendants are represented by Jonathan F. Bloom, Thomas W. Dymek and Karl S. Myers of Stradley, Ronon, Stevens & Young in Philadelphia. 

The Treasury Department is represented by Christopher B. Craig, Craig S. Schwartz and Jennifer Langan of the Treasury Department in Harrisburg. 

Corbett is represented by Calvin R. Koons, Howard G. Hopkirk and John G. Knorr III of the Attorney General's Office and by Linda Cadden Barrett of the Office of General Counsel, both in Harrisburg.

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