A federal judge on Friday put Utah one step closer to possibly losing a significant chunk of settlement cash from tobacco companies.

After a hearing Friday, U.S. District Judge Dee Benson ordered Utah lumped into binding arbitration with some 50 states and two territories against the tobacco companies, who have claimed the states have dragged their feet in seeking legal action against other tobacco companies who chose not to participate in a 1998 settlement. This, they argue, puts participating tobacco companies, which have paid out billions to the states, at a market disadvantage.

Participating companies, such as R.J. Reynolds Tobacco Co., claim the states deserve a reduction in settlement funds, at least for the year 2003. For Utah this means it could lose its entire 2003 settlement payment of $32.6 million, posingpotentially serious problems fornumerous state health programs that rely on settlement funding. Nationally the total loss has been tallied at $1.2 billion, according to court documents.

Assistant Utah Attorney General Jerry Jensen said that Utah would be put at a disadvantage in terms of time and money to participate in binding arbitration, which will likely take place back East and probably take more than a year to sort out. Jensen argued in court that the tobacco companies' claim is outside the realm of the 1998 settlement agreement and should be heard by a federal judge in Utah, separate from claims filed against other states.

Benson, however, disagreed, saying it was clear under the agreement that Utah signed that such disputes would be settled under binding arbitration. "This is not in my view a close case at all," Benson said.

Attorneys for the tobacco companies called Benson's ruling a "win" for them.

Outside of court, R.J. Reynolds attorney Stephen Patton said already 26 out of 27 courts across the country have now ruled the states into binding arbitration. Some of those rulings, however, are under appeal.

At the heart of the tobacco companies' claim, Patton said, is that states have failed to put legal pressure on companies that have opted not to participate in the settlement, creating a market disadvantage against participating companies that pay out billions to states.

"They say that, but they don't have any evidence," Jensen said, who added even if Utah is sent into arbitration, the state can prove it has made an effort to go after nonparticipating tobacco companies. In fact, Jensen said, market share for participating tobacco companies has actually increased in Utah.

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