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Click here for the full text of this decision FACTS:On January 16, 1998, Texas entered into a settlement agreement with B&W, Philip Morris, Inc., R.J. Reynolds Tobacco Co., Lorillard Tobacco Co., and United States Tobacco Co. (collectively referred to as the settling defendants. In late 1999, B&W entered into an agreement with Star, an independent tobacco company that was primarily engaged in developing reduced-risk tobacco products. B&W manufactured, sold, and shipped to Star per Star’s specifications and requirements over 7.5 billion cigarettes between late 1999 and December 21, 2002. B&W was paid approximately one cent for each cigarette, which resulted in B&W’s making approximately $4 per thousand cigarettes. Although B&W shipped the cigarettes to Star, who then shipped them through its own distribution system for consumption, B&W did not include those cigarettes in its annual payment calculations to Texas. Instead, B&W based its annual payment calculations on the shipment information that it reported to Management Science Associates, Inc. (MSA, Inc.). On May 27, 2004, more than one year after B&W had stopped manufacturing cigarettes for Star, the state of Texas filed a Verified Motion to Enforce the Settlement Agreement, and also filed for an accounting and a preliminary injunction claiming that B&W breached the agreement by failing to report as its own, and make settlement payments with respect to, the contract-manufactured cigarettes. B&W denied the allegations claiming that it was not required to include the contract-manufactured cigarettes in the annual payment calculations. On June 24, 2004, by agreement of the parties, the United States District Court for the Eastern District of Texas, Texarkana Division, heard argument and received evidence on whether B&W breached the agreement, and on whether Texas was entitled to an accounting. On March 28, 2005, the district court issued its final judgment in favor of B&W along with its findings of facts and conclusions of law. The court ruled that “under well-settled industry practice,” the contract-manufactured cigarettes “were not B&W’s cigarette shipments, they were not shipped to B&W’s wholesalers, and they were properly excluded from B&W’s shipments reported to MSA, Inc. or the calculation of B&W’s payments under the Texas Settlement Agreement.” HOLDING:Affirmed. At the heart of this appeal is the interpretation of the provisions in the Texas settlement agreement establishing the method for calculating the settling defendants’ annual payments. Under the plain language of the Texas settlement agreement, payments must be made based on “shipments” of cigarettes that would be included in “audited reports of shipments of Tobacco Products provided to the [SEC].” The district court, however, found that all settlement payments due under the Texas settlement agreement since its inception have been based on shipments as reported to MSA, Inc. Yet it also found that MSA, Inc. shipment reports are based on unaudited shipment information. The phrase “audited reports of shipments” as used in the settlement agreement is a latent ambiguity-one which appears only by reason of a collateral matter. As such, the trial court’s use of extrinsic evidence to determine the parties’ intent was not error. The only audited shipment reports, albeit not audited in the classic sense, that are submitted in compliance with the Texas settlement agreement are those generated by MSA, Inc. pursuant to its Cigarette Research Audit program. That being the case, B&W’s use of MSA, Inc. figures was not a breach of the Texas Settlement Agreement. The trial court’s findings of fact are supported by the evidence and are not subject to attack under the clear error standard of review. OPINION:Hanen, District Judge; Smith and Stewart, J.J., and Hanen, District Judge.

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