The battle over money the tobacco industry owes states under their 1998 settlement intensified Tuesday after talks to resolve the dispute fizzled.

A spokesman for R.J. Reynolds Tobacco Co. said Tuesday that the weeks-long negotiations between the states and tobacco companies had broken down. “We had tried to work hard with the states to resolve this very difficult matter and are disappointed an agreement couldn’t be reached,” said David Howard, a spokesman for the No. 2 cigarette maker. California Attorney General Bill Lockyer filed suit Tuesday to recoup more money from the companies. “We were, and remain, entitled to full payment,” Lockyer said in a statement. Attorneys general in New Jersey and Ohio also filed lawsuits against the industry Tuesday. Officials in New York and Connecticut said they, and other states, would probably take similar steps. “We’re continuing to review our options, but certainly a lawsuit looks likely this week,” Connecticut Attorney General Richard Blumenthal said in an interview. On Monday, R.J. Reynolds and No. 3 cigarette maker Lorillard Tobacco Co. said they had put more than $750 million aside rather than hand it over to the states. R.J. Reynolds paid the states about $1.4 billion but withheld $647 million, putting it in an escrow account until the dispute is resolved. Lorillard paid the states a little more than $550 million and put another $108 million aside until the issue is resolved. Industry leader Philip Morris USA said earlier this month it had made all of its $3.4 billion payment, but that it believes the sum should be reduced. Philip Morris spokesman Michael Neese said his company is still trying to work with the states to resolve the issue. The tobacco companies say the disputed amount — roughly $1.2 billion in total — is money they should get to keep because of a provision in the settlement that allows the cigarette makers to pay less if they have lost market share to smaller companies that weren’t part of the settlement. An economic consulting firm concluded last month that the agreement — which set restrictions on cigarette advertising, promotion and marketing — was a “significant factor” contributing to the loss of market share for companies that settled. The states’ attorneys general say the companies would be entitled to a reduction only if states did not adequately enforce laws requiring cigarette makers outside the settlement to put money in escrow for future legal obligations. The tobacco companies contend the issue should go to arbitration, in which a three-judge panel would weigh in on the matter. The states prefer to handle the matter in state courts. There is a lag in annual payments to the states. The money owed this year actually deals with the companies’ loss of market share in 2003. That year, the companies saw their share of the market drop to about 92 percent. Before the settlement, they had about 99 percent of the market. Copyright 2006 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.