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NOTICE: This opinion is subject to motions for rehearing under Rule 22 as well as formal revision before publication in the New Hampshire Reports. Readers are requested to notify the Reporter, Supreme Court of New Hampshire, One Charles Doe Drive, Concord, New Hampshire 03301, of any editorial errors in order that corrections may be made before the opinion goes to press. Errors may be reported by E-mail at the following address: reporter@courts.state.nh.us. Opinions are available on the Internet by 9:00 a.m. on the morning of their release. The direct address of the court's home page is: http://www.courts.state.nh.us/supreme. THE SUPREME COURT OF NEW HAMPSHIRE ___________________________ Merrimack No. 2006-621 STATE OF NEW HAMPSHIRE v. PHILIP MORRIS USA, INC. & a. Argued: March 22, 2007 Opinion Issued: June 22, 2007 Kelly A. Ayotte, attorney general (Richard W. Head, senior assistant attorney general, & a. on the brief, and Mr. Head orally), for the State. Ransmeier & Spellman, of Concord (R. Matthew Cairns and Lisa M. Lee on the brief), Ford, Weaver & McDonald, of Portsmouth (Marc McDonald on the brief), Kirkland & Ellis LLP, of New York, New York (Marjorie P. Lindblom & a. on the brief), Winston & Strawn, LLP, of Chicago, Illinois (Thomas J. Frederick on the brief), Kirkland & Ellis LLP, of Chicago, Illinois (Stephen R. Patton and Douglas G. Smith on the brief, and Mr. Patton orally), Weil Gotshal & Manges, of New York, New York (Penny Reid on the brief), and DLA Piper US LLP, of New York, New York (Alexander Shaknes & a. on the brief), for defendants Philip Morris USA, Inc., R.J. Reynolds, Inc. and Lorillard Tobacco Company.

McNeill, Taylor & Gallo, P.A., of Dover (Robert J. Gallo on the brief), and Howrey LLP, of Washington, D.C. (Robert J. Brookhiser and Elizabeth B. McCallum on the brief, and Mr. Brookhiser orally), for defendants Commonwealth Brands, Inc. & a. (the Subsequent Participating Manufacturers). DUGGAN, J. The State appeals an order of the Superior Court (Fitzgerald, J.) granting the defendants' motion to compel arbitration and dismissing its petition for declaratory judgment. We affirm. I. Background A. The Master Settlement Agreement Several years ago, New Hampshire, along with other states and jurisdictions, filed suit against a number of tobacco manufacturers, alleging that they were engaging in wrongful advertising and marketing of cigarettes and other tobacco products. See, e.g., Com. v. Philip Morris, Inc., 864 N.E.2d 505, 507 (Mass. 2007); State v. Philip Morris, Inc., 905 A.2d 42, 43 (Conn. 2006). In November 1998, the Attorneys General of forty-six states, the District of Columbia, the Commonwealth of Puerto Rico and four United States Territories (the Settling States) entered into the Tobacco Master Settlement Agreement (MSA) with four domestic tobacco manufacturers, known as the Original Participating Manufacturers (OPMs). Because two of the manufacturers have merged, the OPMs now are defendants Philip Morris USA, Inc., R.J. Reynolds, Inc., and Lorillard Tobacco Co. Under the MSA, the Settling States agreed to dismiss their lawsuits and to release past and future claims against the OPMs in exchange for annual payments from the OPMs, as well as several other concessions, including marketing and advertising restrictions. Since the execution of the MSA, various other tobacco manufacturers, known as Subsequent Participating Manufacturers (SPMs), have joined the MSA and are subject to the same payment obligations and other restrictions as the OPMs. Collectively, the OPMs and the SPMs are known as Participating Manufacturers (PMs). Those tobacco companies that did not enter into the settlement are known as NonParticipating Manufacturers (NPMs). The annual payments that the MSA requires the PMs to make are intended to help the Settling States achieve "significant funding for the advancement of public health" and "the implementation of important tobaccorelated public health measures." Under the MSA, the PMs do not make

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payments directly to the individual Settling States. Instead, each PM is required to make a single, nationwide payment into an escrow account on April 15th of each year, and the funds are subsequently allocated among the Settling States. The PMs' payment obligations are calculated annually by an "Independent Auditor." Currently, the Independent Auditor is the public accounting firm PricewaterhouseCoopers LLP. The MSA contains a comprehensive formula governing how the Independent Auditor calculates the PMs' annual payment obligation. The starting point is for each of the OPMs to pay into the escrow account its relative market share of the base amount for the year at issue as specified in section IX(c)(1) of the MSA. This amount is then subject to several reductions and adjustments. One adjustment is the "Non-Participating Manufacturer Adjustment" (NPM Adjustment), which is here at issue. As noted above, the NPMs are tobacco manufacturers that have not joined the MSA, and are thus not subject to the MSA's marketing restrictions and payment obligations. The drafters of the MSA acknowledged that marketing restrictions and payment obligations could put the PMs at a competitive disadvantage and potentially cause PMs to lose market share to the NPMs. Thus, the NPM Adjustment attempts to level the marketplace by reducing the annual payment obligations of the PMs if

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