State ex rel. Bruning v. R.J. Reynolds Tobacco Co.

310 	275 NebRASkA RePORTS
and in striking the statement and demand. Accordingly, we
reverse the county court’s order and remand the cause with
directions to reinstate both filings.
R eveRsed and Remanded With diRections .
state of neBRaska ex Rel . J on BRuning , attoRney geneRal
of the state of neBRaska , appellant , v . R.J. R eynolds
toBacco company et al ., appellees .
746 N.W.2d 672
Filed March 28, 2008. 	No. S-06-1027.
1. Jurisdiction: Appeal and Error. A jurisdictional question which does not
involve a factual dispute is determined by an appellate court as a matter of law.
2. Contracts: Appeal and Error. The interpretation of a contract involves a ques-
tion of law, in connection with which an appellate court has an obligation to reach
its conclusions independently of the determinations made by the court below.
3. Jurisdiction: Appeal and Error. before reaching the legal issues presented for
review, it is the duty of an appellate court to determine whether it has jurisdiction
over the matter before it.
4. Final Orders: Appeal and Error. Under Neb. Rev. Stat. § 25-1902 (Reissue
1995), the three types of final orders which may be reviewed on appeal are (1) an
order which affects a substantial right and which determines the action and pre-
vents a judgment, (2) an order affecting a substantial right made during a special
proceeding, and (3) an order affecting a substantial right made on summary appli-
cation in an action after judgment is rendered.
5. Contracts: Arbitration and Award. Arbitration is purely a matter of contract.
6. Arbitration and Award. A party cannot be required to submit a dispute to arbi-
tration unless he or she has agreed to do so.
7. Contracts. A court interpreting a contract must first determine as a matter of law
whether the contract is ambiguous.
8. ____. A contract written in clear and unambiguous language is not subject to
interpretation or construction and must be enforced according to its terms.
9. Contracts: Words and Phrases. A contract is ambiguous when a word, phrase,
or provision in the contract has, or is susceptible of, at least two reasonable but
conflicting interpretations or meanings.
10. Contracts. A contract must receive a reasonable construction and must be
construed as a whole, and if possible, effect must be given to every part of
the contract.
Appeal 	from 	the 	District 	Court 	for 	Lancaster 	County:
paul d. meRRitt , JR., Judge. Affirmed.
Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
11/01/2026 04:55 AM CST

Jon 	bruning, 	Attorney 	General, 	David 	Cookson, 	and
Frederick J. Coffman for appellant.
Patrick O’brien, of butler, Galter, O’brien & boehm, and,
of Counsel, Robert J. brookhiser and elizabeth b. McCallum,
of Howrey, L.L.P., for appellees Commonwealth brands, Inc.,
et al.
Michael F. Coyle and Danene J. Tushar, of Fraser Stryker,
P.C., L.L.O., and Thomas J. Frederick, of Winston & Strawn,
L.L.P., for appellee Philip Morris USA, Inc.
Gerald Friedrichsen and Andrew M. bath, of Fitzgerald, Schorr,
barmettler & brennan, P.C., L.L.O., for appellees R.J. Reynolds
Tobacco Company and Lorillard Tobacco Company.
Stephen R. Patton, P.C., and Douglas G. Smith, of kirkland &
ellis, L.L.P., for appellee R.J. Reynolds Tobacco Company.
Gayle Rosenstein, of Weil, Gotshall & Manges, L.L.P., for
appellee Lorillard Tobacco Company.
heavican, 	C.J., 	WRight, 	connolly, 	geRRaRd, 	stephan,
mccoRmack, and milleR-leRman, JJ.
milleR-leRman, J.
NATURe OF CASe
The sole issue presented in this appeal, aside from the pro-
priety of the exercise of our appellate jurisdiction, is whether
the current dispute between the State of Nebraska and various
tobacco companies is subject to arbitration under the arbitra-
tion provisions of the Master Settlement Agreement (the MSA)
to which the State and the tobacco companies are parties. The
State of Nebraska ex rel. Jon bruning, Attorney General, filed
a complaint in the district court for Lancaster County seeking
a declaration that a downward adjustment to an annual pay-
ment to be made by the tobacco companies to the State under
the MSA should not be allowed. The court determined that the
terms of the MSA required that the issue raised in the complaint
should be decided by arbitration. The district court entered an
STATe ex ReL. bRUNING v. R.J. ReYNOLDS TObACCO CO. 	311
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312 	275 NebRASkA RePORTS
order compelling arbitration and dismissed the complaint. The
State appeals. We affirm.
STATeMeNT OF FACTS
The State of Nebraska and various other states and juris-
dictions (the settling states) are parties to the MSA with
various tobacco companies, including, inter alia, R.J. Reynolds
Tobacco Company; Philip Morris USA, Inc.; and Lorillard
Tobacco Company (collectively the tobacco companies). The
parties entered into the MSA in 1998 after various states sepa-
rately sued the major U.S. tobacco companies to recover costs
the states had incurred in treating smoking-related illnesses.
The State of Nebraska had sued the tobacco companies in
the district court for Lancaster County. A consent decree was
entered in the district court in December 1998 approving the
MSA. State ex rel. Stenberg v. R.J. Reynolds Tobacco Co.,
Lancaster County District Court, docket 573, page 277. The
above-named tobacco companies were the original parties to
the MSA; approximately 40 other tobacco companies subse-
quently joined as parties to the MSA.
The MSA requires, inter alia, that the tobacco companies
make an annual payment to the settling states to offset public
health costs. The annual payment is determined each year by
an independent auditor who is required to follow a complex
formula set forth in the MSA. each tobacco company pays its
share of the determined amount into a single escrow account,
and the independent auditor allocates a share of the total
to each settling state. The independent auditor is given the
responsibility for calculating and determining the amount of
all payments owed by the tobacco companies under the MSA,
including any adjustments, reductions, and offsets, as well the
allocation of such payments. because the auditor is required to
determine various calculations, the MSA in § xI(d)(5) permits
the independent auditor to make certain assumptions.
A concern of the parties to the MSA was that tobacco manu-
facturers who did not participate in the MSA would have an
unfair market advantage over participating tobacco companies
because such nonparticipating manufacturers would not be
required to contribute to the annual payment and would not

be subject to marketing and advertising restrictions placed
on the participating tobacco companies pursuant to the MSA.
To address such concerns, the MSA provides for a “Non-
Participating Manufacturer” (NPM) adjustment if certain mar-
ket and economic conditions exist. The NPM adjustment is
a downward adjustment to the annual payment which is oth-
erwise to be made by the participating tobacco companies to
the states. The NPM downward adjustment is made if (1) the
participating tobacco companies collectively suffer a loss-of-
market share to the nonparticipating manufacturers and (2) an
economic consulting firm determines that the disadvantages the
participating tobacco companies experienced as a result of the
provisions of the MSA were a significant factor contributing to
the loss-of-market share. However, even when such conditions
exist, specific states may avoid the NPM downward adjustment
by enacting and enforcing statutes imposing certain require-
ments on the nonparticipating manufacturers. To the extent
a settling state establishes that it had a qualifying statute in
effect and that it “diligently enforced” such statute, that settling
state’s allocated share of the annual payment is not reduced by
the NPM adjustment. When it is determined that a NPM adjust-
ment is required for a particular year, the NPM adjustment is to
be applied against payments due in a later year.
The present case involves a dispute over an NPM adjustment
for the year 2003. The independent auditor determined that
no NPM downward adjustment should be applied for the year
2003. In response, the tobacco companies have disagreed and
asserted that the NPM adjustment should have been applied to
reduce their annual payments due in 2006. In reaching its NPM-
related determination, the independent auditor had concluded
that the participating tobacco companies had collectively expe-
rienced a qualifying loss-of-market share and that the economic
consulting firm had determined that the provisions of the MSA
had been a significant factor contributing to such loss-of-market
share, but that the settling states had presumably diligently
enforced their qualifying statutes. The tobacco companies gen-
erally assert that in making the determination that no NPM
adjustment should be applied, the independent auditor made a
finding that each settling state had enacted a qualifying statute,
STATe ex ReL. bRUNING v. R.J. ReYNOLDS TObACCO CO. 	313
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314 	275 NebRASkA RePORTS
but that the independent auditor had simply assumed but failed
to find that each settling state had diligently enforced its quali-
fying statute. The tobacco companies disputed the independent
auditor’s refusal to apply the NPM adjustment based on a mere
presumption of diligent enforcement. The settling states take
the position that all the settling states had enacted qualifying
statutes that were in full force and effect and that therefore,
no NPM downward adjustment was warranted. In view of this
dispute, the tobacco companies withheld a portion of the annual
payment for 2006.
The settling states filed actions in their respective jurisdic-
tions seeking to compel the tobacco companies to pay the
full annual payment. The State of Nebraska filed the pres-
ent action giving rise to this appeal in the district court for
Lancaster County seeking a declaration that in 2003, the State
had diligently enforced its qualifying statutes, Neb. Rev. Stat.
§§ 69-2702 and 69-2703 (Reissue 2003), and that therefore, no
NPM adjustment should be applied to the State’s share of the
annual payment from the tobacco companies.
In response to the State’s complaint, the tobacco compa-
nies moved the court to compel arbitration and to dismiss
or stay the declaratory judgment action pending the outcome
of such arbitration. The tobacco companies asserted that the
MSA required arbitration of disputes regarding the independent
auditor’s calculation of annual payments. The tobacco compa-
nies relied in part on § xI(c) of the MSA. Section xI is titled
“Calculation and Disbursement of Payments” and subsection
(c) provides:
Resolution of Disputes. Any dispute, controversy or claim
arising out of or relating to calculations performed by,
or any determination made by, the Independent Auditor
(including, without limitation, any dispute concerning the
operation or application of any of the adjustments, reduc-
tions, offsets, carry-forwards and allocations described in
subsection Ix(j) or subsection xI(i)) shall be submitted to
binding arbitration before a panel of three neutral arbitra-
tors, each of whom shall be a former Article III federal
judge. each of the two sides to the dispute shall select one

arbitrator. The two arbitrators so selected shall select the
third arbitrator. The arbitration shall be governed by the
United States Federal Arbitration Act.
The district court agreed with the tobacco companies’ argu-
ment that the issues in this case were subject to arbitration.
The court noted that § VII(a) of the MSA provided that as to
the State of Nebraska, the district court for Lancaster County
retained exclusive jurisdiction for the purposes of implement-
ing and enforcing the MSA and that except as provided in
other sections of the MSA including the arbitration provision
in § xI(c), the court was the only court to which disputes under
the MSA as to the State of Nebraska were to be presented. The
court concluded, however, that it did not have jurisdiction over
“matters arising from or relating to Section xI(c).” The court
concluded that the determination of whether a settling state
diligently enforced its qualifying statute was an integral part of
the independent auditor’s calculations under the MSA and as
such the determination was subject to the binding arbitration
requirement of § xI(c). The court therefore ordered arbitration
and dismissed the State’s action.
The State appeals the order. We granted the tobacco compa-
nies’ petition to bypass the Nebraska Court of Appeals.
ASSIGNMeNT OF eRROR
The State asserts that the district court erred in ordering the
parties to arbitrate the issue of whether the State had diligently
enforced its qualifying statute during the year 2003 and in dis-
missing the action.
STANDARD OF ReVIeW
[1] A jurisdictional question which does not involve a factual
dispute is determined by an appellate court as a matter of law.
State v. Hudson, 273 Neb. 42, 727 N.W.2d 219 (2007).
[2] The interpretation of a contract involves a question of
law, in connection with which an appellate court has an obliga-
tion to reach its conclusions independently of the determina-
tions made by the court below. Hans v. Lucas, 270 Neb. 421,
703 N.W.2d 880 (2005).
STATe ex ReL. bRUNING v. R.J. ReYNOLDS TObACCO CO. 	315
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316 	275 NebRASkA RePORTS
ANALYSIS
The Order Compelling Arbitration and Dismissing
the Action Is Final and Appealable.
[3] We note first that before this appeal was moved to this
court’s docket, the tobacco companies moved the Court of
Appeals for summary dismissal on the basis of lack of appellate
jurisdiction. The tobacco companies argued that the order com-
pelling arbitration was not a final, appealable order. The Court
of Appeals declined to decide the issue in summary fashion and
therefore overruled the motion for summary dismissal. before
reaching the legal issues presented for review, it is the duty of
an appellate court to determine whether it has jurisdiction over
the matter before it. Goodman v. City of Omaha, 274 Neb. 539,
742 N.W.2d 26 (2007). We determine that the order compel-
ling arbitration and dismissing the declaratory judgment action
is a final order and that this court has jurisdiction to consider
the appeal.
The tobacco companies assert that although § xI(c) of
the MSA provides that arbitration under the MSA shall be
governed by the federal Arbitration Act (the FAA), 9 U.S.C.
§§ 1 to 307 (2000 & Supp. V 2005), the issue whether a state
court’s order regarding arbitration is an appealable order is a
question of state law. In this regard, they direct our attention
to Nebraska’s Uniform Arbitration Act which provides in Neb.
Rev. Stat. § 25-2620 (Reissue 1995) that appeals may be taken
from certain orders regarding arbitration and that although
§ 25-2620 lists an order denying an application to compel arbi-
tration as appealable, the statute does not specifically list an
order compelling arbitration. The tobacco companies therefore
claim that this court lacks jurisdiction. We do not agree.
In a previous case involving arbitration governed by the
FAA, we held that an order denying a motion to compel arbi-
tration under the FAA is a final, appealable order. Webb v.
American Employers Group, 268 Neb. 473, 684 N.W.2d 33
(2004). We stated that to determine whether such an order
involving the FAA is appealable, “we must first apply our state
procedural rules to determine if the order is final for purposes
of appeal and then determine whether the result of that inquiry
would undermine the goals and policies of the FAA.” 268

Neb. at 481, 684 N.W.2d at 41. We apply a similar analysis to
determine whether an order compelling arbitration under the
FAA and dismissing a declaratory judgment action is a final,
appealable order.
[4] Under Neb. Rev. Stat. § 25-1902 (Reissue 1995), the
three types of final orders which may be reviewed on appeal are
(1) an order which affects a substantial right and which deter-
mines the action and prevents a judgment, (2) an order affecting
a substantial right made during a special proceeding, and (3)
an order affecting a substantial right made on summary appli-
cation in an action after judgment is rendered. In re Estate of
Rose, 273 Neb. 490, 730 N.W.2d 391 (2007); Webb, supra. In
the present case, the district court entered an order compelling
arbitration. In addition to compelling arbitration, the district
court dismissed the State’s declaratory judgment action rather
than merely staying the action pending arbitration. because
“the contractual benefit of arbitrating the dispute between
the parties [under the FAA] as an alternative to litigation” is
ordinarily a substantial right, see Webb, 268 Neb. at 481, 684
N.W.2d at 41, and because the court dismissed the declaratory
judgment action, we determine that under § 25-1902, the order
was a final order of the first type, i.e., one which affected a sub-
stantial right and which determined the action and prevented a
judgment. The order to dismiss the action determined the action
and prevented the State from receiving the declaratory judgment
that it sought. We therefore conclude that under § 25-1902, the
order is a final order for purposes of appeal.
We further determine that our conclusion that the order is
final and appealable does not undermine the goals and poli-
cies of the FAA. We note that in cases decided under the FAA,
federal courts have held that an order compelling arbitration
and dismissing, rather than staying, the action is appealable. In
Green Tree Financial Corp.-Ala. v. Randolph, 531 U.S. 79, 89,
121 S. Ct. 513, 148 L. ed. 2d 373 (2000), the U.S. Supreme
Court held that where the trial court “has ordered the parties
to proceed to arbitration, and dismissed all the claims before
it, that decision is ‘final’ within the meaning of [9 U.S.C.]
§ 16(a)(3) [of the FAA], and therefore appealable.” because the
content of the order in this case if rendered by a federal court
STATe ex ReL. bRUNING v. R.J. ReYNOLDS TObACCO CO. 	317
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318 	275 NebRASkA RePORTS
would be final and appealable under the FAA, we conclude that
our determination that the order at issue is final and appealable
under state law does not undermine the goals and policies of
the FAA.
because the order compelling arbitration and dismissing
the State’s action for declaratory judgment is a final order, we
conclude that this court has jurisdiction over this appeal. We
therefore proceed to consider the merits of the appeal.
The MSA Requires the Arbitration of Disputes Regarding the
Determination of Diligent Enforcement of a Qualifying
Statute, and the District Court Properly Ordered
Arbitration and Dismissed the Action.
The State asserts that the district court erred in order-
ing arbitration of the dispute regarding the State’s diligent
enforcement of its qualifying statute. The State generally argues
that under the MSA, the dispute is subject to judicial resolution
in the court designated in the MSA, rather than to arbitration.
We conclude that the MSA requires that the dispute at issue
in this case is subject to arbitration and that therefore, the
district court did not err in ordering arbitration and dismissing
the case.
We note first that the issue in this appeal has been consid-
ered in courts in numerous other settling states and that almost
without exception, such courts have held that the MSA requires
arbitration of the dispute. See State v. Philip Morris, 179 Md.
App. 140, 151 n.10, 944 A.2d 1167, 1173 n.10 (2008) (listing
most recent decisions and stating that of courts in 45 states and
Puerto Rico having decided the issue, all but one determined
that dispute was subject to arbitration). Such courts were apply-
ing the same language of the MSA that is at issue in this case,
and therefore, the reasoning of such courts is persuasive.
However, we must independently decide the issue pursuant to
Nebraska law.
[5,6] We have stated that arbitration is purely a matter of con-
tract. Cornhusker Internat. Trucks v. Thomas Built Buses, 263
Neb. 10, 637 N.W.2d 876 (2002). A party cannot be required
to submit a dispute to arbitration unless he or she has agreed

to do so. Kelley v. Benchmark Homes, Inc., 250 Neb. 367, 550
N.W.2d 640 (1996), disapproved on other grounds, Webb v.
American Employers Group, 268 Neb. 473, 684 N.W.2d 33
(2004). Arbitration of the dispute in this case is required only
if the parties have so agreed in the MSA. Therefore, we must
determine whether the MSA requires arbitration of the dispute
involving whether the State has diligently enforced the qualify-
ing statute, as such dispute relates to calculation of the annual
payment and the NPM adjustment.
[7-10] In making our determination, we note certain stan-
dards regarding contract construction and interpretation. We
have stated that a court interpreting a contract must first
determine as a matter of law whether the contract is ambigu-
ous. Kluver v. Deaver, 271 Neb. 595, 714 N.W.2d 1 (2006).
A contract written in clear and unambiguous language is not
subject to interpretation or construction and must be enforced
according to its terms. Id. A contract is ambiguous when a
word, phrase, or provision in the contract has, or is susceptible
of, at least two reasonable but conflicting interpretations or
meanings. Id. A contract must receive a reasonable construction
and must be construed as a whole, and if possible, effect must
be given to every part of the contract. Id. In connection with the
arbitrability issue raised in this case, § xI(c) of the MSA pro-
vides that the FAA governs arbitration under the MSA, and we
note that the FAA requires that any doubts regarding the scope
of an arbitration clause be resolved in favor of arbitration. See
Cornhusker Internat. Trucks v. Thomas Built Buses, supra.
The State believes that the present dispute should be decided
in state court and relies heavily on § VII(a) of the MSA which
broadly provides for judicial resolution of disputes relating to
the MSA. In § VII(a), the parties to the MSA agree that the
court in which the settlement was reached, which as to the State
of Nebraska refers to the district court for Lancaster County,
“shall retain exclusive jurisdiction for the purposes of imple-
menting and enforcing [the MSA] as to such Settling State” and
that the state district court “shall be the only court to which dis-
putes under [the MSA] are presented as to such Settling State.”
The State argues that § VII(a) designates the district court as
STATe ex ReL. bRUNING v. R.J. ReYNOLDS TObACCO CO. 	319
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320 	275 NebRASkA RePORTS
the forum for resolution of disputes related to the MSA, includ-
ing the present dispute.
Contrary to the State’s argument, we note that elsewhere in
§ VII(a), the district court is designated as the forum to which
disputes are presented except as provided in other specified
subsections of the MSA, including § xI(c). We believe that the
current dispute is to be arbitrated under § xI(c) and is therefore
excepted from judicial resolution under § VII(a).
Section xI(c), as noted above, provides in relevant part
as follows:
Any dispute, controversy or claim arising out of or relating
to calculations performed by, or any determination made
by, the Independent Auditor (including, without limitation,
any dispute concerning the operation or application of any
of the adjustments, reductions, offsets, carry-forwards and
allocations described in subsection Ix(j) or subsection
xI(i)) shall be submitted to binding arbitration before a
panel of three neutral arbitrators . . . .
by its terms, § xI(c) broadly requires arbitration for “[a]ny
dispute . . . arising out of or relating to” the calculations and
determinations made by the independent auditor. Under the
MSA, the independent auditor is charged with calculating the
annual payments, including the NPM adjustment. Calculation
of the NPM adjustment necessarily requires determinations
regarding whether the settling states had qualifying statutes
and whether the settling states diligently enforced such statutes.
Thus, the issue of diligent enforcement relates to a calculation
performed by the independent auditor which is subject to arbi-
tration under § xI(c).
Contrary to our conclusion, the State asserts that the issue
whether a settling state diligently enforced a qualifying statute
is not an issue subject to arbitration under § xI(c) because the
MSA does not specifically list the determination as to a state’s
diligent enforcement as a duty of the independent auditor.
Unlike the State, we do not read the scope of arbitration under
§ xI(c) as being limited to a list of designated determinations.
Section xI(c) refers broadly to disputes “arising out of or
relating to” (emphasis supplied) the calculations and determi-
nations made by the independent auditor. Diligent enforcement,

although not specifically listed in xI(c), is an issue that has a
direct impact on the calculation of the NPM adjustment, which
in turn has a direct impact on calculation of the annual payment
which the tobacco companies make to the States and which
payment the auditor is required to determine under the MSA.
Reading the MSA as a whole, see Kluver v. Deaver, 271 Neb.
595, 714 N.W.2d 1 (2006), a dispute regarding diligent enforce-
ment is a dispute “relating to” the independent auditor’s calcu-
lations and therefore a dispute subject to arbitration.
In sum, we determine that a dispute over the issue of dili-
gent enforcement is a dispute “arising out of or relating to” the
independent auditor’s calculations and determinations and is
therefore a dispute that § xI(c) requires to be arbitrated. because
the dispute is subject to arbitration pursuant to § xI(c), it is an
exception to the provision in § VII(a) that disputes under the
MSA are to be presented to the district court. The district court
did not err in ordering arbitration and dismissing the State’s
action for declaratory judgment.
CONCLUSION
We conclude that the district court’s order compelling arbitra-
tion and dismissing the State’s action for declaratory judgment
was a final order and that this court has jurisdiction to deter-
mine this appeal. We further conclude that the district court did
not err in determining that the MSA requires arbitration of the
dispute over diligent enforcement of the qualifying statute. We
therefore affirm the court’s order compelling arbitration and
dismissing the State’s action for declaratory judgment.
affiRmed .
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