A dispute involving millions of dollars in tobacco lawsuit payments to North Dakota should be handled by an arbitration panel, not decided in a state district court, the state Supreme Court says.

Justices on Thursday reversed a July 2006 decision by East Central District Judge Steven Marquart and sent the case back to him in Fargo to order arbitration.

"We conclude the plain and unambiguous language of the parties' settlement agreement requires arbitration of their dispute …" the justices wrote.

The dispute involves North Dakota's share of more than $200 billion in payments from large tobacco companies over 25 years to settle huge tobacco-related health care expenses and other claims. The tobacco companies agreed in a 1998 court settlement to make the payments to North Dakota and 45 other states.

The settlement says the larger tobacco companies may cut their annual payments if states do not diligently enforce laws governing smaller tobacco companies that are not part of the settlement. The laws are aimed at preventing the smaller companies from gaining a price advantage in the cigarette market.

Tobacco companies R.J. Reynolds and Lorillard, who are in the settlement, have used that provision to cut payments to states, including a $2.75 million reduction in North Dakota's payment last year. The total reduction to all states was about $775 million.

The lawsuit settlement has brought just under $200 million to North Dakota's treasury since it was made final in December 1998, said Todd Sattler, an assistant North Dakota attorney general. The money goes to health programs, water development and schools.

Marquart sided with Attorney General Wayne Stenehjem in ruling that a state court should decide whether the 2006 payment reduction was proper, while the tobacco companies argued the case should go to arbitration.

State Supreme Court justices said in their ruling Thursday that the case should be handled by a panel of three arbitrators.

"Our conclusion comports with the decisions of every other state court that has decided the issue to date," the justices said. At least five appellate court decisions also have sided with arbitration, they said.

Sattler said he was disappointed in the decision. "But it is not a decision on the merits (of the case)," he said. "It's a decision that determines who will decide whether North Dakota diligently enforced that statute (involving the smaller companies). We still believe that we'll prevail on that."

Attorneys for R.J. Reynolds, Philip Morris and Lorillard did not immediately return telephone calls seeking comment Thursday.