RALEIGH, N.C.—North Carolina's highest court has ruled that three cigarette companies no longer have to make payments to tobacco farmers in Maryland and Pennsylvania under a decade-old settlement.

The state Supreme Court determined Friday that Philip Morris USA, R.J. Reynolds Tobacco Co. and Lorillard Tobacco Co. may stop making payments to those growers under the 1999 agreement.

The pact stemmed from the $206 billion national tobacco settlement with the states a year earlier. It required tobacco companies to give $5.15 billion through 2010 to growers and quota owners expected to be hurt through reduced leaf demand.

The 1999 agreement said those payments would essentially be replaced with a Big Tobacco-funded buyout for quota owners and holders that Congress approved in 2004. Attorneys for Pennsylvania and Maryland argued the states were entitled to keep receiving Phase II payments because farmers in those states didn't participate in the quota system.

A 2007 trial court said tobacco companies had to continue the payments, but a divided appeals court rejected that decision. The state's highest court ruled in favor of the tobacco companies, saying the two states had entered the 1999 agreement knowing full well their payments could end as a result of a quota buyout.

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