The tobacco industry's landmark $206 billion settlement with 46 states moved a step closer to completion when a challenge to the agreement in California was dropped, attorneys said.

The decision by a smokers' advocacy group to end its challenge brings the states closer to receiving their first settlement payments before June. Smokers for Fairness had been the only challenger keeping California from finalizing its settlement. Without any legal challenges to the settlement, California, its counties and eligible cities have the right to begin collecting a $1-billion-a-year share of the payments no later than June, said Dennis Eckhart, a senior assistant attorney general for California. It is increasingly likely almost all 46 states will begin receiving payments before then, he said. ``As far as I know there are no further challenges'' in California, Eckhart said. Last November, Philip Morris Cos., R.J. Reynolds Tobacco Co., Loews Corp's Lorillard unit, and British American Tobacco Plc's Brown & Williamson subsidiary agreed to the settlement to end the threat of litigation as states seek to recover the health- care costs of smoking-related illness. The money is being held in an escrow account until challenges to the settlement are cleared up. If states receiving 80 percent or more of the total funds clear all their challenges, the money will be distributed to them before June, Eckhart said. California California is the largest settling state, entitled to 12.76 percent of the total funds. That brings almost all 46 states closer to receiving their first payments before June, Eckhart said. Smokers for Fairness, a Los Angeles-based group, had tried to intervene in California's suit against the tobacco industry, claiming the costs of the settlement shouldn't be shifted to smokers, among other things. A state judge denied the group's motion, and a California appellate court dismissed its appeal. Smokers for Fairness had until last Wednesday to ask the California Supreme Court to review its case. It ultimately chose not to, attorneys said. ``What it means is that we will get our money by June of next year,'' said Owen Clements, an attorney for the city of San Francisco, the first U.S. city to sue the tobacco industry. Eight states have yet to clear challenges to the agreement, Eckhart said. They are Alabama, Arizona, Arkansas, Missouri, New Jersey, Pennsylvania, Tennessee and Virginia.

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