REPORT TITLE:
Tobacco Liability


DESCRIPTION:
Requires tobacco manufacturers who are not part of the Master
Settlement Agreement to establish a reserve fund to guarantee a
source of compensation to the State. (HB1008 SD2)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        1008
HOUSE OF REPRESENTATIVES                H.B. NO.           S.D. 2
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
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                   A  BILL  FOR  AN  ACT

RELATING TO TOBACCO LIABILITY.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      Section 1.  The Hawaii Revised Statutes is amended by adding
 
 2 new chapter to be appropriately designated and to read as
 
 3 follows:
 
 4                              CHAPTER
 
 5                       TOBACCO LIABILITY ACT
 
 6      �   -1  Findings and purpose.(a)  Cigarette smoking
 
 7 presents serious public health concerns to the State and to the
 
 8 citizens of the State.  The Surgeon General has determined that
 
 9 smoking causes lung cancer, heart disease and other serious
 
10 diseases, and that there are hundreds of thousands of tobacco-
 
11 related deaths in the United States each year.  These diseases
 
12 most often do not appear until many years after the person in
 
13 question begins smoking.
 
14      (b)  Cigarette smoking also presents serious financial
 
15 concerns for the State.  Under certain health-care programs, the
 
16 State may have a legal obligation to provide medical assistance
 
17 to eligible persons for health conditions associated with
 
18 cigarette smoking, and those persons may have a legal entitlement
 
19 to receive such medical assistance.
 

 
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 1      (c)  Under these programs, the State pays millions of
 
 2 dollars each year to provide medical assistance for these persons
 
 3 for health conditions associated with cigarette smoking.
 
 4      (d)  It is the policy of the State that financial burdens
 
 5 imposed on the State by cigarette smoking be borne by tobacco
 
 6 product manufacturers rather than by the State to the extent that
 
 7 such manufacturers either determine to enter into a settlement
 
 8 with the State or are found culpable by the courts.
 
 9      (e)  On November 23, 1998, leading United States tobacco
 
10 product manufacturers entered into a settlement agreement,
 
11 entitled the "Master Settlement Agreement," with the State.  The
 
12 Master Settlement Agreement obligates these manufacturers, in
 
13 return for a release of past, present and certain future claims
 
14 against them as described therein, to pay substantial sums to the
 
15 State (tied in part to their volume of sales); to fund a national
 
16 foundation devoted to the interests of public health; and to make
 
17 substantial changes in their advertising and marketing practices
 
18 and corporate culture, with the intention of reducing underage
 
19 smoking.
 
20      (f)  It would be contrary to the policy of the State if
 
21 tobacco product manufacturers who determine not to enter into
 
22 such a settlement could use a resulting cost advantage to derive
 
23 large, short-term profits in the years before liability may arise
 

 
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 1 without ensuring that the State will have an eventual source of
 
 2 recovery from them if they are proven to have acted culpably.  It
 
 3 is thus in the interest of the State to require that such
 
 4 manufacturers establish a reserve fund to guarantee a source of
 
 5 compensation and to prevent such manufacturers from deriving
 
 6 large, short-term profits and then becoming judgment-proof before
 
 7 liability may arise.
 
 8      �   -2  Definitions.(a)  "Adjusted for inflation" means
 
 9 increased in accordance with the formula for inflation adjustment
 
10 set forth in Exhibit C to the Master Settlement Agreement.
 
11      (b)  "Affiliate" means a person who directly or indirectly
 
12 owns or controls, is owned or controlled by, or is under common
 
13 ownership or control with, another person.  Solely for purposes
 
14 of this definition, the terms "owns," "is owned" and "ownership"
 
15 mean ownership of an equity interest, or the equivalent thereof,
 
16 of ten percent or more, and the term "person" means an
 
17 individual, partnership, committee, association, corporation or
 
18 any other organization or group of persons.
 
19      (c)  "Allocable share" means Allocable Share as that term is
 
20 defined in the Master Settlement Agreement.
 
21      (d)  "Cigarette" means any product that contains nicotine,
 
22 is intended to be burned or heated under ordinary conditions of
 
23 use, and consists of or contains (1) any roll of tobacco wrapped
 

 
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 1 in paper or in any substance not containing tobacco; or (2)
 
 2 tobacco, in any form, that is functional in the product, which,
 
 3 because of its appearance, the type of tobacco used in the
 
 4 filler, or its packaging and labeling, is likely to be offered
 
 5 to, or purchased by , consumers as a cigarette; or (3) any roll
 
 6 of tobacco wrapped in any substance containing tobacco which,
 
 7 because of its appearance, the type of tobacco used in the
 
 8 filler, or its packaging and labeling, is likely to be offered
 
 9 to, or purchased by, consumers as a cigarette described in clause
 
10 (1) of this definition.  The term "cigarette" includes "roll-
 
11 your-own" (i.e., any tobacco which, because of its appearance,
 
12 type, packaging, or labeling is suitable for use and likely to be
 
13 offered to, or purchased by, consumers as tobacco for making
 
14 cigarettes).  For purposes of this definition of "cigarette,"
 
15 0.09 ounces of "roll-your-own" tobacco shall constitute one
 
16 individual "cigarette."
 
17      (e)  "Master Settlement Agreement" means the settlement
 
18 agreement (and related documents) entered into on November 23,
 
19 1998 by the State and leading United States tobacco product
 
20 manufacturers.
 
21      (f)  "Qualified escrow fund" means an escrow arrangement
 
22 with a federally or State chartered financial institution having
 
23 no affiliation with any tobacco product manufacturer and having
 

 
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 1 assets of at least $1,000,000,000 where such arrangement requires
 
 2 that such financial institution hold the escrowed funds'
 
 3 principal for the benefit of releasing parties and prohibits the
 
 4 tobacco product manufacturer placing the funds into escrow from
 
 5 using, accessing or directing the use of the funds' principal
 
 6 except as consistent with section 3(b) of this Act.
 
 7      (g)  "Released claims" means Released Claims as that term is
 
 8 defined in the Master Settlement Agreement.
 
 9      (h)  "Releasing parties" means Releasing Parties as that
 
10 term is defined in the Master Settlement Agreement.
 
11      (i)  "Tobacco product manufacturer" means an entity that
 
12 after the date of enactment of this Act directly (and not
 
13 exclusively through any affiliate):
 
14      (1)  manufactures cigarettes anywhere that such manufacturer
 
15           intends to be sold in the United States, including
 
16           cigarettes intended to be sold in the United States
 
17           through an importer (except where such importer is an
 
18           original participating manufacturer (as that term is
 
19           defined in the Master Settlement Agreement) that will
 
20           be responsible for the payments under the Master
 
21           Settlement Agreement with respect to such cigarettes as
 
22           a result of the provisions of subsection II(mm) of the
 
23           Master Settlement Agreement and that pays the taxes
 

 
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 1           specified in subsection II(z) of the Master Settlement
 
 2           Agreement, and provided that the manufacturer of such
 
 3           cigarettes does not market or advertise such cigarettes
 
 4           in the United States);
 
 5      (2)  is the first purchaser anywhere for resale in the
 
 6           United States of cigarettes manufactured anywhere that
 
 7           the manufacturer does not intend to be sold in the
 
 8           United States; or
 
 9      (3)  becomes a successor of an entity described in paragraph
 
10           (1) or (2).
 
11      The term "Tobacco Product Manufacturer" shall not include an
 
12 affiliate of a tobacco product manufacturer unless such affiliate
 
13 itself falls within any of (1)-(3) above.
 
14      (j)  "Units sold" means the number of individual cigarettes
 
15 sold in the State by the applicable tobacco product manufacturer
 
16 (whether directly or through a distributor, retailer or similar
 
17 intermediary or intermediaries) during the year in question, as
 
18 measured by excise taxes collected by the State on packs (or
 
19 "roll-your-own" tobacco containers) bearing the excise tax stamp
 
20 of the State.  The Department of the Attorney General shall
 
21 promulgate such regulations as are necessary to ascertain the
 
22 amount of State excise tax paid on the cigarettes of such tobacco
 
23 product manufacturer for each year.
 

 
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 1      �   -3  Requirements.  Any tobacco product manufacturer
 
 2 selling cigarettes to consumers within the State (whether
 
 3 directly or through a distributor, retailer or similar
 
 4 intermediary or intermediaries) after the date of enactment of
 
 5 this Act shall do one of the following:
 
 6      (a)  become a participating manufacturer (as that term is
 
 7           defined in section II(jj) of the Master Settlement
 
 8           Agreement) and generally perform its financial
 
 9           obligations under the Master Settlement Agreement; or
 
10      (b)  (1)  place into a qualified escrow fund by April 15 of
 
11                the year following the year in question the
 
12                following amounts (as such amounts are adjusted
 
13                for inflation)--
 
14                1999:  $.0094241 per unit sold after the date of
 
15                enactment of this Act;
 
16                2000:  $.0104712 per unit sold;
 
17                for each of 2001 and 2002:  $.0136125 per unit
 
18                sold;
 
19                for each of 2003 through 2006: $.0167539 per unit
 
20                sold;
 
21                for each of 2007 and each year thereafter:
 
22                $.0188482 per unit sold.
 
23           (2)  a tobacco product manufacturer that places funds
 

 
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 1                into escrow pursuant to paragraph (1) shall
 
 2                receive the interest or other appreciation on such
 
 3                funds as earned.  Such funds themselves shall be
 
 4                released from escrow only under the following
 
 5                circumstances--
 
 6                (A)  to pay a judgment or settlement on any
 
 7                     released claim brought against such tobacco
 
 8                     product manufacturer by the State or any
 
 9                     releasing party located or residing in the
 
10                     State.  Funds shall be released from escrow
 
11                     under this subparagraph (i) in the order in
 
12                     which they were placed into escrow and (ii)
 
13                     only to the extent and at the time necessary
 
14                     to make payments required under such judgment
 
15                     or settlement;
 
16                (B)  to the extent that a tobacco product
 
17                     manufacturer establishes that the amount it
 
18                     was required to place into escrow in a
 
19                     particular year was greater than the State's
 
20                     allocable share of the total payments that
 
21                     such manufacturer would have been required to
 
22                     make in that year under the Master Settlement
 
23                     Agreement (as determined pursuant to section
 

 
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 1                     IX(i)(2) of the Master Settlement Agreement,
 
 2                     and before any of the adjustments or offsets
 
 3                     described in section IX(i)(3) of that
 
 4                     Agreement other than the Inflation
 
 5                     Adjustment) had it been a participating
 
 6                     manufacturer, the excess shall be released
 
 7                     from escrow and revert back to such tobacco
 
 8                     product manufacturer; or
 
 9                 (C) to the extent not released from escrow under
 
10                     subparagraphs (A) or (B), funds shall be
 
11                     released from escrow and revert back to such
 
12                     tobacco product manufacturer twenty-five
 
13                     years after the date on which they were
 
14                     placed into escrow.
 
15           (3)  Each tobacco product manufacturer that elects to
 
16                place funds into escrow pursuant to this
 
17                subsection shall annually certify to the Attorney
 
18                General that it is in compliance with this
 
19                subsection.  The Attorney General may bring a
 
20                civil action on behalf of the State against any
 
21                tobacco product manufacturer that fails to place
 
22                into escrow the funds required under this section.
 
23                Any tobacco product manufacturer that fails in any
 

 
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 1                year to place into escrow the funds required under
 
 2                this section shall--
 
 3                (A)  be required within 15 days to place such
 
 4                     funds into escrow as shall bring it into
 
 5                     compliance with this section.  The court,
 
 6                     upon a finding of a violation of this
 
 7                     subsection, may impose a civil penalty to be
 
 8                     paid to the general fund of the State in an
 
 9                     amount not to exceed 5 percent of the amount
 
10                     improperly withheld from escrow per day of
 
11                     the violation and in a total amount not to
 
12                     exceed 100 percent of the original amount
 
13                     improperly withheld from escrow;
 
14                (B)  in the case of a knowing violation, be
 
15                     required within 15 days to place such funds
 
16                     into escrow as shall bring it into compliance
 
17                     with this section.  The court, upon a finding
 
18                     of a knowing violation of this subsection,
 
19                     may impose a civil penalty to be paid to the
 
20                     general fund of the state in an amount not to
 
21                     exceed 15 percent of the amount improperly
 
22                     withheld from escrow per day of the violation
 
23                     and in a total amount not to exceed 300
 

 
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 1                     percent of the original amount improperly
 
 2                     withheld from escrow; and
 
 3                (C)  in the case of a second knowing violation, be
 
 4                     prohibited from selling cigarettes to
 
 5                     consumers within the State (whether directly
 
 6                     or through a distributor, retailer or similar
 
 7                     intermediary) for a period not to exceed 2
 
 8                     years.
 
 9      Each failure to make an annual deposit required under this
 
10 section shall constitute a separate violation.
 
11      The State shall be awarded its attorneys' fees and expenses
 
12 incurred in prosecuting violations of this chapter.
 
13      SECTION 2.  This Act shall take effect upon its approval.