Chapter 382

2004 -- S 2374 SUBSTITUTE A

Enacted 07/05/04

A N A C T

IMPLEMENTING AN AMENDMENT TO THE TOBACCO MASTER SETTLEMENT

AGREEMENT AND RELATING TO ENFORCEMENT OF THE TOBACCO

MANUFACTURERS' MASTER SETTLEMENT AGREEMENT AND FUNDS ESCROW

Introduced By: Senators Alves, McBurney, and Walaska

Date Introduced: February 11, 2004

It is enacted by the General Assembly as follows:

     SECTION 1. Sections 23-71-2 and 23-71-3 of the General Laws in Chapter 23-71

entitled "Tobacco Product Manufacturers' Escrow Funds" are hereby amended to read as follows:

23-71-2. Definitions. -- (a) "Adjusted for inflation" means increased in accordance with

the formula for inflation adjustment set forth in exhibit C to the Master Settlement Agreement.

      (b) "Affiliate" means a person who directly or indirectly owns or controls, is owned or

controlled by, or is under common ownership or control with, another person. Solely for purposes

of this definition, the terms "owns," "is owned", and "ownership" mean ownership of an equity

interest or the equivalent of an equity interest of ten percent (10%) or more, and the term "person"

means an individual, partnership, committee, association, corporation, or any other organization

or group of persons.

      (c) "Allocable share" means allocable share as that term is defined in the Master

Settlement Agreement.

      (d) "Cigarette" means any product that contains nicotine, is intended to be burned or

heated under ordinary conditions of use, and consists of or contains: (1) any roll of tobacco

wrapped in paper or in any substance not containing tobacco; (2) tobacco, in any form, that is

functional in the product, which, because of its appearance, the type of tobacco used in the filler,

or its packaging and labeling, is likely to be offered to, or purchased by, consumers as a cigarette;

or (3) any roll of tobacco wrapped in any substance containing tobacco which, because of its

appearance, the type of tobacco used in the filler, or its packaging and labeling, is likely to be

offered to or purchased by, consumers as a cigarette described in clause (1) of this definition. The

term "cigarette" includes "roll your own" (i.e., any tobacco which, because of its appearance,

type, packaging, or labeling is suitable for use and likely to be offered to or purchased by,

consumers as tobacco for making cigarettes). For purposes of this definition of "cigarette," 0.09

ounces of "roll your own" tobacco constitutes one individual "cigarette."

      (e) "Master Settlement Agreement" means the settlement agreement (and related

documents) entered into on November 23, 1998, by the state and leading United States tobacco

product manufacturers.

      (f) "Qualified escrow fund" means an escrow arrangement with a federally or state

chartered financial institution having no affiliation with any tobacco product manufacturer and

having assets of at least one billion dollars ($1,000,000,000) where the arrangement requires that

the financial institution hold the escrowed funds' principal for the benefit of releasing parties and

prohibits the tobacco product manufacturer placing the funds into escrow from using, accessing,

or directing the use of the funds' principal except as consistent with section 23-71-3.

      (g) "Released claims" means released claims as that term is defined in the Master

Settlement Agreement.

      (h) "Releasing parties" means releasing parties as that term is defined in the Master

Settlement Agreement.

      (i) (1) "Tobacco product manufacturer" means an entity that after the date of enactment

of this chapter directly (and not exclusively through any affiliate):

      (i) Manufactures cigarettes anywhere that the manufacturer intends to be sold in the

United States, including cigarettes intended to be sold in the United States through an importer,

except where the importer is an original participating manufacturer as that term is defined in the

Master Settlement Agreement that will be responsible for the payments under the Master

Settlement Agreement with respect to the cigarettes as a result of the provisions of subsection

II(mm) of the Master Settlement Agreement and that pays the taxes specified in subsection II(z)

of the Master Settlement Agreement, and provided that the manufacturer of the cigarettes does

not market or advertise the cigarettes in the United States;

      (ii) Is the first purchaser anywhere for resale in the United States of cigarettes

manufactured anywhere that the manufacturer does not intend to be sold in the United States; or

      (iii) Becomes a successor of an entity described in subdivision (i) or (ii).

      (2) The term "tobacco product manufacturer" does not include an affiliate of a tobacco

product manufacturer unless the affiliate itself falls within any of (a)(1)(i) -- (iii).

      (j) "Units sold" means the number of individual cigarettes sold in the state by the

applicable tobacco product manufacturer (whether directly or through a distributor, retailer or

similar intermediary or intermediaries) during the year in question, as measured by excise taxes

collected by the state on packs (or "roll your own" tobacco containers) bearing the excise tax

stamp of the state., or unstamped roll your own containers. The division of taxation shall

promulgate any regulations that are necessary to ascertain the amount of state excise tax paid on

the cigarettes of the tobacco product manufacturer for each year.

23-71-3. Requirements. -- Any tobacco product manufacturer selling cigarettes to

consumers within the state (whether directly or through a distributor, retailer, or similar

intermediary or intermediaries) after the date of enactment of this chapter shall do one of the

following:

      (1) Become a participating manufacturer (as that term is defined in section II (jj) of the

Master Settlement Agreement) and generally perform its financial obligations under the Master

Settlement Agreement; or

      (2) (i) Place into a qualified escrow fund by April 15 of the year following the year in

question the following amounts (as those amounts are adjusted for inflation):

      1999: $.0094241 per unit sold after the date of enactment of this chapter [June 29,

1999_;

      2000: $.0104712 per unit sold;

      For each of 2001 and 2002: $.0136125 per unit sold;

      For each 2003 through 2006: $.0167539 per unit sold;

      For each of 2007 and each year thereafter: $.0188482 per unit sold.

      (ii) A tobacco product manufacturer that places funds into escrow pursuant to

subdivision (i) shall receive the interest or other appreciation on the funds as earned. The funds

themselves shall be released from escrow only under the following circumstances:

      (A) To pay a judgment or settlement on any released claim brought against the tobacco

product manufacturer by the state or any releasing party located or residing in the state. Funds

shall be released from escrow under this subparagraph: (I) in the order in which they were placed

into escrow, and (II) only to the extent and at the time necessary to make payments required

under the judgment or settlement.

      (B) To the extent that a tobacco product manufacturer establishes that the amount it was

required to place into escrow on account of units sold in the state in a particular year was greater

than the state's allocable share of the total payments that the manufacturer would have been

required to make in that year under the Master Settlement Agreement (as determined pursuant to

section IX(i)(2) of the Master Settlement Agreement, and before any of the adjustments or offsets

described in section IX(i)(3) of that agreement other than the inflation adjustment) Master

Settlement Agreement payments, as determined pursuant to section IX(i) of that agreement

including after final determination of all adjustments, that such manufacturer would have been

required to make on account of such units sold had it been a participating manufacturer, the

excess shall be released from escrow and revert back to the tobacco product manufacturer; or

      (C) To the extent not released from escrow under subparagraphs (A) or (B), funds shall

be released from escrow and revert back to the tobacco product manufacturer twenty-five (25)

years after the date on which they were placed into escrow.

      (iii) Each tobacco product manufacturer that elects to place funds into escrow pursuant to

this subsection shall annually certify to the attorney general that it is in compliance with this

subsection. The attorney general may bring a civil action on behalf of the estate against any

tobacco product manufacturer that fails to place into escrow the funds required under this section.

Any tobacco product manufacturer that fails in any year to place into escrow the funds required

under this section:

      (A) Is required within fifteen (15) days to place any funds into escrow that will bring it

into compliance with this section. The court, upon a finding of a violation of this subsection, may

impose a civil penalty to be paid to the general fund of the state in an amount not to exceed five

percent (5%) percent of the amount improperly withheld from escrow per day of the violation and

in a total amount not to exceed one hundred percent (100%) of the original amount improperly

withheld from escrow;

      (B) In the case of a knowing violation, is required within fifteen (15) days to place any

funds into escrow that will bring it into compliance with this section. The court, upon a finding of

a knowing violation of this subsection, may impose a civil penalty to be paid to the general fund

of the state in an amount not to exceed fifteen percent (15%) of the amount improperly withheld

from escrow per day of the violation and in a total amount not to exceed three hundred percent

(300%) of the original amount improperly withheld from escrow;

      (C) In the case of a second knowing violation, is prohibited from selling cigarettes to

consumers within the state (whether directly or through a distributor, retailer or similar

intermediary) for a period not to exceed two (2) years; and

      (D) Will be ordered to pay the costs and attorney's fees of the state in a civil action in

which the court finds that a violation of this section has occurred.

      (3) Each failure to make an annual deposit required under this section shall constitute a

separate violation.

     SECTION 2. If section 1, or any portion of the amendments to subsection 23-71-

3(2)(ii)(B) made by section 1 is held by a court of competent jurisdiction to be unconstitutional,

then such subsection 23-71-3(2)(ii)(B) shall be deemed to be repealed in its entirety. If

subsection 23-71-3(2)(ii) shall thereafter be held by a court of competent jurisdiction to be

unconstitutional, then section 1 of this act shall be deemed repealed, and subsection 23-71-

3(2)(ii)(B) shall be deemed to be restored as if no such amendment had been made. Neither any

holding of unconstitutionality nor the repeal of subsection 23-71-3(2)(ii)(B) shall affect, impair,

or invalidate any other portion of section 23-71-3, or the application of such section to any other

person or circumstance, and such remaining portions of section 23-71-3 shall at all times continue

in full force and effect.

     SECTION 3. This act shall take effect upon passage.

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LC01042/SUB A

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