PRINTER'S NO. 465
No. 445 Session of 1999
INTRODUCED BY ARMSTRONG, STETLER, DRUCE, DAILEY, MAJOR, CLYMER,
STAIRS, HARHART, BARD, MAHER, LEH, ROHRER, RUBLEY, FLICK,
BAKER, FORCIER, ORIE, ROSS, MARSICO, SEMMEL, WRIGHT, PIPPY,
ZIMMERMAN, McNAUGHTON, BENNINGHOFF, DALLY, HUTCHINSON,
BIRMELIN, HENNESSEY, SCHULER, LESCOVITZ, BUTKOVITZ, STEELMAN,
BATTISTO, HERSHEY, TRELLO AND FARGO, FEBRUARY 9, 1999
REFERRED TO COMMITTEE ON JUDICIARY, FEBRUARY 9, 1999
AN ACT
1 Providing for the Tobacco Settlement Agreement Act; conferring
2 powers and duties upon the Attorney General and the
3 Department of Revenue; and imposing penalties.
4 The General Assembly of the Commonwealth of Pennsylvania
5 hereby enacts as follows:
6 Section 1. Short title.
7 This act shall be known and may be cited as the Tobacco
8 Settlement Agreement Act.
9 Section 2. Declaration of policy.
10 The General Assembly finds and declares as follows:
11 (1) Cigarette smoking presents serious public health
12 concerns to the Commonwealth and to the citizens of this
13 Commonwealth. The Surgeon General has determined that smoking
14 causes lung cancer, heart disease and other serious diseases
15 and that there are hundreds of thousands of tobacco-related
16 deaths in the United States each year. These diseases most
1 often do not appear until many years after the person begins
2 smoking.
3 (2) Cigarette smoking also presents serious financial
4 concerns for the Commonwealth. Under certain health care
5 programs, the Commonwealth may have a legal obligation to
6 provide medical assistance to eligible persons for health
7 conditions associated with cigarette smoking, and those
8 persons may have a legal entitlement to receive medical
9 assistance.
10 (3) Under these programs, the Commonwealth pays millions
11 of dollars each year to provide medical assistance for these
12 persons for health conditions associated with cigarette
13 smoking.
14 (4) It is the policy of the Commonwealth that financial
15 burdens imposed on the Commonwealth by cigarette smoking be
16 borne by tobacco product manufacturers rather than by the
17 Commonwealth to the extent that manufacturers either
18 determine to enter into a settlement with the Commonwealth or
19 are found culpable by the courts.
20 (5) On January 13, 1999, leading United States tobacco
21 product manufacturers entered into a settlement agreement,
22 entitled the "Master Settlement Agreement," with the
23 Commonwealth. The Master Settlement Agreement obligates these
24 manufacturers, in return for a release of past, present and
25 certain future claims against them as described therein, to
26 do the following:
27 (i) To pay substantial sums to the Commonwealth,
28 tied in part to their volume of sales.
29 (ii) To fund a national foundation devoted to the
30 interests of public health.
19990H0445B0465 - 2 -
1 (iii) To make substantial changes in their
2 advertising and marketing practices and corporate
3 culture, with the intention of reducing underage smoking.
4 (6) It would be contrary to the policy of the
5 Commonwealth if tobacco product manufacturers who determine
6 not to enter into the settlement could use a resulting cost
7 advantage to derive large, short-term profits in the years
8 before liability may arise without ensuring that the
9 Commonwealth will have an eventual source of recovery from
10 them if they are proven to have acted culpably. It is thus in
11 the interest of the Commonwealth to require that certain
12 manufacturers establish a reserve fund to guarantee a source
13 of compensation and to prevent certain manufacturers from
14 deriving large, short-term profits and then becoming judgment
15 proof before liability may arise.
16 Section 3. Definitions.
17 The following words and phrases when used in this act shall
18 have the meanings given to them in this section unless the
19 context clearly indicates otherwise:
20 "Adjusted for inflation." Increased in accordance with the
21 formula for inflation adjustment set forth in Exhibit C to the
22 Master Settlement Agreement.
23 "Affiliate." A person who directly or indirectly owns or
24 controls, is owned or controlled by or is under common ownership
25 or control with another person. Solely for purposes of this
26 definition, the terms "owns," "is owned" and "ownership" mean
27 ownership of an equity interest, or the equivalent thereof, of
28 10% or more, and the term "person" means an individual,
29 partnership, committee, association, corporation or any other
30 organization or group of persons.
19990H0445B0465 - 3 -
1 "Allocable share." The percentage for the Commonwealth is
2 5.7468588% as set forth in Exhibit A in the Master Settlement
3 Agreement.
4 "Cigarette." Any product that contains nicotine, is intended
5 to be burned or heated under ordinary conditions of use and
6 consists of or contains the following:
7 (1) Any roll of tobacco wrapped in paper or in any
8 substance not containing tobacco.
9 (2) Tobacco, in any form, that is functional in the
10 product, which, because of its appearance, the type of
11 tobacco used in the filler or its packaging and labelling is
12 likely to be offered to or purchased by consumers as a
13 cigarette.
14 (3) Any roll of tobacco wrapped in any substance
15 containing tobacco which, because of its appearance, the type
16 of tobacco used in the filler or its packaging and labeling
17 is likely to be offered to or purchased by consumers as a
18 cigarette described in clause (1). The term "cigarette"
19 includes "roll-your-own," such as any tobacco which, because
20 of its appearance, type, packaging or labeling is suitable
21 for use and likely to be offered to or purchased by consumers
22 as tobacco for making cigarettes. For purposes of this
23 definition of "cigarette," 0.09 ounces of "roll-your-own"
24 tobacco shall constitute one individual "cigarette."
25 "Master Settlement Agreement." The settlement agreement and
26 related documents entered into on January 13, 1999, by the
27 Commonwealth and leading United States tobacco product
28 manufacturers.
29 "Qualified escrow fund." An escrow arrangement with a
30 federally chartered or State-chartered financial institution
19990H0445B0465 - 4 -
1 having no affiliation with any tobacco product manufacturer and
2 having assets of at least $1,000,000,000 where the arrangement
3 requires that the financial institution hold the escrowed fund's
4 principal for the benefit of releasing parties and prohibits the
5 tobacco product manufacturer placing the funds into escrow from
6 using, accessing or directing the use of the fund's principal
7 except as consistent with section 4.
8 "Released claims." Includes claims:
9 (1) for past conduct, acts or omissions, including any
10 damages incurred in the future arising from such past
11 conduct, acts or omissions, those claims directly or
12 indirectly based on, arising out of or in any way related, in
13 whole or in part, to the use, sale, distribution,
14 manufacture, development, advertising, marketing or health
15 effects of, the exposure to or research, statements or
16 warnings regarding tobacco products (including, but not
17 limited to, the claims asserted in the actions identified in
18 Exhibit D to the Master Settlement Agreement, or any
19 comparable claims that were, could be or could have been
20 asserted now or in the future in those actions or in any
21 comparable action in Federal, State or local court brought by
22 a settling state or a releasing party, whether or not the
23 settling state or releasing party has brought the action),
24 except for claims not asserted in the actions identified in
25 Exhibit D for outstanding liability under existing licensing
26 or similar fee laws or existing tax laws but not excepting
27 claims for any tax liability of the tobacco-related
28 organizations or of any released party with respect to such
29 tobacco-related organizations, which claims are covered by
30 the release and covenants set forth in the Master Settlement
19990H0445B0465 - 5 -
1 Agreement; and
2 (2) for future conduct, acts or omissions, only those
3 monetary claims directly or indirectly based on, arising out
4 of or in any way related to, in whole or in part, the use of
5 or exposure to tobacco products manufactured in the ordinary
6 course of business, including, without limitation, any future
7 claims for reimbursement of health care costs allegedly
8 associated with the use of or exposure to tobacco products.
9 "Releasing parties." Each settling state and any of its
10 past, present and future agents, officials acting in their
11 official capacities, legal representatives, agencies,
12 departments, commissions and divisions. The term also means, to
13 the full extent of the power of the signatories hereto to
14 release past, present and future claims, the follow:
15 (1) Any settling state's subdivisions (political or
16 otherwise, including, but not limited to, municipalities,
17 counties, parishes, villages, unincorporated districts and
18 hospital districts), public entities, public
19 instrumentalities and public educational institutions.
20 (2) Persons or entities acting in a parens patriae,
21 sovereign, quasi-sovereign, private attorney general, qui
22 tam, taxpayer, or any other capacity, whether or not any of
23 them participate in this settlement;
24 (i) to the extent that any person or entity is
25 seeking relief on behalf of or generally applicable to
26 the general public in such settling state or the people
27 of the state, as opposed solely to private or individual
28 relief for separate and distinct injuries; or
29 (ii) to the extent that any such entity as opposed
30 to an individual is seeking recovery of health care
19990H0445B0465 - 6 -
1 expenses other than premium or capitation payments for
2 the benefit of present or retired State employees paid or
3 reimbursed, directly or indirectly, by a settling state.
4 "Tobacco product manufacturer."
5 (1) An entity that after the date of enactment of this
6 act directly and not exclusively through any affiliate:
7 (i) manufactures cigarettes anywhere that such
8 manufacturer intends to be sold in the United States,
9 including cigarettes intended to be sold in the United
10 States through an importer (except where such importer is
11 an original participating manufacturer, as that term is
12 defined in the Master Settlement Agreement, that will be
13 responsible for the payments under the Master Settlement
14 Agreement with respect to such cigarettes as a result of
15 the provisions of section II(mm) of the Master Settlement
16 Agreement and that pays the taxes specified in section
17 II(z) of the Master Settlement Agreement, and provided
18 that the manufacturer of such cigarettes does not market
19 or advertise such cigarettes in the United States);
20 (ii) is the first purchaser anywhere for resale in
21 the United States of cigarettes manufactured anywhere
22 that the manufacturer does not intend to be sold in the
23 United States; or
24 (iii) becomes a successor of an entity described in
25 clause (i) or (ii).
26 (2) The term shall not include an affiliate of a tobacco
27 product manufacturer unless such affiliate itself falls
28 within paragraph (1).
29 "Units sold." The number of individual cigarettes sold in
30 this Commonwealth by the applicable tobacco product
19990H0445B0465 - 7 -
1 manufacturer, whether directly or through a distributor,
2 retailer or similar intermediary or intermediaries, during the
3 year in question, as measured by excise taxes collected by the
4 Commonwealth on packs (or "roll-your-own" tobacco containers)
5 bearing the excise tax stamp of the Commonwealth. The Department
6 of Revenue shall promulgate such regulations as are necessary to
7 ascertain the amount of State excise tax paid on the cigarettes
8 of such tobacco product manufacturer for each year.
9 Section 4. Requirements.
10 (a) General rule.--Any tobacco product manufacturer selling
11 cigarettes to consumers within this Commonwealth whether
12 directly or through a distributor, retailer or similar
13 intermediary or intermediaries after the date of enactment of
14 this act shall do one of the following:
15 (1) Become a participating manufacturer as defined in
16 section II(jj) of the Master Settlement Agreement and
17 generally perform its financial obligations under the Master
18 Settlement Agreement.
19 (2) Place into a qualified escrow fund by April 15 of
20 the year following the year in question the following
21 amounts, that are adjusted for inflation:
22 (i) 1999 - $.0094241 per unit sold after the date of
23 enactment of this act.
24 (ii) 2000 - $.0104712 per unit sold after the date
25 of enactment of this act.
26 (iii) For each of 2001 and 2002 - $.0136125 per unit
27 sold after the date of enactment of this act.
28 (iv) For each of 2003 through 2006 - $.0167539 per
29 unit sold after the date of enactment of this act.
30 (v) For each of 2007 and each year thereafter -
19990H0445B0465 - 8 -
1 $.0188482 per unit sold after the date of enactment of
2 this act.
3 (b) Funds in escrow.--A tobacco product manufacturer that
4 places funds into escrow under subsection (a)(2) shall receive
5 the interest or other appreciation on such funds as earned. The
6 funds shall be released from escrow only under the following
7 circumstances:
8 (1) To pay a judgment or settlement on any released
9 claim brought against such tobacco product manufacturer by
10 the Commonwealth or any releasing party located or residing
11 in this Commonwealth. Funds shall be released from escrow
12 under this paragraph in the order in which they were placed
13 into escrow and only to the extent and at the time necessary
14 to make payments required under the judgment or settlement.
15 (2) To the extent that a tobacco product manufacturer
16 establishes that the amount it was required to place into
17 escrow in a particular year was greater than the
18 Commonwealth's allocable share of the total payments that the
19 manufacturer would have been required to make in that year
20 under the Master Settlement Agreement, as determined under
21 section IX(I)(2) of the Master Settlement Agreement and
22 before any of the adjustments or offsets described in section
23 IX(I)(3) of that agreement other than the inflation
24 adjustment, had it been a participating manufacturer, the
25 excess shall be released from escrow and revert back to such
26 tobacco product manufacturer.
27 (3) To the extent not released from escrow under
28 paragraphs (1) or (2), funds shall be released from escrow
29 and revert back to the tobacco product manufacturer 25 years
30 after the date on which they were placed into escrow.
19990H0445B0465 - 9 -
1 (c) Certification.--Each tobacco product manufacturer that
2 elects to place funds into escrow pursuant to this subsection
3 shall annually certify to the Attorney General that it is in
4 compliance with this subsection. The Attorney General may bring
5 a civil action on behalf of the Commonwealth against any tobacco
6 product manufacturer that fails to place into escrow the funds
7 required under this section. Any tobacco product manufacturer
8 that fails in any year to place into escrow the funds required
9 under this section shall do the following:
10 (1) Be required within 15 days to place the funds into
11 escrow as shall bring it into compliance with this section.
12 The court, upon a finding of a violation of this subsection,
13 may impose a civil penalty to be paid to the General Fund of
14 the Commonwealth in an amount not to exceed 5% of the amount
15 improperly withheld from escrow per day of the violation and
16 in a total amount not to exceed 100% of the original amount
17 improperly withheld from escrow.
18 (2) In the case of a knowing violation, be required
19 within 15 days to place the funds into escrow as shall bring
20 it into compliance with this section. The court, upon a
21 finding of a knowing violation of this subsection, may impose
22 a civil penalty to be paid to the General Fund of the
23 Commonwealth in an amount not to exceed 15% of the amount
24 improperly withheld from escrow per day of the violation and
25 in a total amount not to exceed 300% of the original amount
26 improperly withheld from escrow.
27 (3) In the case of a second knowing violation, be
28 prohibited from selling cigarettes to consumers within this
29 Commonwealth, whether directly or through a distributor,
30 retailer or similar intermediary, for a period not to exceed
19990H0445B0465 - 10 -
1 two years.
2 (d) Violation.--Each failure to make an annual deposit
3 required under this section shall constitute a separate
4 violation.
5 Section 5. Public inspection.
6 The Attorney General will deposit the Master Settlement
7 Agreement for public inspection under 1 Pa. Code § 3.13(b)
8 (relating to contents of bulletin).
9 Section 6. Effective date.
10 This act shall take effect in 60 days.
A29L71SFL/19990H0445B0465 - 11 -