REPORT TITLE:



DESCRIPTION:


 
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THE SENATE                              S.B. NO.           
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                   A  BILL  FOR  AN  ACT

RELATING TO TOBACCO LIABILITY. 



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

 1      Section l.  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.  As used in this chapter, unless the
 
 9 context otherwise requires:
 
10      "Adjusted for inflation" means increased in accordance with
 
11 the formula for inflation adjustment set forth in Exhibit C to
 
12 the Master Settlement Agreement.
 
13      "Affiliate" means a person who directly or indirectly owns
 
14 or controls, is owned or controlled by, or is under common
 
15 ownership or control with, another person.  Solely for purposes
 
16 of this definition, the terms "owns," "is owned" and "ownership"
 
17 mean ownership of an equity interest, or the equivalent thereof,
 
18 of ten percent or more, and the term "person" means an
 
19 individual, partnership, committee, association, corporation or
 
20 any other organization or group of persons.
 
21      "Allocable share" means allocable share as that term is
 
22 defined in the Master Settlement Agreement.
 
23      "Cigarette" means any product that contains nicotine, is
 

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

 
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 1 affiliation with any tobacco product manufacturer and having
 
 2 assets of at least $1,000,000,000 where such arrangement requires
 
 3 that such financial institution hold the escrowed funds'
 
 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 funds' principal
 
 7 except as consistent with section 3(b)-(c) of this Act.
 
 8      "Released claims" means Released Claims as that term is
 
 9 defined in the Master Settlement Agreement.
 
10      "Releasing parties" means Releasing Parties as that terms is
 
11 defined in the Master Settlement Agreement.
 
12      "Tobacco product manufacturer" means an entity that after
 
13 the effective date of this Act directly (and not exclusively
 
14 through any affiliate):
 
15      (1)  Manufactures cigarettes anywhere that such manufacturer
 
16           intends to be sold in the United States, including
 
17           cigarettes intended to be sold in the United States
 
18           through an importer (except where such importer is an
 
19           original participating manufacturer as that term is
 
20           defined in the Master Settlement Agreement) that will
 
21           be responsible for the payments under the Master
 
22           Settlement Agreement with respect to such cigarettes as
 
23           a result of the provisions of section II(mm) of the
 

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

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

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

 
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 1           agreement other than the Inflation Adjustment) had it
 
 2           been a participating manufacturer, the excess shall be
 
 3           released from escrow and revert back to such tobacco
 
 4           product manufacturer; or
 
 5       (3) To the extent not released from escrow under paragraph
 
 6           (1) or (2), funds shall be released from escrow and
 
 7           revert back to the tobacco product manufacturer twenty-
 
 8           five years after the date on which they were placed
 
 9           into escrow.
 
10      (c)  Each tobacco product manufacturer that elects to place
 
11 funds into escrow pursuant to subsection (a)(2) shall annually
 
12 certify to the attorney general that it is in compliance with
 
13 subsection (a)(2).  The attorney general may bring a civil action
 
14 on behalf of the State against any tobacco product manufacturer
 
15 that fails to place into escrow the funds required under this
 
16 section.  Any tobacco product manufacturer that fails in any year
 
17 to place into escrow the funds required under this section shall:
 
18      (1)  Be required within fifteen days to place such funds
 
19           into escrow as shall bring it into compliance with this
 
20           section.  The court, upon a finding of a violation of
 
21           this section, may impose a civil penalty to be paid to
 
22           the general fund of the State in an amount not to
 
23           exceed five per cent of the amount improperly withheld
 

 
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 1           from escrow per day of the violation and in a total
 
 2           amount not to exceed 100 per cent of the original
 
 3           amount improperly withheld from escrow;
 
 4      (2)  In the case of a knowing violation, be required within
 
 5           fifteen days to place such funds into escrow as shall
 
 6           bring it into compliance with this section.  The court,
 
 7           upon a finding of a knowing violation of this
 
 8           subsection, may impose a civil penalty to be paid to
 
 9           the general fund of the state in an amount not to
 
10           exceed fifteen per cent of the amount improperly
 
11           withheld from escrow per day of the violation and in a
 
12           total amount not to exceed 300 per cent of the original
 
13           amount improperly withheld from escrow; and
 
14      (3)  In the case of a second knowing violation, be
 
15           prohibited from selling cigarettes to consumers within
 
16           the State (whether directly or through a distributor,
 
17           retailer or similar intermediary) for a period not to
 
18           exceed 2 years.
 
19      (d)  Each failure to make an annual deposit required under
 
20 this section shall constitute a separate violation.
 
21      (e)  The State shall be awarded its attorneys' fees and
 
22 expenses incurred in prosecuting violations of this chapter.
 
23      SECTION 2.  This Act shall take effect upon its approval.
 
24 
 
25                           INTRODUCED BY:  _______________________
 

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