As Introduced 1 123rd General Assembly 4 Regular Session H. B. No. 362 5 1999-2000 6 REPRESENTATIVES COUGHLIN-THOMAS-VAN VYVEN-VESPER-MOTTLEY-JONES 8 _________________________________________________________________ 9 A B I L L To enact sections 1346.01 and 1346.02 of the Revised 11 Code to require a tobacco product manufacturer 12 who sells cigarettes in this state but is not part of a settlement agreement with the Attorney 13 General to place specified amounts of money into 14 a qualified escrow fund each year to be used to pay any future judgment or settlement on a claim 15 brought against the manufacturer regarding 16 tobacco products. BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF OHIO: 18 Section 1. That sections 1346.01 and 1346.02 of the 20 Revised Code be enacted to read as follows: 21 Sec. 1346.01. (A) "ADJUSTED FOR INFLATION" MEANS 23 INCREASED IN ACCORDANCE WITH THE FORMULA FOR INFLATION ADJUSTMENT 24 SET FORTH IN EXHIBIT C TO THE MASTER SETTLEMENT AGREEMENT. 25 (B) "AFFILIATE" MEANS A PERSON WHO DIRECTLY OR INDIRECTLY 27 OWNS OR CONTROLS, IS OWNED OR CONTROLLED BY, OR IS UNDER COMMON 28 OWNERSHIP OR CONTROL WITH, ANOTHER PERSON. SOLELY FOR PURPOSES 29 OF THIS DEFINITION, THE TERMS "OWNS," "IS OWNED" AND "OWNERSHIP" 30 MEAN OWNERSHIP OF AN EQUITY INTEREST, OR THE EQUIVALENT THEREOF, 31 OF TEN PER CENT OR MORE, AND THE TERM "PERSON" MEANS AN 32 INDIVIDUAL, PARTNERSHIP, COMMITTEE, ASSOCIATION, CORPORATION OR ANY OTHER ORGANIZATION OR GROUP OF PERSONS. 33 (C) "ALLOCABLE SHARE" MEANS ALLOCABLE SHARE AS THAT TERM 35 IS DEFINED IN THE MASTER SETTLEMENT AGREEMENT. 36 (D)(1) "CIGARETTE" MEANS ANY PRODUCT THAT CONTAINS 38 2 NICOTINE, IS INTENDED TO BE BURNED OR HEATED UNDER ORDINARY 39 CONDITIONS OF USE, AND CONSISTS OF OR CONTAINS ANY OF THE 40 FOLLOWING: (a) ANY ROLL OF TOBACCO WRAPPED IN PAPER OR IN ANY 42 SUBSTANCE NOT CONTAINING TOBACCO; 43 (b) TOBACCO, IN ANY FORM, THAT IS FUNCTIONAL IN THE 45 PRODUCT, WHICH, BECAUSE OF ITS APPEARANCE, THE TYPE OF TOBACCO 46 USED IN THE FILLER, OR ITS PACKAGING AND LABELING, IS LIKELY TO 47 BE OFFERED TO, OR PURCHASED BY, CONSUMERS AS A CIGARETTE; OR 48 (c) ANY ROLL OF TOBACCO WRAPPED IN ANY SUBSTANCE 50 CONTAINING TOBACCO WHICH, BECAUSE OF ITS APPEARANCE, THE TYPE OF 51 TOBACCO USED IN THE FILLER, OR ITS PACKAGING AND LABELING, IS 52 LIKELY TO BE OFFERED TO, OR PURCHASED BY, CONSUMERS AS A 53 CIGARETTE DESCRIBED IN DIVISION (D)(1)(a) OF THIS SECTION. 54 (2) THE TERM "CIGARETTE" INCLUDES "ROLL-YOUR-OWN" (I.E., 56 ANY TOBACCO WHICH, BECAUSE OF ITS APPEARANCE, TYPE, PACKAGING, OR 57 LABELING IS SUITABLE FOR USE AND LIKELY TO BE OFFERED TO, OR 58 PURCHASED BY, CONSUMERS AS TOBACCO FOR MAKING CIGARETTES). FOR 59 PURPOSES OF THIS DEFINITION OF "CIGARETTE," 0.09 OUNCES OF 60 "ROLL-YOUR-OWN" TOBACCO SHALL CONSTITUTE ONE INDIVIDUAL "CIGARETTE." (E) "MASTER SETTLEMENT AGREEMENT" MEANS THE SETTLEMENT 63 AGREEMENT (AND RELATED DOCUMENTS) ENTERED INTO ON NOVEMBER 23, 64 1998 BY THE STATE AND LEADING UNITED STATES TOBACCO PRODUCT 65 MANUFACTURERS. (F) "QUALIFIED ESCROW FUND" MEANS AN ESCROW ARRANGEMENT 67 WITH A FEDERALLY OR STATE CHARTERED FINANCIAL INSTITUTION HAVING 68 NO AFFILIATION WITH ANY TOBACCO PRODUCT MANUFACTURER AND HAVING 69 ASSETS OF AT LEAST ONE BILLION DOLLARS WHERE SUCH ARRANGEMENT 70 REQUIRES THAT SUCH FINANCIAL INSTITUTION HOLD THE ESCROWED FUNDS' 71 PRINCIPAL FOR THE BENEFIT OF RELEASING PARTIES AND PROHIBITS THE 72 TOBACCO PRODUCT MANUFACTURER PLACING THE FUNDS INTO ESCROW FROM 73 USING, ACCESSING OR DIRECTING THE USE OF THE FUNDS' PRINCIPAL EXCEPT AS CONSISTENT WITH SECTION 1346.02 OF THE REVISED CODE. 74 3 (G) "RELEASED CLAIMS" MEANS RELEASED CLAIMS AS THAT TERM 76 IS DEFINED IN THE MASTER SETTLEMENT AGREEMENT. 77 (H) "RELEASING PARTIES" MEANS RELEASING PARTIES AS THAT 79 TERM IS DEFINED IN THE MASTER SETTLEMENT AGREEMENT. 80 (I)(1) "TOBACCO PRODUCT MANUFACTURER" MEANS AN ENTITY THAT 82 AFTER THE EFFECTIVE DATE OF THIS SECTION DIRECTLY (AND NOT 83 EXCLUSIVELY THROUGH ANY AFFILIATE): 84 (a) MANUFACTURES CIGARETTES ANYWHERE THAT SUCH 86 MANUFACTURER INTENDS TO BE SOLD IN THE UNITED STATES, INCLUDING 87 CIGARETTES INTENDED TO BE SOLD IN THE UNITED STATES THROUGH AN 89 IMPORTER (EXCEPT WHERE SUCH IMPORTER IS AN ORIGINAL PARTICIPATING MANUFACTURER (AS THAT TERM IS DEFINED IN THE MASTER SETTLEMENT 91 AGREEMENT) THAT WILL BE RESPONSIBLE FOR THE PAYMENTS UNDER THE 92 MASTER SETTLEMENT AGREEMENT WITH RESPECT TO SUCH CIGARETTES AS A 93 RESULT OF THE PROVISIONS OF SUBSECTIONS II(mm) OF THE MASTER 95 SETTLEMENT AGREEMENT AND THAT PAYS THE TAXES SPECIFIED IN 96 SUBSECTION II(z) OF THE MASTER SETTLEMENT AGREEMENT, AND PROVIDED 97 THAT THE MANUFACTURER OF SUCH CIGARETTES DOES NOT MARKET OR 98 ADVERTISE SUCH CIGARETTES IN THE UNITED STATES); 99 (b) IS THE FIRST PURCHASER ANYWHERE FOR RESALE IN THE 102 UNITED STATES OF CIGARETTES MANUFACTURED ANYWHERE THAT THE MANUFACTURER DOES NOT INTEND TO BE SOLD IN THE UNITED STATES; OR 104 (c) BECOMES A SUCCESSOR OF AN ENTITY DESCRIBED IN DIVISION 106 (I)(1)(a) OR (b) OF THIS SECTION. 107 (2) THE TERM "TOBACCO PRODUCT MANUFACTURER" SHALL NOT 109 INCLUDE AN AFFILIATE OF A TOBACCO PRODUCT MANUFACTURER UNLESS 110 SUCH AFFILIATE ITSELF FALLS WITHIN ANY OF DIVISION (I)(1)(a), 111 (b), OR (c) OF THIS SECTION. 112 (J) "UNITS SOLD" MEANS THE NUMBER OF INDIVIDUAL CIGARETTES 114 SOLD IN THE STATE BY THE APPLICABLE TOBACCO PRODUCT MANUFACTURER 115 (WHETHER DIRECTLY OR THROUGH A DISTRIBUTOR, RETAILER OR SIMILAR 116 INTERMEDIARY OR INTERMEDIARIES) DURING THE YEAR IN QUESTION, AS 117 MEASURED BY EXCISE TAXES COLLECTED BY THE STATE ON PACKS (OR 118 "ROLL-YOUR-OWN" TOBACCO CONTAINERS) BEARING THE EXCISE TAX STAMP 119 4 OF THE STATE. THE DEPARTMENT OF TAXATION SHALL PROMULGATE SUCH REGULATIONS AS ARE NECESSARY TO ASCERTAIN THE AMOUNT OF STATE 120 EXCISE TAX PAID ON THE CIGARETTES OF SUCH TOBACCO PRODUCT 121 MANUFACTURER FOR EACH YEAR. Sec. 1346.02. ANY TOBACCO PRODUCT MANUFACTURER SELLING 123 CIGARETTES TO CONSUMERS WITHIN THE STATE (WHETHER DIRECTLY OR 124 THROUGH A DISTRIBUTOR, RETAILER OR SIMILAR INTERMEDIARY OR 126 INTERMEDIARIES) AFTER THE EFFECTIVE DATE OF THIS SECTION SHALL DO 127 ONE OF THE FOLLOWING: (A) BECOME A PARTICIPATING MANUFACTURER (AS THAT TERM IS 129 DEFINED IN SECTION II(jj) OF THE MASTER SETTLEMENT AGREEMENT) AND 132 GENERALLY PERFORM ITS FINANCIAL OBLIGATIONS UNDER THE MASTER 133 SETTLEMENT AGREEMENT; OR (B)(1) PLACE INTO A QUALIFIED ESCROW FUND BY APRIL 15 OF 135 THE YEAR FOLLOWING THE YEAR IN QUESTION THE FOLLOWING AMOUNTS (AS 136 SUCH AMOUNTS ARE ADJUSTED FOR INFLATION): 137 1999: $.0094241 PER UNIT SOLD AFTER THE EFFECTIVE DATE OF 139 THIS SECTION; 2000: $.0104712 PER UNIT SOLD; 141 FOR EACH OF 2001 AND 2002: $.0136125 PER UNIT SOLD; 143 FOR EACH OF 2003 THROUGH 2006: $.0167539 PER UNIT SOLD; 145 FOR EACH OF 2007 AND EACH YEAR THEREAFTER: $.0188482 PER 147 UNIT SOLD. (2) A TOBACCO PRODUCT MANUFACTURER THAT PLACES FUNDS INTO 149 ESCROW PURSUANT TO DIVISION (B)(1) OF THIS SECTION SHALL RECEIVE 150 THE INTEREST OR OTHER APPRECIATION ON SUCH FUNDS AS EARNED. SUCH 151 FUNDS THEMSELVES SHALL BE RELEASED FROM ESCROW ONLY UNDER THE 152 FOLLOWING CIRCUMSTANCES: (a) TO PAY A JUDGMENT OR SETTLEMENT ON ANY RELEASED CLAIM 154 BROUGHT AGAINST SUCH TOBACCO PRODUCT MANUFACTURER BY THE STATE OR 155 ANY RELEASING PARTY LOCATED OR RESIDING IN THE STATE. FUNDS 156 SHALL BE RELEASED FROM ESCROW UNDER DIVISION (B)(2)(a) OF THIS 157 SECTION: (i) IN THE ORDER IN WHICH THEY WERE PLACED INTO ESCROW; 159 5 AND (ii) ONLY TO THE EXTENT AND AT THE TIME NECESSARY TO MAKE 161 PAYMENTS REQUIRED UNDER SUCH JUDGMENT OR SETTLEMENT. 162 (b) TO THE EXTENT THAT A TOBACCO PRODUCT MANUFACTURER 164 ESTABLISHES THAT THE AMOUNT IT WAS REQUIRED TO PLACE INTO ESCROW 165 IN A PARTICULAR YEAR WAS GREATER THAN THE STATE'S ALLOCABLE SHARE 166 OF THE TOTAL PAYMENTS THAT SUCH MANUFACTURER WOULD HAVE BEEN 167 REQUIRED TO MAKE IN THAT YEAR UNDER THE MASTER SETTLEMENT 168 AGREEMENT (AS DETERMINED PURSUANT TO SECTION IX(i)(2) OF THE 169 MASTER SETTLEMENT AGREEMENT, AND BEFORE ANY OF THE ADJUSTMENTS OR 170 OFFSETS DESCRIBED IN SECTION IX(i)(3) OF THAT AGREEMENT OTHER THE 172 THE INFLATION ADJUSTMENT) HAD IT BEEN A PARTICIPATING 173 MANUFACTURER, THE EXCESS SHALL BE RELEASED FROM ESCROW AND REVERT 174 BACK TO SUCH TOBACCO PRODUCT MANUFACTURER; OR (c) TO THE EXTENT NOT RELEASED FROM ESCROW UNDER DIVISION 176 (B)(2)(a) OR (b) OF THIS SECTION, FUNDS SHALL BE RELEASED FROM 178 ESCROW AND REVERT BACK TO SUCH TOBACCO PRODUCT MANUFACTURER 179 TWENTY-FIVE YEARS AFTER THE DATE ON WHICH THEY WERE PLACED INTO ESCROW. 180 (3) EACH TOBACCO PRODUCT MANUFACTURER THAT ELECTS TO PLACE 182 FUNDS INTO ESCROW PURSUANT TO DIVISION (B) OF THIS SECTION SHALL 183 ANNUALLY CERTIFY TO THE ATTORNEY GENERAL THAT IT IS IN COMPLIANCE 184 WITH DIVISION (B) OF THIS SECTION. THE ATTORNEY GENERAL MAY 185 BRING A CIVIL ACTION ON BEHALF OF THE STATE AGAINST ANY TOBACCO 186 PRODUCT MANUFACTURER THAT FAILS TO PLACE INTO ESCROW THE FUNDS 187 REQUIRED UNDER THIS SECTION. ANY TOBACCO PRODUCT MANUFACTURER 188 THAT FAILS IN ANY YEAR TO PLACE INTO ESCROW THE FUNDS REQUIRED UNDER THIS SECTION SHALL: 189 (a) BE REQUIRED WITHIN FIFTEEN DAYS TO PLACE SUCH FUNDS 191 INTO ESCROW AS SHALL BRING IT INTO COMPLIANCE WITH THIS SECTION. 192 THE COURT, UPON A FINDING OF A VIOLATION OF DIVISION (B) OF THIS 193 SECTION, MAY IMPOSE A CIVIL PENALTY TO BE PAID TO THE GENERAL 194 REVENUE FUND OF THE STATE IN AN AMOUNT NOT TO EXCEED FIVE PER 195 CENT OF THE AMOUNT IMPROPERLY WITHHELD FROM ESCROW PER DAY OF THE 196 6 VIOLATION AND IN A TOTAL AMOUNT NOT TO EXCEED ONE HUNDRED PER CENT OF THE ORIGINAL AMOUNT IMPROPERLY WITHHELD FROM ESCROW; 197 (b) IN THE CASE OF A KNOWING VIOLATION, BE REQUIRED WITHIN 199 FIFTEEN DAYS TO PLACE SUCH FUNDS INTO ESCROW AS SHALL BRING IT 200 INTO COMPLIANCE WITH THIS SECTION. THE COURT, UPON A FINDING OF 201 A KNOWING VIOLATION OF DIVISION (B) OF THIS SECTION, MAY IMPOSE A 202 CIVIL PENALTY TO BE PAID TO THE GENERAL REVENUE FUND OF THE STATE 204 IN AN AMOUNT NOT TO EXCEED FIFTEEN PER CENT OF THE AMOUNT IMPROPERLY WITHHELD FROM ESCROW PER DAY OF THE VIOLATION AND IN A 205 TOTAL AMOUNT NOT TO EXCEED THREE HUNDRED PER CENT OF THE ORIGINAL 206 AMOUNT IMPROPERLY WITHHELD FROM ESCROW; AND 207 (c) IN THE CASE OF A SECOND KNOWING VIOLATION, BE 209 PROHIBITED FROM SELLING CIGARETTES TO CONSUMERS WITHIN THE STATE 210 (WHETHER DIRECTLY OR THROUGH A DISTRIBUTOR, RETAILER OR SIMILAR 211 INTERMEDIARY) FOR A PERIOD NOT TO EXCEED TWO YEARS. 212 EACH FAILURE TO MAKE AN ANNUAL DEPOSIT REQUIRED UNDER THIS 214 SECTION SHALL CONSTITUTE A SEPARATE VIOLATION. 215 Section 2. Section 1 of this act enacts the Model Statute 217 described in Exhibit T to the Master Settlement Agreement entered 218 into between leading tobacco manufacturers and state attorney 219 generals on November 23, 1998.