HOUSE BILL No. 5088 November 2, 1999, Introduced by Reps. LaSata, Cameron Brown, Jellema, Geiger, Pumford, Kukuk and Middaugh and referred to the Committee on Appropriations. A bill to require tobacco product manufacturers to place funds in escrow for medical expenses incurred by the state due to tobacco related illnesses; to establish a formula for determining the amount of the escrow; to establish the conditions for release of funds from escrow; to prescribe powers and duties of the attorney general; and to provide for civil penalties for viola- tion of this act. THE PEOPLE OF THE STATE OF MICHIGAN ENACT: 1 Sec. 1. As used in this act: 2 (a) "Adjusted for inflation" means increased in accordance 3 with the formula for inflation adjustment set forth in Exhibit C 4 to the master settlement agreement. 5 (b) "Affiliate" means a person who directly or indirectly 6 owns or controls, is owned or controlled by, or is under common 7 ownership or control with, another person. Solely for purposes 03721'99 DAM 2 1 of this definition, the terms "owns", "is owned", and "ownership" 2 mean ownership of an equity interest, or the equivalent thereof, 3 of 10% or more, and the term "person" means an individual, part- 4 nership, committee, association, corporation, or any other organ- 5 ization or group of persons. 6 (c) "Allocable share" means that term as defined in the 7 master settlement agreement. 8 (d) "Cigarette" means any product that contains nicotine, is 9 intended to be burned or heated under ordinary conditions of use, 10 and consists of or contains (i) any roll of tobacco wrapped in 11 paper or in any substance not containing tobacco; or (ii) tobac- 12 co, in any form, that is functional in the product, which, 13 because of its appearance, the type of tobacco used in the 14 filler, or its packaging and labeling, is likely to be offered 15 to, or purchased by, consumers as a cigarette; or (iii) any roll 16 of tobacco wrapped in any substance containing tobacco which, 17 because of its appearance, the type of tobacco used in the 18 filler, or its packaging and labeling, is likely to be offered 19 to, or purchased by, consumers as a cigarette described in clause 20 (i) of this definition. The term "cigarette" includes 21 "roll-your-own" (i.e., any tobacco which, because of its appear- 22 ance, type, packaging, or labeling is suitable for use and likely 23 to be offered to, or purchased by, consumers as tobacco for 24 making cigarettes). For purposes of this definition of 25 "cigarette", 0.09 ounces of "roll-your-own" tobacco shall consti- 26 tute 1 individual "cigarette". 03721'99 3 1 (e) "Inflation adjustment" means that term as defined in the 2 master settlement agreement. 3 (f) "Master settlement agreement" means the settlement 4 agreement (and related documents) entered into on November 23, 5 1998, and incorporated into a consent decree and final judgment 6 entered into on December 7, 1998, in Kelley Ex Rel. Michigan v 7 Philip Morris Incorporated, et al., Ingham county circuit court, 8 docket no. 96-84281CZ. 9 (g) "Original participating manufacturer" means that term as 10 defined in the master settlement agreement. 11 (h) "Participating manufacturer" means that term as defined 12 in the master settlement agreement. 13 (i) "Qualified escrow fund" means an escrow arrangement with 14 a federally or state chartered financial institution having no 15 affiliation with any tobacco product manufacturer and having 16 assets of at least $1,000,000,000.00 where such arrangement 17 requires that such financial institution hold the escrowed funds' 18 principal for the benefit of releasing parties and prohibits the 19 tobacco product manufacturer placing the funds into escrow from 20 using, accessing, or directing the use of the funds' principal 21 except as consistent with section 2(2) of this act. 22 (j) "Released claims" means that term as defined in the 23 master settlement agreement. 24 (k) "Releasing parties" means that term as defined in the 25 master settlement agreement. 26 (l) "Tobacco product manufacturer" means an entity that 27 after the date of enactment of this act directly (and not 03721'99 4 1 exclusively through any affiliate) meets 1 or more of the 2 following: 3 (i) Manufactures cigarettes anywhere that such manufacturer 4 intends to be sold in the United States, including cigarettes 5 intended to be sold in the United States through an importer 6 (except where such importer is an original participating manufac- 7 turer that will be responsible for the payments under the master 8 settlement agreement with respect to such cigarettes as a result 9 of the provisions of subsection II(mm) of the master settlement 10 agreement and that pays taxes specified in subsection II(z) of 11 the master settlement agreement, and provided that the manufac- 12 turer of such cigarettes does not market or advertise such ciga- 13 rettes in the United States). 14 (ii) Is the first purchaser anywhere for resale in the 15 United States of cigarettes manufactured anywhere that the manu- 16 facturer does not intend to be sold in the United States. 17 (iii) Becomes a successor of an entity described in subpara- 18 graph (i) or (ii). 19 (m) The term "tobacco product manufacturer" as defined in 20 subdivision (l) does not include an affiliate of a tobacco pro- 21 duct manufacturer unless the affiliate itself falls within 1 or 22 more of subdivision (l)(i) to (iii). 23 (n) "Units sold" means the number of individual cigarettes 24 sold in the state by the applicable tobacco product manufacturer 25 (whether directly or through a distributor, retailer, or similar 26 intermediary or intermediaries) during the year in question, as 27 measured by excise taxes collected by the state on packs (or 03721'99 5 1 "roll-your-own" tobacco containers) bearing the excise tax stamp 2 of the state. The department of treasury shall promulgate such 3 regulations as are necessary to ascertain the amount of state 4 excise tax paid on the cigarettes of such tobacco product manu- 5 facturer for each year. 6 Sec. 2. (1) Any tobacco product manufacturer selling ciga- 7 rettes to consumers within the state (whether directly or through 8 a distributor, retailer, or similar intermediary or 9 intermediaries) after the date of enactment of this act shall do 10 1 of the following: 11 (a) Become a participating manufacturer and generally per- 12 form its financial obligations under the master settlement 13 agreement. 14 (b) Place into a qualified escrow fund by April 15 of the 15 year following the year in question the following amounts (as the 16 amounts are adjusted for inflation): 17 (i) 1999: $.0094241 per unit sold after the date of enact- 18 ment of this act. 19 (ii) 2000: $.0104712 per unit sold after the date of enact- 20 ment of this act. 21 (iii) For each of 2001 and 2002: $.0136125 per unit sold 22 after the date of enactment of this act. 23 (iv) For each of 2003 through 2006: $.0167539 per unit sold 24 after the date of enactment of this act. 25 (v) For each of 2007 and each year thereafter: $.0188482 26 per unit sold after the date of enactment of this act. 03721'99 6 1 (2) A tobacco product manufacturer that places funds into 2 escrow pursuant to subsection (1)(b) shall receive the interest 3 or other appreciation on the funds as earned. The funds them- 4 selves shall be released from escrow only under 1 or more of the 5 following circumstances: 6 (a) To pay a judgment or settlement on any released claim 7 brought against the tobacco product manufacturer by the state or 8 any releasing party located or residing in the state. Funds 9 shall be released from escrow under this subdivision in the order 10 in which they were placed into escrow and only to the extent and 11 at the time necessary to make payments required under such judg- 12 ment or settlement. 13 (b) To the extent that a tobacco product manufacturer estab- 14 lishes that the amount it was required to place into escrow in a 15 particular year was greater than the state's allocable share of 16 the total payments that such manufacturer would have been 17 required to make in that year under the master settlement agree- 18 ment (as determined pursuant to section IX(i)(2) of the master 19 settlement agreement, and before any of the adjustments or off- 20 sets described in section IX(i)(3) of the master settlement 21 agreement other than the inflation adjustment) had it been a par- 22 ticipating manufacturer, the excess shall be released from escrow 23 and revert back to such tobacco product manufacturer. 24 (c) To the extent not released from escrow under subdivision 25 (a) or (b), funds shall be released from escrow and revert back 26 to such tobacco product manufacturer 25 years after the date on 27 which they were placed into escrow. 03721'99 7 1 (3) Each tobacco product manufacturer that elects to place 2 funds into escrow pursuant to subsection (1)(b) shall annually 3 certify to the attorney general that it is in compliance with 4 this section. The attorney general may bring a civil action on 5 behalf of the state against any tobacco product manufacturer that 6 fails to place into escrow the funds required under this 7 section. Any tobacco product manufacturer that fails in any year 8 to place into escrow the funds required under this section shall 9 be subject to all of the following that are applicable: 10 (a) Shall be required within 15 days to place sufficient 11 funds into escrow to bring it into compliance with this section. 12 The court, upon a finding of a violation of this subsection, may 13 impose a civil penalty to be paid to the general fund of the 14 state in an amount not to exceed 5% of the amount improperly 15 withheld from escrow per day of the violation and in a total 16 amount not to exceed 100% of the original amount improperly with- 17 held from escrow. 18 (b) In the case of a knowing violation, shall be required 19 within 15 days to place sufficient funds into escrow to bring it 20 into compliance with this section. The court, upon a finding of 21 a knowing violation of this subsection, may impose a civil pen- 22 alty to be paid to the general fund of this state in an amount 23 not to exceed 15% of the amount improperly withheld from escrow 24 per day of the violation and in a total amount not to exceed 300% 25 of the original amount improperly withheld from escrow. 26 (c) In the case of a second knowing violation, shall be 27 prohibited from selling cigarettes to consumers within the state 03721'99 8 1 (whether directly or through a distributor, retailer, or similar 2 intermediary) for a period not to exceed 2 years. 3 (4) For purposes of subsection (3), each failure to make an 4 annual deposit required under subsection (1)(b) shall constitute 5 a separate violation. 03721'99 Final page. DAM