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H.B. 132 Enrolled
Greg J. Curtis
AN ACT RELATING TO HEALTH; ENACTING THE MODEL TOBACCO SETTLEMENT
STATUTE; AND PROVIDING AN EFFECTIVE DATE.
This act affects sections of Utah Code Annotated 1953 as follows:
ENACTS:
26-44-101, Utah Code Annotated 1953
26-44-201, Utah Code Annotated 1953
26-44-202, Utah Code Annotated 1953
26-44-203, Utah Code Annotated 1953
Be it enacted by the Legislature of the state of Utah:
Section 1. Section 26-44-101 is enacted to read:
26-44-101. Title.
The chapter is known as the "Tobacco Manufacturers Responsibility Act."
Section 2. Section 26-44-201 is enacted to read:
26-44-201. Findings and purpose.
(1) Cigarette smoking presents serious public health concerns to the State and to the
citizens of the State. The Surgeon General has determined that smoking causes lung cancer, heart
disease and other serious diseases, and that there are hundreds of thousands of tobacco-related
deaths in the United States each year. These diseases most often do not appear until many years
after the person in question begins smoking.
(2) Cigarette smoking also presents serious financial concerns for the State. Under certain
health-care programs, the State may have a legal obligation to provide medical assistance to
eligible persons for health conditions associated with cigarette smoking, and those persons may have
a legal entitlement to receive such medical assistance.
(3) Under these programs, the State pays millions of dollars each year to provide medical
assistance for these persons for health conditions associated with cigarette smoking.
(4) It is the policy of the State that financial burdens imposed on the State by cigarette
smoking be borne by tobacco product manufacturers rather than by the State to the extent that such
manufacturers either determine to enter into a settlement with the State or are found culpable by the
courts.
(5) On November 23, 1998, leading United States tobacco product manufacturers entered
into a settlement agreement, entitled the "Master Settlement Agreement," with the State. The Master
Settlement Agreement obligates these manufacturers, in return for a release of past, present, and
certain future claims against them as described therein, to pay substantial sums to the State (tied in
part to their volume of sales); to fund a national foundation devoted to the interests of public health;
and to make substantial changes in their advertising and marketing practices and corporate culture,
with the intention of reducing underage smoking.
(6) It would be contrary to the policy of the State if tobacco product manufacturers who
determine not to enter into such a settlement could use a resulting cost advantage to derive large,
short-term profits in the years before liability may arise without ensuring that the State will have an
eventual source of recovery from them if they are proven to have acted culpably. It is thus in the
interest of the State to require that such manufacturers establish a reserve fund to guarantee a source
of compensation and to prevent such manufacturers from deriving large, short-term profits and then
becoming judgment-proof before liability may arise.
Section 3. Section 26-44-202 is enacted to read:
26-44-202. Definitions.
As used in this part:
(1) "Adjusted for inflation" means increased in accordance with the formula for inflation
adjustment set forth in Exhibit C to the Master Settlement Agreement.
(2) "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 thereof, of 10% or more, and the term "person" means an individual,
partnership, committee, association, corporation or any other organization or group of persons.
(3) "Allocable share" means Allocable Share as that term is defined in the Master Settlement
Agreement.
(4) "Cigarette" means any product that contains nicotine, is intended to be burned or heated
under ordinary conditions of use, and consists of or contains (a) any roll of tobacco wrapped in paper
or in any substance not containing tobacco; or (b) 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 (c) 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 (a) 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
shall constitute one individual "cigarette."
(5) "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.
(6) "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 $1,000,000,000 where such arrangement requires that such 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 Subsection 26-44-203 (2).
(7) "Released claims" means Released Claims as that term is defined in the Master
Settlement Agreement.
(8) "Releasing parties" means Releasing Parties as that term is defined in the Master
Settlement Agreement.
(9) (a) "Tobacco product manufacturer" means an entity that after the date of enactment of
this Act directly (and not exclusively through any affiliate):
(i) manufactures cigarettes anywhere that such manufacturer intends to be sold in the United
States, including cigarettes intended to be sold in the United States through an importer (except
where such 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 such 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 such cigarettes does not market or
advertise such 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 Subsection (9)(a)(i) or (ii).
(b) "Tobacco product manufacturer" shall not include an affiliate of a tobacco product
manufacturer unless such affiliate itself falls within any Subsection (9)(a)(i) through (iii).
(10) "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. The State Tax Commission shall promulgate such regulations as are necessary to ascertain
the amount of State excise tax paid on the cigarettes of such tobacco product manufacturer for each
year.
Section 4. Section 26-44-203 is enacted to read:
26-44-203. Requirements.
(1) 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 Act shall do one of the following:
(a) 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
(b) place into a qualified escrow fund by April 15 of the year following the year in question
the following amounts (as such amounts are adjusted for inflation):
(i) 1999: $.0094241 per unit sold after the date of enactment of this Act;
(ii) 2000: $.0104712 per unit sold;
(iii) for each of 2001 and 2002: $.0136125 per unit sold;
(iv) for each of 2003 through 2006: $.0167539 per unit sold; and
(v) for each of 2007 and each year thereafter: $.0188482 per unit sold.
(2) A tobacco product manufacturer that places funds into escrow pursuant to Subsection
(1)(b) shall receive the interest or other appreciation on such funds as earned. Such 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 such tobacco
product manufacturer by the State or any releasing party located or residing in the State. Funds shall
be released from escrow under this Subsection (2)(a):
(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 such
judgment or settlement;
(b) to the extent that a tobacco product manufacturer establishes that the amount it was
required to place into escrow in a particular year was greater than the State's allocable share of the
total payments that such 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) had it been a participating manufacturer, the excess
shall be released from escrow and revert back to such tobacco product manufacturer; or
(c) to the extent not released from escrow under Subsection (2)(a) or (b), funds shall be
released from escrow and revert back to such tobacco product manufacturer 25 years after the date
on which they were placed into escrow.
(3) Each tobacco product manufacturer that elects to place funds into escrow pursuant to
Subsection (1)(b) shall annually certify to the executive director that it is in compliance with
Subsection (1)(b) and Subsection (2). The executive director may bring a civil action on behalf of
the State against any tobacco product manufacturer that fails to place into escrow the funds required
under Subsection (1)(b) and Subsection (2). Any tobacco product manufacturer that fails in any year
to place into escrow the funds required under this Subsection (1)(b) and Subsection (2) shall:
(a) be required within 15 days to place such funds into escrow as shall bring it into
compliance with Subsection (1)(b) and Subsection (2). The court, upon a finding of a violation of
Subsection (1)(b) or Subsection (2), may impose a civil penalty to be paid to the General Fund in an
amount not to exceed 5% of the amount improperly withheld from escrow per day of the violation
and in a total amount not to exceed 100% of the original amount improperly withheld from escrow;
(b) in the case of a knowing violation, be required within 15 days to place such funds into
escrow as shall bring it into compliance with Subsection (1)(b) and Subsection (2). The court, upon
a finding of a knowing violation of Subsection (1)(b) or Subsection (2), may impose a civil penalty
to be paid to the General Fund of the State in an amount not to exceed 15% of the amount
improperly withheld from escrow per day of the violation and in a total amount not to exceed 300%
of the original amount improperly withheld from escrow; and
(c) in the case of a second knowing violation, be 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 2 years.
(4) Each failure to make an annual deposit required under Subsection (1)(b) shall constitute
a separate violation.
(5) A court shall award the State its costs and attorneys fees incurred in bringing any action
in which the State establishes that a tobacco product manufacturer has violated this section.
Section 5. Effective date.
This act takes effect on July 1, 1999.
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