Substitute Senate Bill No. 528

Public Act No. 00-208

An Act Concerning The Regulation Of Certain Cigarette Manufacturers.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. (NEW) As used in this act:

(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. The terms "owns", "is owned" and "ownership" mean ownership of an equity interest, or the equivalent thereof, of ten per cent or more. 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; and (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 subparagraph (A) of this subdivision. The term "cigarette" includes roll-your-own tobacco, meaning 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 executed November 23, 1998, by the state of Connecticut and leading tobacco product manufacturers, entitled "State of Connecticut v. Philip Morris, et al.";

(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 one billion dollars 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 the provisions of subsection (b) of section 2 of this act;

(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) "Tobacco product manufacturer" means an entity, or its successor, that, after the effective date of this act, directly and not exclusively through an affiliate (A) manufactures cigarettes anywhere which the manufacturer intends to be sold in the United States, including cigarettes intended to be sold in the United States through an importer, provided an entity that manufactures cigarettes that it intends to be sold in the United States shall not be considered to be a tobacco product manufacturer under this subparagraph (A) if (i) such cigarettes are sold in the United States exclusively through an importer that is an original participating manufacturer, as that term is defined in the Master Settlement Agreement, that will be responsible for 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 (ii) the manufacturer of such cigarettes does not market or advertise such cigarettes in the United States; or (B) 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. A tobacco product manufacturer shall not include an affiliate of a tobacco product manufacturer unless such affiliate itself meets the criteria specified in subparagraph (A) or (B) of this subdivision;

(10) "Units sold" means the number of individual cigarettes sold in this state by the applicable tobacco product manufacturer, whether directly or through a distributor, dealer or similar intermediary or intermediaries during the year in question, as measured by excise taxes collected by this state on packs, or on "roll-your-own" tobacco containers, bearing the excise tax stamp of the state. The Department of Revenue Services shall adopt such regulations, in accordance with the provisions of chapter 54 of the general statutes, as are necessary to ascertain the amount of state excise tax paid on the cigarettes of such tobacco product manufacturer for each year.

Sec. 2. (NEW) (a) Any tobacco product manufacturer selling cigarettes to consumers within this state, whether directly or through a distributor, dealer or similar intermediary or intermediaries, after the effective date of this act shall (1) become a participating manufacturer, as the term is defined in section II (jj) of the Master Settlement Agreement, and generally perform its financial obligations under the Master Settlement Agreement; or (2) place into a Qualified Escrow Fund not later than April fifteenth of each year in question the following amounts, as adjusted for inflation: For calendar year 2000, $.0104712 per unit sold after the effective date of this act; for each of calendar years 2001 and 2002, $.0136125 per unit sold; for each of calendar years 2003 through 2006, $.0167539 per unit sold; for calendar year 2007 and for each calendar year thereafter, $.0188482 per unit sold.

(b) A tobacco product manufacturer that places funds into escrow pursuant to subsection (a) of this section shall receive the interest, or other appreciation on such funds, as earned. Such funds shall be released from escrow only (1) 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 subdivision in the order in which the funds were placed into escrow and only to the extent and at such time as is necessary to make payments required under such judgment or settlement; (2) 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 had it been a participating manufacturer, as such payments are determined pursuant to section IX(i)(2) of that 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, the excess shall be released from escrow and revert back to that tobacco product manufacturer; or (3) to the extent not released from escrow under subdivision (1) or (2) of this subsection, funds shall be released from escrow and revert back to such tobacco product manufacturer twenty-five years after the date on which such funds were placed into escrow.

Sec. 3. (NEW) (a) Each tobacco product manufacturer that elects to place funds into escrow pursuant to section 2 of this act shall annually certify to the Attorney General that it is in compliance with said section 2.

(b) The Attorney General 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 section 2 of this act. Any tobacco product manufacturer that fails in any year to place into escrow the funds required under section 2 of this act shall (1) be required within fifteen days to place such funds into escrow as shall bring it into compliance with section 2 of this act. The court, upon a finding of a violation of this subsection, may impose a civil penalty in an amount not to exceed five per cent of the amount improperly withheld from escrow per day of the violation and in a total amount not to exceed one hundred per cent of the original amount improperly withheld from escrow; (2) in the case of a knowing violation, be required within fifteen days to place such funds into escrow as shall bring it into compliance with section 2 of this act. The court, upon a finding of a knowing violation of this subsection, may impose a civil penalty in an amount not to exceed fifteen per cent of the amount improperly withheld from escrow per day of the violation and in a total amount not to exceed three hundred per cent of the original amount improperly withheld from escrow; and (3) in the case of a second knowing violation, be prohibited from selling cigarettes to consumers within the state, whether directly or through a distributor, dealer or similar intermediary, for a period not to exceed two years.

(c) Each failure to make an annual deposit required under section 2 of this act shall constitute a separate violation.

Sec. 4. This act shall take effect July 1, 2000.

Approved June 1, 2000