| INTRODUCTION
On November 23, 1998 the Attorneys General
and other representatives of 46 states. Puerto Rico, the U.S. Virgin
Islands, American Samoa, the Northern Mariana Islands, Guam and the District
of Columbia signed an agreement with the five largest tobacco manufacturers
(Brown & Williamson Tobacco corporation, Lorillard Tobacco Company,
Philip Morris Incorporated, R.J. Reynolds Tobacco Company, Commonwealth
Tobacco, and Liggett & Myers), ending a four-year legal battle between
the states and the industry that began in 1994 when Mississippi became
the first state to file suit. Four states (Florida, Minnesota, Mississippi
and Texas) had previously settled with tobacco manufacturers for $40 billion.
The Liggett Group, the last tobacco manufacturer to sign on, was released
from previous settlements it had reached with a number of states and will
not have to contribute to the settlement fund unless the its sales rise
more than 25 percent over current levels. This will be highly unlikely
since immediately after signing the settlement agreement the company sold
three of its major brands, representing 14 percent of its sales, to Phillip
Morris Incorporated.
The agreement settles all antitrust, consumer protection, common law
negligence, statutory, common law and equitable claims for monetary, restitutionary,
equitable and injunctive relief alleged by any of the settling states with
respect to the year of payment or earlier years and cannot be modified
in any way unless all the parties agree to the modification. The signing
of the settlement agreement is just the beginning of the rest of this story
about tobacco, youth access and health.
Over the next 25 years, states will receive over $206 billion from the
settlement, but funds will not be available to states until June 2000.
Under the provisions of the agreement, states must begin implementation
of the settlement agreement immediately. States that had suits pending
were required to begin actions to settle the suits and to get the consent
decree implementing the settlement agreement filed by December 11, 1998.
The other states were required to file the necessary paperwork by December
23, 1998. This begins the process of obtaining State Specific Finality,
the trigger for access to the state funds. Over the next several months,
state courts will be reviewing the consent decrees and addressing any challenges
to the implementation of the settlement agreement in the state. The most
immediate task for state legislatures is the consideration and enactment
of the "model statute" included in the settlement agreement. This model
statute is designed to provide a level playing field between participating
and non-participating tobacco manufacturers. Failure to enact the model
statute will result in a significant reduction in a state's allotment.
In addition, state legislatures will most certainly discuss how and where
to spend the tobacco settlement funds. Finally, the tobacco settlement
leaves plenty of room for additional state legislation regarding youth
access and environmental smoking. The settlement establishes eight areas
of state legislation/regulation that the industry is prohibited from lobbying
against.
Federal legislation is not required to implement the settlement agreement,
however; federal legislation is needed to prevent the federal government
from staking claim to more than half of the state's tobacco settlement
dollars. The U.S. Department of Health and Human Services (HHS) believes
that it is authorized and obligated, under existing Medicaid law, Section
1903(d) of the Social Security Act (See Appendix F for additional
detail), to collect its share of any settlement funds attributable to Medicaid.
Under this provision, recoveries made on behalf of Medicaid clients are
shared with the federal government based on the federal Medicaid match
in the state. In November 1997, HHS voluntarily suspended recoupment activities
pending the outcome of federal tobacco legislation. At this writing, that
suspension is still in force, but could be revoked at any time. Successfully
resolving this issue will clearly be a major priority in Washington, D.C.
for state governments.
The
Tobacco Settlement at a Glance
Public Health/Youth Access
Prohibits youth targeting in advertising, marketing and promotions
by:
 |
Banning cartoon characters in advertising; |
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Restricting brand-name sponsorships of events with significant youth
audiences; |
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Banning outdoor advertising; |
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Banning youth access to free samples; and |
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Setting minimum cigarette package size at 20 (sunsets 12/31/01). |
Creates a National Foundation ($250 million over next 10 years) and
a Public Education Fund ($1.45 billion between 2000-2003).
Changing Corporate Culture
|
Requires the industry to make a commitment to reducing youth access
and consumption. |
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Disband tobacco trade associations. |
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Restricts industry lobbying. |
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Opens industry records and research to the public. |
Enforcement
|
Provides court jurisdiction for implementation and enforcement. |
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Establishes a state enforcement fund ($50 million one-time payment). |
Attorney Fees (Funded separately from the $206 billion in payments to
states)
|
Requires the industry to reimburse states for attorney fees (reimbursement
will be based on the market rate in each state). |
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Requires the industry to pay for outside counsel hired by the states. |
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The settlement agreements does not effect contracts states have with
outside counsel, but permits states to seek reimbursement from the settlement
if the state has paid the fees of an outside counsel and the outside counsel
fails to pursue either a liquidated fee agreement or arbitration, through
the settlement. |
|
Outside counsel can either negotiate a liquidated fee agreement or go
through arbitration. |
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The liquidated fee agreements will be paid from a $1.25 billion pool
over a four-year period. |
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The industry will pay whatever the arbiters award, but payments will
be subject to a $500 million per year cash flow cap. |
Financial Provisions
|
States will receive over $206 billion over 25 years. |
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Up-front payments - $12.742 billion. |
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Annual Payments, beginning April 15, 2000 - $183.177 billion through
2025. |
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Strategic Contribution Fund, 2008-2017 - $8.61 billion. |
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National Foundation ($250 million over next 10 years). |
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Public Education Fund (at least $1.45 billion 2000-2003). |
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State Enforcement Fund ($50 million, one-time payment). |
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National Association of Attorneys General ($1.5 billion over next 10
years). |
Source: National Association of Attorneys General
Frequently
Asked Questions
|
Who are the parties to the Tobacco Settlement?
The parties to the settlement include 46 states (Florida, Minnesota,
Mississippi, and Texas had previously settled with the tobacco manufacturers),
Puerto Rico, the U.S. Virgin Islands, American Samoa, Guam, the Northern
Mariana Islands and the District of Columbia, Brown & Williamson Tobacco
Corporation, Lorillard Tobacco Company, Philip Morris Incorporated, R.J.
Reynolds Tobacco Company, Commonwealth Tobacco, and Liggett & Myers. |
|
What is the effective date of the tobacco settlement? The parties signed
the Master Settlement Agreement (MSA) on Monday, November 23, 1998, the
Master Settlement Agreement Execution Date. States that sued the tobacco
manufacturers were required to go to state court and file a motion for
the approval of the settlement agreement by December 11, 1998. States that
had not filed a suit, were required to go to state court to file suit and
to make a motion to approve the settlement agreement by December 23, 1998.
The effective dates for the non-economic provisions of the MSA vary, but
many are related to the MSA Execution date (e.g. 60 days after the MSA
Execution date). There are two important effective dates related to the
economic provisions of the MSA: the state specific finality date and the
final approval date. The state specific finality date is the date when
a state court gives final approval to the settlement and the consent decree.
Final approval occurs when the state court has approved the settlement
agreement and the consent decree in the state and either: (1) the appeal
time from that approval has expired without an appeal; or (2) if there
is an appeal, all appeals have been completed, resulting in the settlement
and the consent decree being approved. The final approval date for the
MSA is the earlier of June 30, 2000 or the date when 80 percent of the
states have obtained state specific finality and those states represent
80 percent of the payments. |
|
When do the settlement funds become available to the states? No funds
can be dispersed to the states until final approval is attained. If the
requisite number of states have not reached state specific finality before
June 30, 2000, the funds will become available to all states that have
reached state specific finality on June 30, 2000. If a state fails to
obtain state specific finality by December 31, 2001, its participation
in the settlement is terminated. |
|
I understand that tobacco manufacturers will begin making payments in
December 1998. Where will these funds go if they are not available to states
until June 30, 2000? The payments made by the tobacco manufacturers will
be deposited into an escrow account. When a state obtains state specific
finality, the funds that are to be allotted to that state will be moved
from the general escrow account into a state specific escrow account, where
the funds will accrue interest and will become available to the state on
the final approval date. |
|
What must states do to attain State Specific Finality? A state court
must approve the settlement. This includes approval of the consent decree.
In addition, all opportunities for appeal of the approval must have expired,
so that the court’s approval is final. |
|
What will state legislatures need to do to implement the tobacco settlement
agreement? State legislatures are encouraged, but are not required,
to enact the model statute included in the Master Settlement Agreement
(See question #7), regarding the treatment of non-participating manufacturers,
before the state begins receiving its allotment from the settlement. In
addition, if there is any question about the legislative appropriation
of the settlement funds, legislatures may want to enact laws to clarify
the treatment of the funds under state law. The settlement agreement is
silent on that issue. Finally, the legislature should probably review the
state’s consent decree, the document that implements the settlement agreement
in the state. |
|
What is the purpose of the model statute included in the Master Settlement
Agreement? The model statute creates a reserve fund for non-participating
manufacturers to pay future claims, establishing a level playing field
between participating and non-participating manufacturers. The model act
(See Appendix B-NCSL Summary of the Tobacco Settlement) must be enacted
by states exactly as it is drafted in the MSA (Exhibit T) and as a stand-alone
piece of legislation or the state must alternatively enact a "qualifying
statute," as determined by a firm jointly retained by the settling states
and the original participating manufacturers. The ruling of the firm is
final. A "qualifying statute" is defined in the MSA as a settling state’s
statute, regulation, law and/or rule (applicable everywhere the state has
authority to legislate) that effectively and fully neutralizes the cost
disadvantages that the participating manufacturers experience (as opposed
to the non-participating manufacturers) as a result of the MSA. |
|
What happens if my state fails to enact the model statute? Under the
MSA, if in any year the total aggregate market share of the participating
manufacturers decreases more than 2 percent and an economic consulting
firm determines that the provisions of the MSA were a significant factor
contributing to the market share loss, payments to states may be reduced
based on that loss. This reduction in state payments is called the non-participating
manufacturers (NPM) adjustment (See Appendix D for details). This analysis
is done annually. A state’s enactment of the model statute is significant
because if there is an NPM adjustment in any year, a state’s payment will
not be reduced at all if that state has passed and has in force the model
statute. Payments to the states that do not have a model statute or qualifying
statute in full force and effect will be reduced to cover the entire NPM
adjustment. This could result in a state losing its entire payment for
that year. If a state enacted the model statute, but the statute is overturned
or invalidated by a court action, the state would pay no more than 65 percent
of its payment toward the NPM adjustment in that year. If a state has enacted
a "qualifying statute" as opposed to the model act in the MSA, and the
qualifying statute is struck down by a court, the state will not enjoy
any of the protections afforded states that enact the model act. In other
words, those states would be subject to the full NPM adjustment in that
year and would not enjoy the benefits of the 65 percent cap. |
|
When the Final Approval Date arrives and the funds become available
to the states, who controls the funds? The Master Settlement Agreement
is silent on the matter; therefore the general belief is that the funds
will be appropriated according to state law. |
|
How are the amounts each state will receive determined? Are the state
allotments listed in the Master Settlement Agreement the actual amounts
each state will receive? The state allotments were established by a formula
developed by the Attorneys General. These allotments are subject to a number
of adjustments, reductions and offsets. In addition, the federal government
is laying claim to more than half the settlement dollars. The exact amount
a state will receive is the net of the listed allocation minus any adjustments,
reductions and offsets and may also be subject to recoupment of any settlement
funds attributable to Medicaid. |
|
What is the basis of the federal claim on state tobacco settlement funds?
The U.S. Department of Health and Human Services (DHHS) contends that existing
Medicaid law (Section 1903(d) of the Social Security Act) compels it to
recover its share (federal Medicaid matching percentage) of third party
payments, collected by states on behalf of Medicaid clients, and argues
further that state tobacco settlement funds are third-party recoveries
under the provisions of the Medicaid statute (See Appendix F for additional
details). DHHS has "recouped" some funds from states that reached an earlier
settlement agreement with the Liggett Group, but temporarily suspended
the collection of state tobacco settlement funds pending comprehensive
federal tobacco legislation. An amendment to the Medicaid statute that
would exempt tobacco settlement funds from recoupment must be enacted to
prevent the seizure of state tobacco settlement funds when they become
available to states in 2000. |
|
How would the federal government recoup the tobacco settlement funds
from the states? States are required by law to report Medicaid-related
recoveries on a Quarterly Statement of Expenditures for the Medical Assistance
Program, the HCFA-64 form. Line 9E of the HCFA-64 Summary Sheet is reserved
for "special collections." This is the line were the U.S. Department of
Health and Human Services maintains states should report state tobacco
settlement funds (attributable to the Medicaid program). The state’s federal
matching percentage would be applied to the amount on line 9E and that
amount would be deducted from the state’s quarterly Medicaid allotment.
It is important to note that the recouped funds would be automatically
deducted from the state’s Medicaid allotment and would not come directly
from a state’s tobacco settlement payment. |
|
Have any bills been introduced in Congress that would prohibit the federal
government from recouping state tobacco settlement funds? Yes. Representative
Michael Bilirakis (D-Florida) introduced H.R. 351 on January 19, 1999;
and Senators Kay Bailey Hutchison (R-Texas) and Bob Graham (D-Florida)
introduced S. 346 on February 3, 1999. These bills would exempt state tobacco
settlement funds from the third party liability provisions under Medicaid,
and would place no restrictions on how states use their tobacco settlement
funds. Other bills have been introduced, but would condition the prohibition
on federal recoupment with spending restrictions on use of state tobacco
settlement funds. |
|
Does the Master Settlement Agreement restrict or earmark the settlement
funds? No. States will determine how the funds will be spent. |
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If the federal government adopts an excise tax on tobacco products,
will my state receive less money from the tobacco settlement? Maybe. Under
the provisions of the settlement, if the federal government, prior to November
30, 2002, requires participating manufacturers to pay a tax or fee on tobacco
products, and uses the proceeds to provide either unrestricted funds to
states or funds earmarked for health care or tobacco-related health care,
these funds may be subtracted from the state allotment on a dollar-for-dollar
basis. The federal legislation offset would not apply if: (1) the funds
were earmarked for assistance to tobacco growers or impacted communities;
or (2) grant conditions that would require states to take some significant
actions or to provide matching funds were placed on the federal funds and
a state chose not to participate in the grant program. |
|
Aside from determining funding priorities and enactment of the model
statute, are there other legislative actions related to the tobacco settlement
state legislators might consider? Yes. The settlement agreement prohibits
the sale and manufacture of cigarettes in packages of less than 20 cigarettes.
This prohibition sunsets December 31, 2001. The settlement agreement also
prohibits tobacco manufacturers from opposing state legislation prohibiting
the sale and manufacture of these small cigarette packages. If a state
wants to continue the ban, considered a key provision to discourage youth
access to cigarettes, state legislation would be required. In addition,
the settlement agreement identifies areas of state legislation, law and
administrative rule related to youth access to tobacco products, that the
tobacco industry is prohibited from opposing. That list provides a starting
point for considering future legislation. Finally, there is a wide range
of youth access issues that are not addressed in the settlement agreement
that could be the subject of state legislative initiatives. |
SUMMARY
OF THE MASTER SETTLEMENT AGREEMENT
(The primary source of the information in
this summary is the Master Settlement Agreement, as posted to the
website of the National Association of Attorneys General at http://www.naag.org/settle.htm)
EFFECTIVE
DATES
|
Master
Settlement Agreement (MSA) Execution Date |
|
The date when the Attorneys General and the tobacco manufacturers sign
the Master Settlement Agreement (MSA). |
|
The MSA was signed by representatives of 46 states, Puerto Rico, the
U.S. Virgin Islands, American Samoa, the Northern Mariana Islands, Guam,
the District of Columbia, the Brown & Williamson Tobacco Corporation,
Lorillard Tobacco Company, Philip Morris Incorporated, R.J. Reynolds Tobacco
Company, Commonwealth Tobacco, and Liggett & Myers, on November 23,
1998. |
|
Various provisions of the settlement are triggered by this date. |
|
State Specific Finality Date |
|
State specific finality occurs when a state court approves the settlement
and the consent decree. This must be a final approval. All the time available
to appeal the court’s decision must have expired, or alternatively, if
approval of the settlement is appealed, state specific finality cannot
be attained until a final decision regarding approval of the settlement
has been rendered. |
|
When state specific finality is attained, the state becomes vested and
funds deposited in the MSA escrow account can be transferred to a special
account established specifically for the state, within the MSA escrow account. |
|
The first steps towards state specific finality occurred in December
1998, when the states that had suits pending against the industry filed
papers to settle the suits by December 11, 1998. States that did not sue
the industry filed papers seeking approval of the MSA by December 23, 1998. |
|
Final Approval Date |
|
The tobacco settlement funds will become available to all states that
have attained state specific finality on the final approval date. This
date is the earlier of June 30, 2000, or the date when 80 percent of the
settling states attain state specific finality and states with 80
percent of the state’s financial allocation attain state specific finality. |
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No money will be dispersed to the states until the Final Approval
date. |
|
After June 30, 2000, whether or not 80 percent of the states have
attained State Specific Finality and regardless of the percentage of the
total allotment these states represent, funds will be available to disperse
to a state as soon as state specific finality is attained. |
|
Settlement Termination Date |
|
If a state fails to attain state specific finality by December 31, 2001,
the MSA with respect to that state will be terminated and the state will
become a non-settling state. |
MARKETING
AND ADVERTISING RESTRICTIONS
|
Restrictions
on Brand Name Sponsorships |
|
Prohibits brand name sponsorship of concerts, events with a significant
youth audience, or of team sports (football, basketball, baseball, hockey
or soccer). |
|
Prohibits sponsorship of events where the paid participants or contestants
are underage. |
|
Limits tobacco companies to one brand name sponsorship per year, after
current contracts (in effect as of August 1, 1998) expire or after three
years, whichever comes first. |
 |
Provides a special exception to the prohibition of the sponsorship of
concerts for the Brown and Williamson Company by permitting it to sponsor
either the GPC country music festival or the Kool jazz festival (formerly
both were annual events). The agreement also permits the company to sponsor
one other brand name event that was part of a contract in existence prior
to August 1, 1998 for a period not to exceed three years. |
|
Allows corporate sponsorship of athletic, musical, cultural, artistic
or social events as long as the corporate name does not include the brand
name of a domestic tobacco product. |
|
Bans the use of tobacco brand names for stadiums and arenas. |
|
Limits the duration and restricts the placement of advertising for sponsored
events. |
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General Advertising and Marketing Restrictions |
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Bans use of cartoon characters, but not human subjects (e.g. the Marlboro
Man), in the advertising, promotion, packaging or labeling of tobacco products,
effective May 22, 1999. |
|
Bans payments to promote tobacco products in movies, television shows,
theater productions or live performances, videos and video games. |
|
Bans distribution and sale of non-tobacco merchandise with brand-name
logos (caps, T-shirts, backpacks, etc.), effective July 1, 1999. |
|
Prohibits tobacco companies from authorizing third parties to use or
advertise brand names. |
|
Requires tobacco companies to designate a contact in each state that
will respond to Attorney General complaints of prohibited third party activity. |
|
Exempts licensing agreements or contract in existence as of July 1,
1998, but does not permit the licensing agreements or contracts to be extended. |
|
Bans future cigarette brands from being named after recognized non-tobacco
brand or trade names (e.g. Harley Davidson, Yves Saint Laurent, Cartier)
or nationally recognized sports teams, entertainment groups or individual
celebrities. |
|
Restrictions on Outdoor Advertising |
|
Bans all transit and outdoor advertising, including: billboards, signs
and placards larger than a poster in arenas, stadiums, shopping malls,
and video game arcades. [Note: Poster-sized signs and placards can be placed
in arenas, stadiums, shopping malls and video game arcades, but must conform
to the overall agreement regarding the targeting of advertising to children.] |
|
Tobacco billboards and transit ads must be removed by April 22, 1999. |
|
Allows states to substitute, at industry expense and for the duration
of billboard lease periods, alternative advertising which discourages youth
smoking. |
|
Bans tobacco companies from entering into agreements that would prohibit
advertising discouraging tobacco use. |
YOUTH
ACCESS RESTRICTIONS
|
After November 23, 1998: |
|
Free samples cannot be distributed except in
a facility or enclosed area where the operator ensures no underage individuals
are present. |
|
No gifts can be offered to youth in exchange
for the purchase of tobacco products, coupons or proofs of purchase. |
|
Gifts cannot be distributed through the mail
without proof of age (legible driver's license certified to be valid by
the gift recipient). |
|
Prohibits the manufacture of cigarettes in
packages of less than 20 (January 22,1999 - December 31, 2001) and prohibits
the distribution and sale of cigarettes in packages of less that 20 (April
22, 1999 - December 31, 2001). These provisions sunset, December 31,
2001. After this date, if state legislation prohibiting these practices
is not enacted, the tobacco manufacturers may resume the manufacture, distribution
and sale of cigarettes in packages of less than 20 cigarettes. |
|
After January 22,1999, tobacco companies are
prohibited from opposing state legislation that bans the manufacture and
sale of cigarette packs containing fewer than 20 cigarettes. |
|
Prohibits new challenges by the industry against
the enforceability or constitutionality of state and local tobacco control
laws, ordinances, and rules enacted prior to June 1, 1998. |
|
Specifies that states do not waive any criminal
liability based on federal, state, or local law. |
SMOKING
CESSATION & PREVENTION
|
The
National Foundation and the National Public Education Fund |
|
The tobacco industry will contribute $25 million annually for ten years
to support a charitable foundation, established by the Executive Committee
of the National Association of Attorneys General (NAAG), that will support
the study of programs to reduce teen smoking and substance abuse and the
prevention of diseases associated with tobacco use. |
|
Tobacco industry payments for the Foundation into the Master Settlement
Agreement escrow account begin March 31, 1999, and funds can be allocated
to the Foundation when at least one state has attained State Specific Finality. |
|
An eleven-member board of directors will govern the foundation. NAAG,
the National Conference of State Legislatures (NCSL) and the National Governors'
Association (NGA) will each appoint two directors from their membership
and the six directors will select the final five members. One of the five
directors must have expertise in public health issues; the remaining four
must have expertise in public health, medicine or child psychology. |
|
The Foundation will formally affiliate with an educational or medical
institution selected by the board of directors. |
|
The foundation will: |
|
Carry out a sustained, nationwide advertising and education program
to counter youth tobacco use and educate consumers about the cause and
prevention of diseases associated with tobacco use. |
|
Develop, disseminate and test the effectiveness of: (1) counter advertising
campaigns; (2) model classroom educational programs, including programs
targeting at-risk population; and (3) criteria for effective cessation
programs. |
|
Commission studies, fund research and publish reports on factors that
influence youth smoking and substance abuse. |
|
Develop targeted training and information programs for parents. |
|
Maintain a library of foundation studies, reports and publications. |
|
Track and monitor youth smoking and substance abuse with a focus on
reasons for increases or failures to decrease tobacco and substance use
rates. |
|
The foundation is prohibited from engaging in political or lobbying
activities. |
|
A severance clause is included in the Master Settlement Agreement for
settling states that are prohibited by state law from entering into the
foundation portion of the agreement. |
|
The National Public Education Fund |
|
The industry will contribute $1.45 billion over the next five years
to support the National Public Education Fund, established to carry out
a national, sustained advertising and education program to counter youth
tobacco use and to educate consumers about tobacco-related diseases. |
|
As long as the participating tobacco manufacturers represent 99.05 percent
of the market, the industry will continue to contribute $300 million annually
to the National Public Education Fund. |
|
The fund may make grants to states and political subdivisions to carry
out the fund's purposes. |
|
Grants from the fund will be made by the National Foundation. |
|
Outside contributions can be made to the foundation and specifically
to the education fund. |
ENFORCEMENT/CONSENT
DECREES
State Specific
Finality
|
State specific finality occurs when a state court approves the
settlement and the consent decree. This must be a final approval. All
the time available to appeal the court’s decision must have expired, or
alternatively, if approval of the settlement is appealed, state specific
finality cannot be attained until a final decision regarding approval of
the settlement has been rendered. The consent decree will effectively implement
the provisions of the settlement in the state. Legal challenges to the
consent decree in a state are possible. (See Attachment A for a copy of
the draft consent decree included as Exhibit L in the Master Settlement
Agreement.) |
|
State Specific Finality cannot be attained until the time for appeal
or to seek review of or permission to appeal the court's approval has expired.
If a review or appeal is initiated, state specific finality cannot be attained
until the approval of the MSA and consent decree have been affirmed by
the court to which the appeal can be taken and is no longer subject to
further appeal. The court’s approval of the settlement and the consent
decree must be a final approval. |
|
When state specific finality is attained, the state becomes vested and
funds deposited in the MSA escrow account can be transferred to a special
account, within the MSA escrow account, established specifically for the
state. |
Court Jurisdiction for Implementation
and Enforcement
|
Settling states or tobacco companies may apply to the court to enforce
or interpret the terms of the agreement, although before applying to the
court, a party must give the other parties and NAAG 30-days notice (unless
the Attorney General determines there is a public health of safety concern
requiring faster action). |
|
If the court issues an enforcement order enforcing the agreement and
a party violates that order, the court may order monetary, civil contempt
or criminal sanctions to enforce compliance with the enforcement order. |
|
Key public health provisions of the MSA agreement are included in consent
decrees to be filed in each state. |
|
Settling states or tobacco companies may apply to the court to enforce
the terms of the consent decree. |
|
A settling state may not seek to enforce the consent decree of another
settling state. |
|
A state is not required to give any prior notice before sending an order
to enforce a consent decree from the court, except that a 10-day notice
is required if the claimed violation involves targeting youth or making
material misrepresentations about tobacco products (unless the Attorney
General determines there is a public health or safety concern requiring
faster action), or the party has committed a substantially similar violation
previously. |
|
If the court finds the consent decree has been violated, the court may
award any relief available under the consent decree or the law in the state. |
|
State Attorneys General may access company documents, records and personnel
to enforce the agreement. |
Implementation and Enforcement Coordination
by NAAG
|
NAAG will: |
|
Receive $150,000 annually from December 31, 1998 through December 31,
2007 to coordinate and to facilitate the implementation and enforcement
of the agreement on behalf of the attorneys general and the settling states. |
|
Monitor potential conflicting court interpretations involving the settlement. |
|
Convene two meetings each year and one national conference every three
years to evaluate the success of the settlement and to coordinate the Attorneys
General efforts. |
|
Assist states with inspection and discovery activities that are conducted
to enforce the settlement. |
State Antitrust/Consumer Protection Enforcement
Fund
|
The purpose of the Fund is to: |
|
Enforce and implement the terms of the MSA, by partial payment of the
monetary costs of the Independent Auditor as contemplated by the agreement. |
|
Provide monetary assistance to the various states’ attorneys general,
including funds to: (1) investigate and/or litigate suspected violations
of the Agreement and/or Consent Decree; (2) investigate and/or litigate
suspected violations of state and/or federal antitrust or consumer protection
laws with respect to the manufacture, use, marketing and sales of tobacco
products; and (3) enforce the "qualifying statute." |
|
On March 31, 1999, the industry is directed to pay $50 million to support
the fund. |
CORPORATE
CULTURE AND COMPLIANCE, LOBBYING RESTRICTIONS
Requires
a Corporate Commitment to Reduce Youth Access and Consumption
|
Beginning May 22, 1999, companies must: |
|
Develop and regularly communicate corporate principles that commit to
complying with the Master Settlement Agreement and to reducing youth smoking. |
|
Designate an executive level manager to identify ways to reduce youth
access and consumption of tobacco. |
|
Encourage employees to identify additional methods to reduce youth access
and youth consumption. |
|
For the purpose of enforcing the Master Settlement Agreement, antitrust
staff for any settling state may inspect and copy all non-privileged, non-work-product
records and interview association directors, officer, and employees. |
Corporate Compliance
|
Prohibits Agreements to Suppress Research |
|
Prohibits a participating manufacturer from entering into a contract
or other arrangement that is designed to or has the effect of: (1) limiting
competition in the production or distribution of information about the
health hazards or other consequences of the use of tobacco products; (2)
limiting or suppressing research into smoking and health; and (3) limiting
or suppressing research into the marketing or development of new products. |
|
Prohibits Material Misrepresentations |
|
Prohibits a participating manufacturer from making any material misrepresentation
of fact regarding the health consequences of using any tobacco product. |
Disbands Tobacco Trade Associations
|
Disbands the Council for Tobacco Research, the Tobacco Institute, and
the Council for Indoor Air Research. |
|
Requires all records of these organizations that relate to any lawsuit
to be preserved. |
Regulation and Oversight of New Tobacco
Trade Associations
|
The by-laws of any new industry trade association must provide that:
(1) the association officers will be appointed by the board; and (2) the
officers be employees of the association and cannot be employed by a member
company. |
|
The association’s legal counsel must be independent and cannot serve
as counsel to member companies. |
|
Minutes of board of director meetings will be prepared and maintained
for at least five years. |
Lobbying Restrictions and Restrictions
on Trade Associations
|
Imposes Restrictions on Lobbyists |
|
After a state has attained state specific finality, tobacco companies
will be prohibited from opposing certain kinds of state or local legislation,
laws or administrative rules (listed below and found in Exhibit F of the
Master Settlement Agreement) that are intended to limit youth access to
and consumption off tobacco products. |
|
Protected Legislation, Laws, Administrative
Rules (Exhibit F) |
Legislation, Laws or Administrative Rules that:
 |
Limit youth access to vending machines. |
|
Include cigars within the definition of tobacco products. |
|
Enhance enforcement efforts to identify and prosecute violations of
laws prohibiting retail sales to youth. |
|
Encourage or support the use of technology to increase the effectiveness
of age-of-purchase laws (e.g. the use of programmable scanners, scanners
to read drivers' licenses, or use of other age/ID data banks). |
|
Limit promotional programs for non-tobacco goods using tobacco products
as prizes or give-aways. |
|
Enforce access restrictions through penalties on youth for possession
or use. |
|
Limit tobacco product advertising in or on school facilities, or the
wearing of tobacco logo merchandise in or on school property. |
|
Limit non-tobacco products that are designed to look like tobacco products,
such as bubble gum cigars, candy cigarettes etc. |
|
Tobacco companies must require their lobbyists to certify, in writing,
that they have reviewed and will fully comply with settlement terms including
disclosure of financial contributions regarding lobbying activities and
new corporate culture principles. |
|
Requires companies to disclose lobbying costs to the state Attorney
General in states without laws regarding financial disclosure of lobbying
expenses. |
|
Prohibits lobbyists from supporting or opposing state, federal or local
laws or actions without the authorization of the companies. |
|
After November 23,1998, tobacco companies are prohibited from opposing
state legislation that bans the manufacture and sale of cigarette packs
containing fewer than 20 cigarettes. |
|
Prohibits the industry from lobbying for the diversion of settlement
money to non-tobacco or non-health related uses. |
ATTORNEYS'
FEES
(Funds for payment of attorney fees are in
addition to the $206 billion in payments to states)
Requires
Industry to Reimburse States for Attorneys Fees
|
Requires the tobacco companies to state and local
governments for all reasonable costs (costs and expenses for which the
industry would reimburse their own counsel and agents) and expenses and
in-house attorney fees associated with the tobacco industry litigation. |
|
Reimbursement will be at the market rate for
hourly fees in each state |
|
Reimbursement will occur after a state obtains
State Specific Finality. |
|
Establishes a $150 million cap for amounts paid
to the settling states, subject to reasonable verification by any requesting
company. |
Requires Industry
to Pay Outside Attorney Fees
|
The industry will pay outside attorney fees
after a state has obtained State Specific Finality. |
|
The MSA has no effect on contracts states
have made with outside counsel. |
|
Two payment methods are available - liquidated
fee agreement and arbitration. |
|
If a state pays outside counsel and the outside
counsel fails to negotiate a liquidated fee agreement or to seek arbitration
as provided for under the MSA, the state may seek payment through the same
methods as outside counsel. |
|
Liquidated Fee
Agreement (MSA – Exhibit O) |
|
The Master Settlement Agreement "Exhibit O" is
a model state fee payment agreement. |
|
Outside counsel may negotiate a liquidated fee
agreement with the industry, and if accepted, would be paid from a $1.25
billion pool of money from the tobacco industry over a four-year period. |
|
No payments will be made after the fourth calendar
quarter of 2003. |
|
If the outside counsel rejects the liquidated
fee process or cannot agree to an offer, they can go through arbitration. |
|
Arbitration (MSA
– Exhibit O, Appendix to Exhibit O) |
|
A three-member arbitration panel will be established
with two permanent members and a member from the state represented by the
outside counsel. |
|
The protocol of panel proceedings is the Appendix
to Exhibit O of the MSA. |
|
The tobacco manufacturers pay for the arbitration
panel’s time and expenses. |
|
Tobacco manufacturers can contest fee award requests. |
|
The industry will pay whatever fee arbiters award,
but the timing of the payment will be subject to a $500-million-per-year
cash flow cap. |
CIVIL
LIABILITY RESTRICTIONS
|
Prohibits new challenges by the industry against
the enforceability or constitutionality of state and local tobacco control
laws, ordinances, and rules enacted prior to June 1, 1998. |
|
Requires the industry to dismiss, without fees,
all claims against participating states. |
|
Requires the industry to dismiss pending legal
challenges related to underage smoking and environmental tobacco smoke
laws. |
|
Specifies that states expressly do not waive
any criminal liability based on federal, state, or local law. |
|
Settles states’ Attorneys General suits, however;
individuals will continue to be able to sue. |
|
In general, if a suit by a political subdivision
of a state is successful, the state’s allotment will be reduced by the
amount of the award or settlement. (See "Litigating Releasing Parties Offset"
in the section called "Payment Adjustments, Reductions and Offsets.") |
|
Settling states cannot waive or release any claims
on behalf of Indian tribes. |
|
Suits Pending
by Political Subdivisions of States (MSA - Exhibit N) |
|
City of New York, et al. v. The Tobacco Institute,
Inc. et al., Supreme Court of the State of New York, County of New
York, Index No. 406225/96 |
|
County of Erie v. The Tobacco Institute, Inc.
et al., Supreme Court of the State of New York, County of Erie, Index
No. I 1997/359 |
|
County of Los Angeles v. R.J. Reynolds Tobacco
Co. et al., San Diego Superior Court, No. 707651 |
|
The People v. Philip Morris, Inc. et al.,
San Francisco Superior Court, No. 980864 |
|
County of Cook v. Philip Morris, Inc. et al.,
Circuit Court of Cook County, Ill., No. 97-L-4550 |
Note: California and New York have agreed
to share the proceeds of their settlement funds with their counties. The
county suits in those states will be included in the state consent decree
implementing the tobacco settlement.
PUBLIC
DISCLOSURE
Disclosure
Regarding Product
|
Prohibits the industry from making any material misrepresentations regarding
the health consequences of smoking. |
|
Prohibits manufacturers from jointly contracting or conspiring to: |
|
Limit information about the health hazards from the use of their products: |
|
Limit or suppress research into smoking and health; and |
|
Limit or suppress research into the marketing or development of new
products. |
Public Access to Tobacco Documents
|
Effective November 23, 1998, tobacco companies will release documents
that are under protective orders in state lawsuits and that have no privilege
of trade-secret claim. |
|
Settling states may seek court-approved public release of any documents
that have been subject to an order or filing, prior to August 17, 1998,
denying privilege, work product or trade secret protection. The industry
can contest the action. |
Website for Industry Documents
|
Requires tobacco manufacturers to open, at their expense, a Website
that includes all documents produced in state and other smoking and health-related
lawsuits. |
|
Requires the industry to maintain the site for ten years (through June
30, 2010) in a user-friendly and searchable format (requires an index and
other features to improve searchable access). |
|
Requires the industry to add, at its expense, all documents produced
in future civil actions involving smoking and health cases. |
|
Oversized or multi-media records will not be placed on the Website,
but will be made available to the public through the Minnesota depository. |
|
The industry will provide the National Association of Attorneys General
with up to $100,000 for a computer consultant to review and make recommendations
regarding the industry's Website plans. |
|
The National Association of Attorneys General’s consultant can seek
input from settling state officials, public health officials and other
users of the Website. |
TRUST
FUND EXPENDITURES
General
Provisions
|
Tobacco manufacturers will pay $206 billion over the next 25 years to
states in "up-front" and annual payments. Allotments to states will be
made based on formulas agreed to by the Attorneys General. |
|
Payments made by tobacco companies (annual payments, strategic contribution
fund, and up-front payments) will be adjusted annually in a number of ways.
(See "Payment Adjustments, Reductions, and Offsets" for details.) |
|
No money will be dispersed to the states until "final approval" is reached.
(See "Effective Dates" for detail) |
Up-front Payments ($12.742 billion)
|
Tobacco companies will pay $2.4 billion annually between 1998 and 2003.
A three percent inflation factor is included in the amounts for years 2000
– 2003 (e.g. $2.4 billion (1998) increased by three percent is $2.472 billion
(1999)). The funds will be allocated as follows: |
|
$2.4 billion in 1998; |
|
$2.472 billion in 2000; |
|
$2.546 billion in 2001; |
|
$2.623 billion in 2002; and |
|
$2.7 billion in 2003. |
|
The following adjustments, reductions and offsets apply to payments
starting in 2000: volume adjustment; non-settling states' reduction; miscalculated
and disputed claims offset. (See " Payment Adjustments, Reductions and
Offsets" for detail.) |
Annual Payments ( $183.177 billion)
|
If all states participate in the settlement, annual payments will "ramp-up"
beginning with a $4.5 billion payment on April 15, 2000. The April 15th
annual payments will be as follows: |
|
$4.5 billion in 2000; |
|
$5 billion in 2001; |
|
$6.5 billion in each of 2002 and 2003; |
|
$8 billion in each year 2004-2007; |
|
$8.139 billion in annually in 2008-2017 (plus $861 million annually
during the same period to the strategic fund); and |
|
$9 billion in 2018 and thereafter. |
|
The following adjustments, reductions and offsets apply to payments
starting in 2000: inflation adjustment; volume adjustment; previously settled
states reduction (applies to each annual payment below $8 billion); non-settling
states reduction; non-participating manufacturers adjustment; miscalculated
and disputed claims offset; federal legislation offset; and the litigation
releasing parties offset. (See " Payment Adjustments, Reductions and Offsets"
for detail.) |
|
The $183.177 billion figure reflects payments after the "previously
settled states reduction" is applied. |
Strategic Contribution Fund ($8.61 billion)
|
On April 15, 2008 and on April 15 each year through 2017, the companies
will pay $861 million into a strategic contribution fund. |
|
Money from the fund will be allocated to states based on a strategic
contribution formula developed by the Attorneys General. The allocation
formula will reflect the contribution made by states toward resolution
of the state lawsuits against tobacco companies. |
|
The formula is to be developed by June 1999. |
|
The following adjustments, reductions and offsets apply to payments
starting in 2000: inflation adjustment; volume adjustment; non-participating
manufacturers adjustment; miscalculated and disputed claims offset; federal
legislation offset; and the litigation releasing parties offset. (See "
Payment Adjustments, Reductions and Offsets" for detail.) |
National Foundation ($250 million over
10 years)
|
See "Smoking Cessation and Prevention" for details. |
National Public Education Fund ($1.45
billion over the next five years)
|
See "Smoking Cessation and Prevention" for details. |
Attorney General Enforcement Fund ($50
million – one time payment in 1999)
|
See "State Antitrust/Consumer Protection Enforcement fund" in "Enforcement/Consent
Decrees" for details. |
Payments to the National Association
of Attorneys General ($1.5 million over 10 years)
|
See "Implementation and Enforcement Coordination by NAAG" in "Enforcement/Consent
Decrees" for details. |
PAYMENT
ADJUSTMENTS, REDUCTIONS AND OFFSETS
Order of
Application Offsets, Reductions and Adjustments
|
Inflation Adjustment |
|
Volume Adjustment |
|
Previously Settled States Reduction |
|
Non-Settling States Reduction |
|
Non-Participating Manufacturer's Adjustment |
|
Offset for Miscalculated or Disputed Payments |
|
Federal Tobacco Legislation Offset |
|
Litigating Releasing Parties Offset |
Inflation Adjustment Percentage
|
The settlement payments will be subject to an annual inflation adjustment.
The Inflation Adjustment Percentage applicable to payments due in the year
2000 will be equal to the greater of 3% or the Consumer Price Index Percentage
(CPI%). [See "Definitions" below, there is an important difference between
the Consumer Price Index (CPI) and the CPI%]. The Inflation Adjustment
Percentage applicable to payments due in any year after 2000 shall be calculated
by applying each year the greater of 3% or the CPI% on the Inflation Adjustment
Percentage applicable to payments due in the prior year. (Inflation formula
is set forth and described in "Exhibit C" of the MSA.) |
|
Definitions |
|
"Consumer Price Index" - The Consumer Price Index for All Urban Consumers
as published by the Bureau of Labor Statistics of the U.S. Department of
Labor (or other similar measures agreed to by the Settling States and the
Participating Manufacturers). |
|
The " Consumer Price Index Percentage (CPI%)" - The total percent change
in the Consumer Price Index during the calendar year immediately preceding
the year in which the payment in question is due |
|
For example, if the Consumer Price Index for December 1999 (as released
in January 2000) is 2% higher than the Consumer Price Index for December
1998 (as released in January 1999), then the CPI% with respect to a payment
due in 2000 would be 2%. The Inflation Adjustment Percentage applicable
in the year 2000 would be 3%. Continuing the example, if the CPI% with
respect to a payment due in 2001 is 6%, then the Inflation Adjustment Percentage
applicable in 2001 would be 9.1800000% (an additional 6% applied on the
3% Inflation Adjustment Percentage applicable in 2000), and if the CPI%
with respect to a payment due in 2002 is 4%, then the Inflation Adjustment
Percentage applicable in 2002 would be 13.5472000% (an additional 4% applied
on the 9.1800000% Inflation Adjustment Percentage applicable in 2001).
(See "Appendix C" for additional illustration of how the Inflation Adjustment
Percentage is calculated. Also see "Exhibit C" of the MSA.) |
Volume Adjustment
|
An adjustment to settlement payments applied to reflect increases or
decreases in tobacco manufacturers operating income from the sales of cigarettes
in the United States, Puerto Rico and the District of Columbia. (The volume
adjustment formula is established in "Exhibit E" of the MSA.) |
Non –Settling States Reduction
|
Reduces the amounts the tobacco manufacturers must pay by the combined
payments due to non-settling states. This reduction does not reduce payments
to settling states in any way. The manufacturers are not required to make
a payment if the state is a non-settling state 15 days before the payment
is due. |
|
Currently all states are either participating states or are previously
settled states. However, should a state fail to obtain state specific finality,
it would become a non-settling state. |
Previously Settled States Adjustment
|
A reduction determined by multiplying the applicable settlement payment
by 12.4500000%, in the case of payments due in or prior to 2007; 12.2373756%,
in the case of payments due after 2007 but before 2018; and 11.0666667%,
in the case of payments due in or after 2018. |
|
The previously settled states are Florida, Minnesota, Mississippi, and
Texas. |
Offset for Miscalculated or Disputed
Payments
|
In cases where a manufacturer makes an underpayment or overpayment,
the independent auditor, if notified within four years of the payment due
date, is to promptly determine what payment is due to the manufacturer
in the case of an overpayment or to the escrow account in cases of underpayment. |
|
Disputed payments are deposited in a separate account within the escrow
account for disputed payments. When final resolution has been reached regarding
a disputed payment, the independent auditor directs the funds be deposited
in the appropriate account. |
Non-Participating Manufacturers Adjustment
|
An adjustment to payments made by Participating Manufacturers to address
market share losses attributable to the provisions in the MSA. |
|
On or before February 2nd of each year when the market share
loss exceeds zero, a nationally recognized firm of economic consultants
will determine whether the provisions of the MSA played a significant role
in the market loss. If the firm determines that the provisions of the MSA
were a significant contributing factor to the market loss, the Non-participating
Manufacturer Adjustment would be applied. |
|
If the aggregate market share of companies participating in the agreement
declines by greater than two percent, their annual payment is reduced by
three percent for each percent lost over the two percent threshold. |
|
If the market share exceeds 16 2/3 percent, a more complicated formula
established in the MSA is used to determine the adjustment. (See "Appendix
D") for detail.) |
|
States are encouraged to pass the model statute (See "Appendix B"),
provided in the Master Settlement Agreement (Exhibit T). This model law
creates a reserve fund from which non-participating manufacturers can pay
future claims, establishing a more level playing field between participating
and non-participating manufacturers. |
|
The model act must be enacted by states exactly as it is drafted
in the MSA and as a stand-alone piece of legislation or the state must
enact a "qualifying statute," as determined by a firm jointly retained
by the settling states and the original participating manufacturers. The
ruling of the firm is final. |
|
A "qualifying statute" is defined in the MSA as a settling state’s statute,
regulation, law and/or rule (applicable everywhere the state has authority
to legislate) that effectively and fully neutralizes the cost disadvantages
that the participating manufacturers (as opposed to the non-participating
manufacturers) experience as a result of the MSA. |
|
A state’s enactment of the model statute is significant because if there
is an NPM adjustment in any year, a state’s payment will not be reduced
at all if that state has passed and has in force the model statute.
Payments to the states that do not have a model statute or qualifying statute
in full force and effect will be reduced to cover the entire NPM adjustment.
This could result in a state losing its entire payment for that year. |
|
If a state enacted the model statute, but the statute is overturned
or invalidated by a court action, the state would pay no more than 65 percent
of its payment toward the NPM adjustment in that year. |
|
If a state has enacted a "qualifying statute" as opposed to the model
act in the MSA, and the qualifying statute is struck down by a court, the
state will not enjoy any of the protections afforded states that enact
the model act. In other words, those states would be subject to the full
NPM adjustment in that year and would not enjoy the benefits of the 65
percent cap. |
Federal Legislation Offset
|
If new federal tobacco related legislation, that requires participating
tobacco companies to make payments (settlement payment, tax or any other
means) to the federal government, is enacted on or before November
30, 2002, and some portion of that money is sent to the settling states
either in unrestricted funds or in grants restricted to any form of health
care or tobacco-related health care, those payments may be offset, dollar
for dollar, from the annual payments to states. |
|
The federal legislation will not be imposed if: |
|
The federal funds to states were restricted to assistance to tobacco
growers or communities dependent on the production of tobacco or tobacco
products, no reductions would be taken. |
|
The federal legislation required states to take significant actions
or to provide state matching funds and the state chose not to participate
in the program. |
Litigation Releasing Parties Offset
|
In the event a "releasing party" in a settling state pursues a claim
against a participating manufacturer and receives a monetary judgement;
the funds will be an offset on the affected settling state's payment. A
"releasing party" is defined as a Settling State and any of its past, present
and future agents, officials acting in their official capacities, legal
representatives, agencies, departments, commissions and divisions. In addition,
it includes, to the full extent of the power of the state attorney general,
to release past, present and future claims of the following: |
|
any Settling State’s subdivisions (political or otherwise, including,
but not limited to, municipalities, counties, parishes, villages, unincorporated
districts and hospital districts), public entities, public instrumentalities
and public educational institutions; and |
|
persons or entities acting in a parens patriae, sovereign, quasi-sovereign,
private attorney general, qui tam, taxpayer, or any other capacity, whether
or not any of them participated in the settlement: |
|
to the extent that they are seeking relief on behalf of or generally
applicable to the general public in a Settling State or the people of the
State, as opposed solely to private or individual relief for separate and
distinct injuries; or |
|
to the extent that they (as opposed to an individual) are seeking recovery
of health-care expenses (other than premium or capitation payments for
the benefit of present or retired state employees) paid or reimbursed,
directly or indirectly, by a settling state. |
AGRICULTURE
AND RURAL COMMUNITY ASSISTANCE
|
The Master Settlement Agreement does not include
specific provisions for tobacco growers and impacted communities, but does
call for participating manufacturers, tobacco growers and state officials
from tobacco producing states to continue a dialogue and to report on progress
by December 23, 1998. |
|
On January 21, 1999, a tentative agreement to
provide $5.15 billion over twelve years in a trust fund to assist growers
and impacted communities, was reached between the participating manufacturers
and fourteen tobacco-producing states. |
|
On Thursday, February 4, 1999, the 14 tobacco
producing states (North Carolina, Kentucky, Tennessee, South Carolina,
Virginia, Georgia, Ohio, Indiana, Florida, Missouri, West Virginia, Alabama,
Maryland, and Pennsylvania) tentatively agreed on a formula for the distribution
of the $5.15 billion trust fund. Under the tentative agreement, the states
would use the quota system used by the U.S. Department of Agriculture (USDA). |
PROPOSED STATE ALLOTMENTS
TRUST FUND FOR FARMERS AND IMPACTED COMMUNITIES
| State |
% of Trust
|
Dollars (in millions)
|
| North Carolina |
38.34
|
1,974.51
|
| Kentucky |
29.97
|
1,543.45
|
| Tennessee |
7.65
|
393.97
|
| South Carolina |
7.01
|
361.01
|
| Virginia |
6.65
|
342.47
|
| Georgia |
5.91
|
304.36
|
| Ohio |
1.37
|
70.50
|
| Indiana |
1.17
|
60.25
|
| Florida |
1.16
|
59.70
|
| Missouri |
0.43
|
22.10
|
| West Virginia |
0.28
|
14.40
|
| Alabama |
0.05
|
2.57
|
| Maryland |
TBA
|
TBA
|
| Pennsylvania |
TBA
|
TBA
|
|
Maryland and Pennsylvania do not participate
in the U.S. Department of Agriculture’s quota program. It is expected that
the 12 other states participating in the trust will give part of their
money back to the trust to be distributed to the two states. |
SMOKELESS
TOBACCO SETTLEMENT
|
The Attorneys General reached a separate agreement
with U.S Tobacco regarding smokeless tobacco products. U.S. Tobacco represents
58 percent of the smokeless tobacco market. The non-economic provisions
of the settlement are similar to those established in the tobacco settlement
agreement. The economic are very different and establish payments to the
National Foundation, but do not provide any additional funds to state governments.
Over a span of 10 years, participating smokeless tobacco manufacturers
will pay up to $400 million into the National Public Education Fund. |
MOST
FAVORED NATION PROVISIONS
|
If tobacco manufacturers enter into an agreement
with better overall terms than are provided in the MSA before October 1,
2000, the more generous benefits would apply to all settling states. |
|
This provision does not apply if such an agreement
is reached after the seating of a jury or after a trial has begun. |
|
If an agreement with more favorable non-economic
terms is entered into on or after October 1, 2000, settling states have
the option of availing themselves of the benefits. |
|
If a settling state enters into an agreement
with a non-participating manufacturer and the terms are more favorable
to the tobacco company, participating companies can benefit, but only within
that state. |
APPENDIX
A - MODEL CONSENT DECREE (MSA - Exhibit L)
EXHIBIT L (Master Settlement Agreement)
MODEL CONSENT DECREE
IN THE [XXXXXX] COURT OF THE STATE OF [XXXXXX]
IN AND FOR THE COUNTY OF [XXXXX]
| - - - - - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - x
:
STATE OF [XXXXXXXXXXX], : : Plaintiff, :
v. : :
[XXXXXX XXXXX XXXX], et al., :
: Defendants. :
:
- - - - - - - - - - - - - - - - - - - - -
- - - - - - - - - - - - x |
CAUSE NO. XXXXXX
CONSENT DECREE AND FINAL JUDGMENT |
WHEREAS, Plaintiff, the State of [name of
Settling State], commenced this action on [date], [by and through its Attorney
General [name]], pursuant to [her/his/its] common law powers and the provisions
of [state and/or federal law];
WHEREAS, the State of [name of Settling State]
asserted various claims for monetary, equitable and injunctive relief on
behalf of the State of [name of Settling State] against certain tobacco
product manufacturers and other defendants;
WHEREAS, Defendants have contested the claims
in the State’s complaint [and amended complaints, if any] and denied the
State’s allegations [and asserted affirmative defenses];
WHEREAS, the parties desire to resolve this
action in a manner which appropriately addresses the State’s public health
concerns, while conserving the parties’ resources, as well as those of
the Court, which would otherwise be expended in litigating a matter of
this magnitude; and
WHEREAS, the Court has made no determination
of any violation of law, this Consent Decree and Final Judgment being entered
prior to the taking of any testimony and without trial or final adjudication
of any issue of fact or law;
NOW, THEREFORE, IT IS HEREBY ORDERED, ADJUDGED
AND DECREED, AS FOLLOWS:
I. JURISDICTION AND VENUE
This Court has jurisdiction over the subject
matter of this action and over each of the Participating Manufacturers.
Venue is proper in this [county/district].
II. DEFINITIONS
The definitions set forth in the Agreement
(a copy of which is attached hereto) are incorporated herein by reference.
III. APPLICABILITY
A. This Consent Decree and Final Judgment
applies only to the Participating Manufacturers in their corporate capacity
acting through their respective successors and assigns, directors, officers,
employees, agents, subsidiaries, divisions, or other internal organizational
units of any kind or any other entities acting in concert or participation
with them. The remedies, penalties and sanctions that may be imposed or
assessed in connection with a violation of this Consent Decree and Final
Judgment (or any order issued in connection herewith) shall only apply
to the Participating Manufacturers, and shall not be imposed or assessed
against any employee, officer or director of any Participating Manufacturer,
or against any other person or entity as a consequence of such violation,
and there shall be no jurisdiction under this Consent Decree and Final
Judgment to do so.
B. This Consent Decree and Final Judgment
is not intended to and does not vest standing in any third party with respect
to the terms hereof. No portion of this Consent Decree and Final Judgment
shall provide any rights to, or be enforceable by, any person or entity
other than the State of [name of Settling State] or a Released Party. The
State of [name of Settling State] may not assign or otherwise convey any
right to enforce any provision of this Consent Decree and Final Judgment.
IV. VOLUNTARY ACT OF THE PARTIES
The parties hereto expressly acknowledge and
agree that this Consent Decree and Final Judgment is voluntarily entered
into as the result of arm’s-length negotiation, and all parties hereto
were represented by counsel in deciding to enter into this Consent Decree
and Final Judgment.
V. INJUNCTIVE AND OTHER EQUITABLE RELIEF
Each Participating Manufacturer is permanently
enjoined from:
A. Taking any action, directly or indirectly,
to target Youth within the State of [name of Settling State] in the advertising,
promotion or marketing of Tobacco Products, or taking any action the primary
purpose of which is to initiate, maintain or increase the incidence of
Youth smoking within the State of [name of Settling State].
B. After 180 days after the MSA Execution
Date, using or causing to be used within the State of [name of Settling
State] any Cartoon in the advertising, promoting, packaging or labeling
of Tobacco Products.
C. After 30 days after the MSA Execution Date,
making or causing to be made any payment or other consideration to any
other person or entity to use, display, make reference to or use as a prop
within the State of [name of Settling State] any Tobacco Product, Tobacco
Product package, advertisement for a Tobacco Product, or any other item
bearing a Brand Name in any Media; provided, however, that the foregoing
prohibition shall not apply to (1) Media where the audience or viewers
are within an Adult-Only Facility (provided such Media are not visible
to persons outside such Adult-Only Facility); (2) Media not intended for
distribution or display to the public; (3) instructional Media concerning
non-conventional cigarettes viewed only by or provided only to smokers
who are Adults; and (4) actions taken by any Participating Manufacturer
in connection with a Brand Name Sponsorship permitted pursuant to subsections
III(c)(2)(A) and III(c)(2)(B)(i) of the Agreement, and use of a Brand Name
to identify a Brand Name Sponsorship permitted by subsection III(c)(2)(B)(ii).
D. Beginning July 1, 1999, marketing, distributing,
offering, selling, licensing or causing to be marketed, distributed, offered,
sold, or licensed (including, without limitation, by catalogue or direct
mail), within the State of [name of Settling State], any apparel or other
merchandise (other than Tobacco Products, items the sole function of which
is to advertise Tobacco Products, or written or electronic publications)
which bears a Brand Name. Provided, however, that nothing in this section
shall (1) require any Participating Manufacturer to breach or terminate
any licensing agreement or other contract in existence as of June 20, 1997
(this exception shall not apply beyond the current term of any existing
contract, without regard to any renewal or option term that may be exercised
by such Participating Manufacturer); (2) prohibit the distribution to any
Participating Manufacturer’s employee who is not Underage of any item described
above that is intended for the personal use of such an employee; (3) require
any Participating Manufacturer to retrieve, collect or otherwise recover
any item that prior to the MSA Execution Date was marketed, distributed,
offered, sold, licensed or caused to be marketed, distributed, offered,
sold or licensed by such Participating Manufacturer; (4) apply to coupons
or other items used by Adults solely in connection with the purchase of
Tobacco Products; (5) apply to apparel or other merchandise used within
an Adult-Only Facility that is not distributed (by sale or otherwise) to
any member of the general public; or (6) apply to apparel or other merchandise
(a) marketed, distributed, offered, sold, or licensed at the site of a
Brand Name Sponsorship permitted pursuant to subsection III(c)(2)(A) or
III(c)(2)(B)(i) of the Agreement by the person to which the relevant Participating
Manufacturer has provided payment in exchange for the use of the relevant
Brand Name in the Brand Name Sponsorship or a third-party that does not
receive payment from the relevant Participating Manufacturer (or any Affiliate
of such Participating Manufacturer) in connection with the marketing, distribution,
offer, sale or license of such apparel or other merchandise, or (b) used
at the site of a Brand Name Sponsorship permitted pursuant to subsections
III(c)(2)(A) or III(c)(2)(B)(i) of the Agreement (during such event) that
are not distributed (by sale or otherwise) to any member of the general
public.
E. After the MSA Execution Date, distributing
or causing to be distributed within the State of [name of Settling State]
any free samples of Tobacco Products except in an Adult-Only Facility.
For purposes of this Consent Decree and Final Judgment, a "free sample"
does not include a Tobacco Product that is provided to an Adult in connection
with (1) the purchase, exchange or redemption for proof of purchase of
any Tobacco Products (including, but not limited to, a free offer in connection
with the purchase of Tobacco Products, such as a "two-for-one" offer),
or (2) the conducting of consumer testing or evaluation of Tobacco Products
with persons who certify that they are Adults.
F. Using or causing to be used as a brand
name of any Tobacco Product pursuant to any agreement requiring the payment
of money or other valuable consideration, any nationally recognized or
nationally established brand name or trade name of any non-tobacco item
or service or any nationally recognized or nationally established sports
team, entertainment group or individual celebrity. Provided, however, that
the preceding sentence shall not apply to any Tobacco Product brand name
in existence as of July 1, 1998. For the purposes of this provision, the
term "other valuable consideration" shall not include an agreement between
two entities who enter into such agreement for the sole purpose of avoiding
infringement claims.
G. After 60 days after the MSA Execution Date
and through and including December 31, 2001, manufacturing or causing to
be manufactured for sale within the State of [name of Settling State] any
pack or other container of Cigarettes containing fewer than 20 Cigarettes
(or, in the case of roll-your-own tobacco, any package of roll-your-own
tobacco containing less than 0.60 ounces of tobacco); and, after 150 days
after the MSA Execution Date and through and including December 31, 2001,
selling or distributing within the State of [name of Settling State] any
pack or other container of Cigarettes containing fewer than 20 Cigarettes
(or, in the case of roll-your-own tobacco, any package of roll-your-own
tobacco containing less than 0.60 ounces of tobacco).
H. Entering into any contract, combination
or conspiracy with any other Tobacco Product Manufacturer that has the
purpose or effect of: (1) limiting competition in the production or distribution
of information about health hazards or other consequences of the use of
their products; (2) limiting or suppressing research into smoking and health;
or (3) limiting or suppressing research into the marketing or development
of new products. Provided, however, that nothing in the preceding sentence
shall be deemed to (1) require any Participating Manufacturer to produce,
distribute or otherwise disclose any information that is subject to any
privilege or protection; (2) preclude any Participating Manufacturer from
entering into any joint defense or joint legal interest agreement or arrangement
(whether or not in writing), or from asserting any privilege pursuant thereto;
or (3) impose any affirmative obligation on any Participating Manufacturer
to conduct any research.
I. Making any material misrepresentation of
fact regarding the health consequences of using any Tobacco Product, including
any tobacco additives, filters, paper or other ingredients. Provided, however,
that nothing in the preceding sentence shall limit the exercise of any
First Amendment right or the assertion of any defense or position in any
judicial, legislative or regulatory forum.
VI. MISCELLANEOUS PROVISIONS
A. Jurisdiction of this case is retained by
the Court for the purposes of implementing and enforcing the Agreement
and this Consent Decree and Final Judgment and enabling the continuing
proceedings contemplated herein. Whenever possible, the State of [name
of Settling State] and the Participating Manufacturers shall seek to resolve
any issue that may exist as to compliance with this Consent Decree and
Final Judgment by discussion among the appropriate designees named pursuant
to subsection XVIII(m) of the Agreement. The State of [name of Settling
State] and/or any Participating Manufacturer may apply to the Court at
any time for further orders and directions as may be necessary or appropriate
for the implementation and enforcement of this Consent Decree and Final
Judgment. Provided, however, that with regard to subsections V(A) and V(I)
of this Consent Decree and Final Judgment, the Attorney General shall issue
a cease and desist demand to the Participating Manufacturer that the Attorney
General believes is in violation of either of such sections at least ten
Business Days before the Attorney General applies to the Court for an order
to enforce such subsections, unless the Attorney General reasonably determines
that either a compelling time-sensitive public health and safety concern
requires more immediate action or the Court has previously issued an Enforcement
Order to the Participating Manufacturer in question for the same or a substantially
similar action or activity. For any claimed violation of this Consent Decree
and Final Judgment, in determining whether to seek an order for monetary,
civil contempt or criminal sanctions for any claimed violation, the Attorney
General shall give good-faith consideration to whether: (1) the Participating
Manufacturer that is claimed to have committed the violation has taken
appropriate and reasonable steps to cause the claimed violation to be cured,
unless that party has been guilty of a pattern of violations of like nature;
and (2) a legitimate, good-faith dispute exists as to the meaning of the
terms in question of this Consent Decree and Final Judgment. The Court
in any case in its discretion may determine not to enter an order for monetary,
civil contempt or criminal sanctions.
B. This Consent Decree and Final Judgment
is not intended to be, and shall not in any event be construed as, or deemed
to be, an admission or concession or evidence of (1) any liability or any
wrongdoing whatsoever on the part of any Released Party or that any Released
Party has engaged in any of the activities barred by this Consent Decree
and Final Judgment; or (2) personal jurisdiction over any person or entity
other than the Participating Manufacturers. Each Participating Manufacturer
specifically disclaims and denies any liability or wrongdoing whatsoever
with respect to the claims and allegations asserted against it in this
action, and has stipulated to the entry of this Consent Decree and Final
Judgment solely to avoid the further expense, inconvenience, burden and
risk of litigation.
C. Except as expressly provided otherwise
in the Agreement, this Consent Decree and Final Judgment shall not be modified
(by this Court, by any other court or by any other means) unless the party
seeking modification demonstrates, by clear and convincing evidence, that
it will suffer irreparable harm from new and unforeseen conditions. Provided,
however, that the provisions of sections III, V, VI and VII of this Consent
Decree and Final Judgment shall in no event be subject to modification
without the consent of the State of [name of Settling State] and all affected
Participating Manufacturers. In the event that any of the sections of this
Consent Decree and Final Judgment enumerated in the preceding sentence
are modified by this Court, by any other court or by any other means without
the consent of the State of [name of Settling State] and all affected Participating
Manufacturers, then this Consent Decree and Final Judgment shall be void
and of no further effect. Changes in the economic conditions of the parties
shall not be grounds for modification. It is intended that the Participating
Manufacturers will comply with this Consent Decree and Final Judgment as
originally entered, even if the Participating Manufacturers’ obligations
hereunder are greater than those imposed under current or future law (unless
compliance with this Consent Decree and Final Judgment would violate such
law). A change in law that results, directly or indirectly, in more favorable
or beneficial treatment of any one or more of the Participating Manufacturers
shall not support modification of this Consent Decree and Final Judgment.
D. In any proceeding which results in a finding
that a Participating Manufacturer violated this Consent Decree and Final
Judgment, the Participating Manufacturer or Participating Manufacturers
found to be in violation shall pay the State’s costs and attorneys’ fees
incurred by the State of [name of Settling State] in such proceeding.
E. The remedies in this Consent Decree and
Final Judgment are cumulative and in addition to any other remedies the
State of [name of Settling State] may have at law or equity, including
but not limited to its rights under the Agreement. Nothing herein shall
be construed to prevent the State from bringing an action with respect
to conduct not released pursuant to the Agreement, even though that conduct
may also violate this Consent Decree and Final Judgment. Nothing in this
Consent Decree and Final Judgment is intended to create any right for [name
of Settling State] to obtain any Cigarette product formula that it would
not otherwise have under applicable law.
F. No party shall be considered the drafter
of this Consent Decree and Final Judgment for the purpose of any statute,
case law or rule of interpretation or construction that would or might
cause any provision to be construed against the drafter. Nothing in this
Consent Decree and Final Judgment shall be construed as approval by the
State of [name of Settling State] of the Participating Manufacturers’ business
organizations, operations, acts or practices, and the Participating Manufacturers
shall make no representation to the contrary.
G. The settlement negotiations resulting in
this Consent Decree and Final Judgment have been undertaken in good faith
and for settlement purposes only, and no evidence of negotiations or discussions
underlying this Consent Decree and Final Judgment shall be offered or received
in evidence in any action or proceeding for any purpose. Neither this Consent
Decree and Final Judgment nor any public discussions, public statements
or public comments with respect to this Consent Decree and Final Judgment
by the State of [name of Settling State] or any Participating Manufacturer
or its agents shall be offered or received in evidence in any action or
proceeding for any purpose other than in an action or proceeding arising
under or relating to this Consent Decree and Final Judgment.
H. All obligations of the Participating Manufacturers
pursuant to this Consent Decree and Final Judgment (including, but not
limited to, all payment obligations) are, and shall remain, several and
not joint.
I. The provisions of this Consent Decree and
Final Judgment are applicable only to actions taken (or omitted to be taken)
within the States. Provided, however, that the preceding sentence shall
not be construed as extending the territorial scope of any provision of
this Consent Decree and Final Judgment whose scope is otherwise limited
by the terms thereof.
J. Nothing in subsection V(A) or V(I) of this
Consent Decree shall create a right to challenge the continuation, after
the MSA Execution Date, of any advertising content, claim or slogan (other
than use of a Cartoon) that was not unlawful prior to the MSA Execution
Date.
K. If the Agreement terminates in this State
for any reason, then this Consent Decree and Final Judgment shall be void
and of no further effect.
VII. FINAL DISPOSITION
A. The Agreement, the settlement set forth
therein, and the establishment of the escrow provided for therein are hereby
approved in all respects, and all claims are hereby dismissed with prejudice
as provided therein.
B. The Court finds that the person[s] signing
the Agreement have full and complete authority to enter into the binding
and fully effective settlement of this action as set forth in the Agreement.
The Court further finds that entering into this settlement is in the best
interests of the State of [name of Settling State].
LET JUDGMENT BE ENTERED ACCORDINGLY
DATED this _____ day of ______________,
1998.
Source: Master Settlement Agreement,
National Association of Attorneys General Website (http://www.naag.org/settle.htm)
APPENDIX
B - MODEL STATUTE (MSA - Exhibit T)
MODEL STATUTE - EXHIBIT T
Section __. Findings and Purpose.
(a) 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.
(b) 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.
(c) 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.
(d) 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.
(e) On _______, 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.
(f) 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 __. Definitions.
(a) "Adjusted for inflation" means increased in accordance with the
formula for inflation adjustment set forth in Exhibit C to the Master Settlement
Agreement.
(b) "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 ten percent or more, and the term "person"
means an individual, partnership, committee, association, corporation or
any other organization or group of persons.
(c) "Allocable share" means Allocable Share as that term is defined
in the Master Settlement Agreement.
(d) "Cigarette" means any product that contains nicotine, is intended
to be burned or heated under ordinary conditions of use, and consists of
or contains (1) any roll of tobacco wrapped in paper or in any substance
not containing tobacco; or (2) 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 (3) 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 (1) 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."
(e) "Master Settlement Agreement" means the settlement agreement
(and related documents) entered into on _______, 1998 by the State and
leading United States tobacco product manufacturers.
(f) "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 section ___(b)-(c) of this Act.
(g) "Released claims" means Released Claims as that term is defined
in the Master Settlement Agreement.
(h) "Releasing parties" means Releasing Parties as that term is defined
in the Master Settlement Agreement.
(i) "Tobacco Product Manufacturer" means an entity that after the
date of enactment of this Act directly (and not exclusively through any
affiliate):
(1) 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 subsections 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);
(2) 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
(3) becomes a successor of an entity described in paragraph (1) or (2).
The term "Tobacco Product Manufacturer" shall not include an affiliate
of a tobacco product manufacturer unless such affiliate itself falls within
any of (1) - (3) above.
(j) "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 [fill in name of responsible state agency]
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 __. Requirements.
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) (1) 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) --
1999: $.0094241 per unit sold after the date of enactment of this
Act;
2000: $.0104712 per unit sold after the date of enactment of this
Act;
for each of 2001 and 2002: $.0136125 per unit sold after the date
of enactment of this Act;
for each of 2003 through 2006: $.0167539 per unit sold after the
date of enactment of this Act;
for each of 2007 and each year thereafter: $.0188482 per unit sold
after the date of enactment of this Act.
(2) A tobacco product manufacturer that places funds into escrow pursuant
to paragraph (1) 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 subparagraph (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 subparagraphs (A)
or (B), funds shall be released from escrow and revert back to such tobacco
product manufacturer twenty-five 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 this subsection shall annually certify to the Attorney
General [or other State official] that it is in compliance with this subsection.
The Attorney General [or other State official] 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 this section. Any tobacco
product manufacturer that fails in any year to place into escrow the funds
required under this section shall --
-
be required within 15 days to place such funds into escrow as shall
bring it into compliance with this section. The court, upon a finding of
a violation of this subsection, may impose a civil penalty [to be paid
to the general fund of the state] in an amount not to exceed 5 percent
of the amount improperly withheld from escrow per day of the violation
and in a total amount not to exceed 100 percent 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
this section. The court, upon a finding of a knowing violation of this
subsection, may impose a civil penalty [to be paid to the general fund
of the state] in an amount not to exceed 15 percent of the amount improperly
withheld from escrow per day of the violation and in a total amount not
to exceed 300 percent 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.
Each failure to make an annual deposit required under this section shall
constitute a separate violation.
Source: Master Settlement Agreement, National Association of
Attorneys General Website (http://www.naag.org/settle.htm)
APPENDIX
C - Calculating the Inflation Adjustment Percentages
|
Payment
Year
|
Hypothetical CPI%
|
Percentage to be applied on the Inflation
Adjustment Percentage for the prior year (i.e., the greater of 3% or the
CPI%)
|
Inflation Adjustment Percentage
|
|
2000
|
2.4%
|
3.0%
|
3.0000000%
|
|
2001
|
2.1%
|
3.0%
|
6.0900000%
|
|
2002
|
3.5%
|
3.5%
|
9.8031500%
|
|
2003
|
3.5%
|
3.5%
|
13.6462603%
|
|
2004
|
4.0%
|
4.0%
|
18.1921107%
|
|
2005
|
2.2%
|
3.0%
|
21.7378740%
|
|
2006
|
1.6%
|
3.0%
|
25.3900102%
|
Using the hypothetical Inflation
Adjustment Percentages set forth the chart above:
|
the base payment amount for 2002 of $6,500,000,000
as adjusted for inflation would equal $7,137,204,750; |
|
the base payment amount for 2004 of $8,000,000,000
as adjusted for inflation would equal $9,455,368,856; |
|
the base payment amount for 2006 of $8,000,000,000
as adjusted for inflation would equal $10,031,200,816. |
Source: Master Settlement Agreement,
National Association of Attorneys General Website (http://www.naag.org/settle.htm)
APPENDIX
D - CALCULATING THE NON-PARTICIPATING MANUFACUTERS ADJUSTMENT
The "NPM Adjustment Percentage" shall be calculated
as follows:
|
If the Market Share Loss for the year
immediately preceding the year the payment is due is less than or equal
to 0 (zero), then there will be no NPM Adjustment. |
|
If the Market Share Loss for the year
immediately preceding the year the payment is due is greater than 0 (zero)
and less than or equal to 16 2/3 percentage points, then the NPM Adjustment
Percentage will be equal to the product of Market Share Loss (x) and 3
(y). |
|
If the Market Share Loss for the year
immediately preceding the year the payment is due is greater than 16 2/3
percentage points, the NPM Adjustment Percentage will be equal to the sum
of 50 percentage points (x) and (y) which is equal to the product of (1)
the Variable Multiplier and (2) the result of Market Share
Loss minus 16 2/3 percentage points. (See definitions below for additional
detail). |
Definitions:
|
"Base Aggregate Participating Manufacturer Market
Share" means the result of (x) the sum of the applicable Market Shares
(the applicable Market Share to be that for 1997) of all present and former
Tobacco Product Manufacturers that were Participating Manufacturers during
the entire calendar year immediately preceding the year in which the payment
in question is due minus (y) 2 (two) percentage points. |
|
"Actual Aggregate Participating Manufacturer
Market Share" means the sum of the applicable Market Shares of all present
and former Tobacco Product Manufacturers that were Participating Manufacturers
during the entire calendar year immediately preceding the year in which
the payment in question is due (the applicable Market Share to be that
for the calendar year immediately preceding the year in which the payment
in question is due). |
|
"Market Share Loss" means the result of (x) the
Base Aggregate Participating Manufacturer Market Share minus (y) the Actual
Aggregate Participating Manufacturer Market Share. |
|
"Variable Multiplier" equals 50 divided by the
result of (x) the Base Aggregate Participating Manufacturer Market Share
minus (y) 16 2/3 percentage points. |
Source: Master Settlement Agreement,
National Association of Attorneys General Website (http://www.naag.org/settle.htm)
APPENDIX
E – Total Payments to Each State Through 2025
| Alabama |
$3,166,302,118.81
|
| Alaska |
$668,903,056.50
|
| Arizona |
$2,887,614,909.02
|
| Arkansas |
$1,622,336,125.69
|
| California |
$25,006,972,510.74
|
| Colorado |
$2,685,773,548.89
|
| Connecticut |
$3,637,303,381.55
|
| Delaware |
$774,798,676.89
|
| D.C. |
$1,189,458,105.56
|
| Florida |
$0.00
|
| Georgia |
$4,808,740,668.60
|
| Hawaii |
$1,179,165,923.07
|
| Idaho |
$711,700,479.23
|
| Illinois |
$9,118,539,559.10
|
| Indiana |
$3,996,355,551.01
|
| Iowa |
$1,703,839,985.56
|
| Kansas |
$1,633,317,646.19
|
| Kentucky |
$3,450,438,586.10
|
| Louisiana |
$4,418,657,915.22
|
| Maine |
$1,507,301,275.81
|
| Maryland |
$4,428,657,383.58
|
| Mass. |
$7,913,114,212.77
|
| Michigan |
$8,526,278,033.60
|
| Minnesota |
$0.00
|
| Mississippi |
$0.00
|
| Missouri |
$4,456,368,286.30
|
| Montana |
$832,182,430.63
|
| Nebraska |
$1,165,683,457.48
|
| Nevada |
$1,194,976,854.76
|
| New
Hampshire |
$1,304,689,150.27
|
| New
Jersey |
$7,576,167,918.47
|
| New
Mexico |
$1,168,438,809.05
|
| New
York |
$25,003,202,243.12
|
| North
Carolina |
$4,569,381,898.24
|
| North
Dakota |
$717,089,369.09
|
| Ohio |
$9,869,422,448.51
|
| Oklahoma |
$2,029,985,862.29
|
| Oregon |
$2,248,476,833.11
|
| Penn. |
$11,259,169,603.46
|
| Rhode
Island |
$1,408,469,747.28
|
| South
Carolina |
$2,304,693,119.82
|
| South
Dakota |
$683,650,008.54
|
| Tennessee |
$4,782,168,127.09
|
| Texas |
$0.00
|
| Utah |
$871,616,513.42
|
| Vermont |
$805,588,329.25
|
| Virginia |
$4,006,037,550.26
|
| Washington |
$4,022,716,266.79
|
| West
Virginia |
$1,736,741,427.33
|
| Wisconsin |
$4,059,511,421.32
|
| Wyoming |
$486,553,976.10
|
| American
Samoa |
$29,812,995.31
|
| N. Mariana
Islands |
$16,530,900.80
|
| Guam |
$42,978,803.27
|
| US Virgin
Island |
$34,010,102.11
|
| Puerto
Rico |
$2,196,791,813.07
|
| Total
Payments |
$195,918,675,920.00
|
Source: Master Settlement Agreement,
National Association of Attorneys General Website (http://www.naag.org/settle.htm)
APPENDIX
F – STATUTORY AND REGULATORY BASIS FOR MEDICAID RECOUPMENT (Health Care
Financing Administration’s Interpretation)
|
Section 1903(d) of the Social Security Act
(the statutory basis for the Health Care Financing Administration’s opinion
that state tobacco settlement funds, attributable to Medicaid, should be
subject to recoupment) |
"(2)(A) The Secretary shall then pay to the State, in such installments
as he may determine, the amount so estimated, reduced or increased to the
extent of any overpayment or underpayment which the Secretary determines
was made under this section to such State for any prior quarter and with
respect to which adjustment has not already been made under this subsection."
"(2)(B) Expenditures for which payments were made to the State under
subsection (a) shall be treated as an overpayment to the extent that the
State or local agency administering such plan has been reimbursed for such
expenditures b a third party pursuant to the provisions of its plan in
compliance with section 1902(a)(25)…"
"(2)(3) The pro rata share to which the Unites States is equitably
entitled, as determined by the Secretary, of the net amount recovered during
any quarter by the State or any political subdivision thereof with respect
to medical assistance furnished under the State plan shall be considered
an overpayment to be adjusted under this subsection."
|
Additional citations of Federal law and regulation used by the federal
government to support the recoupment of state tobacco settlement funds |
42 U.S. C. 1396a(a)(25)(A) – establishes that it is the State’s responsibility
‘to ascertain the legal liability of third parties…to pay for care and
services available under the [State’s Medicaid] plan.’" (Effective 3/31/68)
42 CFR 433.136 – defines ‘third party’ as "any individual, entity
or program that is or may be liable to apy all or part of the expenditures
for medical assistance furnished under a State plan."
42 CFR 433.140(c) – describes the state obligation as follows: "If
the State receives FFP [Federal financial participation] in Medicaid payments
for which it receives third party reimbursement, the State must pay the
Federal government a portion of the reimbursement determined in accordance
with the FMAP [Federal medical assistance percentage] for the State."
Source: Statement of Nancy-Ann Min DeParle, Administrator, Health
Care Financing Administration, "Medicaid and Tobacco Settlements," Subcommittee
on Health and the Environment, Committee on Commerce, U.S. House of Representatives,
December 8, 1998.
Note: The full text of Administrator DeParle’s testimony can be obtained
from the Health Care Financing Administration website at http://www.hcfa.gov/testmony/tobac1.htm.
 AFI
Health Committee
Committee Contacts
Joy Johnson Wilson, Director
(202) 624-8689
mailto:joy.wilson@ncsl.org
Steven Lewis, Policy Associate
(202) 624-3575
mailto:steven.lewis@ncsl.org
Whitney Mueller, Administrative Assistant
(202) 624-8690
mailto:whitney.mueller@ncsl.org
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