44-7111

44-7111. Tobacco; nonparticipating
manufacturers; civil penalty; violation; classification

This state enacts the model nonparticipating manufacturers legislation as follows:

 Section 1.  Findings and Purpose.
 

The legislature finds that violations of section 44-7101 threaten the integrity of
the tobacco master settlement agreement, the fiscal soundness of the state and the public
health. The legislature finds that enacting procedural enhancements will aid the
enforcement of section 44-7101 and thereby safeguard the master settlement agreement, the
fiscal soundness of the state and the public health.

 Section 2.  Definitions.
 

(a) "Brand family" means all styles of cigarettes sold under the same trade mark
and differentiated from one another by means of additional modifiers or descriptors,
including, but not limited to, "menthol", "lights", "kings" and "100s", and includes any
brand name (alone or in conjunction with any other word), trademark, logo, symbol, motto,
selling message, recognizable pattern of colors or any other indicia of product
identification identical or similar to, or identifiable with, a previously known brand of
Cigarettes.

(b) "Cigarette" has the same meaning prescribed in section 44-7101.

(c) "Department" means the department of revenue.

(d) "Director" means the director of the department.

(e) "Distributor" has the same meaning prescribed in section 42-3001.

(f) "Master settlement agreement" has the same meaning prescribed in section
44-7101.

(g) "Nonparticipating manufacturer" means any tobacco product manufacturer that is
not a participating manufacturer.

(h) "Participating manufacturer" has the meaning given that term in section II(jj)
of the master settlement agreement and all amendments thereto.

(i) "Qualified escrow fund" has the same meaning prescribed in section 44-7101.

(j) "Tobacco product manufacturer" has the same meaning prescribed in section
44-7101.

(k) "Units sold" has the same meaning prescribed in section 44-7101.

Section 3. Certifications; Directory; Tax Stamps.

(a) Certification. Every tobacco product manufacturer whose Cigarettes are sold in
this state, whether directly or through a distributor, retailer or similar intermediary
or intermediaries, shall execute and deliver on a form prescribed by the attorney general
a certification to the director and attorney general not later than the thirtieth day of
April each year, certifying that, as of the date of the certification, the tobacco
product manufacturer either is a participating manufacturer or is in full compliance with
section 44-7101, section 3(b), including all quarterly installment payments required by
regulations as may be promulgated by the attorney general pursuant to section 5(f) of
this article.

(1) A participating manufacturer shall include in its certification a list of its
brand families. The participating manufacturer shall update the list thirty days prior to
any addition to or modification of its brand families by executing and delivering a
supplemental certification to the attorney general and Director.

(2) A nonparticipating manufacturer shall include in its certification (i) a list
of all of its brand families and the number of units sold for each brand family that were
sold in the state during the preceding calendar year, (ii) a list of all of its brand
families that have been sold in the state at any time during the current calendar year,
(iii) indicating by an asterisk, any brand family sold in the state during the preceding
calendar year that is no longer being sold in the state as of the date of the
certification and (iv) identifying by name and address any other manufacturer of the
brand families in the preceding or current calendar year. The nonparticipating
manufacturer shall update the list thirty calendar days prior to any addition to or
modification of its brand families by executing and delivering a supplemental
certification to the attorney general and director.

(3) In the case of a nonparticipating manufacturer, the certification shall further
certify:

(a) That the nonparticipating manufacturer is registered to do business in the
state or has appointed a resident agent for service of process and provided notice
thereof as required by section 4.

(b) That the nonparticipating manufacturer (i) has established and continues to
maintain a qualified escrow fund and (ii) has executed a qualified escrow agreement that
has been reviewed and approved by the attorney general and that governs the qualified
escrow fund.

(c) That the nonparticipating manufacturer is in full compliance with section
44-7101, section (3)(b) and this article, and any regulations promulgated pursuant
thereto;

(d) (i) The name, address and telephone number of the financial institution where
the nonparticipating manufacturer has established the qualified escrow fund required
pursuant to section 44-7101, section 3(b) and all regulations promulgated pursuant
thereto, (ii) the account number of the qualified escrow fund and any subaccount number
for the state, (iii) the amount the nonparticipating manufacturer placed in the fund for
cigarettes sold in the state during the preceding calendar year, the date and amount of
each deposit and such evidence or verification as may be deemed necessary by the attorney
general to confirm the foregoing and (iv) the amount of and date of any withdrawal or
transfer of funds the nonparticipating manufacturer made at any time from the fund or
from any other qualified escrow fund into which it ever made escrow payments pursuant to
section 44-7101, section 3(b) and all regulations promulgated pursuant thereto.

(4) A tobacco product manufacturer may not include a brand family in its
certification unless (i) in the case of a participating manufacturer, the participating
manufacturer affirms that the brand family is to be deemed to be its cigarettes for
purposes of calculating its payments under the master settlement agreement for the
relevant year, in the volume and shares determined pursuant to the master settlement
agreement, and (ii) in the case of a nonparticipating manufacturer, the nonparticipating
manufacturer affirms that the brand family is to be deemed to be its cigarettes for
purposes of section 44-7101, section 3(b). Nothing in this section shall be construed as
limiting or otherwise affecting the state's right to maintain that a brand family
constitutes cigarettes of a different tobacco product manufacturer for purposes of
calculating payments under the master settlement agreement or for purposes of section
44-7101.

(5) Tobacco product manufacturers shall maintain all invoices and documentation of
sales and other information relied upon for the certification for a period of five years,
unless otherwise required by law to maintain them for a greater period of time.

(b) Directory of cigarettes approved for stamping and sale. Not later than ninety
days after the effective date of this article, the attorney general shall develop and
publish on the attorney general's web site a directory listing all tobacco product
manufacturers that have provided current and accurate certifications conforming to the
requirements of section 3(a) and all brand families that are listed in those
certifications (the "directory"), except as noted below.

(1) The attorney general shall not include or retain in the directory the name or
brand families of any nonparticipating manufacturer that fails to provide the required
certification or whose certification the attorney general determines is not in compliance
with sections 3(a)(2) and (3), unless the attorney general has determined that the
violation has been cured to the satisfaction of the attorney general.

(2) Neither a tobacco product manufacturer nor brand family shall be included or
retained in the directory if the attorney general concludes, in the case of a
nonparticipating manufacturer, that (i) any escrow payment required pursuant to section
44-7101, section 3(b) for any period for any brand family, whether or not listed by the
nonparticipating manufacturer, has not been fully paid into a qualified escrow fund
governed by a qualified escrow agreement that has been approved by the attorney general,
or (ii) any outstanding final judgment, including interest thereon, for a violation of
section 44-7101 has not been fully satisfied for the brand family or the manufacturer.

(3) The attorney general shall update the directory as necessary in order to
correct mistakes and to add or remove a tobacco product manufacturer or brand family to
keep the directory in conformity with the requirements of this article.

(4) A distributor that has lawfully affixed stamps to cigarettes and subsequently
is unable to sell those cigarettes lawfully because the cigarettes have been removed from
the directory pursuant to section 3(b)(2) of this article, may apply to the department
for a refund of the cost of such stamps.

(5) Every distributor shall provide and update as necessary an electronic mail
address to the director and attorney general for the purpose of receiving any
notifications as may be required by this article.

(6) A tobacco product manufacturer included in the directory may request that a new
brand family be added to the directory by executing and delivering a supplemental
certification with the necessary information to the attorney general and the director.
Not later than forty-five business days after receiving such a request, and at such
earlier time as is reasonable to do so, the attorney general shall either (i) certify the
new brand family or (ii) deny the request. However, in cases where the attorney general
reasonably determines that it needs additional information to ascertain whether the
requestor is the tobacco product manufacturer of the new brand family, the attorney
general may take whatever additional time is reasonably needed to process the request, to
locate and assemble information or documents needed to process the request, and to notify
persons or agencies affected by the request.

(c) Prohibition against stamping or sale of cigarettes not in the directory. It
shall be unlawful for any person (1) to affix a stamp to a package or other container of
cigarettes of a tobacco product manufacturer or brand family not included in the
directory or (2) to sell, offer or possess for sale, in this state, cigarettes of a
tobacco product manufacturer or brand family not included in the directory.

Section 4. Agent for Service of Process.

(a) Requirement for agent for service of process. Any nonresident or foreign
nonparticipating manufacturer that has not registered to do business in the state as a
foreign corporation or business entity shall, as a condition precedent to having its
brand families included or retained in the directory, appoint and continually engage
without interruption the services of an agent in this state to act as agent for the
service of process on whom all process, and any action or proceeding against it
concerning or arising out of the enforcement of this article and section 44-7101, may be
served in any manner authorized by law. Such service on the agent constitutes legal and
valid service of process on the nonparticipating manufacturer. The nonparticipating
manufacturer shall provide the name, address, phone number and proof of the appointment
and availability of the agent to and to the satisfaction of the attorney general.

(b) The nonparticipating manufacturer shall provide notice to the attorney general
thirty calendar days prior to termination of the authority of an agent and shall further
provide proof to the satisfaction of the attorney general of the appointment of a new
agent not less than five calendar days prior to the termination of an existing agent
appointment. In the event an agent terminates an agency appointment, the nonparticipating
manufacturer shall notify the attorney general of the termination within five calendar
days and shall include proof to the satisfaction of the attorney general of the
appointment of a new agent.

(c) Any nonparticipating manufacturer whose cigarettes are sold in this state and
who has not appointed and engaged an agent as herein required shall be deemed to have
appointed the secretary of state as the agent and may be proceeded against in courts of
this state by service of process upon the secretary of state; provided, however, that the
appointment of the secretary of state as the agent shall not satisfy the condition
precedent to having the brand families of the nonparticipating manufacturer included or
retained in the directory.

Section 5. Reporting of Information; Escrow Installments.

(a) Reporting by distributors. Not later than twenty calendar days after the end of
each calendar quarter, and more frequently if so directed by the director, each
distributor shall submit such information as the director requires to facilitate
compliance with this article, including, but not limited to, a list by brand family of
the total number of cigarettes or, in the case of roll your own, the equivalent stick
count, for which the distributor affixed stamps during the previous calendar quarter or
otherwise paid the tax due for the cigarettes. The distributor shall maintain, and make
available to the director and the attorney general, all invoices and documentation of
sales of all nonparticipating manufacturer cigarettes and any other information relied
upon in reporting to the director for a period of five years.

(b) Disclosure of information. The department is authorized to disclose to the
attorney general any information received under this article and requested by the
attorney general for purposes of determining compliance with and enforcing the provisions
of this article. The department and attorney general shall share with each other the
information received under this article, and may share the information with other
federal, state or local agencies only for purposes of enforcement of this article,
section 44-7101 or corresponding laws of other states.

(c) If a tobacco product manufacturer required to establish a qualified escrow fund
under section 44-7101, section 3(b) disputes the attorney general's determination of the
amount that the manufacturer is required to deposit into escrow and the attorney general
determines that the dispute can likely be resolved by information contained in reports
submitted by distributors to the department indicating sales or purchases of the
manufacturer's cigarettes, then the attorney general shall produce the relevant portions
of the reports to the manufacturer. However, before disclosing the foregoing information,
the attorney general may require the manufacturer to provide all records related to its
sales of the cigarettes in dispute. The disclosure provided by the attorney general to a
tobacco product manufacturer pursuant to this subsection shall be limited to information
concerning the cigarettes alleged by the state to be subject to the requirements of
section 44-7101, section 3(b), may be used by the manufacturer only for the limited
purpose of determining the appropriate escrow deposit, and may not be disclosed by the
manufacturer to any third parties.

(d) Verification of qualified escrow fund. The attorney general may require at any
time from the nonparticipating manufacturer, proof from the financial institution in
which the manufacturer has established a qualified escrow fund for the purpose of
compliance with section 44-7101, section 3(b) of the amount of money in the fund,
exclusive of interest, the amount and the date of each deposit to the fund, and the
amount and date of each withdrawal from the fund.

(e) Requests for additional information. In addition to the information required to
be submitted pursuant to this article, the director and attorney general may require a
distributor or tobacco product manufacturer to submit any additional information
including, but not limited to, samples of the packaging or labeling of each brand family,
as is necessary to enable the attorney general to determine whether a tobacco product
manufacturer is in compliance with this article.

(f) Quarterly escrow installments. To promote compliance with the provisions of
this article, the attorney general may promulgate regulations requiring tobacco product
manufacturers subject to the requirements of section 3(a)(2) to make the escrow deposits
required in quarterly installments during the year in which the sales covered by the
deposits are made:

(1) In circumstances where the attorney general reasonably concludes that a
manufacturer may not fully and timely comply with section 44-7101, section 3(b).

(2) Where manufacturers have not made escrow deposits pursuant to section 44-7101,
section 3(b) during the preceding calendar year.

The attorney general may require production of information sufficient to enable the
attorney general to determine the adequacy of the amount of the installment deposit.

Section 6. Penalties and Other Remedies.

(a) License revocation and civil penalty. In addition to or in lieu of any other
civil or criminal remedy provided by law, upon a determination that a distributor has
violated section 3(c) or any regulation adopted pursuant to this article, the director
may revoke or suspend the license of the distributor in the manner provided by title 41,
chapter 6, article 10 for contested cases. Each stamp affixed and each sale or offer to
sell cigarettes in violation of section 3(c) shall constitute a separate violation. The
director may also impose a civil penalty in an amount not to exceed the greater of five
hundred per cent of the retail value of the cigarettes or five thousand dollars upon a
determination of violation of section 3(c) or any regulations promulgated pursuant
thereto. The penalty shall be imposed in the manner provided by title 41, chapter 6,
article 10 for contested cases.

(b) Contraband and seizure. Any cigarettes that have been sold, offered for sale or
possessed for sale in this state in violation of section 3(c) shall be deemed contraband
and the cigarettes shall be subject to seizure by the department and forfeiture, and all
the cigarettes so seized and forfeited shall be destroyed and not resold.

(c) Injunction. The attorney general, on behalf of the director, may seek an
injunction to restrain a threatened or actual violation of section 3(c), 5(a) or 5(d) by
a distributor and to compel the distributor to comply with those sections. In any action
brought pursuant to this section, the state shall be entitled to recover the costs of
investigation, costs of the action and reasonable attorney fees.

(d) Unlawful sale and distribution. It shall be unlawful for a person to (i) sell
or distribute cigarettes, or (ii) acquire, hold, own, possess, transport, import or cause
to be imported cigarettes, that the person knows or should know are intended for
distribution or sale in the state in violation of section 3(c). A violation of this
section is a class 1 misdemeanor.

(e) Deceptive trade practice. A person who violates section 3(c) engages in an
unlawful practice in violation of section 44-1522. Standing to bring an action to enforce
title 44, chapter 10, article 7 for violation of section 3(c) shall lie solely with the
attorney general.

Section 7. Miscellaneous Provisions.

(a) Notice and review of determination. A determination of the attorney general to
not include or to remove from the directory a brand family or tobacco product
manufacturer shall be subject to review as an appealable agency action in the manner
prescribed by title 41, chapter 6, article 10.

(b) Dates. For the year 2003, the first report of distributors required by section
5(a) shall be due thirty calendar days after the effective date of this article. The
certifications by a tobacco product manufacturer described in section 3(a) shall be due
forty-five calendar days after the effective date and the directory described in section
3(b) shall be published or made available within ninety calendar days after the effective
date.

(c) Promulgation of regulations. The department and the attorney general may
promulgate regulations necessary to effect the purposes of this article.

(d) Recovery of costs and fees by attorney general. In any action brought by the
state to enforce this article, the state shall be entitled to recover the costs of
investigation, expert witness fees, costs of the action and reasonable attorney fees.

(e) Disgorgement of profits for violations of article. If a court determines that a
person has violated this article, the court shall order any profits, gain, gross receipts
or other benefit from the violation to be disgorged and paid to the state general fund.
Unless otherwise expressly provided, the remedies or penalties provided by this article
are cumulative to each other and to the remedies or penalties available under all other
laws of this state.

(f) Construction and severability. If a court of competent jurisdiction finds that
the provisions of this article and section 44-7101 conflict and cannot be harmonized,
then the provisions of section 44-7101 shall control. If any section, subsection,
subdivision, paragraph, sentence, clause or phrase of this article causes section 44-7101
to no longer constitute a qualifying or model statute, as those terms are defined in the
master settlement agreement, then that portion of this article shall not be valid. If any
section, subsection, subdivision, paragraph, sentence, clause or phrase of this article
is for any reason held to be invalid, unlawful or unconstitutional, the decision shall
not affect the validity of the remaining portions of this article or any part thereof.