CHAPTER 3. QUALIFIED ESCROW FUND FOR TOBACCO PRODUCT MANUFACTURERS
IC 24-3-3
Chapter 3. Qualified Escrow Fund for Tobacco ProductManufacturers
IC 24-3-3-1
Findings regarding cigarette smoking
Sec. 1. The General Assembly makes the following findings:
(1) Cigarette smoking presents serious public health concernsto the state and to the citizens of Indiana. The Surgeon Generalhas determined that smoking causes lung cancer, heart disease,and other serious diseases, and that there are hundreds ofthousands of tobacco related deaths in the United States eachyear. These diseases most often do not appear until many yearsafter the person in question begins smoking.
(2) Cigarette smoking also presents serious financial concernsfor the state. Under certain health care programs, the state mayhave a legal obligation to provide medical assistance to eligiblepersons for health conditions associated with cigarette smoking,and those persons may have a legal entitlement to receive suchmedical assistance.
(3) Under these programs, the state pays millions of dollarseach year to provide medical assistance for these persons forhealth conditions associated with cigarette smoking.
(4) It is the policy of the state that financial burdens imposed onthe state by cigarette smoking be borne by tobacco productmanufacturers rather than by the state to the extent that suchmanufacturers either determine to enter into a settlement withthe state or are found culpable by the courts.
(5) On November 23, 1998, leading United States tobaccoproduct manufacturers entered into a settlement agreement,entitled the "Master Settlement Agreement", with the state. TheMaster Settlement Agreement obligates these manufacturers, inreturn for a release of past, present, and certain future claimsagainst them as described in the Master Settlement Agreement,to:
(A) pay substantial sums to the state (tied in part to theirvolume of sales);
(B) fund a national foundation devoted to the interests ofpublic health; and
(C) make substantial changes in their advertising andmarketing practices and corporate culture, with the intentionof reducing underage smoking.
(6) It would be contrary to the policy of the state if tobaccoproduct manufacturers who determine not to enter into such asettlement could use a resulting cost advantage to derive large,short term profits in the years before liability may arise withoutensuring that the state will have an eventual source of recoveryfrom them if they are proven to have acted culpably. It is thusin the interest of the state to require that such manufacturersestablish a reserve fund to guarantee a source of compensation
and to prevent such manufacturers from deriving large, shortterm profits and then becoming judgment proof before liabilitymay arise.
As added by P.L.223-1999, SEC.1.
IC 24-3-3-2
"Adjusted for inflation" defined
Sec. 2. As used in this chapter, "adjusted for inflation" meansincreased in accordance with the formula for inflation adjustment setforth in Exhibit C to the Master Settlement Agreement.
As added by P.L.223-1999, SEC.1.
IC 24-3-3-3
"Affiliate" defined
Sec. 3. As used in this chapter, "affiliate" means a person whodirectly or indirectly owns or controls, is owned or controlled by, oris under common ownership or control with, another person. Solelyfor purposes of this definition, the terms "owns", "is owned", and"ownership" mean ownership of an equity interest, or the equivalentthereof, of ten percent (10%) or more, and the term "person" meansan individual, partnership, committee, association, corporation, orany other organization or group of persons.
As added by P.L.223-1999, SEC.1.
IC 24-3-3-4
"Allocable share" defined
Sec. 4. As used in this chapter, "allocable share" means AllocableShare as that term is defined in the Master Settlement Agreement.
As added by P.L.223-1999, SEC.1.
IC 24-3-3-5
"Cigarette" defined
Sec. 5. As used in this chapter, "cigarette" means any product thatcontains nicotine, is intended to be burned or heated under ordinaryconditions of use, and consists of or contains:
(1) any roll of tobacco wrapped in paper or in any substance notcontaining tobacco;
(2) tobacco, in any form, that is functional in the product,which, because of its appearance, the type of tobacco used inthe filler, or its packaging and labeling, is likely to be offeredto, or purchased by, consumers as a cigarette; or
(3) any roll of tobacco wrapped in any substance containingtobacco which, because of its appearance, the type of tobaccoused in the filler, or its packaging and labeling, is likely to beoffered to, or purchased by, consumers as a cigarette describedin subdivision (1).
The term "cigarette" includes "roll-your-own" tobacco (i.e., anytobacco which, because of its appearance, type, packaging, orlabeling, is suitable for use and likely to be offered to, or purchasedby, consumers as tobacco for making cigarettes). For purposes of this
definition of "cigarette", nine-hundredths (0.09) of an ounce of"roll-your-own" tobacco constitutes one (1) individual "cigarette".
As added by P.L.223-1999, SEC.1.
IC 24-3-3-6
"Master Settlement Agreement" defined
Sec. 6. As used in this chapter, "Master Settlement Agreement"means the settlement agreement (and related documents) entered intoon November 23, 1998, by the state and leading United Statestobacco product manufacturers.
As added by P.L.223-1999, SEC.1.
IC 24-3-3-7
"Qualified escrow fund" defined
Sec. 7. As used in this chapter, "qualified escrow fund" means anescrow arrangement with a federally or state chartered financialinstitution having no affiliation with any tobacco productmanufacturer and having assets of at least one billion dollars($1,000,000,000) where the arrangement requires that the financialinstitution hold the escrowed fund's principal for the benefit ofreleasing parties and prohibits the tobacco product manufacturerplacing the funds into escrow from using, accessing, or directing theuse of the fund's principal except as consistent with this chapter.
As added by P.L.223-1999, SEC.1.
IC 24-3-3-8
"Released claims" defined
Sec. 8. As used in this chapter, "released claims" means ReleasedClaims as that term is defined in the Master Settlement Agreement.
As added by P.L.223-1999, SEC.1.
IC 24-3-3-9
"Releasing parties" defined
Sec. 9. As used in this chapter, "releasing parties" meansReleasing Parties as that term is defined in the Master SettlementAgreement.
As added by P.L.223-1999, SEC.1.
IC 24-3-3-10
"Tobacco product manufacturer" defined
Sec. 10. As used in this chapter, "tobacco product manufacturer"means an entity that after June 30, 1999, directly (and not exclusivelythrough any affiliate):
(1) manufactures cigarettes anywhere that such manufacturerintends to be sold in the United States, including cigarettesintended to be sold in the United States through an importer(except where such importer is an original participatingmanufacturer (as that term is defined in the Master SettlementAgreement) that will be responsible for the payments under theMaster Settlement Agreement with respect to such cigarettes as
a result of the provisions of subsection II(mm) of the MasterSettlement Agreement and that pays the taxes specified insubsection II(z) of the Master Settlement Agreement, andprovided that the manufacturer of such cigarettes does notmarket or advertise such cigarettes in the United States);
(2) is the first purchaser anywhere for resale in the UnitedStates of cigarettes manufactured anywhere that themanufacturer does not intend to be sold in the United States; or
(3) becomes a successor of an entity described in subdivision(1) or (2).
The term "tobacco product manufacturer" does not include anaffiliate of a tobacco product manufacturer unless the affiliate itselffalls within subdivision (1), (2), or (3).
As added by P.L.223-1999, SEC.1.
IC 24-3-3-11
"Units sold" defined
Sec. 11. As used in this chapter, "units sold" means the number ofindividual cigarettes sold in Indiana by the applicable tobaccoproduct manufacturer (whether directly or through a distributor,retailer, or similar intermediary or intermediaries) during the year inquestion, as measured by excise taxes collected by the state on packs(or "roll-your-own" tobacco containers) bearing the excise tax stampof the state. The department of state revenue shall, in the mannerprovided by IC 4-22-2, adopt rules that are necessary to ascertain theamount of state excise tax paid on the cigarettes of such tobaccoproduct manufacturer for each year.
As added by P.L.223-1999, SEC.1.
IC 24-3-3-12
Tobacco product manufacturers required to become participatingmanufacturer or place money in qualified escrow fund
Sec. 12. Any tobacco product manufacturer selling cigarettes toconsumers within Indiana (whether directly or through a distributor,retailer, or similar intermediary or intermediaries) after June 30,1999, shall do one (1) of the following:
(1) Become a participating manufacturer (as that term is definedin section II(jj) of the Master Settlement Agreement) andgenerally perform its financial obligations under the MasterSettlement Agreement; or
(2) Place into a qualified escrow fund by April 15 of the yearfollowing the year in question the following amounts (as suchamounts are adjusted for inflation):
(A) 1999, $0.0094241 per unit sold after June 30, 1999.
(B) 2000, $0.0104712 per unit sold.
(C) For each of 2001 and 2002, $0.0136125 per unit sold.
(D) For each of 2003 through 2006, $0.0167539 per unitsold.
(E) For each of 2007 and each year thereafter, $0.0188482per unit sold.As added by P.L.223-1999, SEC.1.
IC 24-3-3-13
Interest paid and release of escrow funds; severability
Sec. 13. (a) Subsection (b) applies unless and until all or any partof subsection (b) is held to be unconstitutional or otherwiseunenforceable. If all or any part of subsection (b) or the applicationof all or any part of subsection (b) to a person, an entity, or acircumstance is held to be unconstitutional or invalid by a court, theunconstitutionality or invalidity does not affect other provisions ofthis chapter, and subsection (c) controls. Subsection (c) appliesunless and until all or any part of subsection (c) is held to beunconstitutional or otherwise unenforceable. If all or any part ofsubsection (c) or the application of all or any part of subsection (c)to a person, an entity, or a circumstance is held to be unconstitutionalor invalid by a court, the unconstitutionality or invalidity does notaffect other provisions of this chapter, and subsection (d) controls.
(b) A tobacco product manufacturer that places funds into escrowunder section 12(2) of this chapter shall receive the interest or otherappreciation on such funds as earned. The funds shall be releasedfrom escrow only under the following circumstances:
(1) To pay a judgment or settlement on any released claimbrought against the tobacco product manufacturer by the stateor any releasing party located or residing in Indiana. Funds shallbe released from escrow under this subdivision:
(A) in the order in which they were placed into escrow; and
(B) only to the extent and at the time necessary to makepayments required under such a judgment or settlement.
(2) To the extent that a tobacco product manufacturerestablishes that the amount the tobacco product manufacturer isrequired to place in escrow on account of units sold in Indianain a particular year exceeds the master settlement agreementpayments the tobacco product manufacturer would have beenrequired to make on account of units sold in Indiana if thetobacco product manufacturer were a participatingmanufacturer, as determined under section IX(i) of the mastersettlement agreement and after final determination of alladjustments, the excess payments shall be released from escrowand shall revert to the tobacco product manufacturer.
(3) To the extent not released from escrow under subdivision(1) or (2), funds shall be released from escrow and revert backto the tobacco product manufacturer twenty-five (25) years afterthe date on which the funds were placed into escrow.
(c) This subsection applies only if subsection (b) is held to beunconstitutional or otherwise unenforceable. A tobacco productmanufacturer that places funds into escrow under section 12(2) ofthis chapter shall receive the interest or other appreciation on thefunds as earned. The funds shall be released from escrow only underthe following circumstances:
(1) To pay a judgment or settlement on any released claim
brought against the tobacco product manufacturer by the stateor any releasing party located or residing in Indiana. Funds shallbe released from escrow under this subdivision:
(A) in the order in which they were placed into escrow; and
(B) only to the extent and at the time necessary to makepayments required under such a judgment or settlement.
(2) To the extent not released from escrow under subdivision(1), funds shall be released from escrow and revert back to thetobacco product manufacturer twenty-five (25) years after thedate on which the funds were placed into escrow.
(d) This subsection applies only if subsections (b) and (c) are heldto be unconstitutional or otherwise unenforceable. A tobacco productmanufacturer that places funds into escrow under section 12(2) ofthis chapter shall receive the interest or other appreciation on suchfunds as earned. Such funds themselves shall be released fromescrow only under the following circumstances:
(1) To pay a judgment or settlement on any released claimbrought against such tobacco product manufacturer by the stateor any releasing party located or residing in Indiana. Funds shallbe released from escrow under this subdivision:
(A) in the order in which they were placed into escrow; and
(B) only to the extent and at the time necessary to makepayments required under such a judgment or settlement.
(2) To the extent that a tobacco product manufacturerestablishes that the amount it was required to place into escrowin a particular year was greater than the state's allocable shareof the total payments that the manufacturer would have beenrequired to make in that year under the Master SettlementAgreement (as determined pursuant to section IX(i)(2) of theMaster Settlement Agreement, and before any of theadjustments or offsets described in section IX(i)(3) of thatAgreement other than the Inflation Adjustment) had it been aparticipating manufacturer, the excess shall be released fromescrow and revert back to the tobacco product manufacturer.
(3) To the extent not released from escrow under subdivision(1) or (2), funds shall be released from escrow and revert backto such tobacco product manufacturer twenty-five (25) yearsafter the date on which the funds were placed into escrow.
As added by P.L.223-1999, SEC.1. Amended by P.L.252-2003,SEC.15.
IC 24-3-3-14
Certification of compliance with chapter; failure to make annualdeposit
Sec. 14. (a) Each tobacco product manufacturer that elects toplace funds into escrow under section 12(2) of this chapter shallannually certify to the attorney general that it is in compliance withthis chapter. The attorney general may bring a civil action on behalfof the state against any tobacco product manufacturer that fails toplace into escrow the funds required under section 12 and section 13
of this chapter. Any tobacco product manufacturer that fails in anyyear to place into escrow the funds required under section 12(2) ofthis chapter shall:
(1) Be required within fifteen (15) days to place sufficient fundsinto escrow to bring it into compliance with this chapter. Thecourt, upon a finding of a violation of section 12(2) of thischapter, may also impose a civil penalty to be paid to the stategeneral fund in an amount not to exceed five percent (5%) ofthe amount improperly withheld from escrow per day of theviolation and in a total amount not to exceed one hundredpercent (100%) of the original amount improperly withheldfrom escrow.
(2) In the case of a knowing violation, be required within fifteen(15) days to place sufficient funds into escrow to bring it intocompliance with section 12(2) of this chapter. The court, upona finding of a knowing violation of section 12(2) of this chapter,may also impose a civil penalty to be paid to the state generalfund in an amount not to exceed fifteen percent (15%) of theamount improperly withheld from escrow per day of theviolation and in a total amount not to exceed three hundredpercent (300%) of the original amount improperly withheldfrom escrow.
(3) In the case of a second knowing violation, be prohibitedfrom selling cigarettes to consumers within Indiana (whetherdirectly or through a distributor, retailer or similarintermediary) for a period not to exceed two (2) years.
(b) Each failure to make an annual deposit required under section12(2) of this chapter constitutes a separate violation.
As added by P.L.223-1999, SEC.1.