03/26/1999 01:38 PM House FIN

HOUSE BILL NO. 102                                                                                                              
                                                                                                                                
"An Act imposing certain requirements relating to                                                                               
cigarette sales in this state by tobacco product                                                                                
manufacturers, including requirements for escrow,                                                                               
payment, and reporting of money from cigarette sales in                                                                         
this state; providing penalties for noncompliance with                                                                          
those requirements; and providing for an effective                                                                              
date."                                                                                                                          
                                                                                                                                
Co-Chair Therriault observed that Mr. Gardner, Department of                                                                    
Law responded to questions by the Committee in a letter                                                                         
dated 3/24/99 (copy on file).                                                                                                   
                                                                                                                                
DOUG GARDNER, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW                                                                     
reviewed his letter to Co-Chair Therriault. He observed that                                                                    
the Committee questioned if the word "generally" could be                                                                       
deleted on page 3, line 11. He conferred with counsel for                                                                       
Phillip Morris. Phillip Morris takes the position that it                                                                       
would not be a qualifying statute with the deletion of                                                                          
"generally". He stated that the state of Alaska would not                                                                       
necessarily agree with Phillip Morris, but acknowledged that                                                                    
the change would open the state to litigation. He                                                                               
recommended that "generally" not be deleted. He emphasized                                                                      
that any benefit for clarification purposes would be                                                                            
outweighed by the risks of litigation.                                                                                          
                                                                                                                                
Mr. Gardner discussed the second question that was posed by                                                                     
the Committee: What is the meaning of the phrase "generally                                                                     
perform its financial obligations under the Master                                                                              
Settlement Agreement." He observed that counsel for Phillip                                                                     
Morris would take the position that the change would render                                                                     
the statute a non-qualifying statute. The Department of Law                                                                     
takes the position that the term "generally perform its                                                                         
financial obligations" is a catch all phrase used to                                                                            
describe the myriad of financial obligations in the Master                                                                      
Settlement Agreement and in and of itself does not alter the                                                                    
obligations that are individually enforceable throughout the                                                                    
rest of the agreement. He recommended that the proposed                                                                         
change not be made.                                                                                                             
                                                                                                                                
Mr. Gardner discussed the third question: Can the committee                                                                     
amend HB 102 by deleting page 3, lines 10 - 12. He concluded                                                                    
that the need for the section still exists. He explained                                                                        
that a company could still become a Subsequent Participating                                                                    
Manufacturer (SPM).                                                                                                             
                                                                                                                                
Mr. Gardner discussed the fourth questioned: Does the bill                                                                      
have the affect of limiting a Non-Participating                                                                                 
Manufacturer's liability to the amount a manufacturer would                                                                     
be required to place in escrow under Sec. 45.53.020? He                                                                         
concluded that it would not. He noted that if a Non-                                                                            
Participating Manufacturer put a million dollars into an                                                                        
escrow account and was found to be liable to a plaintiff in                                                                     
Alaska for $2 million dollars, than the plaintiff could                                                                         
recover a million dollars from the escrow fund and continue                                                                     
to collect the judgement as allowed by Alaska law against                                                                       
the company. The fund is a vehicle for providing for                                                                            
compensation but not the only available source.                                                                                 
                                                                                                                                
Co-Chair Therriault clarified that the finding language is                                                                      
part of the model legislation.                                                                                                  
                                                                                                                                
Representative J. Davies asked what obligations and                                                                             
advantages would exist under the Subsequent Participating                                                                       
Manufacturer status. Mr. Gardner explained that a small                                                                         
manufacturing company could sign the agreement and take                                                                         
themselves out of the situation of possible liability. They                                                                     
would not have the ability to increase market share without                                                                     
any financial repercussions as they would have if they had                                                                      
signed as a SPM earlier. If they do not become a SPM they                                                                       
would have to deal with the escrow issue.                                                                                       
                                                                                                                                
Representative J. Davies questioned if they would be subject                                                                    
to advertising sanctions. Mr. Gardner replied that they                                                                         
would have to comply with SPM restrictions on advertising.                                                                      
                                                                                                                                
Representative Grussendorf maintained that "generally" is                                                                       
vague. He stressed that without "generally" the original                                                                        
agreement would be clear.                                                                                                       
                                                                                                                                
Representative J. Davies MOVED to ADOPT Amendment 1 (copy on                                                                    
file).                                                                                                                          
 Page 3, line 27                                                                                                                
                                                                                                                                
 Delete "Such money itself:"                                                                                                    
Insert "Money placed into escrow and interest earned on                                                                         
money in escrow"                                                                                                                
                                                                                                                                
Representative J. Davies expressed the concern that the                                                                         
phase "Such money itself" could be interpreted as relating                                                                      
only to the principle.                                                                                                          
                                                                                                                                
Mr. Gardner concluded that the phrase applies to both the                                                                       
interest and the principle amount. He emphasized that the                                                                       
language is clarified with the addition of page 4, lines 12                                                                     
- 15.                                                                                                                           
                                                                                                                                
Representative J. Davies Withdrew Amendment 1.                                                                                  
                                                                                                                                
Co-Chair Therriault questioned if the language on page 4                                                                        
line 12 should read "subsection".  Mr. Gardner stated that                                                                      
he thought the language should be "subsection".                                                                                 
                                                                                                                                
Co-Chair Therriault noted that there are two zero fiscal                                                                        
notes.                                                                                                                          
                                                                                                                                
Vice-Chair Bunde MOVED to report HB 102 out of Committee                                                                        
with the accompanying fiscal notes.                                                                                             
                                                                                                                                
HB 102 was REPORTED out of Committee with a "do pass"                                                                           
recommendation and two zero fiscal notes, one by the                                                                            
Department of Law and one by the Department of Revenue.