Legislature(2003 - 2004)
03/01/2004 01:10 PM House JUD
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* first hearing in first committee of referral
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HB 468 - APPEAL BONDS: TOBACCO SETTLEMENT PARTIES Number 1524 CHAIR McGUIRE announced that the next order of business would be HOUSE BILL NO. 468, "An Act relating to the amount of the bond required to stay execution of a judgment in civil litigation involving a signatory, a successor of a signatory, or an affiliate of a signatory to the tobacco product Master Settlement Agreement during an appeal; amending Rules 204 and 205, Alaska Rules of Appellate Procedure; and providing for an effective date." Number 1528 REPRESENTATIVE ANDERSON, speaking as chair of the House Labor and Commerce Standing Committee, sponsor of HB 468, said that the tobacco Master Settlement Agreement ("MSA") is vitally important to Alaska and to the other 45 states who are parties to that settlement. It delivers millions of dollars in revenues to Alaska annually, and will continue to do so for years to come. However, the continued receipt of these funds is threatened by the huge judgments being awarded against the tobacco companies funding the settlement. Defendants facing such judgments almost always have a right to appeal and, in may cases, their appeals are successful in obtaining a reduced judgment or in overturning the judgment entirely. But in order to stay the execution of a money judgment on appeal, a defendant must post a supersedeas - or "appeal" - bond, which, in the diminishing number of states not having limits on appeal bonds, usually equals the amount of the judgment. In Alaska, the bond required is ordinarily the amount of the judgment remaining unsatisfied, plus appeal costs and interest. But Alaska courts are permitted to set the bond in a different amount for good cause shown, meaning judges may set the bond at an amount exceeding the total judgment. REPRESENTATIVE ANDERSON went on to say that if a company cannot afford to post a bond in the amount set by the court, the end result is that the company may be forced to file for bankruptcy - which carries with it an automatic stay of the debtor's obligation to pay its creditors - in order to stop the plaintiff from taking its assets during the appeal. Such a stay could disrupt payments by the company, including payments to Alaska and the other states under the MSA. This problem has been most vividly demonstrated by the ongoing [Engle v. R.J. Reynolds Tobacco Company] case in Florida, in which a class of smokers was awarded $145 billion in punitive damages. Had there not been an appeal-bond cap in place at that time, the defendant tobacco companies would clearly have gone bankrupt, resulting in the termination of all MSA settlement payments nationwide, and precluding the ability to pursue a fair and orderly appeal. However, because Florida had previously enacted bond-cap legislation, the settlement payments continued during the appeal, and the appellate court ultimately rejected and reversed the verdict in its entirety. Number 1669 REPRESENTATIVE ANDERSON remarked that to date, 26 states have recognized the possibility of enormous appeal bonds causing signatory companies to be unable to meet their obligations to the states under the MSA, and these states have passed legislation or amended court rules to limit the size of the required bond in cases involving large judgments. In addition, 5 other states do not require a defendant to post a bond at all during an appeal. Some states have passed legislation applying broadly to all litigants, while other states have passed more limited legislation applying only to MSA signatories, successors, and affiliates. The bond limits range from $1 million to $150 million. Nearly all of the statutes include a provision allowing for a higher bond amount, up to the full value of the judgment, if the court determines that the appellant is dissipating assets to avoid paying a judgment. REPRESENTATIVE ANDERSON said that HB 468 imposes a limit of $25 million on the supersedeas bond that MSA signatories, successors, and affiliates must post to stay the execution of a judgment in Alaska. This bond limit would not change any other aspect of the law - for example, the rules by which the trial is conducted, or who ultimately wins or loses the lawsuit - or affect the rights of the plaintiffs to recover the full damages to which they are entitled if the judgment is upheld on appeal. Plaintiffs are also protected by the provision in the proposed legislation that allows the court to require a bond amount up to the value of the judgment if the appellant is dissipating its assets to avoid paying a judgment. House Bill 468 would not, therefore, injure plaintiffs in any way, and it would protect the state by ensuring it will continue to receive its MSA payments while the tobacco companies fully appeal any adverse judgment. In conclusion, he noted that the Senate Judiciary Standing Committee has reported the companion bill out of committee. REPRESENTATIVE GRUENBERG noted the presence of a typo on page 1, line 7; it currently refers to AS 43.53 but it should instead refer to AS 45.53. He suggested that the drafter correct that error. CHAIR McGUIRE indicated that there would be a technical amendment to fix that error. Number 1801 KEITH A. TEEL, Attorney, Co-Chair, Legislative Practice Group, and Chair, Tobacco Practice Group, Covington & Burling, noted that he has been involved "in this effort around the country" for the last three or four years. He said: I represent the four original tobacco companies that signed the Master Settlement Agreement with Alaska and the other states. And those companies are Philip Morris [Incorporated]; Lorillard Tobacco Company; Brown & Williamson Tobacco Corporation; and R.J. Reynolds Tobacco Company. Those companies are quite interested in trying to ensure that the MSA, the Master Settlement Agreement, continues in force - that nothing happens to mess it up, frankly. And that may sound a little strange because they were sued by a lot of states and, ... under this agreement, they're required to pay a lot of money. But frankly, having lived through the experience, the companies really believe ... it's a better world, with these payments being made and the obligations they made under the [MSA] being honored, than a situation where the states are all suing the industry. And so ... my clients would very much like to live up to their obligations under the [MSA]. ... For us, this is about the catastrophic situation where a piece of litigation just gets so ... out of control that it produces a verdict that is impossible or at least next to impossible to bond, to post an appeal bond. And while that sounds a little farfetched, it indeed (indisc. - coughing) in the last four years of this industry. Once was in a case called Engle, down in Florida, in 2000, that resulted in a verdict of $145 billion, and under the then-existing law in Florida, the companies would have been required to post an appeal bond of $181 billion, which is simply not possible; there is not a commercial market more than about $10 billion in the world, total, for appeal bonds, and the most any one company could get in the way of a commercial appeal bond is perhaps $2 billion. Number 1925 MR. TEEL continued: So there's simply not a market for appeal bonds of [this] size. (Indisc.) that judgment, as was noted, was completely reversed last May and went away, but had the companies been required to post an appeal bond under the previously existing Florida law, they would have been forced to seek a stay through some other means than posting a bond. And the only other way we know of is to declare bankruptcy, and the problem with a bankruptcy filing is that it does produce an automatic stay of all payment obligations but it's indiscriminate; it wouldn't just prevent us from having to pay a judgment while we appeal, it would prevent us from being able to make payments under the [MSA]. And that would ... present a serious problem for all the states in this country that rely, for a lot of different budgetary reasons, on these funds. As a result of that concern, the Florida legislature chose to (indisc. - paper rustling) limit of a $100 million, and that allowed the companies to post a bond and to go ahead and appeal. Last year, the other case arose, which was in Illinois, and that case resulted in a judgment of $10.1 billion. It was a consumer fraud case; there was all sorts of evidence that was put into the case that suggested that the companies had mislead the public in saying that ... so-called "light" cigarettes - low tar and nicotine cigarettes - are safe, and the contention of the plaintiffs was that they were not, or not any safer than regular cigarettes. And in that case, which was tried not to a jury but to a judge, the judge ordered $10.1 billion and then ordered that a $12 billion bond be posted, under Illinois law, in order to prevent the plaintiffs from executing while the defendants sought to appeal the judgment. What happened next was a lengthy dispute that at one point involved 37 attorneys general from other states, including Alaska, filing a petition with the courts in Illinois saying, "Please allow a lower bond." And it ultimately got to the state supreme court before the supreme court allowed (indisc. - coughing) $6.8 billion. Still a mammoth amount and something that could not be repeated. So that's the history here. There are two cases, that but for, in the one, the legislature reducing the bond, and, in the other, the company somehow scraping together the ability to post a $6.8 billion bond, there would have been a bankruptcy situation. Number 2021 MR. TEEL went on to say: And that bankruptcy would have stopped payments in those states under the [MSA] and in every other state under the [MSA]. The stay, as I say, is indiscriminate. This background ... probably should be augmented by just talking for a minute about what appeal bonds are for anyway. Appeal bonds are a creature of, really, a long history in the United States; they've been around, in some states, since the early 1800s. And ... frankly, when I think of appeal bonds, I think of a time when Abraham Lincoln was practicing law and a defendant could literally hop on his horse and ride out of town without ... paying a judgment. ... Class actions did not exist in a time when appeal bonds (indisc. - paper rustling); these massive punitive damage judgments didn't exist. And the result was that nobody contemplated the kinds of massive judgments that you now see, that the two cases I've just described are, ... when thinking about appeal bonds. We now have that situation, and we also have the rather odd situation, the only one I'm aware of, where states around the country are dependant on [MSA] revenues. For that reason, ... 26 states have acted to limit the appeal bond. In addition, 5 other states don't require a bond at all, just the (indisc.) stays of a judgment while it's on appeal. So you've now got 31 states in this country that do not require appeal bonds; that covers about 70 to 75 percent of the U.S. population. Frankly, our desire, our goal, is to try to pass this everywhere because, as these two cases I've described have shown, one bad judgment anywhere can prevent the companies from being able to honor their obligations under the [MSA], and we would rather not see that happen. Number 2111 MR. TEEL concluded: Just a couple of final points. First, there's no change in this bill in the substantive law. ... What this bill basically does is allow the companies to get through the appeal process without having their assets taken or being forced [into a] bankruptcy situation. ... If under the law they should lose the trial, presumably that verdict will be sustained on appeal, but at least it will let them get through the [appeal] process. Second, this is not a fix for some case that's hanging out there right now; we are not aware of a case in Alaska ... that currently presents this kind of risk. This is not an effort to try to mess up an ongoing piece of litigation for somebody else, but we feel that we have to do this in every state in order to protect the MSA. Third, the dissipation-of-assets provision ... is in this bill as it has been in most of the bills. One of the comments I've occasionally heard made about this is, "How does anybody know whether that's going on, whether assets are being dissipated," and I think the answer to that is [that] in some industries maybe that would be hard to see, [but] there's probably not an industry in the United States that is more closely watched by all sorts of people - including 50 state's attorneys general - right now, than the tobacco industry: the four companies I represent. There's a ton of public information available, there's a ton of analysts out there who follow this, and I (indisc. - coughing) pretty easy to see whether a dissipation-of- assets situation was occurring. Finally, a comment was made in previous hearings on the Senate bill ... [regarding] what happens if ... a truck driven by a Philip Morris employee plows into a school bus in Alaska. There may be a lot of answers one could give to that ..., but the basic answer is: Philip Morris doesn't have any employees in Alaska; its parent company, Altria [Group, Inc.], does not have any employees in Alaska; its sister company, Kraft [Foods], does not have any employees in Alaska. That's not how the chain of distribution works, and so while it's an interesting hypothetical, it's just not something that's likely to happen in Alaska. With that, I will stop, and I'd ... be very happy to answer any questions. Number 2203 REPRESENTATIVE GRUENBERG turned attention to page 2, line 5, which read in part, "is dissipating assets outside the ordinary course of business to avoid payment", and said he is concerned about a possible loophole. He remarked, "I don't want the defendant to be able to say, 'Well, we're trying to avoid the payment of the judgment, but it's in the ordinary course of business'; so I'd like to eliminate the phrase, 'outside the ordinary course of business". Representative Gruenberg asked Mr. Teel if he would be opposed to eliminating that phrase. MR. TEEL replied: That language is in virtually every one of these dissipation-of-assets sections, and the reason it is there is to try to recognize that the companies involved here are pretty huge companies that are constantly moving money around for all sorts of purposes. What we were trying to get at was something where a pattern emerges of something unusual happening, like ... moving the company out of New York City and into Mexico or something. So we were trying to set up the comparison between what's the normal ... pattern of behavior for these specific companies in their ordinary course. It was not an attempt to create some sort of loophole; it was just an attempt to recognize that there's got to be some ability to move money. If the committee really wants to do that, I recognize that is not the most important language in the bill, but it is language that's in every other state's dissipation section. REPRESENTATIVE GRUENBERG remarked that he did not want to wind up going before the supreme court on the construction of that particular phrase. MR. TEEL said that although he would prefer that the phrase be retained, he understands if the committee would prefer to remove it. Number 2297 REPRESENTATIVE GRUENBERG asked whether anyone else has raised this issue. MR. TEEL replied that from time to time, during the course of similar discussion in other states, it has been raised, but the end result for the most part has been to retain that language. He noted, however, that there are two or three states that decided not to include "this provision." In response to a question, he said that although there have been slight variations of the provision, it has pretty much said the same thing and included the "outside the ordinary course of business" language. REPRESENTATIVE GARA asked Mr. Teel if he helped draft the language in HB 468. MR. TEEL said yes. REPRESENTATIVE GARA asked what the phrase, "an affiliate of a signatory" means. MR. TEEL said that typically, the way affiliate is defined in the law, it includes parent corporations and sibling companies. TAPE 04-30, SIDE B Number 2393 MR. TEEL went on to say that what he and his clients were concerned about were situations in which somebody throws a parent company into litigation against the party that signed the MSA. In such a situation, a judgment against a parent company could sufficiently weaken the whole enterprise because the parent company would have to seek a stay under the bankruptcy laws and this in turn could potentially result in a stay of its subsidiary enterprises. He went on to say: We're really trying to prevent that sort of situation. There was [a] little bit of concern ... about the situation where you might have a retailer or a distributor who is named in a lawsuit and goes all the way through judgment ..., and ... for that reason we also put in some language in this bill dealing with appellants collectively. We were trying to keep those people from having to post their own bond. REPRESENTATIVE GARA offered his understanding that a lot of cigarette companies produce other products as well, for example, cheese. MR. TEEL acknowledged that the parent company of Philip Morris [Incorporated], Altria [Group, Inc.], also owns Kraft [Foods]. REPRESENTATIVE GARA said that he wants to make sure that the legislation is as narrow as possible because he is concerned about extending "this protection" to any case that involves an affiliate of a tobacco company even if it doesn't involve tobacco specifically. If the real concern is tobacco litigation, he asked, then why is this bond rule applicable to non-tobacco litigation too? Why not limit it to just tobacco litigation? MR. TEEL replied: Let's imagine you had something that ... didn't involve tobacco per se, say a big derivative suit brought against the parent company, Altria [Group, Inc.], that somehow dealt with ... some sort of corporate action that had nothing in particular to do with the sale of cigarettes. If that resulted in a massive judgment, ... you'd still have to bond that, and the process of having to bond it could cause Altria [Group, Inc.,] to have problems continuing to make its obligations under the MSA. It really doesn't have much to do at all with cigarettes; it has to do with the financial health of the company, and any large judgment could weaken the financial health of the company. Number 2258 REPRESENTATIVE GARA asked why the amount of $25 million is proposed. Why is that the appropriate amount as opposed to $60 million or $80 million? MR. TEEL replied: We start with $25 million. I will tell you there is one state - Idaho - that went with $1 million; they thought $25 [million] was outlandish. The way it has worked out around the country, it's really kind of a question of what the legislature is comfortable with, and I think the bill that came out of the Senate side this morning ... [now has an] amount [of] ... $100 million. And with that, I think some of these other concerns ... they were okay with. ... About 10 to 13 ... states have the $25-million number; about another 5 or 6 have $50 million; 1 has $75 [million]; about 5 or 6 have $100 million; and 2 have $150 million. REPRESENTATIVE OGG asked whether it would be possible for a company like ExxonMobil Corporation to become an affiliate of one of the signatories to the MSA and, under the current language in HB 468, thereby "get out of their $5 billion bond." MR. TEEL said no, adding that although it is theoretically possible that any company could make a corporate bid on another company, as a practically matter, there are very few companies in the world that are looking to enter into the tobacco industry, particularly given the recent settlements and litigation. He offered his understanding that much of the Exxon Valdez litigation was taking place in the federal courts, and HB 468 establishes a rule that it would not apply in federal courts. He mentioned that [his firm] had been advised to limit the legislation proposed for Alaska to just tobacco litigation specifically because of the Exxon Valdez litigation. REPRESENTATIVE GRUENBERG noted that AS 45.53, which HB 468 proposes to alter, pertains only to cigarette sales. MR. TEEL pointed out that some of the other states "have broadly applicable caps that they've adopted to these appeal bonds," and so their legislation applies to more than just the MSA. The legislation before the committee, however, is "MSA-specific." Number 2107 JENNIFER APP, Alaska Advocacy Director, American Heart Association, said that the American Heart Association is concerned about HB 468 because it fails to protect the public health of all Alaskans and is not needed to protect the MSA payments that Alaska receives every year. She noted that because the use of cigarettes is the number one preventable cause of heart disease, the American Heart Association spends a lot of time and energy ensuring that the appropriate amount of the MSA funds actually gets spent on tobacco education and cessation programs. The American Heart Association does not support HB 468. Notwithstanding that the MSA payments are incredibly important to the American Heart Association, the appeal bond limit proposed via HB 468 is nothing more than special legislation for tobacco companies that wish to get out of the current appeal bonds which apply to all companies doing business in Alaska. "This bill essentially would give the tobacco companies a bit of a free ride here, letting them cap the appeal bond limit at $25 million," she added. MS. APP said that appeal bonds serve an important role in protecting plaintiffs that have legitimately prevailed in a lower court. This mechanism ensures that defendants don't use repeated frivolous appeals, and also ensures that defendants don't lose their assets or hide them during the appeal process. She noted that Representative Gruenberg has already touched on the American Heart Association's concern regarding subsection (b) of Section 1, specifically the language, "outside the ordinary course of business". She opined that it would be very difficult, perhaps close to impossible, for a plaintiff to show that a company was dissipating assets outside the ordinary course of business, especially in complex litigation against large tobacco companies with widely dispersed assets. MS. APP predicted that if there ever were to be a large class action lawsuit in Alaska that prevails in a lower court, it could result in a damage award in the billions of dollars, for example, in a case in which cigarette companies are found guilty of marketing cigarettes under false pretenses, such as what happened with the so-called "light" cigarettes, or if a company is found to be directing its marketing toward children. In such a situation, a tobacco company could get away with paying a $25 million bond on a multi-billion dollar judgment. Even if such is not likely to occur in Alaska, she remarked, it does set a dangerous precedent without necessarily offering protection to those that are harmed by cigarettes, which is the goal of having an appeal bond. Number 1955 MS. APP offered her belief that provisions ensuring that companies don't go bankrupt are already in place. First of all, companies can file a motion with the court to reduce the amount of the appeal bond, as occurred in the aforementioned Illinois case. The defendant can also work out an agreement with the prevailing plaintiffs to post a smaller bond. She noted that the signatory companies are very big companies; for example, the parent company of Philip Morris Incorporated has total assets of $87.5 billion, net revenues of $80.4 billion, and U.S. tobacco revenues of $18.9 billion. She said she finds it somewhat ironic that the amount of $25 million was chosen for Alaska as an appeal bond limit, since that is also the amount of money that tobacco companies spend annually in Alaska marketing their "deadly products." Tobacco companies do have money to spend, she remarked, they just don't want to post it on appeal bonds. MS. APP opined that by lowering nonessential spending, tobacco companies could raise the money to post on appeal bonds without impacting their MSA payments. In conclusion, she said that if [the legislature] is truly concerned about the future of the MSA payments, there are some alternatives to the concept proposed via HB 468 that the American Heart Association would be satisfied with, for example, using language that sets an appeal bond limit at no greater than the total value of a losing defendant's assets, or at no greater than a losing defendant's total revenues for the prior fiscal year. Such alternatives would be legitimate ways of ensuring that tobacco companies are not forced into bankruptcy, while also ensuring that they are not let off the hook too easily. House Bill 468 is being proposed specifically for future large class action lawsuits, and $25 million is very small in terms of an appeal bond for such suits. CHAIR McGUIRE noted that the American Heart Association has also provided written testimony. REPRESENTATIVE GARA asked what standards the court would use to lower an appeal bond amount. MS. APP said she did not know what they are specifically but posited that the courts do a balancing test between the amount of the judgment and the amount of the bond. Number 1741 REPRESENTATIVE HOLM raised the issue of perhaps having an appeal bond limit of 10 percent. MR. TEEL said that such has been discussed in a number of states, but has not been adopted except in a couple of states and then only in conjunction with a "hard dollar cap" and for all defendants, not just to the MSA signatories. He surmised that the reason a 10 percent limit has not been more favorably received is because no one is "very enthusiastic about the inevitable post-judgment proceeding to figure out what 10 percent of net worth is." CHAIR McGUIRE noted that in members' packets are handouts provided by Covington & Burling detailing the appeal bond limits enacted by different states; for example, California has a limit of the lesser of 100 percent of the judgment of $150 million, and Texas has a limit of the lesser of 50 percent of the judgment debtor's net worth or $25 million. She remarked that some states have opted for having an appeal bond limit that is only applicable to the punitive damages portion of a judgment. MR. TEEL surmised that those were states that enacted their appeal bond limits at the time of the aforementioned Engle case, and so the focus was very much on the punitive damages aspect of that case. Since that time, he remarked, a couple of states set appeal bond limits applicable to "damages of all kinds." CHAIR McGUIRE asked how the punitive damages have compared with compensatory damages in these cases. MR. TEEL said that although there is no "average" case, in every complaint against tobacco companies that he's seen, there is an assertion of "a punitive damages claim." He mentioned that the tobacco industry probably prevails in most individual personal injury cases, though not all. And in some of the cases that have been lost, there have been punitive damages ranging between 1,000 times more than the compensatory damages to less than the compensatory damages. He added: I think the world of "compensatories" has changed a little bit, though, in light of the U.S. Supreme Court's decision in 2003 in the State Farm (ph) case, which added a sort of constitutional overlay to the relationship between compensatory and punitive damages. And that has resulted in, not only for the tobacco industry but for other companies, cases being sent back to trial courts to have the "punitives" reexamined. Number 1498 MR. TEEL remarked that generally, the truly massive portion of these verdicts tends to be punitive damages, adding that he is not aware of an individual "smoking and health case ... where the ultimately awarded compensatory damages to the plaintiff exceeded the $25 million that's the cap in this bill." In response to a question, he relayed that he practices law in Washington DC. REPRESENTATIVE GRUENBERG opined that in addition to amending Rules 204 and 205 of the Alaska Rules of Appellate Procedure, HB 468 may also have the effect of amending Rule 62 of the Alaska Rules of Civil Procedure. He asked the committee aide to investigate that issue so that if necessary, he can offer a technical amendment to that effect. REPRESENTATIVE GARA noted that 25 states do not have limits on appeal bonds. MR. TEEL indicated that some of those states do have legislation pending, adding that in a few states, the legislature doesn't have the authority to make such a change - instead the court must do it. REPRESENTATIVE GARA asked whether any states have simply turned down this proposal. MR. TEEL relayed that in Iowa, although the legislature passed an appeal bond limit twice, the legislation was vetoed by the governor both times. He also offered his belief that similar legislation didn't pass in New Mexico simply because the legislature ran out of time. Number 1225 EMILY NENON, Alaska Advocacy Director, American Cancer Society (ACS), said that one of the things about HB 468 that she takes issue with is the proposition that it is in the best interest of Alaska to protect the health of the tobacco industry. She elaborated: We know that here in Alaska, tobacco annually costs the state $132 million in annual health care costs directly related to smoking, and an additional $129 million in lost productivity. What we bring in - that's supposedly in jeopardy, as the argument goes here - is between $22 [million] and $27 million from the [MSA]. And I will remind you all that like ... the American Heart Association, the American Cancer Society is active in lobbying to get ... tobacco settlement monies spent on tobacco control programs; that fits right into our mission of eliminating cancer as a major health problem. But ultimately, the [MSA] was about the tobacco industry repaying the states for the damage [it has] inflicted, not about being a windfall for state budgets. And so around the country, the position of the [ACS] is, and I'm reading this right off the web site, "We believe tobacco companies should be held to the same standard as other industries and should not receive special protection from state legislatures." That is the basis that I'm coming from; I have been looking at this [and] a lot of the other arguments have been brought up, but that's one that I think that we're really missing and that I would like the committee to take seriously in consideration of this bill. CHAIR McGUIRE asked what would the ACS's position be if the legislation before the committee set appeal bond limits for all types of litigation, not just tobacco litigation. MS. NENON replied: I have a personal argument about that, and I would have to ... do some more checking with our national government relations department to find out what the [ACS's] position is on that, [but] the research that I've done shows that the court system is designed to be able to handle setting [appeal] bonds. In the Illinois case last summer, when the judge set the [appeal] bond level at $12 billion, the court did reduce that ... bond amount ... down to $6 billion, and I will point out that Philip Morris [Incorporated] was able to post a $6 billion bond. So my thinking is that the courts have been able to handle this in other cases, ... [and] the courts are uniquely set up to be able to handle these kinds of issues. Number 1042 REPRESENTATIVE GRUENBERG remarked that the statute pertaining to the MSA stems from one-of-a-kind litigation, and that a supersedeas bond is generally the amount of the judgment plus interest. Such an amount, he opined, could "easily bust the bank," particularly given that bankruptcy is sometimes used as a form of corporate strategy and that "we've already sold 80 percent of the tobacco settlement." "So it's not as simple as all that," he concluded. CHAIR McGUIRE asked Ms. Nenon to provide the committee with the ACS's position on an alternative: making the appeal bond limit apply to all litigation. Chair McGuire said she agrees with Representative Gruenberg that the [MSA] presents an unusual situation. REPRESENTATIVE HOLM asked what it costs to purchase a $1 billion bond. MR. TEEL relayed that a $10 million bond could be purchased for perhaps 1 to 2 percent of that amount, whereas a $1 billion bond could perhaps be purchased for an amount ranging between tens of millions of dollars and $100 million, depending on "who you are." He noted that companies that have "a higher perceived risk in the litigation market place" have a hard time buying bonds, adding that the tobacco industry has a little bit of a history in attempting to buy such bonds and has typically not been able to buy them. Instead, the tobacco companies that he represents have had to put money into a bank account in order to get a letter of credit from the bank; that letter of credit is then given to the surety company, which then issues the bond. "If you can buy them, they're a relatively small percentage of the judgment, but it's not clear everybody can buy them," he concluded. Number 0813 REPRESENTATIVE GARA asked Ms. Nenon for a copy of the statement she'd read from earlier. MS. NENON agreed to provide a copy of that to him, adding that the language on the ACS's web site is a lot stronger than her spoken testimony. REPRESENTATIVE GARA asked of Mr. Teel: If we're trying to protect the assets of a particular company and we're going to do it with a $25 million limit or a $100 million limit, whatever the limit is, why do we also have this provision in the bill that says collectively it can't exceed $25 million ... [or whatever the limit is], collectively among all defendants put together? MR. TEEL replied: What we were worried about there was small defendants being sued with large defendants. In these cases, sometimes ... you get the retailers and the distributors who get named in the lawsuit, and often they are just there for purposes of defeating diversity and keeping a case in state court. ... And ... sometimes they're carried all the way through to the judgment. We just thought it was a little much to ask some of those ... smaller [businesses] ... in this litigation, who are not really the target, to have to, themselves, post the larger bond. And so this was an effort to kind of sweep everybody in on the one bond. Most states that have passed this have kept that "collectively" language, [but] not every state has. CHAIR McGUIRE indicated that HB 468 would be held over.
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