Limits the undertaking required of tobacco manufacturers and affiliates during appeals of the tobacco master settlement agreement

Summary of provisions

This bill would provide that the maximum aggregate undertaking required to stay the execution of a judgment involving a signatory, a successor to a signatory, or an affiliate of a signatory to the MSA or a nonparticipating manufacturer shall not exceed $100 million. This bill also would provide that a court may require a higher bond in an amount not to exceed the total amount of the judgment if the appellee demonstrates by preponderance of the evidence that a defendant is improperly dissipating assets outside the ordinary course of business in order to avoid payment of a judgment.

For purposes of this bill, the term "master settlement agreement" shall mean the settlement agreement (and related documents) entered into on November 23, 1998 by the state and leading United States tobacco product manufacturers, as defined in Section 1399-00 of the Public Health Codes.

Justification

The Tobacco Master Settlement Agreement is vitally important to New York and the 45 other states that are parties to the settlement. From 2004 to 2009, the states received over $90 billion in MSA payments. In 2010 alone, New York State, New York City and other New York counties received approximately $764,600,000 under the MSA.

However, the tobacco companies that make payments to the state pursuant to the MSA can be involved in extensive litigation, which on occasion produces verdicts in the hundreds of millions or billions of dollars. Many of these large verdicts are reduced or overturned on appeal. But if such a verdict were entered against the tobacco companies in New York, the only way the companies could prevent a

plaintiff from collecting on the judgment during the appeal would be to post an undertaking equal to the full amount of the judgment. (N.Y. C.P.L.R. 5519). If a tobacco company is subject to a large judgment and cannot afford to post an appeal bond in the amount required by New York law, the company's assets could be seized by the plaintiff during the appeal. This could disrupt payments by the company, including payments to New York and the other states under the MSA.

Many states have enacted appeal bond caps to prevent the disruption of MSA funds: To date, 38 states have recognized the possibility that a large appeal bond could prevent the tobacco companies from meeting their obligations to the states under the MSA. These states have passed legislation or amended court rules to limit the size of the required bond in cases involving large judgments. In addition, five other states do not require a defendant to post a bond at all during an appeal. It is important to understand that these limits on the size of appeal bonds do not in any way limit the damages a plaintiff can recover or change the law to make it more likely that a defendant will win its appeal. Some states have passed legislation that applies broadly to all litigants, while other states have passed more limited legislation that applies only to MSA signatories, successors, and affiliates. The bond limits vary in amount. Nearly all of the statutes include a provision that allows the court to increase the 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.

By limiting the amount of the undertaking that defendants must post to stay the execution of the judgment during appeal, this legislation guarantees that MSA signatories, affiliates, successors and nonparticipating manufacturers will be able to appeal a judgment while continuing to make their payments to New York and other states.

The proposed $100 million limit on appeal bonds is an appropriate and sensible measure: Capping the amount of potential appeal bonds is a matter of fundamental fairness and due process. Speaking of a case in Illinois, where an enormous appeal bond was required, The New York Times wrote, "[w]hatever the merits of the underlying decision, it is absurd to require someone - even a cigarette manufacturer - to put up a $12 billion bond to file an appeal. That is the kind of ruling that erodes the credibility of our legal system." (Too Costly an Appeal, N. Y. Times, April 4, 2003, at A20.) The Times continued, "in making an appeal so prohibitively costly," a court "renders the right to an appeal nearly meaningless, thus violating the defendant's due process rights." The New York legislature has recognized the danger of requiring appeal bonds from certain defendants. For example, bonding for five of the thirteen largest New York verdicts in 2004 and 2005 was subject to a $1 million statutory cap for "medical, dental or podiatric malpractice" actions. N.Y. C.P.L.R. 5519(g). Two of the verdicts were eligible for an automatic stay under a provision granting the state and state agencies an automatic stay without a

requirement of bond. N.Y.C P.L.R. 5519(a)(1). This provision supports a public policy of stabilizing "the effect of adverse determinations on governmental entities and prevent[ing] the disbursement of public funds pending an appeal that might result in a ruling in the government's favor." Summerville v. City of New York, 97 N.Y.2d 427, 434 (2002) In light of the damaging consequences if MSA payments to New York state and its cities and counties were terminated, the legislature should consider extending this public policy of stabilizing government payments to include stabilizing government MSA revenues.

Adopting an appeal bond limit for MSA signatories and their successors and affiliates is important to New York. Plaintiffs would be protected by the limited but large bond and by the provision in the bill allowing a judge to require a higher bond if a defendant is improperly dissipating assets. A defendant's right to appeal would be fully protected by limiting the bond requirement to an appropriate sum. And New York and the other states would be protected by ensuring that the MSA signatories can appeal an adverse judgment, thereby avoiding the necessity of seeking a stay in the bankruptcy court. This, in turn, will benefit New York and its citizens by preserving the uninterrupted flow of revenue from the MSA signatories.

Legislative history

Passed Senate in 2006.

Fiscal implications

No fiscal impact, protects revenues of the state and counties.

Effective date

This act shall take effect on the thirtieth day after it shall have become a law, and shall apply to any cause of action pending on or filed on or after such effective date.