Limits the undertaking required of tobacco manufacturers and affiliates during appeals of the tobacco master settlement agreement to $100,000,000 for all appellants collectively, unless the appellee proves by a preponderance of the evidence that the appellant is dissipating assets outside the course of normal business.
TITLE OF BILL:
to amend the civil practice law and rules, in relation to the
undertaking required during the stay of enforcement of the tobacco
product master settlement agreement
To safeguard the flow of funds under the tobacco master settlement
agreement ("MSA") to the state by limiting the supersedes bond that
MSA signatories and their successors and affiliates and
nonparticipating manufacturers must post to stay the execution of a
judgment during appeal to one-hundred million dollars, regardless of
the value of the judgment.
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.
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
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
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.
Passed Senate in 2006.
No fiscal impact, protects revenues of the state and counties.
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.
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