New York v. United Parcel Serv., Inc.

THE STATE OF NEW YORK and THE CITY OF NEW YORK, Plaintiffs, v. UNITED PARCEL SERVICE, INC., Defendant.

15-cv-1136 (KBF)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

March 24, 2017

OPINION & ORDER

KATHERINE B. FORREST, District Judge:

Table of Contents

I. INTRODUCTION .................................................................................................. 1

II. PROCEDURAL HISTORY .................................................................................... 3

A. Pre-Trial Proceedings ....................................................................................... 3

B. The Trial ........................................................................................................... 8

III. FINDINGS OF FACT ............................................................................................ 9

A. Public Health Issues Associated with Cigarettes ............................................ 9

B. Plaintiffs' Investigations of UPS .................................................................... 10

C. UPS's Business ............................................................................................... 13

D. UPS's Business and Specific Conduct ............................................................ 19

1. UPS's Tobacco Policy ................................................................................... 19

2. UPS's Training Efforts ................................................................................ 21

3. The Role of Account Executives .................................................................. 24

4. The Role of UPS Drivers ............................................................................. 27

5. UPS's Interactions with Shippers ............................................................... 29

6. UPS's Information Systems and Information Sharing .............................. 31

E. UPS's Asserted Reliance on Governmental Action/Inaction ........................ 32

1. Governmental Action .................................................................................. 33

2. Governmental Inaction ............................................................................... 35

F. UPS's Audits ................................................................................................... 37

IV. CURRENT STATUS OF UPS'S COMPLIANCE EFFORTS ............................. 40

V. BACKGROUND CONCERNING THE TAXATION OF CIGARETTES AND LITTLE CIGARS ................................................................................................. 43

VI. THE PACT ACT ................................................................................................... 45

VII. CONSUMPTION OF TOBACCO PRODUCTS .................................................. 46

A. Cigarettes ........................................................................................................ 46

B. Little Cigars .................................................................................................... 48

VIII. CERTAIN COMMON EVIDENCE ..................................................................... 51

A. The Fink Accounts .......................................................................................... 51

B. The Non-Compliant Lists ............................................................................... 53

C. The "Tobacco Watchdog Group" Letter .......................................................... 56

D. Inquiries Regarding Lost or Damaged Packages .......................................... 58

1. Smokes & Spirits ......................................................................................... 59

2. RJESS .......................................................................................................... 59

3. Sweet Seneca Smokes ................................................................................. 60

4. Elliott Enterprises/EExpress ...................................................................... 60

5. Bearclaw Unlimited .................................................................................... 60

6. Shipping Services ........................................................................................ 61

7. Native Wholesale Supply ............................................................................ 61

8. Seneca Promotions ...................................................................................... 61

9. Native Gifts ................................................................................................. 61

10. Jacobs Manufacturing/Tobacco ................................................................... 61

E. The Cigarettes Shipped Were Unstamped .................................................... 62

IX. SHIPPERS AT ISSUE ......................................................................................... 63

A. Overview of the Shippers and the Court's Findings ..................................... 63

B. Liability Shippers ........................................................................................... 67

1. Elliott Enterprises ....................................................................................... 67

2. EExpress ...................................................................................................... 73

3. Bearclaw/AFIA ............................................................................................ 77

4. Shipping Services/Seneca Ojibwas/Morningstar Crafts & Gifts ............... 80

5. Indian Smokes ............................................................................................. 85

6. Smokes & Spirits ......................................................................................... 88

7. Arrowhawk/Seneca Cigars/Hillview Cigars/Two Pine Enterprises .......... 92

8. Mohawk Spring Water ................................................................................ 99

9. Jacobs Tobacco Group ............................................................................... 102

10. Action Race Parts ...................................................................................... 104

11. Native Wholesale Supply .......................................................................... 105

12. Seneca Promotions .................................................................................... 107

C. Shippers as to Which There Is Only AOD Liability .................................... 109

1. Native Outlet ............................................................................................. 109

2. A.J.'s Cigars ............................................................................................... 111

3. RJESS ........................................................................................................ 113

D. Shipper as to Which There Is No Liability .................................................. 115

1. Sweet Seneca Smokes ............................................................................... 115

X. CONCLUSIONS OF LAW ................................................................................. 118

A. The AOD ........................................................................................................ 119

1. Background Described in the AOD ........................................................... 120

2. The Terms of the AOD .............................................................................. 122

B. Interpretation of the AOD ............................................................................ 128

C. Violations of the AOD ................................................................................... 129

D. Violations of the Audit Obligation Under the AOD .................................... 134

1. Proof to the Reasonable Satisfaction of the State Attorney General ...... 135

2. Implied Covenant of Good Faith and Fair Dealing .................................. 137

E. Whether the AOD Was "Honored" ............................................................... 140

XI. KNOWLEDGE ................................................................................................... 144

A. Knowledge ..................................................................................................... 145

B. Imputation of Knowledge ............................................................................. 150

C. Presumptions of Knowledge for Common Carriers ..................................... 154

D. Knowledge as to Each Shipper ..................................................................... 155

XII. LIMITATIONS PERIOD ................................................................................... 155

XIII. THE PACT ACT ................................................................................................. 158

XIV. PHL 1399-LL ..................................................................................................... 162

XV. THE CCTA ......................................................................................................... 165

XVI. PREEMPTION ................................................................................................... 171

XVII. UPS'S REMAINING DEFENSES ................................................................... 175

A. Unclean Hands/In Pari Delicto .................................................................... 175

B. Waiver ........................................................................................................... 177

C. Public Authority and Estoppel ..................................................................... 178

XVIII. DAMAGES ...................................................................................................... 182

A. UPS's Pre-Trial Damage Disclosure ............................................................ 183

B. Legal Principles Regarding Damages .......................................................... 189

1. Compensatory Damages ............................................................................ 189

2. Penalties

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