Judge Forrest Awards Almost $250 Million to New York State and City in UPS Cigarette Tax Case

Judge Forrest awarded over $165 million to plaintiff New York State and over $81 million to plaintiff New York City for their claims that UPS failed to prevent the shipment of untaxed cigarettes using its parcel service (see our previous coverage here).  Judge Forrest awarded damages under both a previous Assurance of Discontinuance agreed to by UPS and New York State, as well as under Prevent All Cigarette Trafficking (PACT) Act and Contraband Cigarette Trafficking Act (CCTA). Judge Forrest noted that the facts of the case made "significant penalties" appropriate:

[T]he facts demonstrate a high level of culpability by UPS.  Numerous separate acts by numerous UPS employees allowed vast quantities of unstamped cigarette shipments to be delivered to unauthorized recipients in New York. The New York Executive Branch and legislature, along with Congress, had specifically attempted to prevent this with the AOD, the PACT Act (which should have incented compliance with the AOD), the CCTA, and PHL § 1399-ll. UPS largely relied on its size and weak internal procedures to excuse blatantly culpable conduct. As the Court found in its Liability Opinion, there were many, many people within UPS who consciously avoided the truth, for years. Even so, the Court also recognizes that UPS has now—since this lawsuit was filed—regained its footing.  UPS now approaches compliance with the AOD and the various statutory schemes with renewed vigor and additional processes and procedures.

Judge Forrest also observed that while UPS's profits associated with shipping the cigarettes were low, a high penalty was appropriate to deter future conduct:

UPS is a large company with significant assets. Its financial statements are a matter of public record. Not only can it handle a hefty fine, only a hefty fine will impact such a large entity sufficiently to capture the attention of the highest executives in the company—executives who then, in a rational economic move, will cause changes in practice and procedures to be strictly maintained. A fine in line with only the profits and revenues associated with the conduct at issue would not have this deterrent impact.