Judge Forrest: UPS Liable for Shipping Untaxed Cigarettes in New York State

On Friday, Judge Forrest held UPS liable to the City and State of New York for shipping millions of dollars worth of untaxed cigarettes from Native American reservations to locations elsewhere in the state (see our previous coverage of the case here).  The order comes after a bench trial held last September, where UPS asserted that packages it delivered containing untaxed cigarettes did not violate a previous Assurance of Discontinuance (AOD) signed with the State of New York in 2005. Judge Forrest found that UPS had improperly shipped untaxed cigarettes, and should have known that the packages contained untaxed cigarettes based on numerous red flags.  As a result, significant penalties were appropriate (though the court highlighted UPS' now-improved internal procedures):

Numerous separate acts by numerous UPS employees allowed vast quantities of unstamped cigarette shipments to be delivered to unauthorized recipients in New York . . . UPS largely relied on its size and weak internal procedures to excuse blatantly culpable conduct. But 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 the 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.

Public health concerns also favored significant penalties:

The State and federal legislatures have deemed transport of cigarettes as a public health issue, and the effects of cigarette usage are well known. However, it is also the case that UPS is not the cigarette manufacturer or seller—it is a transporter. Thus, it bears a lower level of culpability for the impact on public health than other entities. In addition, it is unclear whether, in the absence of UPS’s transport of cigarettes, the same public health effects would still be felt. The Court cannot speculate as to this. The Court focuses UPS’s unlawful enablement of a public health impact that the political branches have proscribed and the costs of which New Yorkers must bear.

Judge Forrest awarded damages and monetary penalties in amounts yet to be determined, but denied further injunctive relief or the appointment of a monitor.