State and city authorities in New York have filed a lawsuit in federal court seeking over $872 million from parcel giant UPS for the illegal delivery of more than 683,000 cartons of untaxed cigarettes.
UPS Inc. is facing a federal lawsuit in New York over alleged illegal cigarette deliveries that could cost the company as much as $872 million.
State and city authorities in New York claim the parcel giant delivered more than 683,000 cartons of untaxed cigarettes, a violation of state law.
A non-jury trial brought before U.S. District Judge Katherine Forrest in Manhattan by New York Attorney General Eric Schneiderman and New York City began Monday as part of the state’s ongoing efforts to combat smuggling of cigarettes from lower-tax areas.
According to Lilia Toson, a lawyer for the city, UPS repeatedly ignored signs that shipments from American Indian reservations in New York contained cartons of cigarettes that were not subject to state and city taxes.
“The evidence will show a sufficiently large number of contraband shipments to suggest that UPS is turning a blind eye,” Toson said in her opening statement.
In addition to the $872 million in penalties and damages, Toson asked the judge to appoint a special watchdog to ensure the company’s compliance going forward.
Counsel for UPS, meanwhile, argued the allegations in the lawsuit were “misleading” as authorities had mistaken cartons of little cigars, which can be shipped legally, for cigarettes.
“The plaintiffs’ case is devoid of evidence that UPS knew it was delivering cigarettes,” said Carrie Cohen, a lawyer for UPS, adding the state had given her client no notice of the size of the penalties. Cohen said the state previously said it would seek damages of just $180 million.
Filed in February 2015, the lawsuit against UPS is strikingly similar to a lawsuit brought against UPS arch-rival FedEx Corp. following a grand jury indictment in 2014. Federal prosecutors in that case (U.S. v. FedEx Corp., 14-cr-00380, U.S. District Court, Northern District of California, San Francisco) accused FedEx of knowingly accepting shipments of illegal pharmaceuticals from online pharmacies.
The case against FedEx, which carried penalties of up to $1.6 billion, turned primarily on whether authorities could prove the company was aware of and conspired to cover up the illegal activity. Just four days into the trial, however, the Justice Departement abruptly dropped all charges despite alleging in its opening statements that FedEx took advantage of its “legitimate” corporate identity to engage in criminal behavior.
Both cases represent key tests of the legal responsibility of shipping companies to police the contents of delivered cargo. In its motion to dismiss, FedEx argued it couldn’t reasonably be expected to inspect each of its over 10 million daily shipments for illegal items and that the common carrier exception is intended to protect transportation companies from legal responsibility for such actions.
If New York prosecutors face a similar burden of proof, needing to show not only negligence, but intent to commit unlawful acts on the part of UPS, it could be an uphill climb.
The UPS case is State of New York, et al v. United Parcel Service, U.S. District Court, Southern District of New York, No. 15-01136.
UPS sued for alleged illegal cigarette deliveries
