The City of New York v. Fedex Ground Package System, Inc. et al

Filing 580

OPINION & ORDER re: 414 MOTION to Amend/Correct Motion to File A Consolidated Amended Complaint filed by The City of New York, The People of The State of New York: For the foregoing reasons, Plaintiffs' motion to file a consolidated amended complaint is DENIED. The Clerk of the Court is respectfully requested to terminate the motion, Doc. 414. (Signed by Judge Edgardo Ramos on 9/20/2018) (jwh)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
THE CITY OF NEW YORK and THE PEOPLE OF THE
STATE OF NEW YORK,
OPINION & ORDER
Plaintiffs,
13 Civ. 9173 (ER)
-against-

FEDEX GROUND PACKAGE SYSTEM, INC.,
Defendant.

Ramos, D.J.:
Before the Court is Plaintiffs’ motion to file a consolidated amended complaint. For the
reasons discussed below, Plaintiffs’ motion is DENIED.
I.

BACKGROUND
This consolidated case comprises two actions against FedEx Ground for allegedly

shipping untaxed cigarettes in violation of state and federal law. The City of New York sued
Defendant FedEx Ground for the first time on December 30, 2013. See Doc. 1. This suit is now
known as FedEx I. The original FedEx I complaint made allegations specific to one shipping
entity, a cigarette shipper located on the Shinnecock Reservation in New York. See Doc. 1
¶¶ 32–37. On March 30, 2014, the City amended its complaint to add the State of New York as a
plaintiff, allegations specific to three other shipping entities, and a cause of action for breach of
the 2006 Assurance of Compliance (“AOC”) negotiated between the State of New York and
FedEx. See Doc. 13 ¶¶ 20, 40–45, 46–50, 51–58, 59–63. The amended complaint is one of the
two operative complaints in this consolidated case.

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Plaintiffs filed another lawsuit on November 12, 2014. See Doc. 1, 14-cv-8985. This
lawsuit is now known as FedEx II. Like FedEx I, FedEx II charges the defendant with illegally
shipping cigarettes. See generally Doc. 1, 14-cv-8985. Unlike FedEx I, however, the original
FedEx II complaint did not specify on whose behalf FedEx allegedly shipped cigarettes. See
Doc. 1, 14-cv-8985. Plaintiffs amended their FedEx II complaint for the first time on May 8,
2015. See Doc. 23, 14-cv-8985. In their first amended complaint, Plaintiffs specifically named
21 additional shippers. 1 See Doc. 23 ¶¶ 63, 14-cv-8985. They also included a claim for relief
under N.Y. Executive Law § 63(12) for the violation of N.Y. Public Health Law § 1399-ll, a
claim not present in FedEx I. See Doc. 23 ¶¶ 92–100, 14-cv-8985. On March 31, 2016, the
Court dismissed Plaintiffs’ § 63(12) and § 1399-ll claims with leave to replead. See City of New
York v. FedEx Ground Package Sys., Inc., 175 F. Supp. 3d 351, 362–64 (S.D.N.Y. 2016).
Plaintiffs consequently filed their second amended complaint on April 14, 2016. Doc. 74, 14-cv8985. That complaint is the other operative complaint in this consolidated case.
On April 15, 2016, the Court consolidated FedEx I and FedEx II pursuant to Federal Rule
of Civil Procedure 42(a). See Doc. 184. The complaints themselves were not consolidated.
Shortly afterwards, both parties submitted competing proposed discovery plans and scheduling
orders. Both parties’ proposals suggested May 30, 2014 as the cutoff date for amended
pleadings in FedEx I and May 8, 2015 as the cutoff date for amended pleadings in FedEx II. See
Doc. 189; Doc. 190. The Court adopted those dates. See Doc. 201. These dates remain the
same in the operative scheduling order, issued June 22, 2017. Doc. 339.

1

The operative FedEx II complaint still contains allegations regarding the 21 alleged shippers; however, the parties
have subsequently agreed that only three of those 21 shippers will remain in the case: Two Pine Enterprises,
Shinnecock Indian Outpost, and Your Kentucky Tobacco Resource LLC, see Doc. 466 at 6.

2

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Among other issues, the parties conducted discovery related to the 2006 Assurance of
Compliance (“AOC”), which imposed certain obligations on FedEx and included a $1000
stipulated penalties provision for “each and every violation” of the AOC. See generally AOC.
The parties dispute the scope of the stipulated penalties provision. FedEx contends that only
shipments of cigarettes illegal under N.Y. P.H.L. § 1399-ll are subject to the penalty, see Doc.
533 at 4, while the State of New York contends that breaches of any AOC provision are subject
to a $1000 penalty, see Doc. 533 at 3. For example, New York argues that FedEx’s failure to
issue a warning to a customer within five business days of confirming that the customer shipped
cigarettes, also required under the AOC, see AOC ¶ 14, is similarly subject to the penalties
provision.
On December 21, 2016, FedEx deposed Vincent Esposito, a former New York Assistant
Attorney General, about the AOC. Pullman Decl. ¶ 17; see generally Pullman Decl., Ex. G.
Specifically, FedEx asked Esposito questions about the negotiations leading to the execution of
the AOC, the meaning of its terms, the State’s views of FedEx’s compliance efforts, and the
differences between the AOC and a similar document the State negotiated with United Parcel
Service (“UPS”), the Assurance of Discontinuance (“AOD”). See Pullman Decl., Ex. G Tr. 164–
66, 170–72.
On January 5, 2017, FedEx deposed David Nocenti, Mr. Esposito’s former supervisor,
with respect to those same issues. Pullman Decl. ¶ 18; see also Pullman Decl., Ex. H.
On February 21, 2017, the Court denied FedEx’s motion to dismiss the § 63(12) claim
from the Second Amended Complaint. City of New York v. FedEx Ground Package Sys., Inc.,
2017 WL 740067, at *7 (S.D.N.Y. Feb. 21, 2017). The Court noted that under the Prevent All
Cigarette Trafficking (“PACT”) Act, states may not enforce against a common carrier laws

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prohibiting the delivery of cigarettes to personal residences without proof that the common
carrier is not exempt under PACT, 15 U.S.C. § 376a(e). FedEx, 2017 WL 740067, at *3. FedEx
is exempt under PACT Act, so long as the AOC “is honored throughout the United States to
block illegal deliveries of cigarettes or smokeless tobacco to consumers[.]” 15 U.S.C. § 376a(e).
To be “honored,” the AOC must be “recognized” by FedEx and each state. FedEx, 175 F. Supp.
3d at 362. Thus, if the AOC is not recognized by FedEx and the states, then FedEx is not exempt
under the PACT Act from state law claims. Under this logic, the Court held that “[g]iven the
degree of noncompliance alleged in the Second Amended Complaint, the finder of fact could
conclude that FedEx no longer recognizes the nationwide effect of the AOC. In that event,
FedEx would no longer be exempt under the PACT Act,” and thus would be subject to state law
claims. FedEx, 2017 WL 740067, at *7. Hence, at this stage in the litigation, the operative
complaint in FedEx II still contains a § 63(12) claim. The operative complaint in FedEx I does
not.
Meanwhile, on March 24, 2017, the Honorable Katherine B. Forrest issued an opinion
following a bench trial in a similar case brought by these same Plaintiffs against UPS. See State
of New York v. United Parcel Service, Inc., 2017 WL 1135257 (S.D.N.Y. Mar. 24, 2017). 2 As
relevant to the instant motion, Judge Forrest found that a stipulated penalties provision identical
to that found in the AOC applied to violations of any of the obligations set forth in the State’s
AOD with UPS. See State of New York v. United Parcel Service, Inc., 253 F. Supp. 3d 583,
658–59 (S.D.N.Y. May 25, 2017). In doing so, she rejected the interpretation that FedEx is also
pressing here; namely, that a “violation” of the AOD only ever occurs when UPS delivers
cigarettes to a non-authorized person. See id.

2

That opinion was corrected and superseded on May 25, 2017 in ways irrelevant to the instant motion. See State of
New York v. United Parcel Service, Inc., 253 F. Supp. 3d 583 (S.D.N.Y. May 25, 2017).

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On October 5, 2017, Plaintiffs deposed Anthony Spalvieri, FedEx’s designated Rule
30(b)(6) witness, Pullman Decl. ¶ 13, on the issue of FedEx’s compliance with the AOC, see,
e.g., Pullman Decl., Ex. F, Tr. 149–51. Specifically, Spalvieri testified that: (1) he did not
“believe there was any formal communication directly to employees about that [AOC] with New
York” before 2012, see Pullman Decl., Ex. F, Tr. 91:12–19; and (2) FedEx lacked a formal
auditing process to detect cigarette shipments, see Pullman Decl., Ex. F, Tr. 183:18–19.
On November 14, 2017, FedEx deposed Dana Biberman, the former Chief of the State’s
Tobacco Compliance Bureau. Pullman Decl. ¶ 19. FedEx asked Biberman questions regarding
the meaning of various provisions of the AOC and differences between the AOC and AOD.
Specifically, FedEx asked Biberman about whether the AOC included audit and training
provisions similar to those in the AOD. See Pullman Decl., Ex. I, Tr. 70–74, 92–94, 103–04.
Plaintiffs first notified FedEx of their intention to file a consolidated amended complaint
no later than August 2017. Pullman Decl. ¶ 5. On September 6, 2017, Plaintiffs sent FedEx a
proposed consolidated complaint and sought FedEx’s consent to file it. On October 2, 2017,
FedEx informed Plaintiffs that it did not consent to the proposed amendments. Pullman Decl.
¶ 7. Approximately two months later, Plaintiffs filed a letter motion seeking leave to file a
consolidated amended complaint. Pullman Decl. ¶ 9. The Court granted Plaintiffs leave to file
the motion at a pre-motion conference held on December 14, 2017. Pullman Decl. ¶ 9. Plaintiffs
filed their motion, attaching the proposed consolidated complaint, on January 31, 2018. Doc.
414. The proposed consolidated complaint attached there differed in some minor respects from
the version initially shared with FedEx. Def.’s Mem. at 7 n.3. FedEx filed its opposition to the
motion on March 2, 2018, Doc. 423, and Plaintiffs filed their reply on March 16, 2018, Doc. 427.
II.

LEGAL STANDARD

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The Court should “freely give leave” to a party to amend its pleading “when justice so
requires.” Fed. R. Civ. Pro. 15(a)(2). “Reasons for a proper denial of leave to amend include
undue delay, bad faith, futility of the amendment, and perhaps most important, the resulting
prejudice to the opposing party.” State Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d
Cir. 1981). “Mere delay, however, absent a showing of bad faith or undue prejudice, does not
provide a basis for a district court to deny the right to amend.” Id. Absent some reason for doing
so, denying leave to amend is an abuse of the district court’s discretion. See Foman v. Davis,
371 U.S. 178, 182 (1962).
Where a scheduling order governs by when parties must amend their pleadings, the
lenient standard of Rule 15 must be balanced against the requirement of Rule 16(b) that the
Court’s scheduling order “shall not be modified except upon a showing of good cause.” Holmes
v. Grubman, 568 F.3d 329, 334–35 (2d Cir. 2009) (quoting Grochowski v. Phoenix Constr., 318
F.3d 80, 86 (2d Cir. 2003)). Whether good cause exists depends primarily on the diligence of the
party seeking amendment. See Kassner v. 2nd Ave. Delicatessen Inc., 496 F.3d 229, 243 (2d Cir.
2007). It can also depend on whether allowing the amendment will prejudice the defendant. See
id. at 244. The good cause standard is not met when the proposed amendment rests on
information that the party knew, or should have known, before the deadline. iMedicor, Inc v.
Access Pharm., Inc., 290 F.R.D. 50, 52 (S.D.N.Y. 2013).
District courts may grant leave to file a consolidated complaint in consolidated cases.
See Garber v. Randell, 477 F.2d 711, 717 n.4 (2d Cir. 1973). “[E]ach case in which it may
appear desirable to consolidate complaints in different actions must be evaluated on its own facts
with close attention to whether the anticipated benefits of a consolidated complaint outweigh
potential prejudice to the parties.” Katz v. Realty Equities Corp. of New York, 521 F.2d 1354,

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1360 (2d Cir. 1975). Like other amended pleadings, the filing of a consolidated amended
complaint is governed by Rules 15 and 16 of the Federal Rules of Civil Procedure.
III.

DISCUSSION
Plaintiffs’ proposed consolidated complaint makes four types of changes to the presently

operative complaints. 3 First, the proposed consolidated complaint “streamlines and coheres the
allegations by reorganizing and deleting repetitive paragraphs.” Pls.’ Mem. at 11. Second, it
“makes clear” that Plaintiffs are seeking relief under N.Y. Exec. Law § 63(12) for violations of
N.Y. P.H.L. § 1399-ll with respect to all shippers involved, not just those in FedEx II. See Pls.’
Mem. at 11. Third, the proposed consolidated complaint adds allegations that, in addition to
breaching its obligation to abide by § 1399-ll, FedEx breached its other AOC obligations,
including those to train employees and audit and report shippers. See Pls.’ Mem. at 11. Finally,
the proposed consolidated complaint removes allegations relating to three alleged shippers from
Plaintiffs’ FedEx II claims, a change that FedEx does not oppose. 4 See Pls.’ Mem. at 11. FedEx
primarily contests the second and third categories of changes. The Court finds that good cause
does not exist to allow the filing of the consolidated complaint.
A.

Whether The Good Cause Standard Applies
Plaintiffs argue that Rule 16’s good cause requirement is inapplicable because the

scheduling order does not contemplate a deadline for the filing of a consolidated amended
complaint. The Court rejects this argument. A consolidated amended complaint is still an
amended pleading, and thus subject to the June 22, 2017 scheduling order, which requires
amended pleadings to be filed by May 30, 2014 for FedEx I and May 8, 2015 for FedEx II, dates

3

The operative complaints in this consolidated action are currently the Amended Complaint in FedEx I, Doc. 13, and
the Second Amended Complaint in FedEx II, Doc. 74, 14-cv-8985.

4

The three alleged shippers are Discount Tobacco Outlet, Lakeside Enterprises, and Kee Missouri DC.

7

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selected by and agreed to by the parties. Doc. 338 at 1. Plaintiffs also argue that because they
could not have filed a consolidated complaint by those dates, which preceded the Consolidation
Order, their motion to file a consolidated complaint now cannot be bound by the scheduling
order. But Plaintiffs can hardly complain that they could not have filed a consolidated complaint
by the scheduling order dates when they proposed those dates after the cases were consolidated.
At that point, Plaintiffs knew that any amended pleadings they would seek to file, including a
consolidated complaint, would be subject to their proposed deadlines upon the deadlines’
adoption by the Court. Whether the proposed deadlines were “holdovers,” Pls.’ Reply at 4, does
not matter—Plaintiffs had the opportunity to suggest new dates. Rule 16’s good cause
requirement applies.
B.

Whether Good Cause Exists For The Amendments
Plaintiffs lack good cause to file the proposed consolidated complaint. They failed to act

diligently with respect to the first and last category of changes. The first category of changes
clearly could have been proposed as soon as the consolidation order was entered in 2016. The
last category of changes, the withdrawal of allegations relating to Discount Tobacco Outlet,
Lakeside Enterprises, and Kee Missouri DC from the operative complaints, is unopposed by
FedEx. However, FedEx argues that the change is late and unnecessary, as the parties have
already agreed to not pursue claims related to those shippers. Doc. 423 at 19. The Court agrees
with FedEx; the withdrawal of the three shippers does not merit an amendment.
Plaintiffs contend that new factual and legal developments spurred the substantive
changes in the second and third categories, and so those amendments are supported by good
cause. Courts sometimes find good cause for Plaintiffs to amend their complaint on the basis of
new facts uncovered in discovery. See, e.g., Permatex, Inc. v. Loctite Corp., 2004 WL 1354253,

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at *3 (S.D.N.Y. June 17, 2004). Courts have also allowed parties to amend their pleadings in
response to changes in the intervening law. See Sys. Fed’n No. 152, Ry. Emp. Dep’t AFL-CIO v.
Pennsylvannia R. Co., 272 F. Supp. 971, 974 (S.D.N.Y. 1967).
The second category of changes concerns Plaintiffs’ N.Y. Exec. Law § 63(12) claims. In
April 2016, Plaintiffs filed their Second Amended Complaint in FedEx II, which included claims
under § 63(12) for violations of § 1399-ll and allegations of widespread violations of the AOC
nationwide. Doc. 74. In February 21, 2017, this Court held that given the allegations made in
the FedEx II Second Amended Complaint, a finder of fact could conclude that FedEx no longer
recognizes the nationwide effect of the AOC. See City of New York v. FedEx Ground Package
Sys., Inc., 2017 WL 740067, at *7 (S.D.N.Y. Feb. 21, 2017). In that event, FedEx would no
longer be exempt under the PACT Act, and could be held liable for violations of § 1399-ll under
§ 63(12). Id. Plaintiffs now want to add § 63(12) claims in their proposed consolidated
complaint with respect to the shippers at issue in FedEx I, pointing out that their complaint
comes only several months after the February 21, 2017 decision.
Plaintiffs’ new § 63(12) claims nonetheless come too late. Plaintiffs included their
FedEx II § 63(12) claims for the first time in an amended complaint filed May 8, 2015. While
those claims only survived the motion to dismiss stage after the February 21, 2017 opinion,
clearly, Plaintiffs thought they could make § 63(12) claims by mid-2015, because they actually
did so in FedEx II. The February 21, 2017 opinion merely confirmed to Plaintiffs that by
alleging enough facts surrounding the AOC, they could plausibly allege that the PACT Act
exemption no longer applied and thereby plausibly allege § 63(12) claims. Indeed, the Court
described this strategy in its March 31, 2016 opinion. See City of New York v. FedEx Ground
Package System, Inc., 175 F. Supp. 3d 351 (S.D.N.Y. 2016) (“[P]laintiffs have not adequately

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pleaded that their § 1399-ll claim is outside the ambit of the PACT Act’s presumptive exemption
for nationwide settlement agreements, as was already discussed. Plaintiffs thus cannot use §
63(12) to collect civil penalties under NYPHL § 1399-ll at this juncture.”). Plaintiffs thus did
not exercise sufficient diligence in amending their complaint to include § 63(12) claims.
The most important changes in Plaintiffs’ proposed consolidated complaint, however, are
those related to the AOC. Plaintiffs seek to “add several allegations relating to the terms of the
AOC and Defendant’s breach of those obligations,” Pls.’ Mem. at 11, in response to facts
uncovered in discovery and Judge Forrest’s decision in State of New York v. United Parcel
Service, 253 F. Supp. 3d 583 (S.D.N.Y. 2017). In discovery, FedEx deposed Vincent Esposito,
Dana Biberman, and David Nocenti on the negotiation of the 2006 AOC and its terms, see Pls.’
Mem. at 4, 5, and Plaintiffs deposed FedEx’s Rule 30(b)(6) witness, Anthony Spalvieri, on
FedEx’s internal policies after the AOC’s enactment, see Pls.’ Mem. at 7. In UPS, Judge Forrest
interpreted an agreement between New York State and UPS similar to the AOC and held that the
failure to abide by any of the obligations described in the agreement amounted to a violation.
253 F. Supp. 3d at 658–59. The new allegations are purportedly based off these events. They
reiterate FedEx’s obligations under the AOC and allege that FedEx failed to abide by many of
them. See, e.g., Pullman Decl., Ex. C ¶ 41 (“Additionally, the AOC requires FedEx to alert the
Attorney General to the termination of the shipper no later than five (5) business days after
confirmation of the prohibited shipment.”); ¶ 43 (“Despite being aware of routine and continued
prohibited shipments of cigarettes by particular shippers over an extended period of time, FedEx
failed to investigate, issue written warnings, terminate, and advise the Attorney General of these
customers as mandated by the AOC.”). The operative complaints instead focus on one
obligation under the AOC, actual shipment of cigarettes in violation of § 1399-ll.

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The deposition testimony of Esposito, Nocenti, and Biberman does not furnish good
cause to amend the complaint because the proffered testimony is not relevant to the amendments
Plaintiffs seek. These deponents testified regarding their view of what obligations the AOC
imposed, but their opinions amount to irrelevant parol evidence. While parol evidence may be
admissible to address a claim that the AOC was ambiguous, cf. Albany Sav. Bank, FSB v. Halpin,
117 F.3d 669, 672 (2d Cir. 1997), Plaintiffs have advanced no such argument here.
Spalvieri’s Rule 30(b)(6) testimony presents a tougher call, but also fails to furnish good
cause. Spalvieri testified about the extent of FedEx’s compliance with the AOC. Specifically,
Spalvieri testified (1) that he did not “believe there was any formal communication directly to
employees about that assurance of compliance with New York” before 2012, and (2) that FedEx
lacked a formal auditing process to detect cigarette shipments. 5 See Pullman Decl., Ex. F, Tr.
91:16–19, 183:18–19. The latter proposition is irrelevant because the AOC does not impose any
obligation on FedEx to “audit” its accounts to detect cigarette shipments. The first proposition
initially appears relevant because the AOC obliges FedEx to send an annual written
communication to its employees and contractors reiterating key parts of FedEx’s cigarette policy.
See AOC ¶ 18. The context of the cited statement by Spalvieri, however, shows that he was
referencing communications informing employees about the initial execution of the AOC. See
Pullman Decl., Ex. F., Tr. 91:12–19 (“Q: Were managers ever notified prior to this training in
2012 about the agreement that FedEx entered into with the New York State Attorney General’s
Office? A: I don’t believe there was any formal communication directly to employees about

5

Plaintiffs contend that Spalvieri also testified that FedEx failed to train its employees pursuant to the terms of the
AOC, but the Court finds that proposition unsupported by the cited deposition testimony of Spalvieri. Regardless,
even if Spalvieri had testified that FedEx failed to train its employees, that testimony would not merit amendment
because the AOC does not impose any obligation to train employees. For the same reason, the deposition testimony
of John Costanza and Dan Skelley stating that FedEx failed to train its employees to detect illegal cigarette
shipments, see Pls.’ Mem. at 8 n.15, fails to provide good cause to amend the complaint.

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that assurance of compliance with New York prior to I guess this document.”). This statement
does not pertain to any of FedEx’s obligations under the AOC. Consequently, it does not furnish
good cause for Plaintiffs to amend their complaint.
Lastly, Judge Forrest’s UPS opinion does not support a finding of good cause. In UPS,
Judge Forrest held that the term “violation,” as used in an agreement similar to the AOC, referred
to a failure to abide by any of the obligations listed in the agreement. See 253 F. Supp. 3d at
658–59. This holding could ultimately have implications for Plaintiffs’ AOC claims because the
stipulated penalties provision in the AOC is identical to that in the agreement at issue in UPS.
Compare AOC ¶ 23 with UPS, 253 F. Supp. 3d at 657. UPS does not justify Plaintiffs’ proposed
amendments, however. As a preliminary matter, the UPS opinion was filed fully five months
before Plaintiffs sought FedEx’s consent to file an amended complaint. Moreover, it is clear that
it has long been Plaintiffs’ position that any breach of an obligation amounts to a violation under
the AOC; hence, UPS was not a new circumstance that prompted the proposed amendment. 6 At
the December 14, 2017 hearing, Plaintiffs argued that their new AOC allegations did not
prejudice FedEx because it was “obvious” since 2006 what the AOC’s provisions were. See
Doc. 404, Dec. 14, 2017 Hr’g Tr. at 5:12–16 (“The Court: Those provisions that you are seeking
to add now, you say, were obvious to FedEx in 2006. Weren’t they similarly obvious to you in
2006? Ms. Konopka: Your Honor, yes, they were obvious to us.”). Thus, Plaintiffs, claim,
FedEx has been on notice throughout the course of the litigation that it could conduct discovery
relating to the AOC provisions—just like Plaintiffs did. See Pls.’ Reply at 4. But there would be
no reason for the parties to conduct discovery on those provisions’ meaning and implementation

6

Indeed, in their briefing, Plaintiffs do not explain how the UPS opinion prompted their new allegations. They simply
assert that their proposed consolidated complaint was filed “in response to changes in law,” i.e., the UPS opinion.
Pls.’ Mem. at 14. The Court’s opinion thus draws some inferences on Plaintiffs’ behalf.

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