The State Of New York et al v. United Parcel Service, Inc.

Filing 206

OPINION & ORDER re: 172 MOTION for Partial Summary Judgment on Plaintiffs' Claims Under the PACT Act and N.Y. PHL § 1399-ll filed by United Parcel Service, Inc. In light of the foregoing, further submissions on this issue shall be as follows. Plaintiffs may submit a Rule 56.1 statement regarding UPS's non-adherence to its nationwide policies to curb shipments of contraband cigarettes not to exceed ten pages (not including the underlying factual materials, which plaintiffs should also submit), and a memorandum of law, not to exceed five pages, explaining why those facts are sufficient to defeat UPS's motion not later than May 3, 2016. UPS shall file any opposition memorandum of law not to exceed five p ages not later than May 10, 2016. There shall be no replies. The Court notes that it does not consider this additional opportunity to be a matter of right-this allowance is not an invitation to the parties to argue for additional discovery or an exte nsion of other deadlines. The Court does not intend to grant such a request. The Court will reach resolution on UPS's motion as soon as possible after reviewing the parties' submissions. For the reasons set forth above, the Court conclude s that plaintiffs have failed, at this time, to raise a genuine issue of material fact as to their PACT Act and PHL § 1399-ll claims. However, in light of the Court's further clarification of its interpretation of 15 U.S.C. § 376a(e)(3 )(B)(ii)(I), the Court will allow plaintiffs one further opportunity to present additional evidence of the severity of UPS's non-adherence to its nationwide policies to curb the delivery of contraband cigarettes, as further set forth in this Opinion & Order. (Brief due by 5/3/2016. Responses to Brief due by 5/10/2016) (Signed by Judge Katherine B. Forrest on 4/19/2016) (kko)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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THE STATE OF NEW YORK and THE CITY OF :
NEW YORK,
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Plaintiffs,
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-v:
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UNITED PARCEL SERVICE, INC.,
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Defendant.
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KATHERINE B. FORREST, District Judge:

USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: April 19, 2016

15-cv-1136 (KBF)
OPINION & ORDER

In this action, the State and City of New York (the “State” and “City,”
respectively) allege various federal and state law claims against defendant United
Parcel Service, Inc. (“UPS”) relating to UPS’s alleged shipping of contraband
cigarettes. (Third Am. Compl. (“TAC”), ECF No. 189.) Pending before the Court is
UPS’s motion for partial summary judgment seeking dismissal of the seventh
through twelfth claims alleged in plaintiffs’ Third Amended Complaint arising
under the Prevent All Cigarette Trafficking Act (“PACT Act”), 15 U.S.C. § 375 et
seq., and New York Public Health Law § 1399-ll (“PHL § 1399-ll”). (ECF No. 172.)
The motion primarily concerns a question of statutory interpretation initially raised
in UPS’s motion to dismiss an earlier complaint pursuant to Rule 12(b)(6), and
which the Court now must consider more fully based on the record developed by the
parties in light of the Court’s prior interpretation.

Specifically, UPS’s motion turns on whether it has established its entitlement
to judgment as a matter of law with respect to plaintiffs’ PACT Act claims on the
basis that it is exempt from liability pursuant to 15 U.S.C. §376a(e)(3); UPS’s
entitlement to judgment as a matter of law with respect to plaintiffs’ PHL § 1399-ll
claims similarly flows from that determination. The particular exemption upon
which UPS primarily relies states that UPS is exempt based on the Assurance of
Discontinuance (“AOD”) that it entered into with the New York State Attorney
General (“NYAG”) on October 21, 2005 “if [that] agreement[ ] is honored throughout
the United States to block illegal deliveries of cigarettes or smokeless tobacco to
consumers.” 15 U.S.C. § 376a(e)(3)(B)(ii)(I).
As set forth more fully below, in initially dismissing plaintiffs’ PACT Act
claims as those claims were alleged in the then-operative Amended Complaint, the
Court interpreted § 376a(e)(3)(B)(ii)(I) to mean that UPS is exempt if the AOD has
appropriate breadth (i.e. nationwide effect), explaining that Congress merely sought
to codify the status quo with respect to UPS and other common carriers who had
already agreed to curb illegal cigarette deliveries by instituting nationwide policies.
New York v. United Parcel Service, Inc. (“UPS I”), No. 15-cv-1136 (KBF), 2015 WL
5474067, at *7-9 (S.D.N.Y. Sept. 16, 2015). In the absence of any allegations
suggesting that any state did not honor the AOD, the Court left open the question of
how a state may honor the AOD such that it has nationwide effect. Id. at *8. Now
that plaintiffs have come forward with new allegations and supporting evidence
that they argue is sufficient to show that the AOD is not honored nationwide, the

2

issue that the Court previously left unresolved is ripe for determination. It is also
necessary for the Court to further elaborate on its interpretation of the exemption.
The pertinent language in § 376a(e)(3)(B)(ii)(I) that is the subject of the
parties’ dispute is not a model of clarity. The clause conditioning UPS’s
qualification for exemption on whether the AOD “is honored throughout the United
States” does not clearly indicate what that phrase is supposed to connote, or who
must do the “honoring.” The parties’ positions in their motion papers diverge
significantly with respect to these questions. UPS primarily argues that §
376a(e)(3)(B)(ii)(I), which explicitly lists the AOD (and two analogous agreements
respectively entered into by DHL Holdings USA, Inc. (“DHL”) and Federal Express
Corporation (“FedEx”) and certain of their affiliates with the NYAG), rendered it
and the other carriers exempt from the PACT Act’s requirements as of the date of
the statute’s enactment. UPS further argues that while it could lose its exemption
if it no longer gives the AOD nationwide effect or the AOD’s existence is no longer
recognized by states nationwide, plaintiffs have failed to create a genuine issue of
fact that either of those conditions is met.
Plaintiffs, in contrast, contend that § 376a(e)(3)(B)(ii)(I) did not exempt UPS
when enacted, but rather provided only for the possibility of future exemption upon
all fifty states affirmatively assenting to the AOD, a condition that plaintiffs assert
UPS has never fulfilled. Relying on evidence that UPS has shipped cigarettes to
consumers despite a policy not to do so, and declarations from seven state attorneys
general and a representative of the National Association of Attorneys General

3

(“NAAG”), plaintiffs argue that UPS is not entitled to the exemption because the
AOD has never been honored or recognized by all states in the nation. In relation to
UPS’s motion to dismiss (in other words, before the Court rendered its initial
interpretation of § 376a(e)(3)(B)(ii)(I)), plaintiffs had argued that the “is honored”
language refers to whether UPS has itself complied with the terms of the AOD (e.g.
interpreting the language as “UPS has honored”) and that its mere allegation in the
Amended Complaint of non-compliance was sufficient to defeat the exemption at the
Rule 12(b)(6) stage.
The legislative history and overall structure of the statutory scheme support
that Congress intended that UPS be exempt from PACT Act claims as of the date of
statutory enactment and based on facts then in existence; the Court also determines
that with respect to this motion, plaintiffs would need to raise a triable issue on the
question of whether the factual basis for the exemption has changed, thereby
altering UPS’s entitlement to the exemption. Plaintiffs’ alternative readings would
render § 376a(e)(3)(B)(ii)(I) essentially meaningless by imposing requirements that
could never plausibly be fulfilled even if UPS was fully effective in preventing the
shipment of contraband cigarettes.
In the factual materials that plaintiffs submitted in opposition to the pending
motion, plaintiffs have not raised a triable issue of fact as to whether the basis for
UPS’s exemption has changed. In other words, on the record currently presented to
it, the Court would grant UPS’s motion. However, the Court understands that
plaintiffs have set forth only a portion of their evidence supporting the claim that

4

UPS does not actually maintain nationwide policies as required by the AOD. In
light of the fact that the Court has modified its interpretation of § 376a(e)(3)(B)(ii)(I)
at this more advanced stage, the Court believes that plaintiffs should not be faulted
to the extent they provided only exemplar evidence of UPS’s non-compliance with
the nationwide policies it adopted pursuant to the AOD. Therefore, the Court will
allow plaintiffs to make a further submission of evidentiary support—with limited
additional argument by the parties relating solely to those submissions—as further
set forth below before definitively resolving UPS’s motion.
I.

BACKGROUND1
A.

Factual Background
1.

Background on the AOD

In 2004, the NYAG began investigating residential deliveries made by UPS,
FedEx, and DHL in relation to alleged violations of N.Y. PHL § 1399-ll. (UPS’s 56.1
¶ 1.)2 PHL § 1399-ll, which was first enacted in 2000, prohibits carriers from
knowingly transporting cigarettes to any person in New York reasonably believed
by such carrier to not be an authorized consignee. UPS cooperated with the NYAG’s
investigation. (UPS’s 56.1 ¶ 1.)
The Court here recounts only that background which is relevant to resolving UPS’s pending
motion. The Court also incorporates its prior decisions in this action, including UPS’s motion to
dismiss and plaintiffs’ motion to strike certain affirmative defenses, for further background on this
litigation. See UPS I, 2015 WL 5474067; State of New York v. United Parcel Serv., Inc. (“UPS II”),
No. 15-cv-1136 (KBF), 2016 WL 502042 (S.D.N.Y. Feb. 8, 2016).
1

The notation “UPS’s 56.1” refers to UPS’s statement of undisputed material facts, submitted under
Local Rule 56.1. (ECF No. 176.) This decision relies only on those facts that plaintiffs did not
dispute with citations to admissible evidence in their Rule 56.1 counterstatement (ECF No. 195)
(referred to herein as “Pls.’ 56.1 Cstmt.”). See Local Rule 56.1(d) (“Each statement by the movant or
opponent pursuant to Rule 56.1(a) and (b), including each statement controverting any statement of
material fact, must be followed by citation to evidence which would be admissible, set forth as
required by Fed. R. Civ. P. 56(c).”).
2

5

On February 23, 2005, NAAG3 sent UPS a letter requesting that the company
take appropriate steps to ensure that it does not facilitate violations of federal and
state laws by means of the shipment and delivery of contraband tobacco products
sold via the internet. (UPS’s 56.1 ¶ 2; McPherson Decl., Ex. 8, ECF No. 175-8.) The
letter, which was signed by 41 states and U.S. territories,4 requested that UPS
(along with other carriers and major credit card companies) attend a meeting
scheduled for March 17, 2005 with attorneys general and their staff. (UPS’s 56.1 ¶
2.) UPS attended the March 17 meeting with representatives of other states to
discuss the illegal sale of tobacco products on the internet and related issues.
(UPS’s 56.1 ¶ 3.) The NAAG followed up the March 17 meeting with a letter, dated
April 12, 2005, listing “Requested Actions for Carriers” that had been presented and
discussed at the meeting (UPS’s 56.1 ¶ 3; McPherson Decl., Ex. 9, ECF No. 175-9.)
UPS ultimately agreed to alter its policies to prohibit the delivery of
cigarettes to consumers nationwide, entering into an Assurance of Discontinuance
(the “AOD”) with the NYAG regarding its transportation of cigarettes on October
21, 2005. (UPS’s 56.1 ¶ 4; see Cook Decl., Ex. 1 (“AOD”) ¶ 45, ECF No. 174-1.) All
of the procedures that the NAAG sought UPS and other carriers to implement were
The National Association of Attorneys General is an organization whose members are the attorneys
general of each of the fifty states, five territories and the District of Columbia that facilitates
interaction among its members and assists them in fulfilling the responsibilities of their offices and
delivering high quality legal services. (Proshansky Decl., Ex. 8 (“Hering Decl.”) ¶¶ 2, 4, ECF No.
194-8.) “NAAG has no authority to in any manner legally bind its member attorneys general [as] it
is a voluntary association of representatives of sovereign states and takes no actions that purport to
represent the policies or legal positions of its members unless expressly authorized to do so.” (Hering
Decl. ¶ 5.)
3

The signatories to the letter included, inter alia, the NYAG and the attorneys general of the seven
states that have submitted declarations in support of plaintiffs: California, Connecticut, Idaho,
Maryland, New Mexico, Pennsylvania and Utah. (UPS’s 56.1 ¶ 2; McPherson Decl., Ex. 8.)
4

6

included in the AOD. (UPS’s 56.1 ¶ 5.) The AOD obligated UPS to, inter alia: (1)
implement and adhere to policies restricting the delivery of cigarettes to consumers
on a nationwide basis, (2) investigate shippers that UPS believed to be cigarette
retailers, (3) notify shippers believed to be cigarette retailers of UPS’s policy
restricting the delivery of cigarettes to consumers on a nationwide basis, (4) conduct
audits of shippers upon a reasonable belief that the shippers may be delivering
cigarettes to consumers, (5) maintain a database of shippers suspected of being
cigarette retailers, (6) train employees about its policy of restricting the delivery of
cigarettes to consumers on a nationwide basis, and (7) submit a report of its
compliance with the terms of the AOD. (UPS’s 56.1 ¶ 5.) UPS submitted the
required report to the NYAG regarding its compliance with the AOD on December
20, 2005. (UPS’s 56.1 ¶ 6.) The AOD explicitly preserved UPS’s right to seek a
ruling that PHL § 1399-ll is unconstitutional, preempted by federal law or
otherwise unenforceable against UPS. (AOD ¶ 45.)
Three days after the execution of the AOD, on October 24, 2005, David
Nocenti, then-Counsel to the NYAG, emailed Laura Kaplan, Deputy Attorney
General in the California Attorney General’s Office, stating that “we reached
agreement with UPS regarding their shipments of cigarettes to consumers” and
explaining that the “UPS agreement is similar to the DHL agreement, most notably
because UPS has agreed to stop the direct shipment of cigarettes to consumers
nationwide.” (UPS’s 56.1 ¶ 10.) Ms. Kaplan replied that same day, stating that she
had “a few questions about the effect of the agreement on other states” and asking

7

whether “UPS agreed to institute a nationwide policy prohibiting the shipments of
cigarettes to consumers[,] even to those states not a party to the [AOD] and which
do not prohibit shipment of cigarettes to consumers?” (UPS’s 56.1 ¶ 11.) Mr.
Nocenti replied that same day, stating “Yes, like DHL, UPS has agreed to institute
a nationwide policy prohibiting the shipment of cigarettes to consumers, even to
those states not a party to the [AOD] and which do not prohibit shipment of
cigarettes to consumers.” (UPS’s 56.1 ¶ 12.) Approximately three years later, on
October 29, 2008, Ms. Kaplan forwarded Mr. Nocenti’s email to Michael Hering
(NAAG Tobacco Center Director and Chief Counsel), Bill Lieblich (NAAG Tobacco
Center Deputy Chief Counsel), and Dana Biberman (Chief of the NYAG’s Tobacco
Compliance Bureau), stating “I have forwarded an e-mail from David Nocenti at the
time the [AOD] was signed on the applicability of the agreement to the states.
Clearly, it does apply to the states.” (UPS’s 56.1 ¶ 13.)
It is undisputed that, as of the filing of UPS’s motion, no state has notified
UPS of a belief that the AOD does not have nationwide scope or that UPS does not
honor the AOD nationwide. (UPS’s 56.1 ¶ 14.) Beginning in December 2015,
plaintiffs provided UPS’s counsel with declarations from seven assistant attorneys
general—including from California,5 Idaho, Utah, Connecticut, New Mexico,
Maryland and Pennsylvania—asserting that their states do not honor UPS’s AOD.
(UPS’s 56.1 ¶ 15; Pls.’ 56.1 Cstmt. ¶ 15.) Although UPS asserts that, since entering
into the AOD, it has continued to administer and enforce a nationwide policy
5 The declarant from the California Attorney General’s Office, Laura Kaplan, was the other
participant in the above exchange with Mr. Nocenti. (See UPS’s 56.1 ¶ 15(a).)

8

prohibiting the shipment of cigarettes to consumers (UPS’s 56.1 ¶ 8; Cook Decl. ¶ 6,
ECF No. 174), plaintiffs counter that UPS has and does in fact deliver contraband
cigarettes to customers (Pls.’ 56.1 Cstmt. ¶ 8).6 The evidence that plaintiffs have
proffered relating to UPS’s non-adherence to its policies includes three declarations,
excerpts from two depositions, and one chart produced in discovery showing
deliveries that UPS made for one reservation seller to various states. (Proshansky
Decl., Exs. 1-5, 7, ECF No. 194.) The three declarants—Jamie Harris-Bedell,
Robert L. Oliver, Sr., and Philip D. Christ—owned or worked at reservation tobacco
businesses for whom the declarants assert UPS employees knowingly and
repeatedly made deliveries of contraband cigarettes. Plaintiffs’ transcript excerpts
are from the depositions of Christ and Bradley J. Cook, UPS’s Rule 30(b)(6) witness
in this litigation. The Court further describes these supporting factual materials
when addressing whether plaintiffs’ submissions have raised a genuine issue of
material fact.
2.

Background on the PACT Act

The Prevent All Cigarette Trafficking Act (“PACT Act”), enacted on March
31, 2010 and effective as of June 29, 2010, “imposes strict restrictions on the
delivery sale of cigarettes and smokeless tobacco.” Red Earth LLC v. United States,
657 F.3d 138, 141 (2d Cir. 2011) (quotation marks omitted). The PACT Act
mandates that delivery sellers comply with shipping and recordkeeping
requirements, 15 U.S.C. § 376a(a)-(d), and requires the United States Attorney
6 Although not at issue in this motion, the State alleges a claim against UPS for violation of the
AOD. (TAC ¶¶ 187-95.)

9

General to compile a list of delivery sellers of cigarettes or smokeless tobacco that
have not registered with it or are otherwise not in compliance with the PACT Act,
and share that list with state attorneys general, carriers and other delivery
services, including the United States Postal Service (“USPS”), id. § 376a(e)(1)(A).
The PACT Act further provides that “no person who delivers cigarettes or smokeless
tobacco to consumers, shall knowingly complete, cause to be completed, or complete
its portion of a delivery of any package for any person whose name and address are
on the [above-referenced non-compliance] list.” Id. § 376a(e)(2)(A). The PACT Act
confers standing on state attorneys general to bring actions against common
carriers for civil penalties and other equitable relief for violations of the statute. Id.
§§ 377(b)(1)(B), 377(b)(2), 378(c)(1).
The PACT Act contains a number of provisions exempting certain entities
from the otherwise applicable obligations and liabilities. The exemptions for
common carriers that are pertinent here state:
(3) Exemptions
(A) In general
Subsection (b)(2) and any requirements or restrictions
placed directly on common carriers under this subsection,
including subparagraphs (A) and (B) of paragraph (2),
shall not apply to a common carrier that—
(i) is subject to a settlement agreement described in
subparagraph (B); or
(ii) if a settlement agreement described in
subparagraph (B) to which the common carrier is a
party is terminated or otherwise becomes inactive,
is administering and enforcing policies and
practices throughout the United States that are at
least as stringent as the agreement.
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(B) Settlement agreement
A settlement agreement described in this subparagraph—
(i) is a settlement agreement relating to tobacco
product deliveries to consumers; and
(ii) includes—
(I) the Assurance of Discontinuance entered
into by the Attorney General of New York
and DHL Holdings USA, Inc. and DHL
Express (USA), Inc. on or about July 1, 2005,
the Assurance of Discontinuance entered
into by the Attorney General of New York
and United Parcel Service, Inc. on or about
October 21, 2005, and the Assurance of
Compliance entered into by the Attorney
General of New York and Federal Express
Corporation and FedEx Ground Package
Systems, Inc. on or about February 3, 2006,
if each of those agreements is honored
throughout the United States to block illegal
deliveries of cigarettes or smokeless tobacco
to consumers; and
(II) any other active agreement between a
common carrier and a State that operates
throughout the United States to ensure that
no deliveries of cigarettes or smokeless
tobacco shall be made to consumers or
illegally operating Internet or mail-order
sellers and that any such deliveries to
consumers shall not be made to minors or
without payment to the States and localities
where the consumers are located of all taxes
on the tobacco products.
15 U.S.C. § 376a(e)(3). Pursuant to these exemptions, any requirements or
restrictions placed directly on common carriers by the statute do not apply to a
common carrier that has entered into a qualifying settlement agreement. UPS’s
AOD, which is explicitly named, qualifies “if [it] is honored throughout the United
States to block illegal deliveries of cigarettes or smokeless tobacco to consumers.”

11

Id. § 376a(e)(3)(B)(ii)(I). The statute specifically enumerates two other qualifying
settlement agreements, the Assurance of Discontinuance entered into by the NYAG
and DHL on or about July 1, 2005, and the Assurance of Compliance entered into by
the NYAG and FedEx on or about February 3, 2006; all three agreements are
subject to the “is honored throughout the United States” conditional clause. Id.7
The PACT Act also separately deals with the issue of preemption of state
law.8 On the issue of preemption, the PACT Act provides that, except to the extent
set forth in the subsequent clause, “nothing in the [PACT Act], the amendments
made by that Act, or in any other Federal statute shall be construed to preempt,
supersede, or otherwise limit or restrict State laws prohibiting the delivery sale, or
the shipment or delivery pursuant to a delivery sale, of cigarettes or other tobacco
products to individual consumers or personal residences.” 15 U.S.C. §
376a(e)(5)(C)(i). That provision is limited by the clause which follows, which
provides that “[n]o State may enforce against a common carrier a law prohibiting
the delivery of cigarettes or other tobacco products to individual consumers or
personal residences without proof that the common carrier is not exempt under [§
376a(e)(3)].” Id. § 376a(e)(5)(C)(ii) (emphasis added).
Although UPS does not rely on it as a basis to claim exemption from the PACT Act, the statute also
contains a separate exemption providing that a common carrier is not subject to civil penalties for
violating § 376a(e) if it “has implemented and enforces effective policies and practices for complying
with [§ 376a(e)].” Id. § 377(b)(3)(B)(i) (emphasis added).
7

8 In 2008, prior to the enactment of the PACT Act, the Supreme Court struck down a Maine law that
(1) required state-licensed tobacco shippers to utilize delivery companies that provide recipientverification services confirming that the buyer is of legal age and (2) imposed a presumption of
carrier knowledge that a shipment contains unlicensed tobacco products in certain circumstances, on
the ground that the law was preempted by the Federal Aviation Administration Authorization Act of
1994 (“FAAAA”), 49 U.S.C. § 14501(c)(1). Rowe v. New Hampshire Motor Transp. Ass’n, 552 U.S.
364, 372-73 (2008). The PACT Act specifically addresses any potential conflict that any of its
provisions may have with the FAAAA. See 15 U.S.C. § 376a(e)(9)(C).

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B.

Procedural History

On February 18, 2015, the State and City commenced this action by filing a
complaint against UPS (ECF No. 1), and filed an Amended Complaint on May 1,
2015 (ECF No. 14). The Amended Complaint alleged fourteen causes of action
seeking various forms of relief under federal and New York law, including, in
relevant part, under the PACT Act and N.Y. PHL § 1399-ll.
On May 22, 2015, UPS moved to dismiss the Amended Complaint pursuant
to Rule 12(b)(6). (ECF No. 21.) Among the arguments advanced in its motion, UPS
contended that the claims brought under the PACT Act were subject to dismissal
because that statute expressly exempts UPS from its requirements and plaintiffs
failed to adequately allege that UPS was not entitled to the benefit of the exemption
due to violations of the AOD. (UPS’s Mem. of Law in Support of Mot. to Dismiss the
Am. Compl. at 17-18, ECF No. 22.) UPS also argued that, as a result of its PACT
Act exemption, plaintiffs’ claims brought under PHL § 1399-ll were preempted by 15
U.S.C. § 376a(e)(5)(C)(ii), and therefore also subject to dismissal. In their
opposition briefs, plaintiffs countered that the Amended Complaint adequately
alleged that the AOD was not honored throughout the United States based on
allegations that UPS had breached the AOD, and therefore UPS was not exempt
under § 376a(e)(3). (ECF No. 28 at 8-9; ECF No. 29 at 12-13.) On July 30, 2015, the
Court held oral argument on plaintiffs’ motion, during which the parties maintained
the arguments regarding the PACT Act that they had raised in their briefing. (Jul
30, 2015 Oral Arg. Tr. at 11-16, 39-40, ECF No. 33.)

13

Following oral argument, on August 26, 2015, the Court issued an Order
informing the parties that it was considering a reading of § 376a(e)(3)(B)(ii)(I) that
had not previously been advanced by either party. (ECF No. 37.) The Court
explained that, under its proposed alternative reading, § 376a(e)(3)(B) is a
definitional provision that merely defines the types of settlement agreements that
qualify for exemption and does not purport to reach questions of compliance or noncompliance with obligations assumed under any particular agreement. Because the
parties had not addressed this statutory reading in their papers or at oral
argument, the Court gave the parties an opportunity to submit supplemental
briefing that did so. The parties each filed supplemental briefs on September 9,
2015. (ECF Nos. 44, 45.) UPS’s supplemental brief argued that the text and
structure of the PACT Act compelled the Court’s interpretation, and that it
furthered Congressional intent. (ECF No. 44.) Plaintiffs’ supplemental brief
continued to advocate for the reading they had advanced in their earlier moving
papers—that UPS is entitled to the exemption only if it has fully complied with the
requirements imposed in the AOD and that the mere allegation in a complaint of a
failure to comply is sufficient to vitiate the exemption. (ECF No. 45.)
On September 16, 2015, this Court issued a decision that granted in part and
denied in part UPS’s motion, in relevant part dismissing plaintiffs’ claims brought
pursuant to the PACT Act and PHL § 1399-ll. UPS I, 2015 WL 5474067. The
Court’s dismissal of plaintiffs’ PACT Act claims was premised on the interpretation
of § 376a(e)(3)(B) that the Court had advanced in its August 26 Order—namely,

14

that § 376a(e)(3)(B) “is a definitional provision that merely defines the types of
settlement agreements that qualify for exemption” and “does not purport to reach
questions of compliance or noncompliance with obligations assumed under any
particular agreement.” Id. at *7. The Court concluded that, inter alia, because the
Amended Complaint failed to allege that the AOD has not been recognized by states
nationwide, there was no need for the Court to “determine the precise procedure by
which a state must honor an agreement” to resolve UPS’s motion. Id. at *8. The
Court dismissed plaintiffs’ PHL § 1399-ll claims on the ground that they were
preempted pursuant to 15 U.S.C. § 376a(e)(5)(C)(ii). Id. at *9.
On October 21, 2015, plaintiffs moved for leave to file a Second Amended
Complaint, seeking to add back the previously dismissed claims brought under the
PACT Act and PHL § 1399-ll. (ECF No. 68.) The basis for the motion was that
plaintiffs had not anticipated the Court’s interpretation of the PACT Act, and as a
result had not previously had an opportunity to plead these claims in light of that
interpretation. On November 23, 2015, the Court granted plaintiffs’ motion (ECF
No. 85), and plaintiffs filed their Second Amended Complaint on November 30, 2015
(ECF No. 86).
On January 25, 2016, plaintiffs moved for leave to file a Third Amended
Complaint for the purpose of broadening the allegations supporting certain of their
existing claims based on information that plaintiffs had obtained during discovery.
(ECF No. 149.) On February 18, 2016, the parties filed a joint stipulation in which
UPS consented to plaintiffs’ motion (ECF No. 183); the Court so ordered the

15

stipulation on February 22, 2016 (ECF No. 185). Plaintiffs filed the Third Amended
Complaint, which is now operative, on February 24, 2016. (TAC, ECF No. 189.)
Claims seven, eight, nine and ten of the Third Amended Complaint seek civil
damages and penalties under the PACT Act; claims eleven and twelve seek civil
penalties pursuant to PHL § 1399-ll. (Third Am. Compl. ¶¶ 148-86.) UPS answered
the Third Amended Complaint on March 16, 2016. (ECF No. 199.)
On February 2, 2016, UPS filed the pending motion for partial summary
judgment, seeking dismissal of plaintiffs’ claims under the PACT Act and PHL §
1399-ll. (ECF No. 172.)9 Plaintiffs opposed the motion on March 2, 2016. (ECF No.
196.) UPS filed its reply brief, and the motion became fully briefed, on March 16,
2016. (ECF No. 200.)
II.

SUMMARY JUDGMENT STANDARD
“The court shall grant summary judgment if the movant shows that there is

no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). The moving party bears the initial
burden of demonstrating “the absence of a genuine issue of material fact.” Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has discharged
its burden, the opposing party must set out specific facts showing a genuine issue of
material fact for trial. Wright v. Goord, 554 F.3d 255, 266 (2d Cir. 2009). The
nonmoving party “may not rely on mere speculation or conjecture as to the true
nature of the facts to overcome a motion for summary judgment.” Hicks v. Baines,
Although the pending motion was filed prior to plaintiffs’ filing of the Third Amended Complaint,
the newly added allegations do not bear on the issues raised in this motion.

9

16

593 F.3d 159, 166 (2d Cir. 2010) (quoting Fletcher v. Atex, Inc., 68 F.3d 1451, 1456
(2d Cir. 1995)). “The inferences to be drawn from the underlying affidavits,
exhibits, interrogatory answers, and depositions must be viewed in the light most
favorable to the party opposing the motion.” Cronin v. Aetna Life Ins. Co., 46 F.3d
196, 202 (2d Cir. 1995) (citations omitted). However, “[t]he mere existence of a
scintilla of evidence in support of the plaintiff's position will be insufficient; there
must be evidence on which the jury could reasonably find for the plaintiff.” Jeffreys
v. City of New York, 426 F.3d 549, 554 (2d Cir. 2005) (quoting Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 252 (1986)) (internal quotation mark omitted).
III.

DISCUSSION
Resolution of the pending motion turns on whether UPS has shown its

entitlement to rely on the exemption set forth in 15 U.S.C. § 376a(e)(3)(B)(ii)(I) as a
defense to plaintiffs’ PACT Act and PHL § 1399-ll claims.10 To determine whether
UPS is entitled to judgment as a matter of law on these claims, the Court must first
fully set forth its interpretation of the relevant portions of § 376a(e)(3). The Court
next addresses whether UPS has met its burden of showing that plaintiffs have
failed to raise a genuine issue of material fact as to UPS’s qualification for
exemption in light of the Court’s interpretation. For the reasons set forth below, the
Court concludes that UPS has done so on the current record, but will, as explained
below, allow plaintiffs an opportunity to present additional supporting evidence of

10 Plaintiffs do not dispute that, to the extent that UPS is exempt from the PACT Act under §
376a(e)(3), it is also entitled to dismissal of plaintiffs’ PHL § 1399-ll claims pursuant to §
376a(e)(5)(C)(ii).

17

UPS’s non-adherence to its nationwide policies to curb the delivery of contraband
cigarettes.
A.

PACT ACT
1.

The Court’s Interpretation of 15 U.S.C. § 376a(e)(3)(B)(ii)(I)

Section 376a(e)(3)(B)(ii)(I) explicitly enumerates the AOD as being one of
three agreements that qualify a carrier for exemption from the PACT Act’s
requirements “if [it] is honored throughout the United States to block illegal
deliveries of cigarettes or smokeless tobacco to consumers.” 15 U.S.C. §
376a(e)(3)(B)(ii)(I). The threshold interpretive dispute between the parties is the
role that the phrase “is honored throughout the United States” plays in the
exemption and the means by which a suing state may provide proof that a
settlement agreement is not honored or how a carrier may show that it is honored.
While the Court’s starting point in interpreting § 376a(e)(3)(B) is the plain
language of the statute, United States v. Dauray, 215 F.3d 257, 260 (2d Cir. 2000),
as the Court previously explained in its decision on UPS’s motion to dismiss, the
phrase “is honored throughout the United States” in § 376a(e)(3)(B)(ii)(I), standing
alone, does not provide a satisfactory answer as to what is required. While the
Court believes that “is honored” most plausibly means “is recognized,” see HONOR,
Black’s Law Dictionary (10th ed. 2014) (defining honor as “[t]o recognize” among
other definitions), “honor” could also mean, inter alia, to “fulfill (a duty or
obligation)” or “abide by the terms of (an agreement).”11 That is, “is honored” could

11 HONOR, Oxford English Dictionary (OED Third Ed., March 2014) (available at
http://www.oed.com/view/Entry/88228?rskey=6pwt3c&result= 2&isAdvanced= false#eid).

18

mean “is honored [by states nationwide],” or “is honored [by UPS nationwide],” or
both. The immediately surrounding language of this conditional clause does not
allow a clear and unambiguous meaning to jump off the page. The lack of clarity as
to the “is honored” conditional clause is magnified because the provision, which uses
the passive voice, does not identify who must “honor” the settlement agreement or
how that fact is communicated. The pivotal language of this exemption is, in other
words, hard to decipher. Although the Court believes that the interpretation it
adopts below is as well-supported by the plain text of the statute as any proposed
alternative, the Court also relies on “the statutory context, ‘structure, history, and
purpose’” of the statute to make a definitive determination. Abramski v. United
States, 134 S. Ct. 2259, 2267 (2014) (quoting Maracich v. Spears, 133 S. Ct. 2191,
2209 (2013)); see also King v. Burwell, 135 S. Ct. 2480, 2483 (2015) (Where a word
is susceptible to more than one interpretation, “the Court must read the words in
their context and with a view to their place in the overall statutory scheme.”
(quotation marks omitted)).
Based on the plain language of the relevant provisions and the statutory
context, structure, legislative history and purpose of the PACT Act (and,
specifically, the purpose of § 376a(e)(3)(B)(ii)(I))—which the Court lays out below—
the Court essentially adheres to the interpretation set forth in its decision in
relation of UPS’s motion to dismiss, but with further elaboration made necessary at
this later stage on a more fully developed record. In granting in part UPS’s motion
to dismiss, the Court previously stated that UPS is entitled to the exemption if the

19

AOD has appropriate breadth and that the phrase “is honored” means “is
recognized” by all states in the nation. UPS I, 2015 WL 5474067, at *7. Based on
the parties’ more fulsome arguments in relation to the pending motion, and the
evidence that plaintiffs have developed to support their effort to revive their PACT
Act claims, the Court has come to the conclusion that “is honored” also requires that
UPS give the AOD nationwide breadth. Thus, it is necessary for the Court to
further explain its interpretation of § 376a(e)(3)(B)(ii)(I) and understanding of how
the exemption functions.
The Court now concludes, as it did in its Opinion & Order of September 16,
2015, that § 376a(e)(3)(B) is a definitional provision that serves to define the types
of settlement agreements that qualify for exemption. In defining a sub-category of
enumerated qualifying agreements in § 376a(e)(3)(B)(ii)(I), the PACT Act sought to
preserve the status quo as to UPS and two other carriers by exempting them from
the PACT Act’s requirements as of the date of enactment. The Court further
continues to believe that § 376a(e)(3)(B) does not itself reach questions of
compliance or non-compliance with obligations assumed under any particular
agreement. Put another way, this provision does not mean that if the AOD is, on a
shipment-by-shipment (or incident-based) review, not fully and always in fact
complied with, that UPS loses its exemption.
Whatever the provision means, it is clear that as of the date of enactment,
UPS was viewed by the NAAG and Congress as entitled to its protections. That
being said, the fact that UPS (and the other enumerated carriers) was exempt from

20

the date of enactment does not necessarily mean that UPS (or these other carriers)
remains exempt in perpetuity. As plaintiffs argue, if that was Congress’s intention,
the PACT Act would not have gone to the trouble of imposing any condition on
exemption, and instead would have merely identified UPS and the other carriers as
exempt, plain and simple. The Court is persuaded that the bargain struck by the
statute is, rather, that the carrier retains its exempt status—that is, it fits within
the definitional provisions of § 376a(e)(3)(B)—only so long as it continues to give
nationwide effect to the applicable settlement agreement and so long as there is no
material change in states’ recognition of the existence of the AOD and its
nationwide scope. Those conditions explain how Congress sought to preserve the
status quo by granting qualifying carriers an exemption at the time of passage, but
not to grant an exemption in perpetuity.
As the Court stated in its prior decision, § 376a(e)(3)(B)(ii)(I) was intended
to—and is properly interpreted as—codifying the status quo as to UPS and the
other carriers who had entered into agreements of nationwide scope and effect with
the NYAG prior to the PACT Act’s enactment. The statute, therefore, provided UPS
with an exemption from the time that the PACT Act was enacted. It follows that
the conditions in existence at the time the statute was passed were sufficient to
make UPS exempt; by saying that “‘is honored throughout the United States’ means
‘is recognized’ by all states in the nation,” UPS I, 2015 WL 5474067, at *7, the Court
meant that UPS was exempt as long as the AOD’s existence was recognized
nationwide and that the obligations imposed in the AOD are given nationwide

21

effect—a factual predicate that Congress understood existed at the time of
enactment.
As stated above, however, although UPS had met the requirements to entitle
it to exemption at the time the PACT Act was enacted, the Court expands upon its
interpretation by explaining that the statute does not provide a necessarily
perpetual exemption. Instead, UPS could lose its exemption based on a material
change in circumstances, either by UPS no longer giving nationwide effect to the
AOD or states no longer recognizing its active existence. Thus, the Court clarifies
that it is both UPS and the states that each, in a general sense, must honor and
recognize the AOD and its nationwide effect. The statute does not, in contrast,
require that all fifty states affirmatively assent to the settlement agreement as
having preclusive effect of its ability to seek remedies under the PACT Act and/or
state law against UPS.12 To hold otherwise would be inconsistent with the Court’s
view that the exemption was meant to preserve the status quo vis-à-vis UPS and
the other two carriers who had already entered into settlement agreements and
would render the enumerated exemptions a nullity, an outcome that cuts against
what indicia exists as to Congress’s intention. Below, the Court sets forth its
support for the above interpretation.

12 To the extent that plaintiffs argue that the Court previously determined that UPS loses its
exemption if plaintiffs provide evidence that even one state does not honor the AOD (see Proshansky
Decl., Ex. 9, ECF No. 194-9), the Court rejects the notion that its statement at the January 12, 2016
conference, without the benefit of briefing on the pending motion, represented the Court’s definitive
interpretation of § 376a(e)(3)(B)(ii)(I). In any event, as explained below, plaintiffs have failed to
show that any state does not honor the AOD in the sense that the Court deems relevant.

22

First, the Court’s interpretation is well-supported by the plain text. As the
Court stated when ruling on UPS’s motion to dismiss, use of the word “includes” at
the start of § 376a(e)(3)(B)(ii) signals that what follows is a list of that which is
encompassed, see Samantar v. Yousuf, 560 U.S. 305, 317 (2010) (“[U]se of the word
‘include’ can signal that the list that follows is meant to be illustrative rather than
exhaustive.”), supporting the view that § 376a(e)(3)(B) serves as a definitional
section, rather than as one that imports questions of compliance. As this Court has
observed, the “concepts of breadth and behavior are quite different.” UPS I, 2015
WL 5474067, at *8. Section 376a(e)(3)(B)(ii)(I), in turn, defines a qualifying
“settlement agreement” to include the AOD, as well as the analogous agreements
entered into by DHL and Federal Express, “if each of those agreements is honored
throughout the United States.” 15 U.S.C. § 376a(e)(3)(B)(ii)(I). The use of the
phrase “is honored”—rather than “becomes honored”—is consistent with an
understanding that the AOD exempted UPS from the time the PACT Act was
enacted, not only upon the occurrence of some future contingency.
In adopting this reading of § 376a(e)(3)(B)(ii)(I), the Court observes that it
would indeed be odd for Congress to explicitly identify three settlement agreements
that notably had already been in effect for several years at the time of the PACT
Act’s enactment but intend that those settlement agreements only qualify for
exemption if all states—including those several who had not participated in the
March 2005 NAAG meeting—subsequently affirmatively assented to those
agreements by a mechanism or procedure not explained anywhere in the statute nor

23

mentioned in the legislative history. Such a requirement makes little sense as
Congress undoubtedly would have been aware that it could pose an insurmountable
obstacle for UPS (or the other carriers) to get every state to affirmatively assent to
an agreement between UPS and the NYAG in lieu of seeking penalties under the
PACT Act or state law. Congress knew that the three enumerated settlement
agreements provided no right of enforcement to any state other than New York.
That plaintiffs have not offered any indication that UPS or any other carrier sought
affirmative assent to their respective agreements by any state after the enactment
of the PACT Act is strong evidence that no such arrangement was ever
contemplated.
Second, the Court’s interpretation is also informed and supported by the
overall structure of § 376a(e)(3) and the text surrounding the exemptions arising
from the enumerated agreements. K Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291
(1988) (“In ascertaining the plain meaning of the statute, the court must look to the
particular statutory language at issue, as well as the language and design of the
statute as a whole.”). In addition to § 376a(e)(3)(B)(ii)(I), which enumerates the
AOD and the two analogous settlement agreements entered into by DHL and
FedEx, § 376a(e)(3) separately provides for two other sets of circumstances that
could qualify a carrier for PACT Act exemption: §§ 376a(e)(3)(B)(ii)(II) and
376a(e)(3)(A)(ii). The Court looks at each in turn.
Section 376a(e)(3)(B)(ii)(II) identifies a category of unenumerated agreements
that qualify for exemption. As the Court explained in its decision on UPS’s motion

24

to dismiss, that provision is particularly instructive because it acts in parallel to §
376a(e)(3)(B)(ii)(I) and is also relevant under the noscitur a sociis canon of
construction. See Gustafson v. Alloyd Co., 513 U.S. 561, 575 (1995) (“[A] word is
known by the company it keeps.”). Section 376a(e)(3)(B)(ii)(II) states that a
qualifying agreement includes “any other active agreement between a common
carrier and a State that operates throughout the United States to ensure that no
deliveries of cigarettes or smokeless tobacco shall be made to consumers . . . without
payment to the States . . . where the consumers are located of all taxes on the
tobacco products.” 15 U.S.C. § 376a(e)(3)(B)(ii)(II) (emphasis added). The phrase
“that operates throughout the United States,” even more so than the phrase “is
honored throughout the United States,” suggests that the conditional clause is
directed at geographic breadth rather than the signatory’s degree of compliance
with the agreement.
Section 376a(e)(3)(A)(ii) accounts for the circumstance in which a once
qualifying agreement (i.e. an agreement described in § 376a(e)(3)(B)(ii)) is no longer
operative. That provision provides that a carrier which was a party to a qualifying
settlement agreement that is “terminated or otherwise becomes inactive” may
retain the exemption if it is “administering and enforcing policies and practices
throughout the United States that are at least as stringent as the agreement.” 15
U.S.C. § 376a(e)(3)(A)(ii) (emphasis added). This provision is supportive of the
Court’s interpretation because it shows that the statute contemplates that a carrier
may retain the exemption without the acquiescence or consent of all fifty states as

25

long as it continues to have nationwide policies and practices that impose
obligations on the carrier as stringent as the settlement agreements—such as the
AOD—of which Congress was aware. Notably, this exemption does not preface
“policies and practices” with the word “effective.” Again, based on the inference that
Congress sought the exemptions to be read consistently with one another, use of the
language “administering and enforcing policies and practices throughout the United
States” in this exemption supports the view that “is honored throughout the United
States” refers to geographic breadth and means that the carrier must give the
settlement agreement nationwide effect. It would make no sense for a carrier with
an active qualifying settlement agreement with one state to retain its exemption
only if all fifty states continue to affirmatively assent to the agreement having
preclusive effect, but that a carrier whose agreement becomes inactive or is
terminated would not need the continued assent of all fifty states to retain its
exemption. Nat. Res. Def. Council, Inc. v. Muszynski, 268 F.3d 91, 98 (2d Cir. 2001)
(“[A]bsurd results are to be avoided and internal inconsistencies in the statute must
be dealt with.”).13
Third, the context in which the PACT Act—and, specifically, the exemption
provision at issue—was passed also supports the Court’s interpretation over
plaintiffs’ interpretation. That context entails consideration of the development of
Plaintiffs, citing to draft language and legislative history relating to the 2007 version of the PACT
Act, argue that the Court should essentially import the word “effectively” into the phrase
“administering and enforcing policies and practices.” (Pls.’ Mem. of Law in Opp. to UPS’s Mot. for
Partial Summ. J. (“Pls.’ Opp. Br.”) at 15-16, ECF No. 196.) The Court rejects this argument because
plaintiffs’ evidence, relating to a prior version of the bill, is inapposite. No form of the word
“effective” was included in the adopted version of § 376a(e)(3), but was used in the separate
exemption provided for elsewhere in the statute in § 377(b)(3)(B)(i).

13

26

regulation of the direct shipment of cigarettes to consumers, the legislative history
of the PACT Act, and the statute’s purpose (which is, of course, informed by the
legislative history). See Concrete Pipe & Products of California, Inc. v. Constr.
Laborers Pension Trust for S. California, 508 U.S. 602, 627 (1993) (stating that in
the “usual case of textual ambiguity” a court should turn to “the legislative purpose
as revealed by the history of the statute”); see also Puello v. Bureau of Citizenship
& Immigration Servs., 511 F.3d 324, 327 (2d Cir. 2007) (when considering
legislative history, a court must “construct an interpretation that comports with the
statute’s primary purpose and does not lead to anomalous or unreasonable results”).
Although just one piece of the legislative puzzle, the context in which the
AOD came about and contemporaneous beliefs as to what it sought to and did
accomplish (including those of the NYAG and representatives of other states),
inform the Court’s view as to what the status quo was and what expectations would
have been at the time the PACT Act was enacted. As recited above, UPS and the
NYAG entered into the AOD a few months after UPS and other carriers
participated in a meeting convened by the NAAG regarding, inter alia, the illegal
sale of tobacco products on the internet. (UPS’s 56.1 ¶¶ 3-4.) Although plaintiffs
dispute that other states worked with the NYAG to reach an agreement with UPS
(Pls.’ 56.1 Cstmt. ¶ 2), the AOD provided for all of the procedures that the NAAG
had sought UPS to implement (UPS’s 56.1 ¶ 5), suggesting that there was a
consensus or at least some input provided by other states.

27

The involvement and/or acquiescence of other states and an understanding
that the AOD had nationwide scope and effect is further supported by events
occurring immediately following the parties’ agreement to the AOD. Shortly after
executing the AOD, David Nocenti, counsel to the NYAG, sent emails to Laura
Kaplan, Deputy Attorney General of California, confirming that in the AOD UPS
had agreed to “stop the direct shipment of cigarettes to consumers nationwide” and
“institute a nationwide policy prohibiting the shipment of cigarettes to consumers.”
(UPS’s 56.1 ¶¶ 10-11.) In an email that Ms. Kaplan sent three years later to
individuals at the NAAG and NYAG—around when the PACT Act was under
consideration—she expressed the view that that the AOD “[c]learly . . . does apply
to the states.” (UPS’s 56.1 ¶ 13.) These communications support the conclusion
that the AOD was perceived to have nationwide effect, and to be operating
throughout the United States, from the time it was entered into and up through the
time of the PACT Act’s enactment. Plaintiffs, in contrast, have presented no
communications indicating that anyone perceived the AOD as not having
nationwide effect or being honored throughout the United States at any point prior
to this litigation.
Next, the legislative history of the PACT Act itself also supports the Court’s
interpretation that the agreements enumerated in § 376a(e)(3)(B)(ii)(I) were
understood to have met the exemption requirements at the time of the law’s
enactment. At the outset, the evidence before Congress was that UPS, DHL and
FedEx had all already entered into agreements that the carriers were giving

28

nationwide effect. See, e.g., Prevent All Cigarette Trafficking Act of 2007, and the
Smuggled Tobacco Prevention Act of 2008: Hearing on H.R. 4081 & H.R. 3689
Before the Subcomm. on Crime, Terrorism, & Homeland Sec. of the H. Comm. on
the Judiciary, 110th Cong. (May 1, 2008) (“2008 Hearing”), at 79 (Statement of
David S. Lapp, Chief Counsel, Tobacco Enforcement Unit, Office of the Attorney
Gen. of Md., testifying on behalf of NAAG) (“Along with other State attorneys
general, we have attained agreements with . . . the major delivery companies,
including UPS, FedEx and DHL, all to stop Internet sales of cigarettes.”); 2008
Hearing at 124 (Statement of Eric Proshansky, Deputy Chief, Division of
Affirmative Litigation, New York City Law Department) (“The states, acting
through the [NAAG], and with the assistance of the Bureau of Alcohol, Tobacco,
Firearms & Explosives, negotiated an unprecedented set of agreements with . . .
common carriers in which members of those industries have pledged to end any
participation in the Internet cigarette business.”).
Furthermore, much of the legislative history identified by UPS, which relates
to the final bill that contained the exemption, supports the notion that §
376a(e)(3)(B)(ii)(I) was included to prevent the imposition of onerous requirements
on carriers who had already entered into agreements to halt the delivery of
contraband cigarettes and to preserve the status quo for those carriers. See 155
Cong. Rec. S5822-01, 2009 WL 1423723, at *104 (May 21, 2009) (statement of Sen.
Kohl, sponsor of Senate version of bill) (“It is important to point out that this bill
has been carefully negotiated with the common carriers, including UPS, to ensure

29

that it does not place any unreasonable burdens on these businesses. In recognition
of UPS and other common carriers’ agreements to not deliver cigarettes to
individual consumers on a nationwide basis, pursuant to agreements with the State
of New York, we have exempted them from the bill provided this agreement
remains in effect.”). This statement by Senator Kohl, a sponsor of the PACT Act, is
indicative of Congress’s intent for UPS, DHL and FedEx to obtain the benefit of the
exemption from the date of enactment. A 2008 House Report discussing the
proposed exemptions also contains additional evidence that Congress understood
that the carriers already subject to settlement agreements would not have to fulfill
any additional conditions to render the exemption applicable. See H.R. Rep. No.
110-836, at 24 (Sept. 9, 2008) (“Finally, the subsection provides a limited exception
from these requirements for a common carrier with an active settlement agreement
with a State, honored nationwide, to block deliveries of cigarettes and smokeless
tobacco or shipments where applicable taxes have not been paid. The three major
common carriers—United Parcel Service, FedEx, and DHL—all have such
agreements with the New York State Attorney General’s office.” (emphasis added)).
Additional legislative history shows that exempting UPS and the other
carriers at the time of enactment does not undermine the statutory purpose,
because that history shows that the statute was aimed primarily at eliminating
deliveries of illegal, untaxed cigarettes by the U.S. Postal Service and making
cigarettes non-mailable material, rather than at targeting other carriers. See 2008
Hearing at 79 (statement of David S. Lapp) (explaining that states “have curbed

30

deliveries by all the major carriers except one: the U.S. Postal Service, which
asserts it has no legal authority to refuse cigarette shipments”); 156 Cong. Rec.
H1526-01, 2010 WL 956208, at *27 (Mar. 17, 2010) (statement of Rep. Weiner,
House sponsor of the PACT Act) (“There’s only one common carrier that today still
delivers tobacco through the mail—the United States Postal Service.”); 2008
Hearing at 9 (testimony of Rep. Weiner) (“Right now, the only one that is carrying
[untaxed cigarettes], ironically, is [USPS]. So the only one who would actually be
covered by this in a real practical sense is [USPS]. Everyone else would already be
following their status quo operations.”).14 Plaintiffs’ argument that the Court’s
reading guts the PACT Act and undermines the scheme it creates is belied by the
fact that Congress was not primarily concerned with UPS and the other major
carriers, but rather with USPS. Although the Court does recognize that application
of the exemption has the effect of rendering the forty-nine states other than New
York unable to pursue penalties from UPS for illegal shipment of cigarettes, that is
true only to the extent that UPS continues to honor the AOD nationwide as set
forth above.15

The record indicates that the NYAG itself understood that the Postal Service was responsible for
the bulk of cigarette deliveries. (See McPherson Decl., Ex. 7, ECF No. 175-7 (October 24, 2005 email
from David Nocenti to Laura Kaplan stating “The vast majority of cigarette deliveries, of course, are
made by the Postal Service, and this simply highlights the need for enactment of Congressional
legislation.”).)
14

15 Plaintiffs argue that UPS cannot rely on its “unilateral (and uncommunicated) belief in an
exemption from the PACT Act” from the time of enactment, stating that there is no authority for the
view that “each state should have inferred UPS’s belief in a purported PACT Act exemption and
spontaneously notified UPS of the state’s contrary belief.” (Pls.’ Opp. Br. at 19.) This argument is
inapposite to the Court’s interpretation, which focuses on Congress’s intent to confer an exemption
from the time of enactment, not on UPS’s belief in its entitlement to such an exemption.

31

Plaintiffs, for their part, also cite legislative history in their opposition brief
that they contend is contrary to the Court’s interpretation. (See Pls.’ Opp. Br. at 27.) When considered in its proper context, however, this legislative history actually
supports, rather than detracts from, the Court’s interpretation. In support of their
view that the PACT Act was intended to significantly broaden the burdens imposed
on major carriers like UPS, plaintiffs cite Congressional reports addressing an
earlier, materially different draft version of the bill, which ultimately was not
passed. See, e.g., Sen. Rep. No. 110-153 (2007).16 Significantly, the then-operative
versions of the legislation did not exempt carriers subject to a settlement agreement
from the PACT Act’s requirements or from state laws prohibiting the delivery of
cigarettes to individual consumers. See PACT Act, S. 1027, 110th Cong. (2007) (as
reported by the S. Comm. on the Judiciary, Sept. 11, 2007); PACT Act, H.R. 4081,
110th Cong. (2007) (as reported by the H. SubComm. on Crime, Terrorism and
Homeland Security of the H. Comm. on the Judiciary, May 1, 2008). The carrier
exemptions at issue were not added until the legislation was subsequently

Plaintiffs recognize that the House Report they primarily rely on addressed the PACT Act at the
session of Congress that preceded the session in which the PACT Act was passed, but assert that the
“statutory language was not substantially unchanged between the two sessions.” (Pls.’ Opp. Br. at 3
n.2.) To the extent that this statement should be read literally, the Court agrees that the statute
was in fact substantially changed in a material respect because the original version of the bill did not
contain the exemption provision at issue here. To the extent that plaintiffs’ brief includes a
typographical error such that they actually meant that the statute was substantially the same, the
Court disagrees with their characterization—the statute was changed in a highly material respect.

16

Plaintiffs do cite testimony from a House Report addressing a later version of the PACT Act
that included the carrier exemptions at issue here. (Pls.’ Opp. Br. at 6 (citing H.R. Rep. No. 111-117,
at 26 (2009).) The legislative history they cite, however, is inapposite because it related to the
exemption ultimately codified at 15 U.S.C. § 377(b)(3)(B)(i). That exemption is in a different part of
the statute, prefaces the phrase “policies and “practices” with the word “effective,” and is not relied
upon by UPS as a basis for exemption in the pending motion. Congress could have, but did not,
specifically impose a requirement of effective enforcement in § 376a(e)(3).

32

reintroduced. See PACT Act, S. 1147, 111th Cong. (as introduced in the Senate on
May 21, 2009). Thus, the legislative history that plaintiffs cite does not reflect the
compromise that was ultimately struck in the enacted version of the legislation and
has little bearing on what Congress intended the subsequently added exemption
provisions to mean. See United States v. Howe, 736 F.3d 1, 4 (1st Cir. 2013)
(placing little weight on legislative history that “concerned an earlier draft of the
statute with different language than the version ultimately enacted”). Plaintiffs’
acknowledgment that carriers vigorously objected to the initial version of the PACT
Act (Pls.’ Opp. Br. at 7) supports the view that the exemptions were added as a
compromise to the industry to allow carriers who had already made efforts to reduce
the shipment of contraband cigarettes to avoid the burdensome requirements
imposed by the PACT Act.
Finally, the Court’s interpretation is consistent with the need to interpret the
statute to promote a workable and sensible scheme, far more so than any
alternative reading offered by plaintiffs in their opposition papers (or the other
alternatives proposed by UPS). See Yerdon v. Henry, 91 F.3d 370, 376 (2d Cir.
1996) (“Where an examination of the statute as a whole demonstrates that a party’s
interpretation would lead to ‘absurd or futile results . . . plainly at variance with the
policy of the legislation as a whole,’ that interpretation should be rejected.” (quoting
EEOC v. Commercial Office Prods. Co., 486 U.S. 107, 120 (1988))); Merck v. Treat,
174 F. 388, 390 (2d Cir. 1909) (“[T]he interpretation which we place upon the
statute provides a simple, fair and workable plan which preserves the rights of both

33

parties.”); United States v. Mejias, 417 F. Supp. 579, 583 (S.D.N.Y. 1976) (“This Act,
like any other statute, must be read in such a way as to render it a sensible and
workable whole.”). As explained below, plaintiffs have not suggested any
alternative interpretation that would provide a reasonable, workable means to
accomplish the end Congress sought to achieve in creating the exemption.
Under plaintiffs’ proposed interpretation, a carrier may obtain an exemption
under § 376a(e)(3)(B)(ii)(I) only if all fifty states affirmatively assent in some
unidentified manner to the AOD, meaning that each state recognizes the agreement
as preclusive of the remedies they would otherwise be able to pursue under the
PACT Act or state law.17 This reading is unreasonable and, ultimately, unworkable
for several reasons. For instance, § 376a(e)(3)(B)(ii)(I) does not explain the
mechanism by which a carrier could obtain a state’s affirmative assent and ensure
that each state continues, at any given point in time, to assent to a settlement
agreement for which it is not a signatory and has no right of enforcement.
Plaintiffs’ reading, moreover, would render it impossible in a practical sense for any
carrier to obtain an exemption, and would beg the question why Congress bothered
to add these exemptions in the first place. Plaintiffs’ position that all fifty states
must formally acknowledge not only the existence of the AOD, but also its effect (i.e.
that it precludes their ability to pursue remedies against UPS under the PACT Act
and/or state law), creates a burden that is far more stringent than that
contemplated by the other PACT Act exemptions. As plaintiffs themselves
17 The Court’s understanding that plaintiffs believe the exemption essentially requires each state to
affirmatively assent to waiver of its right to utilize the PACT Act is based, in part, on the facts
asserted in the declarations that plaintiffs have offered from seven other state attorneys general.

34

repeatedly point out, no other state was or is currently a party to the AOD, no other
state was or is bound by the AOD under its terms, and no state other than New
York affirmatively and officially endorsed it. (Pls.’ Opp. Br. at 19.) Plaintiffs do not
explain why, under such circumstances, any state, much less all fifty states, would
recognize the AOD in the manner they suggest even if UPS has fully effective, foolproof policies and practices. No state—much less every state—has any incentive to
affirmatively act to restrict its ability to pursue enforcement remedies. Plaintiffs
contend that in spite of these facts—all of which were in existence at the time of the
PACT Act’s passage and of which Congress undoubtedly was aware—Congress
explicitly enumerated the AOD (and stated that it was an agreement entered into
only between UPS and the NYAG) as an agreement capable of conferring an
exemption. Considered in this context, plaintiffs present an entirely unworkable
view of the prerequisites necessary to obtain to an exemption, as they would render
the exemption a nullity.
As the Court previously explained in relation to UPS’s motion to dismiss,
plaintiffs’ original interpretation of the exemption fares no better in creating a
workable scheme. Plaintiffs previously argued that the mere allegation in a
complaint that a carrier was not in compliance with its settlement agreement is
sufficient to defeat the carrier’s exemption. Such a reading is nonsensical because,
again, it would render the exemption a nullity—the PACT Act’s carefully delineated
exemptions would be meaningless. Plaintiffs’ reading would gut the exemption by
making it exceedingly difficult, if not impossible, for a carrier to successfully invoke

35

the exemption. The statutory language and the legislative history do not indicate
that Congress intended to deprive an otherwise qualifying carrier of exemption
based on an imperfect, but bona fide, effort to maintain the nationwide policies
agreed to in the AOD.
2.

Application of the Court’s Interpretation

Having concluded that § 376a(e)(3)(B)(ii)(I) conferred an exemption from the
PACT Act’s requirements on UPS at the time that the statute was enacted, the
Court must determine whether plaintiffs have created a genuine issue of material
fact as to whether UPS has lost its entitlement to that exemption. As explained
below, plaintiffs have not, on the current record, done so.
In support of the pending motion, UPS states, based on the declaration of
Bradley J. Cook, UPS’s Rule 30(b)(6) witness and Director of Dangerous Goods and
Head of its Package Solutions Group, that it “continues to administer and enforce a
nationwide policy prohibiting the shipment of cigarettes to consumers,” listing
several specific policies and practices that it has adopted to achieve that end.
(UPS’s 56.1 ¶ 8; Cook Decl. ¶ 6.) Mr. Cook further avers that “UPS has never
renounced the AOD or limited its policies and practices designed to curtail cigarette
deliveries to consumers by eliminating certain states or jurisdictions from the scope
of UPS’s policies and practices.” (UPS’s 56.1 ¶ 9; Cook Decl. ¶ 7.)18 It is also
undisputed that no state, as of the filing of the pending motion, notified UPS of a

18 Plaintiffs’ evidence purporting to counter this fact—that UPS renounced its policies by asserting
affirmative defenses to the validity of the AOD (which are no longer live in this case) and that it has
made nationwide deliveries of cigarettes to consumers for Native Wholesale Supply—does not
undermine the relevant factual assertions advanced by UPS. (See Pls.’ 56.1 Cstmt. ¶ 9.)

36

belief that the AOD does not have nationwide scope or that UPS does not honor the
AOD nationwide. (UPS’s 56.1 ¶ 14.)
Plaintiffs primarily seek to defeat UPS’s motion with two categories of factual
support: (1) declarations from other state attorneys general representing that their
states do not recognize the effect of the AOD, and (2) evidence that UPS has in fact
delivered contraband cigarettes and therefore failed to adhere to its nationwide
policies to curb such deliveries.19 Plaintiffs thus seek to attack the exemption under
two distinct theories, by showing that neither the states, nor UPS, honor the AOD.
While neither category of evidence is sufficient to raise a genuine issue of material
fact on the record presented here, below the Court explains why it will allow
plaintiffs an opportunity to supplement their evidence relating to whether UPS
honors the AOD nationwide, and what plaintiffs would need to show to raise a
triable issue.
As to their first category of factual support, plaintiffs seek to raise a genuine
issue of material fact by pointing to declarations of representatives of seven state
attorneys general stating that their states do not recognize the AOD, as well as a
declaration from Michael G. Hering submitted on behalf of the NAAG. (See
McPherson Decl., Exs. 1-5, ECF No. 175; Proshansky Decl., Exs. 6, 8, ECF No. 194.)

19 Plaintiffs also contend that a genuine issue of material fact remains at this stage because UPS
raised several affirmative defenses in its Answer challenging the validity of the AOD that, if
successful, would undermine the notion that the AOD is or ever was an active agreement. (Pls.’ Opp.
Br. at 25.) This argument is meritless because the Court has already granted plaintiffs’ motion to
strike UPS’s three affirmative defenses challenging the validity of the AOD at the time of formation.
See UPS II, 2016 WL 502042, at *17-19. Whatever inconsistency would otherwise exist on UPS’s
part has been resolved by the Court’s decision on plaintiffs’ motion to strike those affirmative
defenses.

37

The seven state attorneys general declarations are from California, Idaho, Utah,
Connecticut, New Mexico, Maryland and Pennsylvania; several are essentially
identical (except for the state on whose behalf they were submitted). Below, the
Court uses the declaration of Laura W. Kaplan, Deputy Attorney General of the
State of California, as an illustrative example of the declarations that plaintiffs
have put forward to support their position. (McPherson Decl., Ex. 1 (“Kaplan
Decl.”), ECF No. 175-1.)20
Ms. Kaplan states that California’s understanding of the PACT Act is that
the AOD is a settlement agreement “eligible” to make UPS exempt from the
statute’s liability provisions. (Kaplan Decl. ¶ 5.) Ms. Kaplan further states that
“California is not a party to the AOD” and the “AOD does not appear to grant
California any rights against UPS . . . such as the recovery of penalties, damages or
injunctive relief,” but rather New York is the only state that can do so. (Id. ¶ 6.)
Ms. Kaplan states that “[i]t defies common sense and logic for California to
recognize and assent to an agreement to which it is not a party and to which
California has no legal rights” and, for those reasons, “California would not utilize
the AOD . . . as a means to block illegal deliveries of cigarettes or smokeless tobacco
to consumers.” (Id. ¶ 7 (quotation marks omitted).)21 Ms. Kaplan goes on to say
The Idaho and Utah declarations are nearly identical to Ms. Kaplan’s. (See McPherson Decl., Exs.
2-3, ECF Nos. 175-2, 175-3.) Although the Court notes that the declarations submitted on behalf of
other state attorneys general contain minor variations in language, the remaining declarations
contain the same facts in all material respects. The Court does, however, identify particular
distinctions in certain of the declarations below.
20

The New Mexico declaration states that “[b]ecause the AOD does not provide New Mexico with any
enforcement rights or any relief, New Mexico cannot recognize, ‘honor’ or assent to the AOD.”
(McPherson Decl., Ex. 4 ¶ 7, ECF No. 175-4 (emphasis added).) The Pennsylvania declaration states
that Pennsylvania “has not, and could not rely on the AOD as a means to ‘block illegal deliveries of
21

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that, instead, “California would use the PACT Act as an enforcement mechanism
against UPS for illegal cigarette deliveries to consumers in California because the
PACT Act provides California with a cause of action for civil penalties and other
equitable relief whereas the AOD does not.” (Id. ¶ 8.)22
As stated above, plaintiffs have also provided a declaration by Michael G.
Hering, Director and Chief Counsel of the Center for Tobacco and Public Health at
the NAAG. (Hering Decl. ¶ 1.) Mr. Hering states that “NAAG has no authority to
in any manner legally bind its member attorneys general . . . and takes no actions
that purport to represent the policies or legal positions of its members unless
expressly authorized to do so.” (Id. ¶ 5.) Mr. Hering further states that “the NAAG
Center for Tobacco and Public Health has no general authorization from any state
to endorse particular programs or initiatives on behalf of that state” and, “if called
upon to do so, NAAG would be unable to take any position on whether or not [the
AOD] is honored nationwide.” (Id. ¶¶ 6-7.)
Even when viewed in its entirety and construed in the light most favorable to
plaintiffs, this evidence is insufficient to raise a genuine issue of material fact as to
UPS’s entitlement to exemption from liability under the PACT Act pursuant to §
cigarettes or smokeless tobacco to consumers’ as it is not a party to the AOD.” (Proshansky Decl.,
Ex. 6 ¶ 7, ECF No. 194-6 (emphasis added).) The assertions that these states cannot recognize the
AOD further supports the Court’s view that no carrier could ever obtain an exemption under
plaintiffs’ proposed reading.
22 Connecticut’s declaration states that Connecticut could use Conn. Gen. Stat. § 12-285c as an
enforcement mechanism against UPS for illegal cigarette deliveries to consumers, but that it could
not use the AOD because that agreement does not provide Connecticut with any enforcement
capabilities against UPS. (McPherson Decl., Ex. 3 ¶¶ 10-13, ECF No. 175-3.) Maryland’s
declaration similarly states that Maryland would also use Md. Bus. Reg. § 16-223(b) to block
cigarette shipments to consumers, rather than the AOD. (McPherson Decl., Ex. 5 ¶ 6, ECF No. 1755.)

39

376a(e)(3)(B)(ii)(I). In short, the declarations from the state attorneys general do
not raise a genuine issue of material fact because none demonstrate that these
states do not recognize the existence of the AOD or that UPS no longer gives
nationwide effect to it. The declarations also do not suggest in any way that
between the date that the AOD was signed and the PACT Act was implemented,
there had been a change in the status quo vis-à-vis any state’s position with respect
to the AOD, or in UPS’s policy of giving nationwide effect to the obligations imposed
by it. Although each state attorney general’s declaration posits that his or her
respective state does not recognize or assent to the AOD because it provides no right
of enforcement, none of the declarants assert that his or her state does not recognize
the AOD’s existence or that UPS does not maintain a policy of giving nationwide
effect to the requirements imposed in the AOD.23
As the Court explained above, § 376a(e)(3)(B)(ii)(I) was intended to exempt
UPS and the other two carriers who are parties to enumerated agreements from the
PACT Act’s requirements from the time of the law’s enactment. The factual
predicate necessary for the AOD to be “honored throughout the United States” was
therefore present at the time of enactment. As a result, a state’s position that it has
never and could never recognize the AOD because the state is not a party to it and
the agreement provides no remedies or enforcement mechanism for the state to
23 Even if plaintiffs were correct that a carrier’s exemption under § 376a(e)(3)(B)(ii)(I) could be
vitiated by a single state’s affirmative statement that it does not recognize the AOD as preclusive of
other remedies—a view that upon a full review of the parties’ arguments and the statutory scheme
is, in any event, inconsistent with the Court’s reading of the statute—the Court notes that legitimate
due process concerns are raised by an interpretation that would allow a state to lift the exemption
with respect to alleged violations occurring prior to the state’s expression of non-recognition of an
otherwise qualifying settlement agreement.

40

pursue is not a sufficient basis to find that the AOD is not honored or recognized
throughout the United States. All that is required is that the AOD’s existence is
recognized throughout the United States and that UPS continue to give the AOD
nationwide effect. That individual states would rather that UPS not be exempt
such that they can potentially pursue remedies against it pursuant to the PACT Act
and state law is immaterial and inconsistent with the bargain that Congress
ultimately struck in the final version of the statute. If the assertions made in these
declarations were deemed sufficient to vitiate UPS’s exemption, it is unclear how
UPS, DHL or FedEx could ever obtain an exemption under § 376a(e)(3)(B)(ii)(I). As
discussed above, it is hard to fathom that any state (much less every state) would
ever be willing to forego the ability to obtain penalties under federal or state law in
favor of a settlement agreement entered into by another state that provides it no
enforcement mechanism.24
Mr. Hering’s declaration on behalf of the NAAG does not help plaintiffs’
attempt to create a genuine issue of material fact. That the NAAG may not legally
bind its members through actions taken on their behalf is irrelevant. The
information presented to Congress was that UPS had entered into the AOD, that it
was giving the AOD nationwide effect, and that this was recognized nationally.
Again, the surrounding statutory language shows that a requirement of affirmative assent by all
fifty states to a settlement agreement in lieu of the possibility of pursuing other penalties is not what
Congress contemplated. Section 376a(e)(3)(B)(ii)(II) states that an unenumerated agreement
“between a common carrier and a State”—in other words, a single state, not all states or even
multiple states—qualifies for exemption if it “operates throughout the United States.” 15 U.S.C. §
376a(e)(3)(B)(ii)(II). As explained above, because § 376a(e)(3)(B)(ii)(I) and § 376a(e)(3)(B)(ii)(II)
should be read in parallel, it makes no sense to say that an enumerated agreement qualifies a carrier
for exemption only upon the affirmative assent of all fifty states, whereas an unenumerated
agreement needs only the assent of a single state as long as the agreement has nationwide breadth.

24

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Nothing in Mr. Hering’s declaration undermines or alters that understanding.
Because § 376a(e)(3)(B)(ii)(I) does not require each state to affirmatively assent to
the AOD, it follows that the NAAG need not have had the capacity to affirmatively
assent on its members’ behalf. The fact that the NAAG did not and could not
provide that assent is thus immaterial. What is significant, however, is that the
record shows that the AOD included all of the procedures that the NAAG had
sought from UPS and other carriers, and that there was an understanding that,
through the AOD, UPS had agreed to stop directly shipping cigarettes to consumers
nationwide. (UPS’s 56.1 ¶¶ 5, 11-13.) In light of this context, it is entirely
reasonable to believe that Congress viewed the AOD as having nationwide effect
and being the result of a national consensus at the time the PACT Act was enacted,
regardless of any authority that the NAAG did or did not have to act on behalf of its
members.
As to plaintiffs’ second category of factual support with which they seek to
defeat UPS’s motion, plaintiffs have presented a closer question by submitting
evidence that UPS has in fact delivered contraband cigarettes to consumers. (See
Pls.’ 56.1 Cstmt. ¶¶ 7-8; Proshansky Decl., Exs. 1-5, 7.) As stated above, plaintiffs’
evidence includes declarations from three individuals: (1) Jamie Harris-Bedell—
who has owned, operated and worked at retail convenience store shops located on
the Poospatuck Reservation that sell unstamped cigarettes, (2) Robert L. Oliver,
Sr.—who was a partner in a reservation tobacco business on the Akwesasne
Reservation, and (3) Philip D. Christ—who was employed by and/or consulted for

42

various mail order cigarette businesses on the Seneca Reservation. Plaintiffs’
evidence also includes excerpts from the depositions of Christ, and UPS’s Rule
30(b)(6) witness, Bradley J. Cook (who also submitted a declaration on behalf of
UPS, as discussed above).25 Finally, plaintiffs also provide an excerpt of a chart
showing deliveries that Native Wholesale Supply made to various states between
February 2007 and June 2007 (in other words, after UPS entered into the AOD, but
prior to the PACT Act’s enactment). Below, the Court summarizes plaintiffs’
strongest factual support for their contention that UPS does not in fact maintain
nationwide policies to curb the delivery of contraband cigarettes.
In his declaration, Harris-Bedell asserts that UPS made deliveries of
packages of contraband cigarettes to the smoke shop he worked at, that the
contents of these packages were visible to UPS drivers while they were making
deliveries, and that UPS drivers have purchased cigarettes from his smoke shop.
(Proshansky Decl., Ex. 1 (“Harris-Bedell Decl.”) ¶¶ 5-13.) Oliver’s declaration states
that when a UPS employee came to his store to open his UPS account, he told the
employee that the packages to be shipped contained cigarettes, but the UPS
employee responded that he didn’t want to hear that and proceeded to open the
account. (Proshansky Decl., Ex. 2 (“Oliver Decl.”) ¶¶ 5-6.) Oliver’s declaration
further states that UPS drivers who regularly picked up packages at his shop knew
25 The Court notes that although plaintiffs cite to various pages of Mr. Cook’s deposition transcript in
their Rule 56.1 counterstatement, the sealed copy submitted to the Court contains only a limited
subset of these pages—namely, pages 67 and 71. (See Proshansky Decl., Ex. 5.) The Court,
therefore, does not rely on any other pages in considering the pending motion. As to plaintiffs’
excerpt of the chart of deliveries made by Native Wholesale Supply, the entries appear to pre-date
plaintiffs’ claims and the enactment of the PACT Act. (See Proshansky Decl., Ex. 7.) As a result, the
excerpt is of limited significance in regards to this motion.

43

that the packages contained cigarettes because the packages sometimes had brand
names on them. (Id. ¶¶ 7-8.) Christ’s declaration, in turn, states that UPS shipped
contraband cigarettes for the various mail order businesses with which he was
affiliated, and that UPS drivers knew the packages contained cigarettes because
they had identifying labels and the drivers on occasion bought cigarettes from these
locations. (Proshansky Decl., Ex. 3 (“Christ Decl.”) ¶¶ 6-10.) In his deposition,
Christ further states that UPS daily delivered 35 to 75 packages containing
cigarettes from the smoke shop at which he was employed. (Proshansky Decl., Ex. 4
(“Christ Dep. Tr.”) at 30:6-32:2.)
While plaintiffs’ evidence at least raises questions regarding the extent of
UPS’s compliance with its policies prohibiting the shipment of cigarettes to
consumers in practice, and the efficacy of those policies in preventing the shipment
of cigarettes to consumers, this evidence alone is insufficient to create a triable
issue of fact as to whether UPS maintains nationwide policies. Plaintiffs’ evidence
is insufficient because § 376a(e)(3)(B)(ii)(I) does not require that a carrier’s policies
be 100% effective at preventing the shipment of cigarettes to consumers. A view to
the contrary would, as explained above, import a compliance requirement into a
definitional section and make it doubtful that a carrier could ever successfully
invoke the exemption at any stage prior to trial. That being said, the Court agrees
with plaintiffs that UPS may not retain the exemption simply by maintaining the
requisite policies nationwide in name only. Put otherwise, if plaintiffs could present
evidence creating an inference that the effectiveness of UPS’s policies is so

44

compromised that these policies are not in fact in place, that would be sufficient to
raise a genuine issue of fact for trial. Plaintiffs’ limited factual submissions
regarding UPS’s non-adherence to its policies—which the Court believes represent
only a fraction of the supporting evidence that plaintiffs have garnered during
discovery—is insufficient to meet that standard. Plaintiffs’ evidence does not
support the inference that UPS’s purported non-compliance is so severe that UPS
no longer “honors” the AOD throughout the United States as that term is used in §
376a(e)(3)(B)(ii)(I).
That being said, while plaintiffs made a choice to not include all of their
factual support for UPS’s non-adherence to its policies in opposing UPS’s pending
motion, the Court also believes that, in the interest of fairness, it is appropriate to
allow plaintiffs an opportunity to make a supplemental factual submission in light
of the fact that the Court has modified its interpretation of § 376a(e)(3)(B)(ii)(I).
While the Court cannot determine in the abstract precisely how much evidence of
non-adherence is necessary to raise a genuine issue as to whether UPS maintains a
nationwide policy in name only, the Court believes that plaintiffs could raise a
genuine issue of fact by presenting a combination of two sorts of evidence. First,
plaintiffs could present evidence of a sufficiently large number of instances of
shipments of contraband cigarettes that it suggests that UPS is, overall, turning a
blind eye towards such unlawful shipments. Second, plaintiffs could present a
triable issue by submitting evidence showing that UPS policymakers have in fact
turned a blind eye to shipments of contraband cigarettes.

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In light of the foregoing, further submissions on this issue shall be as follows.
Plaintiffs may submit a Rule 56.1 statement regarding UPS’s non-adherence to its
nationwide policies to curb shipments of contraband cigarettes not to exceed ten
pages (not including the underlying factual materials, which plaintiffs should also
submit), and a memorandum of law, not to exceed five pages, explaining why
those facts are sufficient to defeat UPS’s motion not later than May 3, 2016. UPS
shall file any opposition memorandum of law not to exceed five pages not later
than May 10, 2016. There shall be no replies. The Court notes that it does not
consider this additional opportunity to be a matter of right—this allowance is not an
invitation to the parties to argue for additional discovery or an extension of other
deadlines. The Court does not intend to grant such a request. The Court will reach
resolution on UPS’s motion as soon as possible after reviewing the parties’
submissions.
B.

N.Y. PHL § 1399-ll

UPS argues that, to the extent it is entitled to summary judgment with
respect to plaintiffs’ PACT Act claims, the Court must also grant it summary
judgment as to plaintiffs’ claims brought pursuant to PHL § 1399-ll because such
claims are expressly preempted by the PACT Act. The Court agrees. However,
because the Court’s resolution of UPS’s PACT Act exemption awaits its receipt of
the parties’ further submissions discussed above, the Court reserves decision on
these claims.

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IV.

CONCLUSION
For the reasons set forth above, the Court concludes that plaintiffs have

failed, at this time, to raise a genuine issue of material fact as to their PACT Act
and PHL § 1399-ll claims. However, in light of the Court’s further clarification of
its interpretation of 15 U.S.C. § 376a(e)(3)(B)(ii)(I), the Court will allow plaintiffs
one further opportunity to present additional evidence of the severity of UPS’s nonadherence to its nationwide policies to curb the delivery of contraband cigarettes, as
further set forth in this Opinion & Order.
SO ORDERED.
Dated:

New York, New York
April 19, 2016

KATHERINE B. FORREST
United States District Judge

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