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

Filing 526

OPINION & ORDER: For the reasons set forth above, the Court finds liability on each of plaintiffs' causes of action. The Court requires the parties to submit the numbers of Packages and Cartons as defined above and according to the Court 's findings and rulings. Following receipt of such information, the Court shall issue a final order as to damages and penalty. The parties shall submit the above information not later than two weeks from the date of this Opinion & Order, i.e., Friday, April 7, 2017. (As further set forth in this Opinion & Order.) (Signed by Judge Katherine B. Forrest on 3/24/2017) (mro)

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

USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
DATE FILED: March 24, 2017

15-cv-1136 (KBF)
OPINION & ORDER

Table of Contents

INTRODUCTION .................................................................................................. 1 
  PROCEDURAL HISTORY .................................................................................... 3 

Pre-Trial Proceedings ....................................................................................... 3 

The Trial ........................................................................................................... 8 
  FINDINGS OF FACT ............................................................................................ 9 

Public Health Issues Associated with Cigarettes............................................ 9 

Plaintiffs’ Investigations of UPS .................................................................... 10 

UPS’s Business ............................................................................................... 13 

UPS’s Business and Specific Conduct ............................................................ 19 
1. 
UPS’s Tobacco Policy ................................................................................... 19 
2. 
UPS’s Training Efforts ................................................................................ 21 
3. 
The Role of Account Executives .................................................................. 24 
4. 
The Role of UPS Drivers ............................................................................. 27 
5. 
UPS’s Interactions with Shippers............................................................... 29 
6. 
UPS’s Information Systems and Information Sharing .............................. 31 

UPS’s Asserted Reliance on Governmental Action/Inaction ........................ 32 
1. 
Governmental Action .................................................................................. 33 
2. 
Governmental Inaction ............................................................................... 35 

UPS’s Audits ................................................................................................... 37 
  CURRENT STATUS OF UPS’S COMPLIANCE EFFORTS ............................. 40 
  BACKGROUND CONCERNING THE TAXATION OF CIGARETTES AND
LITTLE CIGARS ................................................................................................. 43 
  THE PACT ACT................................................................................................... 45 
  CONSUMPTION OF TOBACCO PRODUCTS .................................................. 46 

Cigarettes ........................................................................................................ 46 
i

Little Cigars .................................................................................................... 48 
 CERTAIN COMMON EVIDENCE ..................................................................... 51 

The Fink Accounts .......................................................................................... 51 

The Non-Compliant Lists ............................................................................... 53 

The “Tobacco Watchdog Group” Letter .......................................................... 56 

Inquiries Regarding Lost or Damaged Packages .......................................... 58 
1. 
Smokes & Spirits ......................................................................................... 59 
2. 
RJESS .......................................................................................................... 59 
3. 
Sweet Seneca Smokes ................................................................................. 60 
4. 
Elliott Enterprises/EExpress ...................................................................... 60 
5. 
Bearclaw Unlimited .................................................................................... 60 
6. 
Shipping Services ........................................................................................ 61 
7. 
Native Wholesale Supply ............................................................................ 61 
8. 
Seneca Promotions ...................................................................................... 61 
9. 
Native Gifts ................................................................................................. 61 
10.  Jacobs Manufacturing/Tobacco ................................................................... 61 

The Cigarettes Shipped Were Unstamped .................................................... 62 
  SHIPPERS AT ISSUE ......................................................................................... 63 

Overview of the Shippers and the Court’s Findings ..................................... 63 

Liability Shippers ........................................................................................... 67 
1. 
Elliott Enterprises ....................................................................................... 67 
2. 
EExpress ...................................................................................................... 73 
3. 
Bearclaw/AFIA ............................................................................................ 77 
4. 
Shipping Services/Seneca Ojibwas/Morningstar Crafts & Gifts ............... 80 
5. 
Indian Smokes ............................................................................................. 85 
6. 
Smokes & Spirits ......................................................................................... 88 
7. 
Arrowhawk/Seneca Cigars/Hillview Cigars/Two Pine Enterprises .......... 92 
8. 
Mohawk Spring Water ................................................................................ 99 
9. 
Jacobs Tobacco Group ............................................................................... 102 
10.  Action Race Parts ...................................................................................... 104 
11.  Native Wholesale Supply .......................................................................... 105 
12.  Seneca Promotions .................................................................................... 107 

Shippers as to Which There Is Only AOD Liability .................................... 109 
1. 
Native Outlet ............................................................................................. 109 
2. 
A.J.’s Cigars ............................................................................................... 111 
3. 
RJESS ........................................................................................................ 113 

Shipper as to Which There Is No Liability .................................................. 115 
1. 
Sweet Seneca Smokes ............................................................................... 115 
  CONCLUSIONS OF LAW................................................................................. 118 

The AOD........................................................................................................ 119 
1. 
Background Described in the AOD ........................................................... 120 
2. 
The Terms of the AOD .............................................................................. 122 

Interpretation of the AOD ............................................................................ 128 

Violations of the AOD ................................................................................... 129 

ii

Violations of the Audit Obligation Under the AOD .................................... 134 
1. 
Proof to the Reasonable Satisfaction of the State Attorney General ...... 135 
2. 
Implied Covenant of Good Faith and Fair Dealing.................................. 137 

Whether the AOD Was “Honored” ............................................................... 140 
  KNOWLEDGE ................................................................................................... 144 

Knowledge ..................................................................................................... 145 

Imputation of Knowledge ............................................................................. 150 

Presumptions of Knowledge for Common Carriers ..................................... 154 

Knowledge as to Each Shipper ..................................................................... 155 
  LIMITATIONS PERIOD ................................................................................... 155 
 THE PACT ACT................................................................................................. 158 
 PHL 1399-LL ..................................................................................................... 162 
  THE CCTA ......................................................................................................... 165 
 PREEMPTION................................................................................................... 171 
 UPS’S REMAINING DEFENSES ................................................................... 175 

Unclean Hands/In Pari Delicto .................................................................... 175 

Waiver ........................................................................................................... 177 

Public Authority and Estoppel ..................................................................... 178 
 DAMAGES ...................................................................................................... 182 

UPS’s Pre-Trial Damage Disclosure ............................................................ 183 

Legal Principles Regarding Damages .......................................................... 189 
1. 
Compensatory Damages............................................................................ 189 
2. 
Penalties .................................................................................................... 192 

Constitutional/Conscionability Issues with Penalties ................................ 197 

The Penalty Provisions at Issue Here ......................................................... 205 

Calculation of Penalties................................................................................ 206 
1. 
Defining a Package .................................................................................... 206 
2. 
Package Contents ...................................................................................... 208 
3. 
Reasonable Approximation of Contents ................................................... 209 
4. 
Defining a Carton ...................................................................................... 211 
5. 
The AOD .................................................................................................... 211 
6. 
The PACT Act and PHL § 1399-ll ............................................................. 212 
7. 
The CCTA .................................................................................................. 213 
 INJUNCTIVE RELIEF ..................................................................................... 215 
  CONCLUSION ................................................................................................. 217 

iii

INTRODUCTION
Issues surrounding the appropriate taxation and collection scheme for
cigarettes sold on Indian reservations in the State of New York have presented
persistent and complex challenges. Cigarettes sold on reservations to tribal
members for personal use are exempt from tax; those sold to non-tribal members
are not. The tracking and collection of appropriate taxes has proceeded in fits and
starts—including a lengthy period of forbearance by the State of New York from
enforcing existing tax laws on reservations, which continued until June 2011.
This lawsuit concerns a non-tribal member, United Parcel Service, Inc.
(“UPS”), which allegedly transported, inter alia, cigarettes from and between New
York State Indian reservations for a number of shippers (“Relevant Shippers”).
Plaintiffs, the State of New York and the City of New York (collectively, “plaintiffs,”
and, respectively, the “State” and/or the “City”), assert that in transporting
unstamped (and therefore untaxed) cigarettes,1 UPS has violated an Assurance of
Discontinuance (“AOD”) it signed with the State in 2005, as well as New York
Executive Law (“N.Y. Exec. Law”) § 63(12); New York Public Health Law (“PHL”)
§ 1399-ll;2 the Prevent All Cigarette Trafficking Act (“PACT Act”), 15 U.S.C. §§ 375-

1 Throughout this Opinion & Order, unless otherwise specified or clear from context, the word
“cigarettes” refers to unstamped cigarettes for which no taxes were paid. The Court makes a number
of factual findings below supporting the use of the term in this manner.

Plaintiffs’ PHL § 1399-ll and N.Y. Exec. Law § 63(12) claims entirely overlap: According to
plaintiffs, violations of the former led to a violation of the latter.
2

1

78; the Contraband Cigarettes Trafficking Act (“CCTA”), 18 U.S.C. §§ 2341-46; and
the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C.
§§ 1961-68.3
UPS has denied plaintiffs’ assertions from the commencement of this action,
and it vigorously defended itself through trial. While UPS pursued a number of
defenses discussed in more detail below, a few are worth additional focus at the
outset. First and foremost, UPS has disputed that it ever violated its obligations
under the AOD or knowingly transported unstamped cigarettes from or between
Indian reservations to unauthorized recipients.
Second, UPS argues that even if it had violated the statutes or the AOD,
plaintiffs have failed to carry their burden with regard to establishing damages.4
UPS’s primary legal arguments in support of this contention are that plaintiffs
failed to adequately disclose their damages computation prior to trial and then
made a separate error at trial by attempting to introduce the details of their
damages claim through a demonstrative when it should have been presented by an
expert. According to UPS, these legal issues provide two independent bases for the
Court to preclude plaintiffs’ damages claim altogether. UPS has also made factual
arguments in furtherance of preclusion. UPS argues that plaintiffs improperly and
without sufficient factual support seek damages for every package transported by

By Opinion & Order dated August 9, 2016, this Court dismissed plaintiffs’ RICO claims. (ECF No.
322, New York v. United Parcel Serv., Inc., No. 15-cv-1136, 2016 WL 4203547 (S.D.N.Y. Aug. 9,
2016).)
3

Plaintiffs seek both compensatory damages (relating to lost tax revenue) and penalties. For ease of
reference, the Court refers to these together as “damages.”

4

2

UPS after a certain point in time. UPS also asserts that, in all events, neither UPS
nor plaintiffs can possibly know the contents of any particular package, rendering
assessment of damages on a per-package basis impossible.
Upon careful review and consideration of the entire trial record, the Court
finds that UPS violated its obligations under the AOD in a number of respects and,
in addition, knowingly5 transported cigarettes from and between Indian
reservations for all but one of the shippers (the “Liability Shippers”).6 For this
reason and others detailed below, UPS’s arguments against any liability fail. The
more complicated issue, however, relates to damages. Plaintiffs left their damages
case open to severe attack; such exposure could and should have been avoided.
However, the Court finds that plaintiffs are entitled to compensatory damages as
well as monetary penalties in amounts yet to be determined, but not injunctive
relief or the appointment of a monitor.
PROCEDURAL HISTORY
Pre-Trial Proceedings
The State and City initiated this action by filing a complaint against UPS on
February 18, 2015. (ECF No. 1.) They filed an amended complaint (“Amended
Complaint”) on May 1, 2015, a second amended complaint (“Second Amended
5 Throughout this Opinion & Order, when the Court refers to UPS’s “knowledge” it is incorporating
its legal conclusions on this topic set forth at length below, and is including direct knowledge,
knowledge based on willful blindness and/or conscious avoidance, and knowledge acquired by way of
imputation.

The Liability Shippers comprise all but one of the Relevant Shippers. That is, plaintiffs’ claims
relate to all of the Relevant Shippers, but the Court has concluded that UPS has liability for at least
one or more claims only as to the Liability Shippers.
6

3

Complaint”) on November 30, 2015, and a third amended complaint (“Third
Amended Complaint”) on February 24, 2016. (ECF Nos. 14, 86, 189.) The Second
Amended Complaint contains fourteen causes of action seeking various forms of
relief under the AOD,7 N.Y. Exec. Law § 63(12),8 PHL § 1399-ll;9 the PACT Act;10
the CCTA;11 and RICO.12
The parties agreed that the affirmative defenses asserted by UPS in its
answer to the Amended Complaint, (ECF No. 110), were deemed asserted as to the
Second Amended Complaint. On December 4, 2015, plaintiffs moved to strike
UPS’s Fifth through Seventeenth Affirmative Defenses. (ECF No. 89.) In an
Opinion & Order dated February 8, 2016, the Court granted the motion in part and
denied it in part. (ECF No. 177, New York v. United Parcel Serv., Inc., 160 F. Supp.
3d 629 (S.D.N.Y. 2016).) UPS moved for reconsideration with regard to the portion
of the decision that struck its Seventh Affirmative Defense. (ECF No. 187.)
There has been significant motion practice regarding UPS’s Seventh
Affirmative Defense. (See, e.g., ECF Nos. 91, 111, 122, 188, 198, 201, 287, 345,

7

Thirteenth claim for relief.

8

Eleventh claim for relief.

9

Twelfth claim for relief.

10

Seventh through tenth claims for relief.

11

First and second claims for relief.

Third through sixth claims for relief. Plaintiffs’ fourteenth claim is labeled as a claim for
“injunctive relief and appointment of a monitor.” However, the alleged legal basis for this claim
relief derives from the aforementioned causes of action. Thus, the claim is not a liability claim but
rather a request for relief.

12

4

384.) Although the Court granted UPS’s motion for reconsideration, (ECF No.
258),13 and vacated certain portions of its prior decision, the Court ultimately
granted plaintiffs’ renewed motion for summary judgment on the Seventh
Affirmative Defense. (ECF No. 406.) The Court refers the reader to the Court’s
prior decisions for its full analysis. (ECF Nos. 177, 258, 406.)
In summary, UPS’s Seventh Affirmative Defense asserts that plaintiffs’
claims are barred, at least in part, by orders issued by various courts between 2008
and 2011 pertaining to enforcement and/or implementation of N.Y. Tax Law §§ 471
and 471-e.14 In its briefing, UPS has asserted that this defense encompasses its
argument that the State’s policy of “forbearance,” regarding enforcement of New
York’s cigarette taxation scheme on Indian reservations to June 2011, bars any
recovery for a significant portion of the relevant time period. According to UPS,
New York’s forbearance policy rendered § 471 not “in effect”—and therefore
unenforceable—during the period of forbearance. In addition, UPS has argued that
under constitutional principles and § 471, the State and City were without power to
tax cigarettes UPS delivered to Indian reservations;15 such shipments constitute a

Procedurally, “granting” a motion for reconsideration does not necessarily mean the movant’s
position has been vindicated. It means, instead, that there is a sufficient “basis to reconsider” the
correctness of the Court’s prior decision. See Salveson v. JP Morgan Chase & Co., 663 F. App’x 71,
78, 2016 WL 6078616, at *2 (2d Cir. 2016); see also Shrader v. CSX Transp., Inc., 70 F.3d 255, 257
(2d Cir. 1995).
13

N.Y. Tax Law §§ 471 et seq. sets forth the New York taxation and stamping requirements for
cigarettes as well as the New York enforcement scheme.
14

15 As a factual matter, the evidence at trial supported deliveries of cigarettes to non-reservation
retailers or consumers for all but one of the shippers as to which the Court had found liability (i.e.,
Jacobs Manufacturing/Tobacco).

5

significant portion of those at issue. This Court disagreed. It determined, in part,
that § 471 has been “in effect” continuously since its inception, even during the
period of forbearance. The Court found that the “forbearance policy” was directed at
Indian tribal members and not at private actors such as UPS. Finally, the Court
further held that neither constitutional principles nor the forbearance policy
directed at Indian reservations immunized or excused UPS’s actions. (ECF No. 406,
New York v. United Parcel Serv., Inc., No. 15-cv-1136, 2016 WL 4747236 (S.D.N.Y.
Sept. 10, 2016).)
The parties also engaged in significant motion practice regarding whether the
Court should strike certain of UPS’s other defenses. In its Opinion & Order dated
February 8, 2016, the Court struck UPS’s Sixth, Eighth, Ninth, Tenth, Eleventh,
and Sixteenth Affirmative Defenses. (ECF No. 177, New York v. United Parcel
Serv., Inc., 160 F. Supp. 3d 629, 665 (S.D.N.Y. 2016).) UPS’s remaining defenses
are:


Second Defense: To the extent plaintiffs have suffered any damages
alleged in the Third Amended Complaint, such damages were not
caused by UPS. (ECF No. 199 at 18.)



Third Defense: Plaintiffs’ claims are barred, in whole or in part, by
the applicable statutes of limitations. (Id.)



Fourth Defense: Plaintiffs lack standing to assert the claims set
forth in their Third Amended Complaint. (Id.)



Twelfth Defense: The State’s claim for violation of the AOD is
barred, in whole or in part, by its breach or nonperformance with
respect to the AOD, including but not limited to any covenants
implied therein, such as the implied covenant of good faith and fair
dealing. (Id. at 22.)

6



Thirteenth Defense: The State’s own inactivity under the AOD, and
with respect to cigarette tax laws more generally, bars, estops, or
otherwise precludes it from complaining of, or seeking relief based
on, UPS’s alleged performance and/or nonperformance under the
AOD, including, but not limited to, under principles of laches,
waiver, estoppel, and similar doctrines. (Id.)



Fourteenth Defense: UPS was excused from performance under the
AOD on grounds of impracticability and frustration, including such
grounds created by the conduct of the State of New York or its
agents, employees, or representatives. (Id.)



Fifteenth Defense: Plaintiffs’ claims are barred and/or preempted,
in whole or in part, by federal law pertaining to the transportation
industry, including the Federal Aviation Administration
Authorization Act of 1994, 49 U.S.C. §§ 14501, 41713, and any other
applicable provisions of Title 49 of the United States Code, Title 49
of the Code of Federal Regulations, and related provisions, federal
common law, or other federal law pertaining to the industry or the
duties of common carriers. (Id.)



Seventeenth Defense: Plaintiffs’ claims, including their request for
civil penalties, are barred, in whole or in part, by the doctrines of
waiver, estoppel, laches, unclean hands, in pari delicto, and/or other
equitable doctrines, in that, among other things, plaintiffs had
reason to know about unlawful cigarette sales by the shippers
named in the Third Amended Complaint, yet failed to take
appropriate steps as to them or their customers, or to notify UPS.
(Id.)



Eighteenth Defense: Plaintiffs’ claims are barred, in whole or in
part, under the doctrine of estoppel by entrapment. (Id. at 23.)



Nineteenth Defense: Plaintiffs’ claims are barred, in whole or in
part, under the public authority defense. (Id.)



Twentieth Defense: Plaintiffs’ claims are barred, in whole or in part,
by judicial estoppel or similar doctrines. (Id.)



Twenty-First Defense: Plaintiffs’ claims for civil penalties are
barred to the extent that an award of such penalties does not
comport with principles of substantive and procedural due process
under the U.S. Constitution and other federal and state law. (Id.)



Twenty-Second Defense: The State is barred from seeking penalties
under the AOD in circumstances where the State declined to pursue
7

penalties after requiring UPS to make a showing to the State’s
“reasonable satisfaction” under ¶ 42(b) of the AOD. (Id.)


Twenty-Third Defense: The PACT Act exempts UPS from liability
under the PACT Act or PHL § 1399-ll, either because UPS is subject
to the AOD, or because UPS had an AOD and continues to
administer and enforce policies and practices throughout the United
States that are at least as stringent as the AOD. 15 U.S.C.
§ 376a(e)(3)(A)(i), (ii). (Id.)



Twenty-Fourth Defense: The PACT Act exempts UPS from civil
penalties under 15 U.S.C. § 377(b)(3)(B). (Id.)



Twenty-Fifth Defense: Plaintiffs’ claims pursuant to the PACT Act
are barred or limited by their own conduct, including their failure to
comply with the PACT Act’s provisions requiring state and local
governments to provide the U.S. Attorney General with certain
information used to create the PACT Act’s list of unregistered or
noncompliant delivery sellers. 15 U.S.C. § 376a(e)(1)(D), (6)(A).
(Id.)



Twenty-Sixth Defense: Plaintiffs’ claims pursuant to the New York
Public Health Law are barred, in whole or in part, because they lack
standing to enforce PHL § 1399-ll against UPS based on any alleged
delivery occurring before September 27, 2013. (Id. at 24.)

The Trial
This case was tried to the bench on September 19, 2016, through
September 29, 2016. The parties called thirty-eight witnesses in total—twenty-two
live16 and sixteen by way of deposition designation.17 The Court also received into
evidence more than 1,000 documents, amounting to thousands of pages.18

16

Plaintiffs called many of defendant’s witnesses as hostile witnesses in their case.

The Court made a number of rulings on objections to deposition designations. (See ECF Nos. 407,
409.)
17

The Court made a number of evidentiary rulings regarding documents that the parties sought to
introduce. Those rulings are contained primarily in the following orders: ECF Nos. 408, 422, 462,
463, 490, 502, and 511. Following trial, the parties were ordered to meet and confer regarding a list
of admitted documents. They filed their lists at ECF No. 461. (See also ECF No. 471.)

18

8

Following post-trial submissions, the Court held closing arguments on November 2,
2016. The instant Opinion & Order constitutes the Court’s findings of fact and
conclusions of law.
In sum, and for the reasons set forth below, the Court finds that plaintiffs are
entitled to a liability determination with regard to all but one of the Relevant
Shippers.19 The Court further finds that compensatory damages and penalties are
appropriate, but declines to award injunctive relief or to appoint an independent
monitor. In accordance with the rulings below, the Court directs the parties to
submit calculations of the number of “Packages” (a term the Court defines below)
and “Cartons” of cigarettes (also defined below) to enable this Court to make a final
determination as to the quantum of compensatory damages and penalties.
FINDINGS OF FACT20
Public Health Issues Associated with Cigarettes
The facts concerning the public health issues associated with cigarette usage
were largely uncontested. Plaintiffs called Dr. Sonia Angell, Deputy Commissioner
of the Division of Prevention and Primary Care, New York City Department of
Health and Mental Hygiene. (Affidavit of Sonia Angell (“Angell Aff.”), PX 628; Trial
Tr. 1353:24-1370:22 (Angell).) Dr. Angell testified that tobacco use kills
approximately 28,200 New Yorkers each year. (Angell Aff., PX 628 ¶ 5.) This

As discussed below, the Court finds that plaintiffs have proven liability as to each claim for a
number of shippers, as to only the AOD claim for certain others, and not at all for one.
19

The Court’s findings of fact are based on its assessment of the preponderance of the credible
evidence. See, e.g., Diesel Props S.R.L. v. Greystone Bus. Credit II, LLC, 631 F.3d 42, 52 (2d Cir.
2011).
20

9

exceeds the number of deaths caused by alcohol, motor vehicle accidents, firearms,
toxic agents, and unsafe sexual behaviors combined. (Id.) Dr. Angell also testified
that each year, tobacco-related healthcare costs New Yorkers $10.4 billion. (Id. ¶ 7.)
The CCTA, PACT Act, and PHL § 1399-ll are each intended to address serious
public health issues and other costs associated with cigarettes. See, e.g., Prevent
All Cigarette Trafficking Act of 2009, Pub. L. No. 111-154 § 1, 124 Stat. 1087, 1088
(2010) (“It is the purpose of this Act to[, inter alia,] . . . prevent and reduce youth
access to inexpensive cigarettes . . . through illegal Internet or contraband sales.”);
H.R. Conf. Rep. No. 95-1778 at 8 (1978) (stating that “the purpose of [the CCTA is]
to provide a timely solution to [the] organized crime problem” of trafficking in
contraband cigarettes); 2000 N.Y. Sess. Laws Ch. 262 (S. 8177) § 1 (McKinney)
(“The legislature finds and declares that the shipment of cigarettes sold via the
internet or by telephone or by mail order to residents of this state poses a serious
threat to public health, safety, and welfare, to the funding of health care pursuant
to the health care reform act of 2000, and to the economy of the state.”)
The State and City of New York also impose taxes on the sale and use of
tobacco products, such as cigarettes, to combat these harms and to protect public
health. The revenue generated by such taxes is, however, dwarfed by actual
healthcare costs spent by New Yorkers. (Angell Aff., PX 628 ¶ 28.)
Plaintiffs’ Investigations of UPS
This lawsuit by the State and City followed prior investigations into UPS’s
transport of unstamped cigarettes; the first such investigation commenced in

10

approximately 2003.21 As discussed further below, UPS eventually resolved this
investigation by entering into a settlement agreement in the form of an AOD with
the State. The AOD was executed in October 2005 and became effective
approximately one month later.
During the summer/fall of 2011, UPS and the State (in particular, Dana
Biberman, Chief of the Tobacco Compliance Bureau at the New York State Office of
the Attorney General, who is also counsel in the instant action) engaged in a series
of communications regarding a group of shippers referred to as the “Potsdam
Shippers” (based on their common geographic location near Potsdam, New York).
As relevant to plaintiffs’ claims herein, these shippers include Action Race Parts,
Jacobs Manufacturing (also referred to as “Jacobs Tobacco”), and Mohawk Spring
Water.
On June 24, 2011, Biberman wrote to counsel for UPS concerning packages
containing cigarettes that had been seized at the UPS Potsdam facility on June 22,
2011. The letter requested that UPS pay a stipulated penalty of $1,000 for each and
every violation of the AOD, unless UPS established that it “did not know and had
no reason to know that the shipment was a Prohibited Shipment.” (DX 89.)
On August 9, 2011, counsel for UPS met with Biberman and others regarding
the seized packages. At that meeting, UPS told Biberman of a conversation

21 Plaintiffs separate the prior investigations into two groups: one in 2003, and one beginning in 2011
and continuing to this lawsuit. UPS breaks the investigations into three groups: one in 2003, one in
2011, and one beginning in 2013 and continuing to this lawsuit. Whether plaintiffs’ or UPS’s
grouping are deemed a correct characterization has implications for UPS’s argument (discussed
below) that it had resolved the 2011 investigation “to the reasonable satisfaction of the Attorney
General.” This is relevant to arguments regarding ¶ 42 of the AOD. (AOD, DX 23.)

11

between one of its security department employees, Jim Terranova, and a New York
state trooper, Alfonse Nitti, that occurred in April 2011. Terranova had told Nitti
that UPS was concerned that certain of the Potsdam Shippers were shipping
cigarettes. Nitti informed Terranova that there was an ongoing investigation.
Terranova asked whether UPS should continue to pick up packages from these
shippers, and Officer Nitti responded affirmatively.
Following the August 9, 2011, meeting between UPS and the State, UPS
provided the State with delivery information with regard to the Potsdam Shippers
through July or August 2011. (Trial Declaration of Carl H. Loewenson, Jr.
(“Loewenson Decl.”), DX 605 ¶ 21; DX 125; DX 126.) The State Attorney General’s
office took no further action as to these shippers until the events in connection with
this lawsuit. The Potsdam Shippers were eventually included in the amended
complaint filed herein. As discussed below, UPS points to these circumstances as
evidence that, pursuant to the AOD, it had “establish[ed] to the reasonable
satisfaction of the Attorney General that UPS did not know and had no reason to
know the shipment[s] [were] Prohibited Shipment[s].” (AOD, DX 23 ¶ 42). In
addition, UPS uses these events to support its laches, waiver, estoppel, estoppel-byentrapment, and “public authority” defenses. As discussed below, the Court
disagrees with inferences and conclusions UPS asserts based on these events.
Approximately two years later, on July 29, 2013, the New York City
Department of Finance (“City Finance”) served a subpoena on UPS seeking delivery
records for a number of shippers, including the Relevant Shippers. (Affidavit of

12

Maureen Kokeas (“Kokeas Aff.”), ECF No. 389-8 ¶ 6.)22 Between the time UPS
received the subpoena in July 2013 and February 18, 2015 (when this lawsuit was
commenced), the parties engaged in a number of communications. Plaintiffs
provided UPS with, inter alia, a draft complaint. The parties were unable to resolve
their differences, and this lawsuit was filed on February 18, 2015.
UPS’s Business
The size and conduct of UPS’s business operations are relevant to a number
of issues in this case, including what constitute reasonable operating procedures,
the extent to which UPS can be expected to know the contents of packages, the
scope of employees’ job responsibilities, and whether UPS bears legal responsibility
for acts and knowledge of certain employees. The facts regarding UPS’s size and
operations were largely uncontested. The legal conclusions drawn from those facts
were vigorously contested.
UPS is a global company with very substantial U.S. operations. It is a
massive employer, with over 350,000 employees in the United States alone. Its
employees are responsible for establishing and maintaining account relationships
and for the pickup, processing, and delivery of millions of packages each day. To
perform its operations, UPS uses over 1,800 separate physical facilities, 104,926
vehicles, and 237 aircraft. (Trial Declaration of Bradley J. Cook (“Cook Decl.”), DX

As part of its investigation, City Finance conducted a number of controlled buys of untaxed
cigarettes from two of the Relevant Shippers, Seneca Cigars and Smokes & Spirits. (Kokeas Aff.,
ECF No. 389-8 ¶ 9; see also PXs 40, 43, 44, 45, 50.) The packages, which had been shipped via UPS,
arrived containing unstamped cigarettes. (PX 40, 43, 44, 45, 50.) Maureen Kokeas, First Deputy
Sheriff of City Finance, targeted Seneca Cigars because she had received an email from them
advertising untaxed cigarettes shipped via UPS. (PX 592.)
22

13

600 ¶ 24.) The vast majority of shipments UPS receives for transport (well over
90%) are processed on electronic shipping systems such as UPS Worldship. (Id.
¶ 29.) The shipper itself inputs certain information—not including package
contents—and prints a bar-coded label that is affixed to the exterior of the package.
(Id.) The package-level detail is then electronically transmitted to UPS. (Id.)
At trial, the primary witness who described UPS’s business operations was
Bradley J. Cook, UPS’s Director of Dangerous Goods and Director of Package
Solutions. The Court found Cook generally credible and found that, from the fall of
2013 onwards, Cook dedicated himself to “righting the ship” with regards to UPS’s
compliance efforts. With that said, he is an interested witness insofar as much of
the conduct at issue occurred in an area for which he had (and has) significant
oversight responsibilities. As Director of Dangerous Goods, Cook had primary
responsibility, along with legal counsel, for overseeing issues relating to UPS’s
shipment of tobacco products and compliance with the AOD.
As described throughout this decision, UPS’s efforts to comply with the AOD
were inadequate until the commencement of this lawsuit; its efforts fell woefully
short until the fall of 2013, after which it increased it proactive efforts. But it was
not until this lawsuit was filed that UPS’s efforts became adequate. The persistent
inadequacies are surprising in light of UPS’s clear awareness when it signed the
AOD that it had assumed a number of explicit obligations. Indeed, the AOD
required affirmative efforts, including particular and, when appropriate, directed
vigilance to ensure compliance with its terms. The AOD precluded UPS from

14

conducting “business as usual;” the AOD precluded UPS from ignoring red flags,
and it precluded UPS from relying on self-serving statements by shippers in the
face of red flags.
Throughout the relevant period, Cook was aware of the AOD and its
requirements. He also demonstrated in-depth knowledge of UPS’s business. He
knew, for instance, that customers located on or near Indian reservations were at a
higher risk of shipping unstamped cigarettes (as others within UPS also knew); he
knew that UPS did not require customers to declare the contents of their packages
(as others within UPS also knew); and he knew that short of a package
inadvertently breaking open or being subject to an audit, UPS had no clear, routine
method to determine a package’s contents (as others within UPS also knew). Cook,
and others in positions of responsibility at UPS, knew that in many respects, UPS
was “flying blind” regarding whether Indian-reservation-based customers were
shipping cigarettes. But UPS was in a special position: It had assumed particular
obligations under the AOD, and all that stood between UPS and penalties under the
PACT Act and PHL § 1399-ll was honoring the AOD. The stakes were high. Yet,
UPS failed to do what was necessary to ensure sufficient compliance. Perfection
was never required, but more should and could have been done. That UPS could
have done more is demonstrated by the material improvements it has implemented
in its procedures since this lawsuit was filed. UPS has now—too late to avoid
liability, but in sufficient time to avoid imposition of an injunction or independent

15

monitor—transformed itself from a willfully blind actor to one actively doing far
more.
The Court finds that Cook was by no means incompetent or acting
inconsistently with corporate expectations. By all accounts, UPS’s lack of
commitment to true, active AOD compliance pervaded its corporate culture. As
discussed below, when tools were available to assist UPS (and Cook) in their
efforts—for example, lists of shippers deemed to be tendering cigarettes in violation
of, inter alia, the PACT Act (and, thereby, likely a variety of other statutory
schemes) created and disseminated by the Bureau of Alcohol, Tobacco, Firearms,
and Explosives (“ATF”) (referred to as “non-compliant lists” or “NCLs”)—UPS failed
to distribute them broadly, including to the one person who certainly should have
had them, Cook. Once Cook had the lists of non-compliant shippers in the fall of
2013, he used them.
In addition, as a corporate entity, UPS had information available to it in
various places that provided certain employees insight into the contents of
packages. For instance, UPS received inquiries regarding lost or damaged packages
(so called “tracers”) of cigarettes shipped by the very shippers at issue here. But
this information remained largely compartmentalized. Contrary to UPS’s argument
at trial, such compartmentalization does not explain, justify, support, or excuse lack
of knowledge of package contents by those managing the Relevant Shippers’
accounts. UPS had, after all, undertaken (and was separately legally obligated) to
do what it could to prevent transport of cigarettes. UPS therefore bears

16

responsibility for a serious failure of process and procedures. UPS’s size is not an
excuse to shift responsibility for its business failings to taxpayers who ultimately
cover the investigative, healthcare, and other costs associated with unlawful
transport (and, ultimately, use) of cigarettes.
Moreover, UPS understood that all of the Relevant Shippers were located on
or closely proximate to an Indian reservation known previously to have one or more
smoke shops and/or cigarette shippers. The UPS drivers and sales account
personnel who met with customers saw signage on or near shippers’ businesses
indicating that cigarettes or tobacco were among their wares. From time to time
during in-person visits, UPS personnel saw cigarettes on display racks; and UPS of
course knew that even the names of certain shippers contained the words “cigar(s)”
or “tobacco.” UPS knew that certain shippers were shipping hundreds of packages a
day from residential addresses; it knew that certain shippers opened multiple
accounts, sometimes under different names. These and other signs described below
were nothing short of blinking red lights—lights that flashed, “PROCEED WITH
EXTREME CAUTION!”—yet no particular instructions from Cook or others at a
high level were directed at such accounts, nor were personnel given particular
instructions as to how to proceed under such circumstances. The Court finds that
such facts support, in part, the existence of a “reasonable basis to believe” a shipper
may have been tendering cigarettes, thereby triggering an audit obligation under
the AOD. (See AOD, DX 23 ¶ 42.)

17

In March 2010 Congress passed the PACT Act, which went into effect in late
June 2010. UPS was mentioned explicitly in the text of the statute as one of the
common carriers subject to an AOD. There is no doubt that UPS was aware of this
statute. UPS knew that national attention was directed at preventing transport of
cigarettes; it should have understood that the NCLs generated as a result of this
statutory scheme contained information indisputably relevant—and, at the very
least, that the NCLS were useful tools to ensure that its AOD was being
“honored.”23 The NCLs were also useful tools to assist compliance with the CCTA.
And yet, inexplicably, UPS ignored the NCLs, deeming them irrelevant. Until the
fall of 2013, it never used them to identify at-risk shippers. UPS’s position vis-à-vis
the NCLs confused a required usage with a rational and reasonable usage. Had
UPS actively created and used its own list equivalent to the NCLs, its position that
the NCLs were irrelevant might be more compelling. Given UPS’s general lack of
proactive efforts to identify at-risk shippers, ignoring the relevance and utility of
the NCLs made no sense.
Finally, the evidence at trial showed a notable increase in UPS’s business
and customer acquisitions following the effective date of the PACT Act—when the
U.S. Postal Service (“USPS”) and other carriers were prohibited from transporting
unstamped cigarettes without serious penalty. Yet UPS argued at trial that it did
not “put two and two together,” and that it did not associate this increased business
with any particular event. For a company with UPS’s sophistication, and its

23

“Honored” is the PACT Act’s term to describe a prerequisite for entitlement to an exemption.

18

evident commercial interests, this also makes no sense. Frankly, the Court does not
buy it. Nor, apparently, did at least one UPS employee who noted in an email that
“UPS has gained a lot of tobacco business from the USPS this year due to PACT Act
taking effect at the end of June[.]” (PX 198.)
In sum, UPS had a legal obligation to comply with the AOD and the law, but
it failed to take basic and reasonable steps to do so. Its size alone meant that
proper procedures were all the more important—ad hoc measures could not be
trusted or relied upon to ensure compliance in such a large organization.
UPS’s Business and Specific Conduct
The Court makes the following additional findings regarding UPS’s business
and specific conduct.
1.

UPS’s Tobacco Policy

UPS is a commercial entity that has rules and a price structure relating to its
transportation services; these are contained in, inter alia, UPS’s Tariff/Terms and
Conditions of Service (“Tariff”). At all relevant times, UPS’s Tariff has been posted
on its website. (Cook Decl., DX 600 ¶ 33.) This document sets forth restrictions on
shipping with UPS, including a prohibition on the shipment of regulated goods.
(Id.) Cigarettes are among such regulated goods. Prior to 2004, UPS did not have a
specific policy regarding shipment of tobacco products. (Id. ¶ 34.) However, a guide
then available to customers (the “UPS Rate and Service Guide”) did advise shippers
that “[n]o service shall be rendered by UPS in the transportation of any shipment

19

that is prohibited by law or regulation of any federal, state, provincial, or local
government in the origin or destination country.” (Id.)
In 2003, Cook led an effort to create a program to address various states’
increasing concerns regarding the sale and shipment of cigarettes to consumers.
(Id. ¶ 35.) This effort included identifying likely shippers of tobacco products and
cigarettes. (Id. ¶ 36.) As part of this effort, UPS examined its central customer
database using search terms such as “cigarette,” “smoke,” and “tobacco;” reached
out to employees in the field; and examined industry codes associated with a
shipper. (Id.) These efforts resulted in the identification of approximately 400 atrisk shippers. (Id.)24 Cook’s team then oversaw an effort to inform these shippers of
PHL § 1399-ll and advised them that UPS would no longer accept packages
containing cigarettes for delivery to unauthorized recipients in New York. (Cook
Decl., DX 600 ¶ 37.)
In January 2004, UPS introduced revisions to its Tariff, including a new
provision prohibiting shipments of tobacco in violation of state or federal law. (Id.
¶ 39.) In January 2005, UPS updated its Tariff again to include a requirement for a
shipper to execute a “Tobacco Agreement” if it sought to ship tobacco products of
any kind to consumers. (Id. ¶ 39.) Later in 2005, UPS instituted a policy of

Notably, this type of proactive effort was not repeated until late in 2013. As discussed below, a
number of the Relevant Shippers had “cigar” or “tobacco” in their name, or a “cigarette” reference on
a website advertisement, exterior signage, or email address, yet UPS took no specific additional
steps based on such information (including audits) to determine if these customers were shipping
cigarettes. Audits and other actions (when they occurred) generally followed UPS’s development of
additional information.

24

20

prohibiting shipments of cigarettes to consumers anywhere in the country. (Id. ¶
40.)25
As previewed above, on October 21, 2005, UPS entered into the AOD with the
State of New York. (AOD, DX 23.) The City of New York is not a party to the AOD.
The AOD reflected UPS’s agreement not to ship cigarettes to any consumers and to
only ship such products to recipients that had appropriate state and federal
licenses. (Id.; Cook Decl., DX 600 ¶ 41.) To comply with the AOD, UPS updated its
Tariff again, reflecting a new “Tobacco Policy.” (DX 35; AOD, DX 23, Ex. A, B.) The
new Tobacco Policy specifically prohibited shipments of cigarettes to consumers on a
nationwide basis. (Cook Decl., DX 600 ¶ 42.) UPS posted its policy on its website.
(Id. ¶ 43.)
In addition, and to comply with the AOD, UPS created a database to track
activity with its tobacco shippers. (Id. ¶ 63.) The database contains fields for
shipper name, account number, and relevant activity; it presently contains entries
for 4,000 shippers from forty-nine states.26 (Id. ¶ 63; DX 371.)
2.

UPS’s Training Efforts

The AOD requires that UPS train relevant personnel about its “Cigarette
Policy” and various compliance measures. (AOD, DX 23 ¶¶ 34-37.) Plaintiffs assert

The AOD and statutory schemes separately prohibit shipments to consumers, unlicensed retailers,
or commercial businesses.
25

As part of its AOD compliance efforts, for a period of time UPS was required to, and did, perform
internet searches to identify potential cigarette shippers. (Cook Decl., DX 600 ¶ 65.) These searches
were intended to identify shippers who advertised shipment of cigarettes through UPS. As an AOD
requirement, this obligation terminated in July 2010.

26

21

that UPS has failed to fulfill this obligation. The Court agrees. Paragraph 34 of the
AOD contains a very broad requirement:
UPS shall continue periodically to train its drivers and pre-loaders and
other relevant UPS employees about UPS’s Cigarette Policy and the
compliance measures agreed to in this Assurance of Discontinuance.
(Id. ¶ 34.) There was substantial evidence at trial that until shortly before this
lawsuit was filed, apart from a once-yearly “Pre-Work Communication Message”
(“PCM”), little actual training in UPS’s “Cigarette Policy” or compliance measures
required by the AOD, occurred. In addition, there was little more than a broad
overview of the Tobacco Policy provided to UPS employees. Several UPS witnesses
testified to lacking specific knowledge regarding the “compliance measures agreed
to in [the AOD].” (See, e.g., Trial Tr. 665:24-666:25, 667:20-24 (McDowell); id.
1516:18-1519:4 (Terranova).)
This case has no doubt demonstrated to UPS that its existing training was
inadequate. Prior to receiving the subpoena from City Finance in July 2013, UPS’s
training consisted primarily of the above-mentioned annual PCMs.27 PCMs are a
general method of communication with UPS personnel. They are intended to
provide personnel with specific information on a variety of topics in a format of
longer than three minutes. While drivers and employees at UPS’s processing

27 In addition, UPS has information regarding its Tobacco Policy in its Tobacco Transportation
Procedures Manual; it trains its sales force in its Tariff and Service Guide (both of which contain
restrictions on tobacco shipments), as well as on its Tobacco Policy. (Cook Decl., DX 600 ¶¶ 55-58.)
UPS also provides training regarding its Tobacco Policy to its customer-service staff. (Id. ¶¶ 59-62.)
While Cook stated that UPS communicated every change in its Tobacco Policy to sales staff, and that
UPS’s “workforce is very well aware of [its] policy against the shipment of cigarettes to consumers”
and has been for years, (id. at ¶¶58-59), these claims are belied by the testimony of UPS employees
who lacked knowledge of AOD compliance requirements.

22

centers were provided with a PCM that discussed its Tobacco Policy once a year,
historically there was no procedure for an employee to “make up” a PCM that he or
she has missed (for instance, due to absence on the day a PCM was shown or due to
a start date at UPS after the yearly PCM had been shown). Several UPS witnesses
testified to recalling the Tobacco Policy PCM, certain recalled the existence of the
PCM but not its content, and others did not recall the PCM at all. Clearly, the
Tobacco Policy PCM was itself inadequate to properly train employees on UPS’s
Tobacco Policy and was inadequate to train employees on AOD compliance
measures or on how to recognize signs that shippers may have been tendering
packages with cigarettes.
Throughout the trial, UPS took the position that requiring personnel to
approach certain accounts with questions or skepticism would be inappropriate.
The insinuation was that vigilance directed at accounts located on or proximate to
Indian reservations was some sort of inappropriate profiling. But this ignores the
known reality that particular legal issues applicable to reservations (and to Native
Americans making on-reservation purchases) did make reservations different.
Moreover, the evidence revealed that UPS did not know whether on-reservation
shippers from smoke shops were tribal members and, in fact, those operating smoke
shops were not always tribal members. (Trial Tr. 192:14-16 (Cook); id. 904:6-9
(Christ).) In addition, Cook testified that UPS does not expect its drivers to be
“investigators;” rather, it expects them to be alert for signs of cigarette shipments
and to notify supervisors if they have suspicions. (Cook Decl., DX 600 ¶ 53.) In the

23

context of the federal, state, and local attention paid to the unlawful transport of
cigarettes, and UPS’s statutory and AOD obligations, this was an incorrect
perspective that unreasonably underestimated UPS’s affirmative obligations. While
drivers need not be “investigators” in a law-enforcement sense, they should have
been proactive vis-à-vis high-risk accounts. As the AOD recites, training should
have been designed to ensure personnel were/are “actually looking for indications
that a package contains cigarettes . . . .” (AOD, DX 23 ¶ 35 (emphasis added).)
Prior to the commencement of this lawsuit, UPS’s training was not effective
in preparing its employees to identify cigarette shippers on Indian reservations in
New York or to ensure that its personnel were “actively looking” for indications that
a package contained cigarettes. UPS’s training on tobacco issues was designed to
“check the box.”
UPS’s tobacco-related training has improved recently. For instance, PCMs
on tobacco training are now delivered in person, UPS has trained personnel in data
analytics, it has posted a “red flag” poster at its service centers, and in 2016, UPS
added device-based training for its drivers via “DIADs,” which are handheld devices
that function as computers. Additional relevant facts are set forth below in the
section titled “Current Status of UPS Compliance Efforts.”
3.

The Role of Account Executives

As relevant here, UPS’s customers are “shippers” of packages. Sales and
account management are handled by a UPS Account Executive (as well as other

24

support personnel). UPS assigns an Account Executive to every shipper/customer.28
UPS’s Account Executives are responsible for capturing and maintaining accounts
as well as addressing issues that might arise with regard to those accounts. In
order to effectively market and support UPS’s transport services, Account
Executives are expected to understand their customers’ businesses. To gain such
understanding, Account Executives are expected to communicate with their larger
customers on a regular basis. Evidence at trial supported that Account Executives
regularly communicated with the Relevant Shippers both in person as well as by
telephone or email. UPS expected that its Account Executives would enter notes
regarding communications with clients in databases maintained for that purpose.
Such databases were accessible to and used by others who might have an interest in
a particular account or area. While the evidence made clear that there was spotty
compliance with this expectation (and seemingly no enforcement mechanism),
certain UPS Account Executives (most notably Gerard Fink) nevertheless entered
details of meetings and communications with some of the Relevant Shippers into

Over the time period relevant to this lawsuit, the number of customers for which an Account
Executive had responsibility varied significantly. For example, at one point in time, a UPS Account
Executive, Gerard Fink, was responsible for 150 to 200 customers; by 2010 he was given
responsibility for several thousand more. (Trial Tr. 507:4-13 (Fink).) UPS has argued that the
number of accounts assigned to Fink illustrates why it is reasonable to believe that he did not know
many of his accounts were shipping cigarettes. The Court rejects this argument. First, for the
reasons discussed at length throughout this opinion, the Court found Fink not credible when he
denied knowing that certain of his largest clients were shipping cigarettes. In addition, UPS
assumed obligations under the AOD, and it had separate statutory obligations not to ship cigarettes.
UPS’s failure to achieve adequate compliance is not excused by an organizational structure that it
now argues impeded compliance. To the extent structural changes were necessary to ensure
adequate compliance, it had a responsibility to make them.
28

25

those databases. Various entries include evidence supporting liability, seriously
impacting arguments that Fink’s or any other Account Executive’s actions were
outside the scope of employment.
Account Executives were also responsible for obtaining a Tobacco Agreement
from those customers who were or would be shipping tobacco products. Such
agreements were supposed to be an important part of UPS’s already thin
compliance efforts. The Account Executive was to record the receipt of the Tobacco
Agreement in UPS’s Tobacco Database. In theory, this was to assist in monitoring
such an account. As relevant here, there were numerous instances in which the
Account Executive either did not obtain a Tobacco Agreement when appropriate, did
not retain a copy of an allegedly executed agreement, failed to enter it into the
Tobacco Database, or all three.
Account Executives would receive a variety of information relating to their
accounts on a regular basis. For instance, they would receive periodic reports that
set forth the amount of revenue attributable to particular customers. Multiple
documents received into evidence support that a number of the Relevant Shippers
on or near Indian reservations were among the largest customers for Account
Executives. (See, e.g., PX 568; PX 102, row 9; PX 104.)29 Account Executives—

Starting in 2010, each shipper is assigned a “patch-of-land” Account Executive or an inside sales
representative based on the geographic territory in which the shipper is located. Patch-of-Land
Account Executives are assigned to UPS Centers and become responsible for lower-volume accounts
(those with under $300,000 in annual revenue) located in the geographical areas served by those
UPS Centers. Patch-of-Land Account Executives are typically assigned a large number of accounts
because of the relatively low volume of each individual account. Some of the accounts are also
assigned to inside sales representatives. Inside sales representatives operate out of centralized
locations and typically provide support to their customers by phone, and they also provide support to
29

26

including Fink and others at UPS responsible for the Relevant Shippers—actively
reported on account activity to others within the UPS organization. Multiple
documents and databases support generally diffuse knowledge and access to
information regarding the Relevant Shippers. Put otherwise, the Account
Executives—including Fink—took or failed to take actions within a UPS
organizational structure that was monitoring account activity.
4.

The Role of UPS Drivers

Packages are typically picked up by UPS drivers at a customer’s location or
are dropped off by a customer at a designated facility. The packages are then
brought to a UPS Processing Center. (Cook Decl., DX 600 ¶ 25.)
In all but a handful of instances relating to the Relevant Shippers, UPS
drivers would pick up packages at the customer’s location. Some of the locations
were commercial storefronts (e.g., Arrowhawk Cigars, Morningstar Crafts & Gifts)
and others (e.g., EExpress, Bearclaw) were residential locations. In certain
instances, UPS drivers would pick up dozens or even hundreds of packages a week
from a residential address. For instance, during October 2012, EExpress shipped
approximately 2,500 packages with UPS. (PX 559.)
An issue that pervaded the trial was the extent to which UPS, as a corporate
entity, knew or should have known of the contents of customer shipments. Typical
practice included drivers and Processing Center personnel working with packages;
the Patch-of-Land Account Executives. (Cook Decl., DX 600 ¶ 32; Trial Declaration of Gerard Fink
(“Fink Decl.”), DX 602 ¶ 5.)

27

the account team performed sales and service roles that did not include package
handling but did include learning about a customer’s business and monitoring his or
her account activity. While drivers had limited opportunities (or time) to learn the
contents of particular packages, there was ample evidence that they generally
understood what a shipper was shipping and, from time to time, had quite specific
information about package contents.
UPS policy requires customers to have packages sealed and ready for pickup
when the UPS driver arrives. With regard to the Relevant Shippers, this practice
appears to have been followed most of the time. However, plaintiffs presented
evidence that there were occasions when customers were still packing and sealing
boxes at the time the UPS driver arrived or when UPS personnel were on site, and
that UPS employees were therefore in a position to observe the contents of the
packages.30 (See, e.g., Jarvis Dep. Tr. 55:22-56:6.) In addition, there were instances
where the type of goods a Relevant Shipper sold, including cigarettes, were
prominently advertised on signage and within the premises. (See, e.g., PX 574
(signage for Morningstar Crafts & Gifts); DX 490 (signage for Arrowhawk Smoke
Shop).) Moreover, UPS personnel, including drivers, did from time to time enter a

30 UPS argued that the similarity between cigarette packaging and little-cigar packaging rendered
this view of the packages meaningless. This is not a helpful argument for UPS. Under such
circumstances, ambiguity of product type suggests at least a possibility as high as 50% that
cigarettes were in the box. In light of UPS’s affirmative AOD and statutory obligations, such a
possibility required UPS to take further steps. Put differently, even if UPS thought a package might
contain little cigars, it knew that it might instead contain cigarettes. Given this information, and
given the statutory restrictions on transporting cigarettes and the AOD requirements, UPS was
obligated be “actively looking for indications” as to whether the customer was shipping a lawful
versus an unlawful product. (AOD, DX 23 ¶ 35.)

28

Relevant Shipper’s premises, providing the opportunity to observe cigarettes
available for purchase or in inventory. These facts should have, but did not, cause
UPS to alter its approach to and vigilance of a shipper; such facts formed pieces of
the foundation for a “reasonable basis to believe” that a shipper may have been
tendering cigarettes for delivery (the standard that triggered an audit obligation
under the AOD). (See AOD, DX 23 ¶ 24.)
5.

UPS’s Interactions with Shippers

As discussed above, a customer using UPS’s pickup and delivery services is
referred to as a “shipper,” and shippers do not typically declare or provide UPS with
information regarding the contents of packages. (Cook Decl., DX 600 ¶ 29.) On
most occasions, the boxes in which a customer packs its goods are plain, corrugated
cardboard, and the exterior of the boxes provides no indication as to whether the
contents include cigarettes, cigars, spring water, coffee, or something else.31 UPS’s
terms and conditions reserve its right to inspect package contents. Given the
volume of packages processed daily, UPS tended to conduct audits only in very rare
circumstances when there was a compelling reason to do so. The evidence at trial
supported audits generally being conducted on those occasions when UPS had
specific information regarding likely cigarette shipments. UPS did not, for instance,
routinely or, even once as a matter of course, audit shippers known to ship tobacco

However, at least one shipper, Jacobs Manufacturing/Tobacco, regularly used boxes that had the
words “cigarettes” stamped on the outside. (Trial Tr. 1680:5-14 (Jacobs).)

31

29

products or whose inventory was also known to include cigarettes. Audits are
discussed in further detail below.
As a matter of UPS policy, when a customer seeks to ship certain regulated
goods, including tobacco, he or she is required to disclose that fact to UPS. In the
case of tobacco-related shipments (other than cigarettes), UPS policy requires that a
customer execute a Tobacco Agreement.32 This agreement is intended to represent
an acknowledgment by the shipper that he or she understands UPS’s Tobacco
Policy, including its prohibition on shipping cigarettes.
Despite the statutes regulating transport of cigarettes, UPS’s obligations
under the AOD, the passage of the PACT Act that reduced courier options, the
profit motive of shippers, the conflicted position of UPS’s own sales personnel (who
had an interest in acquiring and maintaining business), and obvious signs in
conflict with customer statements, UPS allowed its personnel to rely heavily (and
often exclusively) on what their shippers claimed to be shipping. UPS often
accepted the fact of a Tobacco Agreement with a customer, or a single conversation
with a customer about its business, as sufficient to confirm that a tobacco shipper
who advertised or displayed cigarettes was not using UPS to ship them. As one
would expect, cigarette shippers acting contrary to law and UPS policy were rarely
inclined to “confess” prohibited package contents (though, as discussed below, there

32 At some point during their relationship with UPS (not always at the outset), several of the
Relevant Shippers, including Smokes & Spirits, Shipping Services, Morningstar Crafts & Gifts,
Indian Smokes, Seneca Cigars, A.J.’s Cigars, and Native Outlets, had an executed Tobacco
Agreements on file with UPS at various points in time.

30

was at least one instance in which the customer did so explicitly). And, given the
volume incentive agreements UPS offered, there was an economic motive to use
UPS. For a UPS customer shipping cigarettes during this time, being “caught” was
a risk worth taking because the penalty was sometimes nonexistent or was, at most,
termination. And sometimes termination was not the end of UPS service. The
record reveals instances in which UPS personnel assisted in establishing a new,
replacement account for a customer whose account had been terminated for
cigarette shipments. In many instances, as described below, there were sufficient
red flags to alert UPS to the need for additional measures—including random
audits.
6.

UPS’s Information Systems and Information Sharing

As previewed above, one of UPS’s consistent themes at trial was its claim
that information known to one part of UPS was not known to another, and that it
would be improper or at the very least unfair to attribute such compartmentalized
knowledge to UPS more broadly. The facts support such compartmentalization—
but not the conclusion UPS draws from it.33
At the time of the events at issue, UPS did not have a centralized information
system that collected and/or synthesized all of the information it might have
regarding packages sent by a particular shipper. To the extent some part of UPS
learned of the specific contents of packages, it was typically when packages broke

33 Elsewhere in this Opinion & Order, the Court addresses how compartmentalized information
impacts UPS’s knowledge of shipments of cigarettes or actions required pursuant to the AOD.

31

open during processing, when UPS received inquiries (“tracers”) regarding lost or
damaged packages, or through audits. There was no evidence that UPS
implemented or followed formal procedures to share the “broken open” packages or
tracer information with all members of the account team, with Cook, or with legal
counsel. In addition, there was no ongoing, formal mechanism within UPS to
routinely review an at-risk shipper’s sales materials or websites (some of which
prominently indicated cigarette sales).34 Nor was there any centralized practice of
ensuring that email addresses with clues as to the likely focus of sales efforts (for
instance, the word “cigarettes” appearing in a customer’s email address) were
further investigated. Had such information been routinely reviewed and shared
with the appropriate personnel, it is highly likely that UPS would have identified
certain shippers of cigarettes.
UPS’s Asserted Reliance on Governmental Action/Inaction
UPS has vigorously argued that it took certain actions (or failed to take
certain actions) in reliance upon interactions with law enforcement, and, in
addition, that it relied on New York State’s forbearance policy. UPS has urged that
such facts regarding this governmental action/inaction support its laches, waiver,
estoppel (including “estoppel by entrapment”), and public-authority defenses. These
defenses have both factual and legal aspects. The Court deals with the former here,
and with the latter in its legal conclusions below.

As described above, the AOD obligated UPS to conduct certain internet searches for a limited time.
That obligation expired in 2010.

34

32

1.

Governmental Action

Some of the relevant facts regarding such interactions (such as the
“Terranova/Nitti” communications) are briefly described above in the section
“Plaintiffs’ Investigations of UPS.” Throughout the pretrial process, UPS
repeatedly referred to instructions to stand down with regard to compliance
measures due to an “ongoing investigation.” As it turned out at trial, the facts in
this regard were far less robust than previewed and not at all compelling.
The evidence can be briefly summarized: In April 2011, UPS driver Donald
Jarvis, who was associated with UPS’s Potsdam Processing Center, learned and
believed that certain packages from the Potsdam Shippers contained cigarettes.
Jarvis informed a UPS supervisor, Steve Talbot. Talbot contacted the UPS security
representative assigned to the Potsdam Center, Jim Terranova, to ask for guidance
(Terranova was not a high-ranking UPS employee). Terranova had apparently had
undisclosed (and irrelevant) other dealings with members of the New York State
Police, including state trooper Alfonse Nitti. In April 2011, Terranova contacted
Nitti and told him there was a suspicion that certain accounts on the Mohawk/St.
Regis reservation were shipping cigarettes. (Trial Declaration of James Terranova
(“Terranova Decl.”), DX 612.) Terranova did not tell Nitti where shipments
(including bulk shipments) were being delivered. (Terranova Decl., DX 612 ¶¶ 1-2,
7; Trial Tr. 1529:20-1530:24, 1532:20-25 (Terranova).) Nitti informed Terranova
that there was an active investigation into those shippers. Terranova then posed
the question to Nitti as to whether UPS should continue picking up packages from

33

those shippers; Nitti responded that UPS should. Nitti was not a representative
from the State Attorney General’s office; there was no evidence that Nitti was made
aware of the AOD or knew about UPS’s legal obligations with regard to it or any
other statutory scheme. Subsequently, Terranova and others conveyed Nitti’s
comment down the chain to UPS drivers responsible for the Potsdam Shipper
accounts. For a period of two months thereafter, UPS followed its own forbearance
practice. This ended when, on June 22, 2011, the New York State Department of
Taxation and Finance (“DTF”) Chief Investigator, John Connolly, visited the UPS
Potsdam Center. (Trial Declaration of Steven Talbot (“Talbot Decl.”), DX 606 ¶ 10;
Terranova Decl., DX 612 ¶ 10.) Connolly seized packages tendered by certain
Potsdam Shippers. Connolly also informed UPS that New York State’s forbearance
policy vis-à-vis Indian reservations had ended and that UPS should not be shipping
cigarettes “to their Native American customers.” (DX 389; see also Ernst Dep. Tr.
86:23-87:4.)35
These facts do not support UPS’s characterization of this interaction as a
formal instruction by law enforcement—upon which it could reasonably rely—to
stand down on AOD obligations or other statutory requirements. As is evident from
the above, such a portrayal overinflates a rather limited, non-senior contact
between one lower-level UPS employee and one state trooper. Indeed, there was no

UPS argues that this communication is evidence of its basis for believing that shipments prior to
this date were authorized. As discussed below, there is, however, insufficient evidence to support
that UPS had ever taken actions, or failed to take actions, in reliance on the “forbearance policy.”

35

34

independent evidence as to the basis for this trooper’s purported statements to
Terranova or his authorization to convey any instructions to UPS.36 There is
insufficient evidence to support Nitti’s authority to provide the official position of
the New York State Police, let alone provide an exemption from the AOD and
statutory obligations.
But in all events, the facts do not support widespread reliance on these
Terranova/Nitti communications. At most, the evidence supports unreasonable
reliance by a small handful of people within the Potsdam Center for a two-month
period only, and by no one at a high level. For instance, there is no evidence that
Cook was informed about this communication at the time. In sum, the Court rejects
any reasonable reliance on the Terranova/Nitti communication.
2.

Governmental Inaction

In addition, UPS has argued that prior to June 22, 2011, “UPS believed” that
transporting shipments of packages containing cigarettes originating with the
Potsdam Shippers (including Action Race Parts, Jacobs Manufacturing/Tobacco,
and Mohawk Spring Water) and destined for tobacco retailers on other Indian
reservations, was authorized by the State’s forbearance policy or was otherwise
lawful. The “otherwise lawful” portion of this position is the heart of what has been
referred to in this litigation as UPS’s “§ 471” argument. Putting aside the Court’s

36 In light of UPS’s affirmative obligations under the AOD and federal and state statutes, UPS
should have sought written or other high-level confirmation, informed the State personnel
responsible for the AOD, and sought legal advice. There is no evidence that this was done. The AOD
can only be modified in a writing signed by both parties, (AOD, DX 23 ¶ 54); the oral Nitti/Terranova
conversation could not effect a modification.

35

legal determination regarding the viability of UPS’s Seventh Defense (relating to,
inter alia, the forbearance policy), there is a separate factual question as to
whether, before June 22, 2011, personnel within UPS in fact believed that it could
lawfully transport shipments from the Potsdam Shippers to reservation retailers or
other Indian reservations (that is, based on some misunderstanding that § 471 or
other legal principles allowed such transport), and acted in reliance on such a belief.
The Court determines that factual question against UPS. There is simply
insufficient credible evidence to support UPS’s factual claim that this was a widely
held view in the organization.
As a result of the lack of sufficient factual support, UPS’s arguments as to its
reliance on governmental authority or inaction fail. There is also no indication that
relevant personnel received legal advice that they could rely on a New York State
policy of forbearance as to Indian reservations applied to its actions as a private,
non-tribal entity. Nor is there sufficient evidence that UPS personnel had any other
reasonable basis for such an understanding. In addition, such a position is in
conflict with UPS’s overall story that it consistently trained its personnel in its
Tobacco Policy; no evidence suggests that its training was modified to allow for a
distinction between shipments going to reservation retailers (i.e., the shipments
UPS argues were protected by constitutional principles) and all other recipients.37
For instance, there was no credible testimony that UPS drivers were instructed to

37 Indeed, UPS has argued that, to the contrary, an inability to monitor addresses given the given
the volume of shipments handled, it would be unreasonable to expect it to monitor addresses.

36

allow certain shipments to reservation retailers but not to residential consumers.
UPS did present anecdotal evidence that certain witnesses had heard or thought
such reservation-to-reservation retailer shipments were allowed—but it was never
clear where this came from, and it is in conflict with other evidence.
Finally, of course, it is clear that the AOD did not exempt shipments from or
between reservations; that is, there is no basis for “§ 471” or “forbearance policy”
arguments with respect to UPS’s obligations.
UPS’s Audits
UPS presented evidence that it conducted at least twenty-eight audits
between 2011 and 2016, several of which were of certain Relevant Shippers.38 (See,
e.g., Cook Decl., DX 600 ¶ 18; DXs 161, 165, 194, 219, 221, 222, 244, 257, 263, 264,
265, 303, 311, & 363.) The facts show that audits were conducted relatively
infrequently and were inadequate to comply with UPS’s audit or other obligations
under the AOD.
As discussed below, ¶ 24 of the AOD requires that UPS audit shipments
where “there is a reasonable basis to believe that such shipper may be tendering
cigarettes for delivery to Individual Consumers, in order to determine whether the
shipper is in fact doing so.”39 (AOD, DX 23 ¶ 24.) An audit obligation is therefore

Plaintiffs initially commenced this case and sought discovery with regard to fifty or so shippers.
Over the course of the litigation, that number was reduced. At trial, UPS’s evidence with regard to
its audits included all of the shippers who have ever been at issue in the case. Thus, the “twentyeight” audits that UPS cites includes shippers who are not among the Relevant Shippers.

38

39 “Individual Consumer” is defined in the AOD as a person “other than an Authorized Recipient.”
(AOD, DX 23 ¶ 16(G).) “Authorized Recipient” is, in turn, defined as “any person or entity to whom
cigarettes may be lawfully transported pursuant to federal law and the law of the state in which

37

triggered when there is a “reasonable basis to believe,” and the audit serves a
particular purpose: “to determine” whether a shipper may be tendering cigarettes.
The vast majority of audits to which UPS points occurred in 2013 and 2016—
that is, after UPS had already received a subpoena and was thus aware this lawsuit
was likely or that UPS had already been sued. Of the twenty-eight audits, twentysix fall into this category. The remaining two audits took place on September 21,
2012.40 (See DXs 161, 165.) Cigarettes were found during these audits and both
accounts were terminated.
UPS points to the audits it conducted as evidence of compliance with the
AOD and evidence that it acted responsibly vis-à-vis likely cigarette shippers. The
Court disagrees. Cigarettes should not have had to fall out of a broken box, more or
less, for UPS to have initiated an audit. As discussed in specific detail below, the
Court finds that there was a reasonable basis to believe that a number of the
Relevant Shippers may have been tendering cigarettes well before they were
audited.
delivery is made.” (Id. ¶ 16(A).) Apart from its legal argument regarding § 471 (that all shipments
“to” reservations were authorized), an argument this Court rejected, New York v. United Parcel
Serv., Inc., No. 15-cv-1135, 2016 WL 4747236 (S.D.N.Y. Sept. 10, 2016)), in the face of plaintiffs’
extensive proof of lack authorization, UPS did not attempt to demonstrate that any recipient was, in
fact, an “Authorized Recipient.” The Court finds as a matter of fact that all addresses of shipments
at issue were to unauthorized recipients or “Individual Consumers.” Thus, the fact that certain
shippers (such as Jacobs Manufacturing/Tobacco) shipped exclusively to retailers on Indian
reservations does not remove such shipments from the classification of shipments to “Individual
Consumers.” This is important to the Court’s factual determination of when, inter alia, the audit
obligation attached; such obligation being defined in terms of a reasonable basis to believe the
shipper may be tendering cigarettes to “Individual Consumers.”
UPS lists Indian Smokes as an audited entity in the chart at ¶ 30(e) in its Proposed Findings of
Fact and cites DX 161 for this proposition. The Court notes, however, that DX 161 does not support
an inference that Indian Smokes was audited, and Cook’s declaration supports an inference that
Indian Smokes was terminated without an audit. (Cook Decl., DX 600 ¶¶ 75, 82.)

40

38

Certain facts should have led to more frequent and broader audits. As an
initial matter, UPS had a right to audit packages, it had the personnel to do so, and
it had an affirmative obligation under the AOD to do so when facts supported a
“reasonable basis to believe” that a shipper “may” be tendering cigarettes.
Certainty or even a high degree of likelihood was not required to trigger this
obligation. Facts “on the ground” should have pushed UPS toward more proactive
audits. For instance: It knew that certain shippers had names that included the
words “tobacco,” “cigar,” or “smokes,” indicating a certainty of tobacco shipments
and a reasonable possibility of cigarette shipments; it knew that a number of others
(without eponymous names) sold cigarettes, making shipments all the more likely;
it knew that certain shippers on Indian reservations refused to disclose (allegedly)
what they were shipping; it knew that others had opened multiple accounts or that
a new account was opened at the same address as one recently terminated for
cigarette shipments; and, of course, all of this was against the backdrop of such
shippers being located on Indian reservations that had for years been associated
with sales and shipments of unstamped cigarettes. For instance, in an email sent
June 23, 2011, a UPS security employee stated that New York Indian reservation
retailers have been “selling cigarette[s] without paying taxes . . . . This has been an
ongoing situation over the years throughout the state with several different
reservations doing the same thing.” (PX 460.)
As discussed with regard to certain shippers below, the presence of some
numbers of these (and other) facts supported the existence of a reasonable basis to

39

believe that such shippers may have been tendering packages containing cigarettes.
UPS gave too much weight to seemingly innocuous explanations given by shippers
for the goods they claimed to be tendering, and it did so when many of the above
facts were present. Such self-serving explanations were inherently unreliable and
did not eliminate the reasonable basis to believe that a shipper “may” be tendering
cigarettes.
Audits that were conducted did, however, serve an additional purpose: They
provided UPS, and now provide this Court, data regarding package contents as well
as a basis for estimating the percentage of a shipper’s packages that contained
cigarettes. A corollary is that the failure to conduct audits despite an audit
obligation reduced the amount of information available regarding the contents of
the Relevant Shippers’ packages. Had UPS conducted more audits (as it was
obligated to do under these facts), it would have greater detail on the percentage of
shipments containing cigarettes versus other goods. As discussed in the legal
conclusions below, UPS—not plaintiffs—therefore bears the responsibility for this
lack of information.
CURRENT STATUS OF UPS’S COMPLIANCE EFFORTS
As discussed throughout this Opinion, there is no doubt that UPS could have
and should have done more to identify shippers likely to be tendering cigarettes.
However, there is strong evidence that UPS has taken a number of steps in the past
three years to dramatically improve its compliance efforts.

40

After UPS received the subpoena from City Finance in late July 2013, UPS
requested outside counsel to conduct an investigation (using available information)
into 540 active shippers listed in UPS’s Tobacco Database. (Cook Decl., DX 600
¶¶ 83-84.) That investigation yielded a group of thirty shippers as to whom
additional investigative steps were taken. (Id. ¶ 84.) This list was then further
reduced to six shippers, including three that are among the Relevant Shippers in
this case. (Id. ¶ 84.) Cook required audits of each of these three shippers.41 (Id.
¶ 85.)
Commencing in the fall of 2013, UPS also began to utilize the NCLs prepared
and updated quarterly by the ATF. (Id. ¶¶ 102-03.) In early 2014, UPS added
personnel to its compliance efforts, including Derrick Niemi. Niemi testified live at
trial and the Court found him credible. His demeanor was sincere and his answers
were thoughtful and careful. Niemi has made specific trips to visit UPS Processing
Centers and reservations with shippers; Niemi has also performed data analysis to
identify other shippers who pose a risk of non-compliance.
Cook has taken more immediate action to terminate shippers for which
audits revealed cigarettes. For instance, on January 8, 2014, UPS received the
results of an audit for Shipping Services; three of five packages opened contained
filtered cigars, and two packages contained cigarettes. (Cook Decl., DX 600 ¶ 93.)
UPS terminated this account. In 2014, UPS also investigated a shipper known as

41 An audit of Native Outlet conducted on January 2, 2014, revealed only filtered cigars; additional
audits were conducted of this entity and no cigarettes were found. (Cook Decl., DX 600 ¶¶ 87-88.)

41

Cloud & Co. located in Salamanca, New York, and terminated this shipper after the
investigation revealed it had been sued by the City for alleged shipment of
cigarettes. (Id. ¶ 138.)
On January 22, 2014, UPS received the results of an audit of Smokes &
Spirits, processed through its Olean, New York Center. (Id. ¶ 97.) Out of fifteen
packages opened, nine contained cigarettes; the remainder contained chewing
tobacco and filtered cigars. (Id.; see also DX 257.) Immediately upon receiving
these results, UPS terminated this account. (Cook Decl., DX 600 ¶ 98.)
In September 2014, UPS changed its account-opening process to increase
screening of tobacco shippers in New York State. (Id. ¶ 144.) Each account opened
on an Indian reservation is investigated to determine if it might be shipping tobacco
products. (Id.) Additionally, UPS monitors the volume of shipments from
reservation-based shippers on a weekly basis to identify red flags in volume
patterns. (Id. ¶ 145.) (This is the use of “data analytics” to support UPS’s
compliance efforts).
In addition, on April 27, 2016, Cook traveled to upstate New York and
personally participated in audits of all packages shipped out of the Dunkirk, New
York, Processing Center (the Center that processes Native Outlet, among others).
Ten of the packages opened were shipped by Native Outlet, and all contained little
cigars.42 Cook also personally delivered UPS’s Tobacco Policy PCM at the Dunkirk,

42 Cook’s testimony regarding the Native Outlet audits was corroborated by a number of photographs
of the opened packages. (See, e.g., DXs 194, 375, 421.)

42

Olean, and Jamestown Centers; interviewed each center manager; participated in a
“ride along” with each center driver; conducted audits of the packages picked up by
each Center; and documented any packages of tobacco picked up by each Center.
(Cook Decl., DX 600 ¶ 143.) Three other members of UPS’s Corporate Compliance
Group conducted similar audits in other centers in New York serving reservations.
(Id.)
The Court view UPS’s compliance efforts as increasing in rigor since the fall
of 2013 and achieving actual compliance as of the date this lawsuit was filed on
February 18, 2015. Prior to February 18, 2015, the efforts were in what the Court
views as a “ramping up” process; throughout 2014, for instance, audits that should
have been conducted long before were still only just being done. Determining the
date when efforts coalesced to a point of compliance is therefore not a precise
exercise. But the Court views the filing of the lawsuit as marking a time when UPS
had put its non-compliance largely behind it.43
BACKGROUND CONCERNING THE TAXATION OF CIGARETTES AND
LITTLE CIGARS
New York imposes a tax on all cigarettes for sale in the State, except where
the State “is without power to impose such tax.” N.Y. Tax Law § 471. Taxes are
paid by purchasing and affixing a tax stamp. See N.Y. Comp. Codes R. & Regs. tit.
20, § 74.3(a)(1)(iii) (“§ 74.3”). New York’s cigarette excise taxes increased
significantly in the 2000s. (Trial Declaration of Farrell Delman (“Delman Decl.”),

As discussed below, the Court views Seneca Promotions, a current client, as presenting an ongoing
compliance issue. But this is the only one of which the Court is aware.

43

43

DX 611 ¶ 17.) On March 3, 2000, New York increased its cigarette tax to $1.11 per
pack from $0.56 per pack. (Id. ¶ 18.) On April 3, 2002, the State increased the
excise tax on cigarettes again, this time to $1.50 per pack, where it remained until
June 3, 2008, at which time it was increased to $2.75 per pack. (Id. ¶ 19.) On July
1, 2010, the State’s excise tax on cigarettes was raised to $4.35 per pack, where the
tax remains today. (Id. ¶ 20 (citing N.Y. Tax Law § 471).) By 2015, New York’s
cigarette excise tax was $2.72 more than the national average for state cigarette
excise taxes. (Delman Decl., DX 611 ¶ 20.)
For its part, New York City imposed an eight-cents-per-pack tax on cigarettes
until July 2002, at which time the City’s excise tax was raised to $1.50 per pack,
where it remains today. (Id. ¶ 21 (citing N.Y.C. Admin. Code § 11-1302(e)).)
Federal excise taxes on cigarettes also increased significantly during the 2000s,
leading to a significant increase in the cost of cigarettes for consumers. (Delman
Decl., DX 611 ¶ 14.) The federal excise tax on cigarettes increased from $0.24 per
pack to $0.34 per pack on January 1, 2000, and then to $0.39 per pack on January
1, 2002. (Id. ¶ 15.) Following passage of the Children’s Health Insurance Program
Reauthorization Act (“CHIPRA”) in 2009, the federal excise tax on cigarettes
increased from $0.39 to $1.01 per pack, where the tax remains today. (Id. ¶ 16
(citing Pub. L. 111-3, ¶ 703(b)).)
These increases in State, City, and federal cigarette taxes meant that by July
2010, the combined taxes on a pack of cigarettes were $6.86 in New York City and
were $5.36 in the rest of New York State. The taxes in New York City were $5.23

44

more than the taxes in a majority of locations across the United States that have
neither city nor county taxes. (Delman Decl., DX 611 ¶ 22.) Only cigarette
consumers in Chicago face a higher tax rate. (Id.)
Revenue generated by taxes imposed by the State and City of New York are
substantially less than the amounts needed to cover tobacco-related healthcare
costs incurred by New Yorkers. (Angell Aff., PX 628 ¶ 18.)
THE PACT ACT
The PACT Act was enacted on March 31, 2010, and took effect on June 29,
2010. Pub. L. No. 111-154, 124 Stat. 1087 (2010). As pertinent here, for common
carriers other than those who had entered into an AOD (and otherwise met the
exemption requirements)—primarily the USPS and smaller carriers—the PACT Act
sets forth an extensive regulatory scheme.
Plaintiffs pointed to various pieces of evidence supporting UPS’s view that
the passage and implementation of the PACT Act provided a business opportunity.
That is, as other couriers were required to terminate cigarette shippers as a result
of the PACT Act, UPS picked up the business. This is borne out by the facts. The
evidence supports an increase in shipments via UPS by the Relevant Shippers in
the months immediately following the effective date of the PACT Act. Account
personnel and others within UPS understood that this surge was likely due, in part,
to capturing business lost by the USPS.44 For instance, in an email dated

44 It is certainly true that New York State and City cigarette tax rates jumped considerably at nearly
the same time as the PACT Act’s enactment, leading to some increase in the demand for little cigars.
However, there is limited evidence that UPS associated its increase in business with a growth in this

45

September 23, 2010, a UPS Senior Account Manager noted that “UPS has gained a
lot of tobacco business from the USPS this year due to the PACT Act taking effect at
the end of June.” (PX 198.)
CONSUMPTION OF TOBACCO PRODUCTS
Cigarettes are one of a number of consumable tobacco products. Tobacco
products are many and varied; they include “little cigars” and “big” or “regular”
cigars, flavored cigars and cigarettes, loose tobacco, and chewing tobacco. The
evidence at trial supported UPS’s claim that all but one of the Relevant Shippers
(Jacobs Manufacturing/Tobacco) sold a variety of tobacco products and, in certain
instances, other items as well.45 For instance, there was both testimony and
documentary evidence of shipments of cigars as well as cigarettes. (See, e.g., PX 72;
PX 113; PX 211; Trial Tr. 384:8-16 (Cook).)
Cigarettes
The characteristics of cigarettes are well known: Filtered sticks of tobacco,
about the length of a finger, are rolled in paper and typically sold in small boxes.
Each box contains twenty cigarettes; each carton contains ten boxes. A carton of
cigarettes, irrespective of brand, weighs approximately one pound. It is well known
that cigarettes are highly addictive. The market for sales of cigarettes is far larger
than those for other tobacco products, including little cigars. (See generally PX 11.)

area of the tobacco business versus another. Moreover, market data supports a finding of consistent
dominance of cigarettes versus other tobacco products throughout this period. (See PX 11.)
For instance, Mohawk Spring Water also sold spring water; a number of shippers also sold Native
American craft items.

45

46

The manner in which consumer demand correlates with price and brand is
subject to debate. Testimony at trial supported strong brand loyalty, but testimony
similarly supported price sensitivity for cigarette consumers and tobacco users
generally. Among the evidence received at trial were cartons of cigarettes marketed
by the Relevant Shippers. The Court was able to evaluate the size, shape, and
weight of the packaging as well as the packaging’s characteristics. In addition,
plaintiffs introduced evidence of the size of boxes used to ship cigarette cartons.
Boxes containing cigarette cartons had the capacity to hold anywhere from a pound
of goods to more than twenty pounds; this equates with a capacity of between one
and twenty cartons of cigarettes.46
Not all boxes were shipped at full capacity; that is, a box with twenty pounds
of capacity might have fewer than twenty cartons of cigarettes inside (or a box of
some other capacity might not be full). UPS’s databases included a field for “actual
weight.” The Court draws the fair inference from the fact of such documents that
this phrase reflected a package’s measured weight. UPS’s shipment records
indicate that there was frequently a difference between a package’s “actual weight”
and “billed weight.” Billed weight was typically a number rounded up from actual
weight. Based upon UPS records, rounding occurred when any increment of a
package’s weight was above a whole number. (See, e.g., PX 74; PX 75; PX 227.) For
instance, a package weighing 19.1 pounds in actual weight would be increased to

46

Jacobs Manufacturing/Tobacco would ship multiple boxes on a pallet. (See Jarvis Dep. Tr. 54:1-6.)

47

twenty pounds for billed weight. (Id.) Thus, any aggregation of “billed” weight for a
number of packages would inflate their actual weight.
In addition, cigarettes were generally shipped in boxes. There was some
evidence at trial of shippers sending letter-sized envelopes. (See, e.g., Trial Tr.
511:5-512:17 (Fink); id. 769:23-770:12 (Keith).) The evidence that cigarettes were
shipped in letter-sized envelopes was extremely thin and not particularly credible
(apparently, from time to time, loose cigarettes might be sent in envelopes); the
economics of sending a handful of loose cigarettes via UPS makes no sense. Indeed,
it is hard to imagine that it would have been cost effective to have sent loose
cigarettes—presumably in an amount of less than one box—in a letter-sized
package via UPS. The Court finds that no appreciable volume of cigarettes was
sent via letter-sized packages and that packages of such size more likely than not
contained something other than cigarettes.
Little Cigars
Little cigars account for under 10% of the tobacco market. (See PX 11.) They
are rolls of tobacco, wrapped in leaf tobacco with an integrated filter, that resemble
cigarettes in size, shape, and packaging. (Delman Decl., DX 611 ¶ 24; see also Trial
Tr. 1584:16-25 (Delman).) While UPS’s tobacco expert, Delman, testified that little
cigars are “total substitutes” for cigarettes, the evidence was in fact far more
equivocal. First, even Delman conceded that little cigars are made up of “lesser
quality” tobacco. (Trial Tr. 1573:2-24 (Delman); id. 1568:12-1569:18 (Delman).)
Little cigars are made from reconstituted tobacco floor sweepings. (Id. 1569:19-

48

1570:12 (Delman).) Second, based on her experience, Dr. Angell testified that little
cigars are in fact distinguishable from cigarettes. (Trial Tr. 1369:2-7 (Angell).)
Like cigarettes, little cigars may be sold twenty to a pack and ten packs to a
carton. (Delman Decl., DX 611 ¶ 25.) Also like cigarettes, little cigars may be sold
in cartons weighing approximately one pound. All but one of the Relevant Shippers
(Jacobs Manufacturing/Tobacco) sold little cigars and shipped them via UPS. The
boxes in which they were shipped were the same as those used to ship cigarettes.
The exterior packaging of little-cigar packs and cartons is similar in size,
shape, and color to those of cigarettes. Moreover, the brand names of the little
cigars sold by the Relevant Shippers were often quite similar to those of
cigarettes—and the Court at least found it very difficult to distinguish between
packs of little cigars and those of cigarettes without examining the exterior of a
carton with care.
At the relevant times, little cigars were considerably cheaper than taxed
cigarettes. (Id. ¶ 35.) For instance, as of August 2016, the average base price of
little cigars was $12 per carton versus $33 per carton for discount/non-premium
cigarettes and $55 per carton for premium-brand cigarettes. (Id.) However,
cartons of little cigars can be more expensive than cartons of Native brand
cigarettes. (Trial Tr. 1564:13-1565:22 (Delman).)
The evidence supports significant growth in the demand for little cigars
throughout the 2000s, though the demand for little cigars never came close to that
for cigarettes. (Delman Decl., DX 611 ¶¶ 40, 41; PX 11.) The increase in demand

49

was due, in part, to the higher cost of cigarettes compared to little cigars combined
with a willingness by at least some consumers to substitute one for the other. (Id.
¶¶ 40-42 (citing DX 43 at 11).) Tobacco users are price sensitive, and higher taxes
on tobacco products decrease the demand for the affected products. (Angell Aff., PX
628 ¶ 10.) The evidence fell far short of supporting a total substitution of little
cigars for cigarettes.
UPS dedicated a considerable amount of time and evidence at trial to the
factual proposition that increases in cigarette taxes drove an increase in the
demand for little cigars, and that this is all the more reason for the Court not to
accept that packages shipped by the Relevant Shippers were cigarettes. According
to UPS, the increased demand for little cigars increased the likelihood that such
packages did not contain cigarettes at all. There is some force to this argument—
but not to the extent UPS asserts.
Several studies confirm the link between increased taxes and the possibility
of increased demand for little cigars and other alternative tobacco products, even as
cigarette consumption has declined. In fact, the decision by the Food and Drug
Administration to bring cigars under the regulation of the Family Smoking
Prevention and Tobacco Control Act by its Center for Tobacco Products on May 5,
2016,47 (DX 425), was based on research showing that various demographic groups
continued to use cigars even when there was a broader migration away from

47 The decision was formally published in the Federal Register of May 10, 2016: Deeming Tobacco
Products To Be Subject to the Federal Food Drug, and Cosmetic Act, 81 Fed. Reg. 28,974 (May 10,
2016).

50

cigarettes, especially during the period from 2010-2014. (Delman Decl., DX 611
¶ 44.) Dr. Angell also testified that if little cigars cost less than cigarettes, they are
one product that cigarette consumers might turn to as an alternative. (Trial Tr.
1363:1-4 (Angell); see also Trial Declaration of Aviv Nevo (“Nevo Decl.”), DX 613
¶¶ 76-84 (concluding that diversion to “non-cigarette products,” including little
cigars, would be “substantial”).)
CERTAIN COMMON EVIDENCE
The Fink Accounts
As discussed in detail below, one UPS Account Executive—Gerard Fink—was
assigned to a number of the Relevant Shippers. He testified both live at trial and
by trial declaration. Because his testimony impacts a number of issues in the case,
the Court provides an overview here.
During the period relevant to this suit, UPS first employed Fink as a parttime loader, then promoted him to External Technician, and then promoted him to
Account Executive in 2005, a position in which he remains today. (Fink Decl., DX
602 ¶ 2.) Fink manages UPS’s “small customer accounts” (defined as accounts
which generate package revenue of up to $300,000 per year) in what is his
designated “Patch of Land;” he is also part of the Buffalo-area sales team. Fink’s
Patch of Land includes the UPS Centers in Dunkirk, Jamestown, Olean, and
Hornell, New York. (Id. ¶ 9.) UPS’s Dunkirk and Olean Centers serve two Seneca
Nation reservations. (Id. ¶ 10.)

51

As discussed below, a number of Fink’s accounts in fact shipped unstamped
cigarettes through UPS. These accounts included Elliott Enterprises, Elliott
Express (or EExpress), Bearclaw Unlimited/AFIA, Shipping Services, Seneca
Ojibwas, Morningstar Crafts & Gifts, Indian Smokes, and Smokes & Spirits. Each
of these shippers tended to ship in volume and were, at some point in the
relationship, among Fink’s largest accounts.
Fink, like other Account Executives, is paid a salary and has the opportunity
to earn a bonus; the bonus is based in part on sales. An Account Executive’s bonus
does not play a significant role in his or her overall compensation. Nevertheless, it
plays some role. The evidence at trial supported a desire by Account Executives to
grow, and not lose, business. Emails exchanged between Fink and other UPS
employees regarding certain Relevant Shipper accounts demonstrated a shared
interest in protecting the accounts. For example, after an audit of EExpress
revealed only coffee being shipped, Fink sent an email to Michael Zelasko, a UPS
sales manager, stating that the audit revealed only packages containing coffee, and
concluding with a “smiley face” emoticon. (PX 569.) Zelasko forwarded this email
to Brian Weber of UPS Customer Solutions, telling Weber, “The audit for EExpress
came back as coffee!! Dodged a bullet.” (Id.) For instance, emails reflected Fink’s
reporting on account activity to supervisors, databases reflected certain of his
contacts, and sales data was widely shared. Fink, in short, was not a rogue
employee hiding his activities from others at UPS. While he may not have informed
others at UPS of everything he knew or suspected, he was not hiding (and did not

52

personally have the ability to hide) many obvious facts (such as the name of a
shipper, its location, its address, or its client contact; the inventory that drivers
saw; the smell emitted by certain packages; tracer inquiries; etc.). The Court
concludes that with regard to the Relevant Shippers, Fink was acting within the
scope of his employment. Fink’s testimony along with other evidence also convinced
the Court that he was not a lone wolf and that his conduct was known and
supported by certain other individuals within UPS.
The Court did not find Fink a generally credible witness. He struck the
Court as an intelligent man who understood a great deal about UPS’s business and
about the accounts for which he was responsible. He also appeared evasive and as
attempting to find the “right answer,” sometimes at the expense of the truth. The
Court does not credit testimony that he did not know what a number of his largest
accounts were shipping; this finding is based on Fink’s demeanor as well as the
totality of facts regarding his knowledge of, and interactions with, the accounts.
Indeed, his testimony convinced the Court that he generally understood that certain
of his clients were shipping cigarettes and that there was a reasonable basis to
believe that those accounts and others may have been tendering cigarettes.
The Non-Compliant Lists
One important component of the PACT Act is the creation of “non-compliant
lists” or NCLs. Specifically, the PACT act directs the Attorney General to compile
and distribute a list of cigarette and smokeless tobacco delivery sellers that have
not registered with the Attorney General or “are otherwise not in compliance with

53

[the] Act.” 15 U.S.C. § 376a(e)(1)(A). Inter alia, the PACT Act prohibits deliveries
to any person named on the NCLs, unless certain exceptions are met. Id. §
376a(e)(2)(A).
After the PACT Act went into effect on June 29, 2010, entities that had
shipped cigarettes through the USPS, and had a continued desire to ship cigarettes,
sought alternative arrangements. There was substantial evidence at trial that the
timing of new UPS customer acquisitions during 2010 was more likely than not
related to the effective date of the PACT Act. (See, e.g., PX 198.) Evidence
demonstrated that at least certain of the new accounts were recognized as
“competitive conversions” from other carriers at the time. (See, e.g., (PX 198.))
UPS has argued that the same time period also correlates with an increase in
the cigarette tax and an increase in the demand for little cigars (and thus, that new
customers were simply responding to increased mail order demand for little cigars.)
That may be so, but there is insufficient evidence to support this theory. While the
evidence does support increased taxes and consumer demand for little cigars, it does
not support that the contents of the packages shipped by the new customers were
therefore little cigars, or reasonably believed to be such. Instead, the evidence
supports a reasonable inference that many customer acquisitions (particularly in
2010), including competitive conversions, were the result of the passage of the
PACT Act, and thus a switch away from another carrier to UPS.
As discussed, the PACT Act required the periodic creation of NCLs. The
PACT Act’s mandate in this regard was, of course, public knowledge. But in

54

addition, commencing in November 2010, the ATF distributed the NCLs to UPS.
Several of the Liability Shippers, or individuals associated with them, were on one
or more NCLs. For instance, Elliott Enterprises appeared on the first NCL
distributed by the ATF in November 2010, (PX 514); Indian Smokes was added on
May 6, 2011, (PX 524); and Smokes & Spirits was added on February 15, 2012, (PX
514).
Plaintiffs argue that UPS’s receipt of the NCLs put them on notice of
cigarette shippers but that UPS failed to take remedial action (such as conducting
audits). According to plaintiffs, the NCLs also provide evidence of UPS’s knowledge
of shipper violations to support plaintiffs’ claims.
For its part, UPS argues that because it was exempt from the PACT Act due
to the AOD, the NCLs were irrelevant to its business. This position is misguided.
The NCLs were plainly relevant and should have been used by UPS to identify
cigarette shippers. As discussed below in the Court’s legal conclusions, UPS’s
argument fails to fully grasp the conditional nature of the relevant PACT Act
exemption, and that the NCLs plainly provided relevant information to meet the
necessary conditions. UPS ignored the NCLs at its peril. While the NCLs may not
have obligated UPS to take action with regard to certain shippers, UPS had
separate obligations with regard to those same (and other) shippers under the
AOD.48

A number of UPS’s defenses (including, for instance, unclean hands, in pari delicto, and breach of
the covenant of good faith and fair dealing) are based in part on an assertion that the government
kept information regarding non-compliant shippers from UPS. However, the distribution of NCLs to
48

55

UPS further argues that in any event, the NCLs were sent to one part of UPS
while the domestic client accounts and courier service operations were performed
out of another. Thus, UPS claims it was operationally unaware of the NCLs and
that certain shippers were on the NCLs. While factually true, the conclusion that
UPS draws from this—that it was justified in ignoring the NCLs—is unpersuasive.
The point remains that UPS received the NCLs.49 It should have provided
information it received regarding known cigarette shippers to others within UPS.50
As the Court has found, the NCLs were, as a factual matter, relevant information
regarding the shipping practices of certain entities.
In sum, the Court finds that the NCLs did put UPS on notice, and provided
some knowledge, of shippers who tendered cigarettes.
The “Tobacco Watchdog Group” Letter
On November 10, 2010, an entity referring to itself as the “Tobacco Watchdog
Group” sent a letter addressed to the “UPS Service Center Managers” in which it
identified a number of known or suspected shippers of unstamped cigarettes.

UPS represented an instance in which a governmental entity (albeit a federal one) provided UPS
with “what it knew” about non-compliant shippers. UPS’s dismissal of the NCLs as irrelevant until
the fall of 2013 undermines its assertion that if only the State had given it information, it would
have taken action. Instead, UPS’s actions with regard to the NCLs provide some evidence that had
any State entity provided it with information, it would have ignored that information—at least until
the fall of 2013. Increased attention in the fall of 2013 was driven by the fact that as of late July
2013, UPS realized it was under new scrutiny from plaintiffs.
Cook testified that he personally did not receive an NCL until the third quarter of 2013 and that
upon receipt he immediately used it to identify possibly non-compliant shippers. (Cook Decl., DX
600 ¶¶ 100, 103.) UPS’s inside counsel had been receiving the NCLs prior to this time; counsel
added Cook to the distribution list in August 2013. (Id. ¶ 103.)
49

50 Notably, this compartmentalization contrasts with evidence of coordination between different
parts of UPS to provide a seamless and integrated package-delivery service for its customers.

56

(DX 62.) Various UPS employees received copies of this letter, including Gerard
Fink, Steve Kinney, Scott Winkley, Rich Kincade, and Tina Mahon. (Id.) The letter
was emailed to Fink by Winkley, the Business Manager for the Jamestown and
Olean Centers. (Id.) Winkley instructed Fink, “Please read.” (Id.) At trial, Fink
testified that he recalled receiving the letter at or about the time it was issued. (See
Trial Tr. 601:14-17 (Fink); see also Fink Decl., DX 602 ¶ 33.) Six entities were
identified in the letter—all of which were located in Salamanca, New York. Among
them were the following shippers: Smokes & Spirits at 270 Rochester Street, Elliott
Enterprises at 38 Main Street, and Native Express, also at 38 Main Street. (Id.)
Smokes & Spirits and Elliott Enterprises are both Relevant (and Liability)
Shippers.
Fink’s reply to Winkley’s email stated that he had only “one account” on the
list and was “certain” they were only shipping cigars. The account to which Fink
was referring was Smokes & Spirits. In fact, Elliott Enterprises, located at 38 Main
Street in Salamanca, was also one of Fink’s largest accounts at that time. Fink did
not state his basis for his “certain[ty],” and there is no evidence that he was further
probed by any of the other letter recipients. In light of UPS’s affirmative
obligations under the AOD and statutory schemes, it should have done more in
response to this letter.
UPS argues that the Court should give no weight to the letter because it was
of unknown origin and veracity. The Court disagrees. The emails among UPS
personnel discussing the contents of the letter establish that UPS recipients read

57

the letter and discussed it. It was properly viewed by UPS employees as relevant.
The letter provided some notice of a possible issue; the Court agrees, however, that
the letter did not itself “prove” anything.
Inquiries Regarding Lost or Damaged Packages
Plaintiffs introduced evidence showing that at various times UPS customers
inquired about lost or damaged packages. (PXs 72, 113, 190-91, 208, 211-215, 403,
405-06, 468-70.) As described above, UPS refers to these inquiries as “tracers.”
Tracers captured various methods of inquiry, such as calls to a 1-800 customer
service line or an online report entered into UPS’s system. Tracers typically include
information regarding the reported contents of the package(s) at issue.51
It is clear that until recently (as described above), UPS did not use tracers as
tools to identify cigarette shippers. Nevertheless, tracers put UPS on notice that
some shippers were likely tendering cigarettes.52 The tracers also provided UPS

Both plaintiffs and defendant have placed in evidence spreadsheets of tracer data, (see, e.g., PX
191, PX 211, DX 499, DX 500), and both have used the tracer documents for the truth of customers’
statements of package contents. (See, e.g., Pl. Proposed Findings of Fact, ECF No. 491 ¶¶ 382, 383;
Def. Proposed Findings of Fact, ECF No. 492 ¶ 110.) However, no party has asserted a hearsay
objection to the use of tracers for the truth of the matter asserted, i.e., customers’ statements of
packages’ contents, and both parties have relied on this use in their arguments. (See ECF No. 420 at
4 (“ . . . UPS has made no objection as to admissibility other than citing Rule 602. It is not, for
instance, arguing relevance or hearsay.”). Therefore, any objection to the tracer documents on the
basis of hearsay is waived. See Fed. R. Evid. 103(a); United States v. Del Llano, 354 F.2d 844, 847
(2d Cir. 1965). In all events, even if not considered for the truth, tracers nonetheless put UPS on
notice of what a customer claimed a package contained. See United States v. Dupree, 706 F.3d
131,136 (2d Cir. 2013) (“[A] statement offered to show its effect on the listener is not hearsay.”).
Such notice, along with other circumstances described below, should have informed UPS’s state of
mind (and should have led to an audit).
51

Under the AOD, UPS was obligated to train its personnel in its Tobacco Policy. (AOD, DX 23
¶ 34.) Customer service personnel are reasonably included in the “relevant UPS employees” who
should have been so trained. Moreover, the AOD also broadly required “UPS” to comply with PHL
§ 1399-ll. The Court finds that employment responsibilities of customer service personnel working

52

58

notice regarding other items being shipped by the Relevant Shippers (such as
tobacco, flyers, and other items).
1.

Smokes & Spirits

Several tracers in 2011 (in April, September, October, and November) for
Smokes & Spirits were for packages containing “nectar filled cigars full flavor
100’s,” “1 of 3 box of 6 pouches of tabacco [sic],” “2 of 5 tobacco product,” and “1 of 10;
1 pack out of a carton of 10 was crushed.” (PX 191, rows 260, 262-63.)
Tracers relating to packages shipped by Smokes & Spirits in April,
September, and December of 2012 indicated package contents as an unidentified
good, seven cartons of “Menthol Box 100s” (cigarettes), and Timber Wolf Long
(tobacco), respectively. (PX 190, rows 293-95; see also PX 214, rows 293-95.)
A tracer in September 2012 for a package shipped by Smokes & Spirits
contained the UPS remark in all caps: “PROHIBITED ITEM SENT TO
CONSUMER.” (PX 72.) Additional inquiries relating to packages shipped by
Smokes & Spirits occurred on May 15, 2013; September 12, 2013; and October 17,
2013. (PX 113, rows 970-72.) Of these, two (the May and October inquiries) were
for non-cigarette tobacco products, while the September inquiry was for cigarettes.
(Id.)
2.

RJESS

A tracer for RJESS in July 2013 was for “8 of 20 Cigars.” (PX 113, row 968.)

with tracers should have included reporting packages containing cigarettes within UPS, to
supervisors, to Cook, or to those working with him or fulfilling similar roles.

59

3.

Sweet Seneca Smokes

A tracer for Sweet Seneca Smokes in November 2014 indicated package
contents of “8 Nectar Filtered Cigars Full Flavor 100’s.” (PX 211, row 627.)
4.

Elliott Enterprises/EExpress

In 2011, tracers for Elliott Enterprises (in March, April, May, and December)
were for one empty box and three packages of cigarettes. (PX 191, rows 267-70; PX
470, row 2865.) Tracers in March, April, May, and December of 2011 for packages
shipped by Elliott Enterprises were for an empty box, “cigarettes/pdmm,” “cartons of
cigarettes,” and “cartons of Kent ULL King Soft.” (PX 213, rows 267-70.)
A tracer in March 2012 for packages shipped by Elliott Enterprises was for “5
of 5 Seneca Ultra Light 100” and “606 Seneca Light 120 Carton.” (PX 190, row 303.)
Tracers in April 2013 and June 2013 for EExpress indicated the following
package contents: “1 of 1 box of cigarettes;” “1 of 1 box of cigarettes;” “1 of 1 box of
cigarettes;” “1 of 1 box of cigarettes;” “4 of 4 Seneca Menthol Light 100 Soft 4pks;”
and “1 of 1 box of cigarettes.” (PX 405, rows 61-66.)
Tracers in December 2013, January 2014, and May 2014 for packages
shipped by EExpress were described as “1 quantity of cigarettes,” “10 of 10 Seneca
Ultra Light 100 soft” (cigarettes), and “4 carton cigarettes.” (PX 211, rows 588-90.)
5.

Bearclaw Unlimited

A January 18, 2011 tracer for a package shipped by Bearclaw Unlimited
described the package contents as “Marlboro Cigarette Cartons.” (PX 191, row 204;
PX 213, row 204.) Several months later, in August 2011, another tracer for

60

Bearclaw related to a package containing scented candles. (PX 191, row 250; PX
213, row 250.)
6.

Shipping Services

Tracers on August 26, 2011, September 8, 2011, September 15, 2011, and
August 17, 2010, for Shipping Services indicated package contents of “3 Seneca Lt
cigars,” “4 Seneca FF box,” “6 Vendetta Full Flavor,” and “Cigars.” (PX 212, rows
354-57.)
7.

Native Wholesale Supply

A tracer in March 2013 for Native Wholesale Supply indicated package
contents as “Flyers.” (PX 405, row 81.)
8.

Seneca Promotions

Tracers in July 2014 for Seneca Promotions indicated one empty package and
“1 Banner Rick Youngblood Smoke Shop.” (PX 211, rows 624-25.)
9.

Native Gifts

A tracer in June 2013 for Native Gifts indicated the package contained “8
cartons of cigarettes, Seneca Ultralights.” (PX 211, row 622.)
10.

Jacobs Manufacturing/Tobacco

Two tracers on February 22, 2011, for Jacobs Manufacturing/Tobacco (rows
39, 40) indicated package contents of “Carton, Nation’s Best American Full, 100
Softpack/EA” and “Nations Best Full Flavor Cigarettes.” (PX 468, rows 39-40; PX
469, rows 39-40.)

61

The Cigarettes Shipped Were Unstamped
As the Court stated in footnote 1 above, it uses the term “cigarette”
throughout this Opinion as synonymous with “unstamped cigarette.” There is
substantial evidence supporting the Court’s determination that all cigarettes
shipped by the Relevant Shippers were unstamped. First, UPS drivers, Account
Executives, and sales representative knew that cigarettes sold on Indian
reservations were virtually always sold without tax stamps. (Bankoski Dep. Tr.
69:10-70:16; Haseley Dep. Tr. 16:3-20; id. 16:25-17:21; Potter Dep. Tr. 48:15-49:2;
Sheridan Dep. Tr. 34:4-25, 35:17-21; Wheaton Dep. Tr. 15:8-17; Trial Tr. 179:23180:24 (Cook); Trial Tr. 434:9-436:10 (Niemi); Trial Tr. 1342:2-22 (Guarino); Trial
Tr. 1392:15-1394:1 (Puleo).) Rosalie Jacobs and Robert Oliver both testified
credibly that the cigarettes she shipped via UPS did not bear stamps. (Trial Tr.
1661:15-17 (Jacobs); Trial Tr. 1132:5-1134:20 (Oliver).) In addition, the cigarettes
seized at the Potsdam Center in June 2011 did not bear stamps. (Trial Tr. 1148:1-7
(Oliver).) Philip Christ testified credibly that the cigarettes sold by Arrowhawk did
not bear tax stamps. (Trial Tr. 912:20-23, 913:17-914:6 (Christ).) Smokes & Spirits
data regarding sale prices further support a lack of tax stamps. (PX 54; PX 55.)
Finally, cigarettes purchase as part of controlled buys and introduced at trial were
unstamped. (PX 40; PX 43.)53

The packages involved in the controlled buys were shipped to addresses in New York City. (PX 40;
PX 43.) Additionally, the Court has reviewed the delivery spreadsheets and has determined that
there are numerous instances where deliveries by the Relevant Shippers were made to addresses
with New York City zip codes. (See, e.g., PX 191, line 204.)
53

62

SHIPPERS AT ISSUE
Overview of the Shippers and the Court’s Findings
This case concerns UPS’s shipments on behalf of a discrete group of shippers
located on the following Indian reservations within the State of New York: the
Seneca Cattaraugus Reservation, the Seneca Allegany Reservation, the Tonawanda
Reservation, and the Mohawk/St. Regis Reservation. UPS serviced accounts on
these reservations from its Dunkirk, Olean, Batavia, and Potsdam Centers,
respectively.
Plaintiffs’ claims in this case are directed at UPS’s conduct with regard to the
following twenty-two entities (referred to as the “Relevant Shippers” or “Shippers”)
(plaintiffs combine certain entities into “groups”):54


Elliott Enterprise(s), Elliott Express (or “EExpress”), Bearclaw
Unlimited/AFIA (together, the “Elliott Enterprise Group”);



Seneca Ojibwas Trading Post, Shipping Services, and Morningstar
Crafts & Gifts (together, the “Shipping Services Group”);



Indian Smokes;



Smokes & Spirits, Native Outlet, A.J.’s Cigar, Sweet Seneca Smokes,
and RJESS (together, the “Smokes & Spirits Group”);



Native Wholesale Supply and Seneca Promotions (together, the
“Native Wholesale Supply Group”);

As noted above, plaintiffs have separated certain companies into “groups.” The Court only uses
such designations in its factual findings in certain instances when the facts support an inference
that the grouped entities are properly considered each other’s alter egos. However, even in each
such instance, the Court has also made a separate liability determination for each entity on a standalone basis.

54

63



Seneca Cigarettes/Cigars, Hillview Cigars, Two Pine Enterprises,
Arrowhawk Smoke Shop (together, the “Arrowhawk Group”);



Mohawk Spring Water and Action Race Parts (together, the “Mohawk
Spring Water Group”); and



Jacobs Manufacturing/Tobacco.

The parties submitted thousands of pages of exhibits with regard to the
Relevant Shippers, and there were several days of testimony. The Court’s findings
are based on its review of the totality of the evidence and consideration of the
parties’ various arguments regarding the reasonable inferences the Court should
draw. The Court does not attempt to set forth each fact in the trial record
supportive of its findings. Rather, it provides exemplar facts. As to each shipper as
to which the Court has found liability (“Liability Shipper”), the Court has made
specific factual findings regarding: (1) the date not later than which there was a
reasonable basis to believe that such shipper may have been tendering cigarettes to
Individual Consumers, (2) (if applicable) the date not later than which the shipper
was in fact shipping cigarettes, and (3) (if applicable) the date not later than which
UPS knew that it was shipping cigarettes.55 The answer to question (1) establishes
the date of UPS’s initial liability for an audit violation of the AOD. In each instance
in which the Court has found a violation of the audit obligation, the Court has
further found that once such an obligation attached, UPS remained under an audit
55 The questions of whether UPS “knew” packages included cigarettes and, if so, when, are mixed
questions of law and fact. The legal principles the Court applies to such determinations are set forth
in its Conclusions of Law below. When the Court uses the term “knowledge” in its findings of fact, it
is specifically incorporating and applying these legal principles and its conclusions with regard
thereto.

64

obligation each day thereafter until an audit occurred or UPS terminated the
account. The answer to questions (2) and (3) provide the predicate facts for findings
of violations of ¶ 42 of the AOD as well as the various statutory schemes.
The Court finds that plaintiffs have proven liability under the AOD and each
statutory scheme at issue with respect to the following shippers:
(1) Elliott Enterprise(s);
(2) Elliott Express/EExpress;
(3) Bearclaw Unlimited/AFIA;
(4) Seneca Ojibwas Trading Post;
(5) Shipping Services;
(6) Morningstar Crafts & Gifts;
(7) Indian Smokes;
(8) Smokes & Spirits;
(9) Seneca Cigarettes/Cigars;
(10) Hillview Cigars;
(11) Two Pine Enterprises;
(12) Arrowhawk Smoke Shop;
(13) Mohawk Spring Water; and
(14) Jacobs Manufacturing/Tobacco.
The Court finds that plaintiffs have proven only violations of UPS’s audit
obligations for:
(15) A.J.’s Cigars;

65

(16) Native Outlet;
(17) Native Wholesale Supply;
(18) Seneca Promotions;
(19) Action Race Parts; and
(20) RJESS.
As to the remaining shipper, Sweet Seneca Smokes, plaintiffs have not
proven that there was a violation of the audit obligation, or that the shipper in fact
shipped cigarettes through UPS, and/or that UPS possessed the requisite
knowledge of such facts.
Below, the Court sets forth its specific findings with regard to each of the
Relevant Shippers. The Court has considered the often obvious methods used by
cigarette shippers to reduce their risk of losing UPS service.56 For instance, certain
shippers would open (or UPS opened for them) successive accounts (e.g., Elliott
Enterprises became EExpress; Seneca Ojibwas became Shipping Services, which
became Morningstar Crafts & Gifts). In some instances, these shippers continued
to have UPS pick up from the same physical address (e.g., Shipping Services and
Morningstar Crafts & Gifts) or a shared billing address; in others, a different
address might have been used but the personnel overlapped (e.g., Elliott
Enterprises and EExpress). It is the Court’s view that in all events, these

Notably, and as discussed below, the use of such methods does not eliminate UPS’s liability; UPS
personnel were sometimes complicit in such conduct—in an effort to maintain the accounts—and in
other instances the methods were so obvious that failure to recognize them as indications of likely
cigarette shipping amounted to conscious avoidance.
56

66

techniques were so basic that they should not have prevented detection if UPS had
undertaken modest efforts to link accounts.57
There is also credible evidence that UPS personnel were sometimes complicit
in this avoidance technique. For instance, as described below, Fink assisted Seneca
Ojibwas in opening two separate accounts (with regard to the second, he
recommended using a different address than the first), and then opened an account
under Morningstar Crafts & Gifts when Shipping Services was terminated for
shipping cigarettes—at the same address as the second Shipping Services account.
Liability Shippers
The Court finds that plaintiffs have proven liability under the AOD and each
statutory scheme at issue with respect to the following Liability Shippers.
1.

Elliott Enterprises58

Elliott Enterprises operated from a retail storefront on 38 Main Street,
Salamanca, New York, on the Seneca Allegany reservation. (Fink Decl., DX 602
¶ 58; DX 490 at 2.) Gerard Fink was its Account Executive and opened its first
account on September 28, 2010.59 (PX 174, row 60.) This was shortly after passage

Using duplicate accounts and alter egos were known tactics of cigarette shippers attempting to
evade the law. The AOD specifically provided that “[t]he violations found to have occurred pursuant
to this [AOD] . . . shall be applied both to the shipper committing the violation, and to any other
shipper . . . that UPS has a reasonable basis to believe is shipping or seeking to ship Cigarettes (a)
from the same location as the suspended shipper, (b) on behalf of a suspended shipper, or (c) with the
same account number as the suspended shipper.” (AOD, DX 23 ¶ 31 (emphasis added).)
57

The Court’s discussion of its analysis of the facts with regard to this entity is more extensive than
for others. This is intended to lay out the way in which the Court has considered certain types of
evidence.

58

59 The principal of Elliott Enterprises, Aaron Elliott, had a prior account with UPS for another entity
named “Rock Bottom Tobacco.” That company had executed a Tobacco Agreement and was also

67

of the PACT Act. Aaron Elliott was the principal of Elliott Enterprises and, while
Fink denied making the connection, there was credible evidence that Fink
understood that Aaron Elliott was associated with this account as early as 2010.
(See, e.g., PX 559, col. DL; PX 439, rows 127-28, col. DL.) This fact is relevant to
whether—in light of Aaron Elliott’s subsequent history of shipping cigarettes with
UPS through another entity (Elliott Express or EExpress)—Fink knew or should
have known of, or was complicit in, Elliott’s attempt to circumvent UPS policy by
opening other accounts. The Court finds that not only should Fink have known, but
that he did know.
UPS began shipping for Elliott Enterprises on October 1, 2010. This account
was part of the business UPS acquired following passage of the PACT Act. A month
later, Elliott Enterprises, 38 Main Street, Salamanca, New York, was listed on the
NCL issued by the ATF and sent to UPS; it was also listed in the Tobacco Watchdog
Group letter issued on November 10, 2010, that Fink received. (DX 62.)60 As
discussed above, the Tobacco Watchdog Group letter and the November 10, 2010
NCL were both distributed to others within UPS. The account was terminated on

listed in UPS’s Tobacco Database. (See DX 371, line 472.) The account was canceled as part of the
broader plan implemented by UPS in connection with the AOD to require all smoke shops in the
area to establish new accounts with new Tobacco Agreements. (See AOD, DX 23 ¶ 21; Trial Tr.
200:6-14 (Cook); id. 499:22-500:3 (Fink).) Notably, not all accounts changed their names. Here, the
name change (by the same owner) away from one that used the word “tobacco” was more likely than
not an attempt to obscure the goods shipped.
60 In the email exchange among UPS personnel regarding the Tobacco Watchdog Group letter, Fink
states that he only has one account on the list, Smokes & Spirits. He does not acknowledge his new
account for Elliott Enterprises (also listed with an address of 38 Main Street, Salamanca, New York).

68

or about September 18, 2012, after a UPS driver discovered a shipment of
cigarettes. (PX 172; Cook Decl., DX 600 ¶ 76.)
It is quite clear from these facts alone that, from the date on which its
account was opened, Elliott Enterprises was, at best, a very high-risk account and
more than likely a cigarette shipper. While the fact that it was located on an Indian
reservation was alone insufficient to support a reasonable basis to believe it was
shipping cigarettes, when that fact was combined with its presence on the
November 2010 NCL and its presence in the Tobacco Watchdog Group letter, the
question was not close. These facts—even before addressing others—support that
not later than November 11, 2010 (the day after the November 10, 2010 NCL and
the Tobacco Watchdog Group letter), there was a reasonable factual basis to believe
Elliott Enterprises may have been tendering cigarettes via UPS. Under the AOD,
not later than November 11, 2010, UPS thus had an obligation to audit Elliott
Enterprises.
There is more, however. UPS’s failure to audit when obligated to do so does
not mean that Elliott Enterprises was in fact tendering cigarettes or that UPS knew
that it was. The audit obligation attaches only upon a reasonable belief that a
shipper may be tendering cigarettes. Additional facts are required to support a
finding of actual tendering and UPS’s knowledge.
In this regard, the NCLs constitute some evidence of cigarette shipping.
They are lists of shippers known by a federal agency to ship cigarettes. In addition,
UPS received additional notice by way of tracers that particular shippers were

69

likely tendering cigarettes. The number of such tracers and consistency of their
package descriptions adds to their impact. On March 8, May 26, and December 15,
2011, UPS received inquiries for lost or damaged packages of cigarettes shipped by
Elliott Enterprises. (PX 191, rows 267-70.) Additional tracers for cigarettes
shipped by Elliott Enterprises were made on March 22, 2012. (PX 190, row 303; see
also PX 213, rows 267-70.)
The Court now turns to UPS’s knowledge. First, the NCLs provided UPS
with factual information. The Tobacco Watchdog Group letter was distributed
within UPS, and UPS’s emails reflect that it was taken seriously; while the letter’s
source and reliability were unknown, it should have at least raised further
questions. Together, these two sources of information were significant; UPS ignored
them and failed to take action at its peril.
But further, the Court finds that various facts taken together support
circumstantial evidence of UPS’s knowledge that Elliott Enterprises was tendering
cigarettes. First, it was clear that Elliott Enterprises was a smoke shop. Fink
testified at trial that he assumed Elliott Enterprises was shipping “little cigars”
because it was located in Salamanca, where “[a] lot of the smoke shops sold
everything from Native American gifts to cigarettes, to cigars, to pipe tobacco.”
However, he could not explain why, given this explanation, he did not also assume
(or simply suspect) that Elliott Enterprises sold cigarettes. (Trial Tr. 589:12-591:23
(Fink).) Despite knowing that Elliott Enterprises shipped tobacco products, Fink
never required that they execute a Tobacco Agreement.

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The absence of a Tobacco Agreement under such circumstances was
equivalent to an affirmative act of conscious avoidance and supports an inference of
Fink’s knowledge that Elliott Enterprises was shipping cigarettes. In addition,
despite its presence on the NCL, in the Tobacco Watchdog Group letter, and in the
tracers for cigarettes, and despite the fact that Fink knew it was a smoke shop,
Elliott Enterprises was never audited. Based on known facts, the Court views the
lack of audits as additional affirmative acts. UPS, in effect, “stood down” on its
Tobacco Policy with regard to this account. Fink was UPS’s first line of defense
against Elliott Enterprises: He had more than enough information to request an
audit but did not. The Court finds that had Elliott Enterprises been audited, most
shipments would have been discovered to contain cigarettes. Together, this
circumstantial evidence supports an inference of knowledge.
UPS argues that it is unfair to attribute knowledge to Fink, or through him
to UPS, because the sheer volume of Fink’s accounts supports his assertion that he
did not have specific knowledge as to this one. This argument is unavailing. First,
as discussed above, the Court did not find Fink credible as a general matter or here,
specifically. Additionally, the argument ignores the context of UPS’s position at the
time: If Fink had so many accounts that he could not possibly know what any one of
them was shipping—including those located on Indian reservations at higher risk of
shipping cigarettes and that he himself referred to as “smoke shops”—then UPS
bears direct responsibility for this failure.

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But the Court believes Fink did know. During the time Elliott Enterprises
was shipping with UPS, it was among his largest accounts. In March 2012, it was
his highest gross-revenue account; by the end of 2012 it was his sixth-highest grossrevenue account. (PX 568; PX 102, row 9.) Evidence indicates he was compensated
at least in part based on commissions. Only a very small handful of accounts were
as large as Elliott Enterprises—it was in the top group on his list. (PX 568.)
Moreover, documentary evidence shows that Fink received regular information
regarding his accounts and whether they were meeting specified revenue targets. It
is reasonable to infer that Fink understood exactly how much business Elliott
Enterprises brought in and what their business was.
In sum, the Court finds that (1) not later than November 11, 2010, there was
a reasonable basis to believe Elliott Enterprises may have been shipping cigarettes
(this date is based on receipt of the November 10, 2010 NCL and Tobacco Watchdog
Group letter, along with the accumulated other facts discussed above); (2) from
November 11, 2010, onward Elliott Enterprises was in fact shipping cigarettes via
UPS (based on the same information); and (3) from November 11, 2010, onward
UPS knew that Elliott Enterprises was shipping cigarettes (based on the same
information).
The Court further finds that 95% is a reasonable approximation of the
percentage of packages shipped by Elliott Enterprises that contained cigarettes.61

This approximation is based on the Court’s assessment, given the totality of the evidence, that
most, but not all, of Elliott Enterprises’s shipments contained cigarettes. The evidence supports that
Elliott Enterprises sold a full array of tobacco products at its commercial storefront, and it is

61

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2.

EExpress

EExpress was another Fink account. He opened it on September 20, 2012,
only days after Elliott Enterprises’s account was terminated.62 The account was
located at a residential address on 11074 Indian Hill Road, Perrysburg, New York,
on the Seneca Cattaraugus reservation. (Logan Dep. Tr. 82:4-19.) There was
significant customer overlap between the consignees for Elliott Enterprises and
EExpress. EExpress was also a high-volume account, shipping hundreds of
packages a week from its residential address; the day it opened, it immediately
became one of Fink’s largest accounts. (See PX 102; PX 143.) The timing could not
have escaped Fink’s notice: One of his largest accounts was terminated, and, just a
few days later, another account opened that happened to largely fill the revenue
hole. These facts alone should have raised red flags.
Fink’s trial testimony regarding what he knew about EExpress’s shipments
with UPS was particularly lacking in credibility. He testified that shortly after the
account was opened, he allegedly called EExpress and spoke to a woman named
Adrian; he said he remembered her from her prior employment at LouAnn’s Smoke
Shop, an entity with which he was familiar. (Fink Decl., DX 602 ¶¶ 66, 67; DX 511,
line 40.) According to Fink, Adrian informed him that EExpress was not shipping

reasonable to assume that from time to time customers ordered some to be shipped (rather than
purchasing the products in person). Moreover, the Court credits Farrell Delman’s testimony that
cigarettes are most likely to have been shipped because of the greater consumer demand and lesser
tax imposed. (Delman Decl., DX 611 ¶¶ 24-34.)
As described below, based on the totality of the evidence, the Court finds that EExpress was
shipping on behalf of Elliott Enterprises and used a different name/address to avoid detection as a
cigarette shipper
62

73

tobacco, but she refused to disclose exactly what they were shipping; she said that
EExpress wanted to maintain the confidentiality of its business model in order to
avoid competition from others on the reservation. (Fink Decl., DX 602 ¶ 67.) Fink
then stated, “[a]s Adrian promised me EExpress was not shipping tobacco products
and there was no indication from the name of the business or its location at a
residence that it sold tobacco products, I had no reason to require EExpress to sign
a Tobacco Agreement.” (Id.) Yet, despite this professed belief, Fink referred to
EExpress as a “cigar shop” in an email to Senior Sales Manager Mike Zelasko in
April 2013. (DX 184.) According to Fink, this reference was simply a mistake.
(Trial Tr. 637:5-15 (Fink); Fink Decl., DX 602 ¶ 68.)63 The Court also does not find
this testimony credible. At the very least, given the accumulation of facts already
mentioned, trusting the self-serving statement of “Adrian” was unreasonable. More
than that, it was an affirmative act of “standing down” on the account and allowing
the obvious to occur.
But, in addition, there were clear connections between Aaron Elliott—the
principal of Elliott Enterprises and by then a known cigarette shipper—and
EExpress. On September 26, 2012, Aaron Elliott executed the Carrier Agreement
on behalf of EExpress. (PX 128.) Fink testified that he did not recognize the name

63 In this same email, he also stated that EExpress was not a tobacco shipper or shipping cigarettes.
Fink refers to other statements he made reflecting that EExpress was not a smoke shop. The Court
views the statement in PX 115 as reflecting his knowledge that EExpress was a smoke shop. The
Court further views his dissembling as covering the more damaging truth that he knew EExpress to
be a cigarette shipper.

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and made no connection to the prior, terminated account. (See Fink Decl., DX 602
¶¶ 67, 75.) The Court does not credit this testimony.
In the first full month that the EExpress account was open, it shipped
approximately 2,100 packages with UPS from a residential address; that is, an
average of 105 packages per day. (See PX 552; PX 559.) With one exception,
monthly volume for EExpress averaged about 2,000 packages, or 100 packages a
day. (PX 559.) On January 11, 2013, EExpress’s cover was blown: The driver
assigned to EExpress reported that it was shipping cigarettes. (PX 172.) However,
despite this information, UPS continued to ship for EExpress and failed to take any
remedial action as required by the AOD.
Commencing in April 2013, UPS received a number of inquiries regarding
lost or damaged packages shipped by EExpress. There were five tracers on April
25, 2013, each of which referenced packages containing cigarettes. (PX 405, rows
61-64, 66.) A tracer on June 6, 2013, also referenced a package containing
cigarettes. (Id., row 65.) On December 26, 2013, a tracer referenced a package of
cigarettes. (PX 211, row 588.) Two tracers, in January and May of 2014, referenced
package containing cigarettes. (Id., rows 589-90.)
Next, in May 2014, attorneys for the City and State identified a shipper
named “Native Express,” located at the same address as EExpress, as shipping
cigarettes. (Cook Decl., DX 600 ¶¶ 121, 122.) UPS identified EExpress as being
located at the address in question and requested an audit. (Id. ¶ 122.) In a first

75

audit, conducted on May 5, 2014, UPS opened a package and found only coffee.64
(DX 549.) As described above, Fink sent an email to Michael Zelasko, a UPS sales
manager, stating that the audit revealed only packages containing coffee, and
concluding with a “smiley face” emoticon. (PX 569.) Zelasko forwarded this email
to Brian Weber of UPS Customer Solutions. (Id.) Zelasko stated, “The audit for
EExpress came back as coffee!! Dodged a bullet.” (Id.) Weber responded, assuming
the issue was cigarettes, “Why did you assume they shipped cigarettes; Gerry said
he didn’t know what they shipped.” (Id.)
However, approximately one month later, on June 11, 2014, three boxes
shipped by EExpress broke open in UPS’s Dunkirk Center, revealing cigarettes.
(PX 358.) A second audit was conducted June 13, 2014, on packages consigned by
the shipper to UPS on June 13, 2014. All ninety-nine packages opened revealed
cigarettes; UPS terminated the account. (PX 358.) When EExpress was
terminated, Zelasko asked Mike Piazza of UPS: “This is Gerry[ Fink’s] top account
worth almost $200,000. Is there anything we can [do] for relief?” (PX 370.)
In sum, the Court finds (1) that as of the date Aaron Elliott (who was the
principal of the terminated Elliott Enterprise account) signed the Carrier
Agreement on September 26, 2012, there was a reasonable basis to believe that

64 An email about an unrelated shipper sent two years after this audit indicates a view by some at
UPS that this audit may have been compromised by a tip to EExpress. (PX 536.) At trial, the
author of that email stated that he and others at UPS ultimately concluded that the audit had not
been compromised. The Court views the weight of the evidence as supporting a compromised
audit—that someone within UPS, Fink or another, alerted EExpress to the upcoming audit. This is
particularly so in light of the subsequent events. This supports both knowledge of what was being
shipped and intent to assist the customer in continued shipping.

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EExpress may have been tendering cigarettes; (2) that EExpress was tendering
cigarettes throughout the entire time that it shipped with UPS; and (3) that UPS
knew EExpress was shipping cigarettes throughout that period.
The Court further finds that 100% constitutes a reasonable approximation of
the percentage of packages shipped by EExpress that contained cigarettes.65
3.

Bearclaw/AFIA

In early October 2010, Bearclaw Unlimited opened the first of what would
turn out to be eighteen separate UPS accounts.66 (See Fink Decl., DX 602 ¶ 142.)
The first account was opened on October 2, 2010, not long after the effective date of
the PACT Act; and fourteen other accounts were opened between October 12 and
December 27, 2010. (See PX 606-PX 619.) Bearclaw was located at 4888 Klawitter
Road, Great Valley, New York (3.5 miles from the Seneca Allegany Reservation).
This is a residential address. On January 8, 2011, UPS opened a sixteenth account
for Bearclaw, also at the same address. (See PX 620.) A seventeenth account was
opened on February 24, 2011, and an eighteenth and final account was opened on

This approximation is based on the Court’s view of the totality of the evidence, including that the
tracers overwhelmingly indicated cigarettes and only some other unidentified “paper products.” (DX
500.) It is further based on the fact that, unlike Elliott Enterprises, EExpress was not a retail shop,
and there is no indication that it sold anything other than cigarettes. The Court views the “paper
products” as referring, in fact, to cigarettes.

65

While there is nothing inherently unlawful or violative of UPS policy about a shipper having
multiple accounts, in the context of UPS’s AOD and statutory obligations, UPS should have closely
monitored such activity occurring on reservations that have had active tobacco shippers. As
discussed in footnote 57 above, “multiple accounts” was recognized as a red flag in the AOD itself.
(AOD, DX 23 ¶ 31.)
66

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May 8, 2012, under the name “AFIA,” but at the Bearclaw address. 67 (See PX 174,
row 899.) Fink was the Account Executive for all of the accounts. (See, e.g., DX
371.) Notably, Bearclaw/AFIA and Elliott Enterprises shared a telephone number.
(Compare DX 371, row 2902, with PX 472.) It was Fink’s responsibility to maintain
contact with this larger accounts, and it is reasonable to infer that he was aware of
the relationship among these entities.68 The fact of such a large number of
accounts, with the first opening in the months following the effective date of the
PACT Act, with a location at a residential address proximate to an Indian
reservation, with a name suggesting possible affiliation with a cigarette shipper,
should have raised red flags.
There were several early indications that Bearclaw was shipping cigarettes.
First, Bearclaw/AFIA was a relatively high-volume shipper proximate to an Indian
reservation.69 Further, as early as January 24, 2011, UPS received an inquiry
regarding a damaged package of cigarettes shipped by Bearclaw/AFIA. (PX 213,
row 204.) Then, on August 26, 2011, UPS discovered twelve cartons of cigarettes in
a shipment tendered by Bearclaw and addressed to a private residence in Arizona.

At least one UPS document (relating to an audit that occurred in September 2012) used “AFIA”
and “Bearclaw” interchangeably. (PX 531; see also PX 174.) UPS did not rebut this evidence. The
Court finds no basis to consider Bearclaw and AFIA as separate entities. In all events, the fact that
UPS linked these accounts and addresses, together with other commonalities between the entities,
provides a sufficient basis for the Court’s findings for Bearclaw to apply to AFIA. It appears that
AFIA’s business was the same as Bearclaw’s.
67

68 Based on the totality of the evidence, the Court finds that Bearclaw was shipping on behalf of
Elliott Enterprises and used different names/addresses to avoid detection as a cigarette shipper.
69 When Bearclaw’s initial accounts were first opened, it was in the top 2% of Fink’s highest revenuegenerating accounts. (See PX 104.) Over time it dropped to the top 11%. (See PX 102.)

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(PX 333.) Despite this blatant violation of UPS’s Tobacco Policy, UPS did not
terminate the account or take remedial action apart from having Fink review UPS’s
Tobacco Policy with Bearclaw/AFIA; Fink claimed that he reviewed the policy with
them in September 2011. (DX 119; see PX 333.) Cook was aware of this incident
and that Bearclaw had not executed a Tobacco Agreement. (See, e.g., PX 200; Trial
Tr. 618:18-619:21 (Fink).) Despite these events, Fink did not request that Bearclaw
sign a Tobacco Agreement—and no supervisor within UPS followed up to find out
why. Also, despite these events, UPS did not conduct an audit of Bearclaw/AFIA
until September 21, 2012. When it did, it found cigarettes. (Cook Decl., DX 600
¶ 75.). The Court views this series of omissions and failures to respond as UPS
affirmatively “standing down” on this account.
It took a month from the time UPS’s discovered cigarettes in the audit to
suspend the account: UPS suspended Bearclaw’s account on or about October 23,
2012. (See PX 174, row 832.) The Court views this delayed timing as suspect and
as reflecting corporate concern about the financial impact such suspension would
have.70
In sum, the Court finds that (1) not later than December 27, 2010, there was
a reasonable basis to believe Bearclaw/AFIA may have been tendering cigarettes
(this date is based on the series of red flags described above by then in existence);
(2) Bearclaw/AFIA was in fact shipping cigarettes from the inception of its first

While the impact would have been insignificant in the overall context of UPS’s business, the
evidence supported greater attention within UPS to keep even modest revenues.
70

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account; and (3) UPS knew that Bearclaw/AFIA was shipping cigarettes not later
than January 24, 2011.71
The Court further finds that 100% is a reasonable approximation of the
percentage of packages shipped by Bearclaw/AFIA that contained cigarettes.72
4.

Shipping Services/Seneca Ojibwas/Morningstar Crafts & Gifts

The Seneca Ojibwas Trading Post, Shipping Services, and Morningstar
Crafts & Gifts were referred to by plaintiffs as the “Shipping Services Group.” For
these companies, combined consideration of the facts and circumstances relating to
their accounts is appropriate. As explained below, there is significant evidence that
the entities were in fact one and the same.73 Nevertheless, the Court has analyzed

These latter findings are based on the fair inference drawn from the totality of the evidence and
the number of red flags, including the tracers. By not auditing and not requiring a Tobacco
Agreement, UPS took affirmative steps supporting a finding of—at least—willful blindness.

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This approximation is based on the Court’s view of the totality of the evidence, including the
tracers for cigarettes, the August 2011 discovery of cigarettes, and the fact that the audit found
cigarettes. It is also based on the fact that Bearclaw and AFIA shipped out of a residential address,
which reduces the likelihood that they carried the broad array of goods a storefront retailer might
offer. There was no storefront displaying other goods. The Court has no basis to believe either
Bearclaw or AFIA was shipping anything other than cigarettes from that address.
72

Courts generally evaluate the totality of the circumstances to determine if formally separate
entities are identical in substance, and if it is fair and equitable to regard them as alter egos. Cf.
N.Y. Pattern Jury Instr., Civil 2:266, Liab. for Conduct of Another (2016) (“The corporate veil or
shield may be pierced when (1) the [entity’s] owner(s) completely controlled the [entity] and did not
treat it as a separate business entity and (2) the [entity’s] owner(s) used [their] complete control to
commit a fraud or a dishonest or an unjust act . . . .”); Newspaper Guild of N.Y., Local No. 3 of
Newspaper Guild, AFL-CIO v. NLRB, 261 F.3d 291, 294 (2d Cir. 2001) (explaining that the
determination of whether subsidiaries are alter egos “focuses on commonality of (i) management, (ii)
business purpose, (iii) operations, (iv) equipment, (v) customers, and (vi) supervision and
ownership”); OOO v. Empire United Lines Co., 557 F. App’x 40, 45-46 (2d Cir. 2014) (“‘In deciding
whether to pierce the corporate veil, ‘courts look to a variety of factors, including the intermingling of
corporate and [shareholder] funds, undercapitalization of the corporation, failure to observe
corporate formalities such as the maintenance of separate books and records, failure to pay
dividends, insolvency at the time of a transaction, siphoning off of funds by the dominant
shareholder, and the inactivity of other officers and directors.’” (quoting Kiobel v. Royal Dutch
Petroleum Co., 621 F.3d 111, 195 (2d Cir. 2010)). While the evidence at trial did not allow for
73

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the facts with regard to each of the entities separately, and its findings below take
such individualized consideration into account.
Shipping Services was a successor entity to a company called the Seneca
Ojibwas Trading Post (“Seneca Ojibwas”). Seneca Ojibwas opened an account with
UPS in April 2002. (PX 299, row 3; PX 309, row 14.) Fink knew that Seneca
Ojibwas shipped tobacco products. (See PX 306, row 4 (“Smokes”).) A spreadsheet
sent to Fink lists Seneca Ojibwas as a “smoke shop.” (PX 306.) After UPS entered
into the AOD, Fink informed the owner of the Seneca Ojibwas that his account
would be cancelled and reopened. (PX 452.)
On November 22, 2005, Fink opened a new account for Seneca Ojibwas under
the name “Shipping Services.” (Fink Decl., DX 602 ¶ 46; Trial Tr. 579:7-9, 630:2123 (Fink).) The Court views the name change as an attempt to obscure the
affiliation between these companies, and specifically to obscure that Shipping
Services was a smoke shop. The Court further finds that the UPS account team
nonetheless understood the affiliation. Thus, from the outset, Shipping Services
was known by UPS to be a tobacco shipper. The new “Shipping Services” account
began shipping on November 22, 2005. The account was located at 13113 Route
438, Gowanda, New York on the Seneca Allegany reservation, and it operated out of
a storefront. (See Fink Decl., DX 602 ¶ 45.) Cigarettes were among its wares.

findings as to each factor set forth in the case law, the evidence presented plainly supported the
factors set forth in the pattern jury instruction.

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Responsibility for the account was initially assigned to a UPS Sales Support
Representative, Tina Mahon. (Trial Tr. 493:25-494:3 (Fink); Fink Decl., DX 602
¶ 47.) In August 2010, Mahon obtained a Tobacco Agreement from Shipping
Services. (DX 51.) Fink took over responsibility for the account in late 2010, after
he was promoted to Account Executive. Fink personally visited the storefront out of
which Shipping Services operated in 2010, and he spoke with a representative of
the company quarterly thereafter. (Fink Decl., DX 602, ¶ 50.) He testified that he
only saw little cigars during his visit, not cigarettes. (Id.) The Court did not believe
this testimony. The testimony conflicts with the rational business incentive of a
smoke shop to display wares corresponding to the highest consumer demand, i.e.,
cigarettes. (See, e.g., PX 11.)
Until passage of the PACT Act, Shipping Services shipped insignificant
volume through UPS. Its volume began to increase in 2010 after the PACT Act
became effective. (Id. ¶ 49.) Given that it was a tobacco shipper, this was a serious
red flag. Today, UPS’s data analytics would likely flag this shift. Fink opened a
second Shipping Services account in January 2011. In a spreadsheet maintained by
UPS to record in-person visit details, Fink noted on January 11, 2011, “Rock-N-Roll
. . . Still retaining same customer base, and not even allowing new people to place
orders. Locked-in majority to keep the reships rolling[.]” (PX 235, row 3275). The
Court views this use of the term “reships” as indicating knowledge of a customer
base in need of a consistent supply, such as customers addicted to tobacco products,
including possibly cigarettes. Following a March 2011 in-person visit, Fink noted

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that business was so strong that Shipping Services was “[s]till reluctant to go after
new [business] (CRAZY), way over the top.” (PX 235, row 3276.)
During the period from July 28, 2011, to November 30, 2011, customers made
three inquiries to UPS relating to lost or damaged shipments of cigarettes from
Shipping Services. (DX 500, lines 15, 17, 20.) Customers also made inquiries
regarding lost or damaged packages of non-cigarette products (including nontobacco products). (DX 500; see also DX 499, Package Details Tab for Account
03E04E.)
In January 2012, Shipping Services was referred to as one of Fink’s “must
keep accounts.” (PX 137; PX 138.) As of March 5, 2012, it was second in revenue
for Fink only to Elliott Enterprises. (PX 568.) In 2012, Shipping Services’s volume
began to decline. (DX 511, row 181.) UPS noted that this decline related to
regulatory issues. (Id.) For instance, a UPS document noted, “Still considering [a]
move out of NY due to state issues.” (Id.) And that there were “changing rules for
Native Americans.” (Id. row 179.) Additionally, at trial, Fink lacked credibility
when he testified that he believed Shipping Services only shipped little cigars. He
provided no credible basis for this belief.
On January 2, 2014, UPS conducted an audit of five packages sent by
Shipping Services. Three of the five contained little cigars and two contained
cigarettes; put otherwise, 40% contained cigarettes. UPS terminated Shipping
Services’s account on January 13, 2014. (See PX 360; PX 373; PX 363; PX 374.) At

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the time it was terminated, Shipping Services still accounted for $80,000 in annual
net revenue with UPS. (PX 363; DX 250.)
Shortly after the Shipping Services account was closed, on January 21, 2014,
Fink opened an account for Morningstar Crafts & Gifts. (Fink Decl., DX 602 ¶ 138.)
He did not indicate that this was a “new” opportunity. (PX 226.) It operated out of
a storefront located at 13113 Route 438, Gowanda, New York—the same address as
Shipping Services. (PX 226; Fink Decl., DX 602 ¶ 138.) This was not only a red
flag, but indicative of knowledge by Fink that this entity was Shipping Services,
redux. A sign located in front of the store featured “Discount Cigarettes” among its
wares. (PX 574.) However, the store also sold Native American crafts, gifts, and
little cigars. (Fink Decl., DX 602 ¶ 139; Logan Dep. Tr. 85:5.) Morningstar Crafts
& Gifts executed a Tobacco Agreement on January 27, 2014. (DX 262; DX 310; Fink
Decl., DX 602 ¶ 139.) By October 2014, Morningstar Crafts & Gifts had been
suspended by UPS. (See PX 226.)
In sum, the Court concludes that (1) from the inception of each account there
was a reasonable basis to believe that Seneca Ojibwas, Shipping Services, and
Morningstar Crafts & Gifts may have been tendering cigarettes; (2) Shipping
Services and Morningstar Crafts & Gifts were in fact shipping cigarettes
throughout the entirety of their relationship with UPS; and (3) UPS knew Shipping
Services was shipping cigarettes not later than November 1, 2010, and it knew that

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Morningstar Crafts & Gifts was shipping cigarettes from the date on which its
account was opened.74
The Court further finds that 40% is a reasonable approximation of the
percentage of packages shipped by this group with UPS that contained cigarettes.75
5.

Indian Smokes

Indian Smokes opened an account with UPS on May 14, 2001. The company
was located at 21 Race Street, Salamanca, New York. As of October 27, 2005, UPS
considered Indian Smokes to be a suspected cigarette shipper. (See PX 299; see also
Trial Tr. 304:13-22 (Cook) (Indian Smokes identified as smoke shop in December 20,
2005 UPS report); DX 35.) On November 23, 2005, UPS canceled its account. (See
PX 318, row 169.) Thereafter, the company did not ship with UPS for several years.
Following a sales lead from a UPS driver, Louis Potter, UPS began discussing an
account with them in March 2011. (See DX 510.)
On April 27, 2011, Indian Smokes opened a new account. (PX 216.) There
was no credible evidence that UPS had any basis to believe this entity had changed
its business model between 2005 and 2011, and it certainly had not changed its
name. At the very least, its prior business as a smoke shop (and suspected cigarette

These three findings are based on the totality of the evidence. The Court views November 1, 2010,
as the date not later than which UPS knew of its cigarette shipments because the increase in volume
closely followed on the effective date of the PACT Act. At the very least, continuing to make pickups
without auditing is evidence of standing down on the account and of willful blindness.
74

This percentage is based on the Court’s consideration of data points indicating that 25% of
customer inquiries related to cigarettes, that the audit revealed that 40% of shipments were for
cigarettes, and that it operated out of a storefront that sold other items, along with the totality of the
evidence.

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85

shipper) should have raised a red flag. Indian Smokes was immediately a
significant account for the area, generating over $55,000 in annualized revenue in
the first year. (Id.) Fink oversaw the account. He knew from the outset—and
continuously until May 2012, when Indian Smokes was terminated—that it shipped
tobacco products. (See PX 301, line 4; PX 306, line 11.)
A month after the account was opened, on May 6, 2011, it appeared on the
NCL. (See PX 514; PX 518; PX 524 (referencing date first “entered on NCL”); see
also DX 510.) However, evidence also supports that Indian Smokes shipped some
non-cigarette products. For instance, tracers regarding lost or damages packages in
January and April 2012 were for cigars only. (DX 500.)
On January 11, 2013, the UPS Center processing Indian Smokes packages
determined that they were shipping cigarettes and refused to process their
packages. (See PX 172.) On the same day, Fink asked Brian Weber of UPS,
“shouldn’t smoke shops get removed from my plan?” (Id.) The Court views this
statement as acknowledgement by Fink and others within UPS that smoke shops
were generally known to be likely cigarette shippers at risk of account termination.
Here, however, in lieu of termination or other action, UPS responded by only
requiring Indian Smokes to sign a Tobacco Agreement; it executed one on February
1, 2013, and service was restored. (DX 510, rows 6, 9.)
Despite the restoration of service, the volume of shipments from Indian
Smokes declined. On February 26, 2013, Fink asked McDowell, UPS’s “bid contract
manager” for this account, whether Indian Smokes was still using UPS to ship. (PX

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162; PX 274, row 689.) McDowell told Fink that Indian Smokes was “concerned
that we [UPS] are going to open all of their packages.” (Id.) In fact, there is no
evidence that UPS tested Indian Smokes’s commitment to its Tobacco Policy. UPS’s
McDowell must have understood Indian Smokes’s concern with audits as some
evidence that it was shipping contraband. Fink asked whether the account should
be closed, and McDowell responded, “Not if it were up to me. At least, not yet
anyway.” (Id.) However, by April 18, 2013, McDowell noted that Indian Smokes
would not be using the account any longer. (DX 510, row 5.)
In May 2013, UPS canceled the account. (Id., row 3; PX 150.) On July 5,
2013, McDowell noted the “customer diverted due to a cigarette issue.” (DX 510,
row 2.)
In sum, the evidence supports that (1) not later than the time the account
was opened on April 27, 2011, there was a reasonable basis to believe Indian
Smokes may have been tendering cigarettes for delivery; (2) it was in fact shipping
cigarettes throughout the entire period from account inception to termination (this
is based on the fact that only a month elapsed between the account opening and its
appearance on the NCL); and (3) not later than May 6, 2011 (when it appeared on
the NCL), UPS knew that it was shipping cigarettes.

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The Court further finds that 50% represents a reasonable approximation of
the percentages of packages by Indian Smokes shipped with UPS that contained
cigarettes.76
6.

Smokes & Spirits77

Smokes & Spirits opened an account with UPS in late August 2010, shortly
after implementation of the PACT Act. (See PX 70.) It was located at a commercial
address at 270 Rochester Street in Salamanca, New York, on the Seneca Allegany
reservation; UPS also associated this entity with the address 6665 Route 417, Kill
Buck, New York. (See id.; Cook Decl., DX 600 ¶ 97.) Fink was Smokes & Spirits’s
Account Executive; Fink testified that he knew Salamanca had a number of tobacco
shippers. (Trial Tr. 589:23-590:15 (Fink); Fink Decl., DX 602 ¶¶ 31, 32; PX 326.)
Smokes & Spirits immediately began shipping in volume—with 1,300 packages to
residential addresses in the first month of its relationship with UPS. (PX 433.)
These facts alone should have raised red flags. On October 11, 2010, it executed a
Tobacco Agreement. (DX 55.)
On November 10, 2010, Fink received a copy of the Tobacco Watchdog Group
letter, which indicated that Smokes & Spirits, located at 270 Rochester Street,

The finding of 50% is based on the fact that Indian Smokes was listed on the NCL as a cigarette
shipper, and the Court therefore credits that they were shipping cigarettes; this is also confirmed by
the driver report on January 11, 2013. However, DX 500 and other evidence supports that Indian
Smokes might have had a broader product line. In the absence of precise evidence, the Court uses
50% as a conservative view of an even split between cigarette and non-cigarette products.
76

77 Smokes & Spirits is part of the “Smokes & Spirits Group” designated by plaintiffs as including this
entity along with Native Outlet, A.J.’s Cigars, Sweet Seneca Smokes, and RJESS.

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Salamanca, New York, was making “illegal contraband cigarette shipments to
residential consumers.” (DX 62.) This was another, major red flag.
According to Fink, there were a number of reasons he did not view Smokes &
Spirits as a cigarette shipper. First, Bob Oldro, the principal of Smokes & Spirits,
informed Fink that Oldro was moving to New York from another state to take
advantage of the growth in New York’s little cigar market by opening up a new
business to ship little cigars. (Fink Decl., DX 602 ¶ 37; Trial Tr. 626:23-627:4
(Fink).) Fink’s notes following an in-person visit with the Smokes & Spirits on
March 4, 2011, indicated that the customer had expressed a concern regarding
proposed changes to the New York tax law regarding little cigars. (DX 526, line
3257; DX 47; DX 553.) Fink further testified that over the life of the account, Oldro
or his colleagues continued to assure Fink that the business was only shipping
cigars or other tobacco products, not cigarettes. (Fink Decl., DX 602 ¶¶ 32, 36; DX
55.) The Court did not believe Fink’s testimony—at the very least, if those
statements were made by Oldro and others, the Court does not believe Fink
believed them. In all events, given the numerous red flags, it was unreasonable for
Fink to have relied on these self-serving statements.
The red flags accumulated further. In the fall of 2010, UPS received its first
inquiries regarding lost or damaged packages containing cigarettes shipped by
Smokes & Spirits. The first tracer regarding packages containing cigarettes
occurred on October 29, 2010. (DX 500, row 8; see also PX 470, row 2865.) A second
tracer concerning a cigarette shipment occurred on December 27, 2010; a third on

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December 27, 2011; a fourth on September 14, 2012; and a fifth on September 17,
2013. (DX 500, rows 13, 38, 55, 84.) Nineteen other tracers related to packaging
containing filtered cigars and other tobacco products. (DX 500, Package Details Tab
for Account W9476E.)
Smokes & Spirits, with an address listed as 6665 Route 417, Kill Buck, New
York, appeared on the NCL as of February 15, 2012. “Smokes_Spirits.com LCC,” at
that same address, appeared on the NCL as of July 16, 2012. (See PX 514; PX 518;
PX 524.)78 On July 29, 2013, the subpoena UPS received from City Finance
specifically identified the address “6665 Route 417, Kill Buck, NY.” (PX 248.) Kill
Buck also is less than two miles from Salamanca, New York. Still, UPS did not
audit the company.
In June 2012, the First Deputy Sheriff of City Finance made several
controlled buys of packages containing cigarettes from Smokes & Spirits. (Kokeas
Aff. ¶ 9; PX 40; PX 43; PX 44; PX 45.) In addition, on July 29, 2013, City Finance
issued a subpoena to UPS that sought delivery records of a number of shippers,
including Smokes & Spirits. (Kokeas Aff. ¶ 6; PX 428.)
In the fall of 2013, UPS’s Cook received a copy of the NCL; he noticed that
Smokes & Spirits was listed. Notably, he did not immediately require an audit. On
December 20, 2013, the City sent an email to UPS that, inter alia, identified
Smokes & Spirits as a cigarette shipper. On January 2, 2014, Cook finally ordered

As the Court has found, UPS knew that UPS knew Smokes & Spirits was operating out of multiple
locations, including 6665 Route 417, Kill Buck, New York. Among other evidence, UPS’s records for
Smokes & Spirits shipments in 2011 listed this address. (See PX 70.) This is relevant for UPS’s
PACT Act liability, as discussed by the Court in its conclusions of law.
78

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an audit; for reasons that were unclear, this audit was still not conducted for
another three weeks. On January 21, 2014, UPS audited a total of fifteen packages;
nine of these packages—i.e., 60%—contained cigarettes. (Cook Decl., DX 600 ¶ 97;
DX 257; Fink Decl., DX 602 ¶ 39.) UPS terminated service to Smokes & Spirits on
January 22, 2014. (Cook Decl., DX 600 Attachment A; Fink Decl., DX 602 ¶ 40; DX
260; DX 256.)
Bergal Mitchell, who had been a consultant for Smokes & Spirits, testified at
trial. The Court found him generally credible. He testified that Smokes & Spirits
shipped cigarettes since before he and his brother purchased the business in August
2004. (Trial Tr. 1190:23-1191:-16 (Mitchell).) He also testified that they shipped
candy, flowers, and other tobacco products in addition to cigarettes. (Id. 1191:6-16
(Mitchell).) From 2010 onward, Mitchell testified, 99% of all of Smokes & Spirits’s
orders were placed online. (Id. 1196:1-6 (Mitchell).)
Plaintiffs introduced a number of invoices from Smokes & Spirits to its
customers. While those invoices reflect cigarette shipments, those invoices also
demonstrate that a significant volume of Smokes & Spirits’s sales consisted of little
cigars and other tobacco products. (See, e.g., PX 54; PX 55; PX 191; DX 500.) These
same invoices further show that sales of little cigars were particularly prevalent
when the account was first opened. (Id.)
In sum, the Court finds that (1) not later than October 11, 2010, the date on
which UPS had it sign a Tobacco Agreement and when a number of red flags were
already evident, there was a reasonable basis to believe Smokes & Spirits may have

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been tendering cigarettes; (2) from at least October 29, 2010 (the date of the first
cigarette tracer), Smokes & Spirits was in fact shipping cigarettes; and (3) UPS
knew it was shipping cigarettes not later than October 29, 2010, the date of the first
cigarette tracer.
The Court further finds that 60% is a reasonable approximation of the
percentage of Smokes & Spirits shipments via UPS that contained cigarettes.79
7.

Arrowhawk/Seneca Cigars/Hillview Cigars/Two Pine
Enterprises80

Plaintiffs refer to the Arrowhawk Smoke Shop, Seneca Cigars/Cigarettes,
Hillview Cigars, and Two Pine Enterprises as the “Arrowhawk” group. The
evidence supports that they functioned as a single entity and were alter egos of one
another. Philip Christ, a former consultant for the Arrowhawk Group, testified as
much.81 UPS treated the accounts as related. The UPS processing system showed
The Court’s finding of 60% is based on the totality of the evidence, considering in particular the
fact that Smokes & Spirits operated from a commercial address and sold an array of goods, and the
Court’s weighing of invoices and tracer evidence. Further, the audit likely reflected the approximate
portion of this entity’s business involving cigarettes.
79

In certain submissions, an entity referred to as “Native Gifts” is included in this group. The
evidence is insufficient to determine if plaintiffs intended to include them in this group or not. For
instance, apart from including them in their damage analysis as one group, plaintiffs’ final proposed
findings of fact keep them separate. The Court finds there is insufficient evidence with respect to
Native Gifts to find liability or even discuss them as a Relevant Shipper.

80

Philip Christ, a witness cooperating with the plaintiffs, worked for the Arrowhawk Group of
companies throughout the relevant time period. He testified credibly (and there was no significant
contrary evidence offered by UPS) that the group of companies that plaintiffs have designated as the
“Arrowhawk” group did in fact operate as a single entity. The Court found portions of Christ’s
testimony not credible. His demeanor conveyed a lack of full mental acuity. His answers were often
halting, as if he was either searching for the correct answer or confused. (Indeed, the Court raised
with counsel whether he was on any medications that could account for his presentation).
Nevertheless, upon careful reflection and after assuring itself other corroborating evidence exists for
many points covered in his testimony, the Court finds that there are a number of facts as to which he
testified credibly, as set forth below.
81

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all of the accounts were related; UPS Account Executive Richard DelBello
acknowledged the connection between Hillview and Two Pine Cigars. (PX 340.)
These entities had the same address: 852 Bloomingdale Road, Basom, New York.
(See PX 232; PX 95; PX 340; DX 234; PX 154; PX 344; Trial Declaration of Richard
DelBello (“DelBello Decl.”), DX 604 ¶¶ 19-21, 31, 45.) That same address had
previously been used by an entity named “Hootysapperticker.com.”
Hootysapperticker had been a UPS shipper and, at the time UPS entered into the
AOD, UPS believed it might be a cigarette shipper.82 (DX 35 at 109.) Despite this
evidence of these entities being one and the same, the Court has considered the
facts as to liability separately for each. Its findings below reflect this individualized
consideration.
The first account for this group was opened under the name Seneca Cigars on
January 9, 2012. It was located at 852 Bloomingdale Road, Basom, New York—
along with each of the other Arrowhawk Group shippers (except for Native Gifts).
Accounts for the other entities in the group were opened thereafter.
UPS had a daily pickup at 852 Bloomingdale Road. DelBello, the UPS
Account Executive for Arrowhawk Smoke Shop, Seneca Cigarettes/Cigars, Hillview
Cigars, and Two Pine Enterprises, knew there were three accounts located at this
address.83 (DelBello Decl., DX 604 ¶¶ 18, 20.) Given the signage at the address, it

In addition, Hootysapperticker had been identified by UPS’s outside counsel as a suspected
cigarette shipper. (See PX 292.) The Court credits Christ’s testimony that it was in fact a cigarette
shipper. (Trial Tr. 915: 8-12, 921:18-21, 947:22-948:3 (Christ).)
82

83

Ryan Keith of UPS was listed as part of the UPS team along with Richard DelBello. (PX 95.)

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was impossible for him (or any other driver picking up from that account) not to
know that there was a significant cigarette seller located at that address. Christ
was the primary contact for these accounts. DelBello testified that he knew Christ
had “a lot” of businesses that shipped cigarettes. (Trial Tr. 901:14-18 (DelBello).)
Christ had expressed to one UPS account representative that he was interested in
shipping cigarettes. (Id. 843:15-17, 844:8-11, 848:24-849:11, 851:1-6 (DelBello).)
UPS knew that “Seneca Cigars and Hillview Cigars” used the URL
“www.senecacigarettes.com.” (PX 95; Trial Tr. 737:22-738:5 (Keith).) The UPS
“Account Strategy Planning Tool” for this account noted that the customer intended
to ship tobacco products to residential customers and that one of its business
challenges was “complete compliance with all applicable state and federal
mandates.” (PX 95.)
Almost immediately after the account was opened, in February 2012, UPS
received its first indication that Seneca Cigars was actively seeking to ship
cigarettes. On March 9, 2012, DelBello and Christ met in person. (Trial Tr. 839:1523 (DelBello); DX 128.) According to DelBello, Christ and two other people involved
with the company assured him that Seneca Cigars would be shipping cigars. (Trial
Tr. 837:23-838:14 (DelBello).) Christ claims, to the contrary, that during the two
years in which Christ worked for Seneca Cigars/Arrowhawk, he specifically
informed UPS that they would be shipping cigarettes when the account was opened
and in later conversations. (Id. 946:25-952:3 (Christ).) Christ also testified that
99% of its walk-in sales and 99.5% of its mail-order sales were of cigarettes. (Id.

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914:4-915:2 (Christ).) Following the effective date of the PACT Act, volumes
increased many fold. (See PXs 67, 70, 80, 220, 221, 222, 227, 413, 420, 422, 433,
435, 436.) UPS notes from July 2012 indicated that “100% of outbound shipments
[for the accounts] go via UPS.” (PX 95.) UPS representatives also understood that
the Arrowhawk group were high-volume shippers. (See, e.g., PX 491.)
At various times, Christ attempted to mislead UPS as to what these entities
were in fact shipping. For instance, he told Keith that they were shipping cigars.
(Trial Declaration of Ryan Keith (“Keith Decl.”), DX 603 ¶ 26.) The Court does not
find UPS believed him; instead, UPS viewed Keith as understanding these
statements to provide UPS with “plausible deniability” of violations when Keith in
fact believed otherwise.
Keith also had several telephone conversations with Christ, beginning in
January 2013, about Seneca Cigars and Hillview Cigars. According to Keith,
during these conversations, Christ discussed his interest in complying with
regulations and laws. (Trial Tr. 765:21-766:3 (Keith).) In October 2013, Keith’s
contemporaneous notes in his UPS TEAMS report states that Christ had told him
that “everything he ships is considered a cigar,” that his only question was a
product called Swisher Sweets, and that he would check with his lawyer on the
legality to ship that product. (Trial Tr. 789:13-790:4 (Keith); DX 511, line 289 at
UPS00000189.) Shining through Keith’s testimony are his continued skepticism
and his concern that these entities were in fact shipping cigarettes.

95

Vincent Guarino was the assigned UPS driver for these accounts. He made
daily pickups for these entities; he must have seen the signage on the front of 852
Bloomingdale Road. Guarino testified that when he picked up packages from the
Seneca Cigars and Arrowhawk/Hillview Cigars/Two Pine location, he could not
always see inside the warehouse. (Trial Tr. 1345:14-22 (Guarino).) However, on
one occasion, Guarino observed Christ taping up a box that appeared to have
cartons inside. (Id. 1348:1-3 (Guarino).) Guarino asked Christ what he was
shipping; Christ told him that he was shipping little cigars. (Id. 1348:4-6, 1348:241349:16 (Guarino).) Guarino checked with his supervisor to make sure that little
cigars were permitted to be shipped, and he was told that little cigars were
permitted. (Id. 1351:15-25 (Guarino).) Neither Guarino nor his supervisor should
have accepted this self-serving statement from an obvious tobacco shop. They
should have requested an audit.
While negotiating the pricing for Seneca Cigars and Hillview Cigars in June
2013, Christ informed Keith that the owners of the companies were planning to
purchase a new company, which had been shipping with a competing carrier but
would move its business to UPS. (Keith Decl., DX 603 ¶ 31; DX 511, line 266 at
UPS00000187.) This was Two Pine Enterprises. It opened an account with UPS on
July 9, 2013. Both DelBello and Keith testified that customers told them that Two
Pine, as an affiliate of the other shippers, was also not shipping cigarettes, but only
cigars or other tobacco products. (DelBello Decl., DX 604 ¶ 42; Keith Decl., DX 603

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¶¶ 54, 56.) Given the accumulated red flags, UPS should not have accepted this
self-serving statement without an audit.
In June 2012, Sheriff Kokeas made controlled buys of packages containing
cigarettes from Seneca Cigars. (Kokeas Aff. ¶ 9; PX 40.) She did this because she
had received an email from them advertising untaxed cigarettes shipped via UPS.
(PX 592.) On July 29, 2013, City Finance served a subpoena on UPS seeking
delivery records for a number of shippers, including Seneca Cigars. (Kokeas Aff.
¶ 6; PX 248.) Guarino was also the assigned driver for Two Pine Enterprises.
While Two Pines Enterprises shared the same account address with
Seneca/Hillview, it shipped from a different location. (See Trial Declaration of
Vincent Guarino (“Guarino Decl.”), DX 607 ¶ 14.) In March 2014, UPS learned that
Two Pine Enterprises was dropping packages at a location that was not its regular
pickup location. When DelBello asked Dolores Uebelhoer, the owner of Two Pine
Enterprises, why this was occurring, she responded that it was due to the time of
UPS’s daily pick-up for the account. (DX 529.) DelBello noted that he did not
believe Uebelhoer’s explanation. However, he testified at trial that he had no
suspicion that Two Pine Enterprises might be shipping cigarettes; instead, he
believed that Uebelhoer may have been dropping the packages at the UPS Store as
a matter of convenience.84 (Trial Tr. 882:18-883:18 (DelBello); DX 529.) DelBello

84 Two emails from DelBello refer to Christ and Uebelhoer as “liars.” Both of these emails are dated
after the April 17, 2014 audit of Two Pine Enterprises; DX 335 is dated June 26, 2014, and PX 336 is
dated April 23, 2014. DelBello testified that after the audit revealed cigarettes, he realized that
Christ and Uebelhoer had lied to him about shipping cigars, but he maintained that prior to the
audit he had no reason to believe that they were lying about shipping cigars. (Trial Tr. 860:25861:11, 887:20-889:10 (DelBello).)

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informed Uebelhoer that she had to resume pick-up service for her account.
(DelBello Decl., DX 604 ¶ 37.) The Court finds that DelBello strongly suspected the
truth—that Two Pines was shipping cigarettes—but he turned a blind eye. Given
the accumulated red flags, UPS acted affirmatively by not requiring an audit and
“standing down” on this account.
Finally, on April 15, 2014, the game was up: A clerk in a UPS Center in
Philadelphia reported that a package from Two Pine Enterprises had broken open
on a conveyor belt, revealing cigarettes. Corporate Dangerous Goods requested an
audit of Two Pine Enterprises, which took place two days later, on April 17, 2014.
The audit revealed cigarettes, and UPS terminated the account. (Cook Decl., DX
600 ¶¶ 116-17; DelBello Decl., DX 604 ¶¶ 38-40; Guarino Decl., DX 607 ¶ 21; DX
299; DX 528.)
Despite the fact that some of the Arrowhawk entities had names suggesting a
focus on tobacco products (e.g., Seneca Cigars, Hillview Cigars, Arrowhawk Smoke
Shop (or Cigars)), UPS did not have a Tobacco Agreement with any of these entities
until September 2013. (See DX 210.) UPS had Twin Pines sign an agreement only
after plaintiffs sent UPS a draft complaint on October 21, 2013. (DX 234.) When
Seneca Cigars and Hillview Cigars sent UPS a Tobacco Agreement, it was from
“seneca cigarette” with the email address “[e-mail].” (Id.)
In sum, the Court finds that (1) from the date the first account was opened at
852 Bloomingdale Road, January 9, 2012, and for each day and with regard to each
of these entities thereafter, there was a reasonable basis to believe each of

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Arrowhawk, Seneca Cigars/Cigarettes, Hillview Cigars, and Two Pine Enterprises
may have been tendering cigarettes; (2) the companies were in fact shipping
cigarettes from that date or the date of the specific account opening onwards; and
(3) UPS knew that Arrowhawk Smoke Shop, Seneca Cigars/Cigarettes, and Hillview
Cigars were shipping cigarettes not later than March 9, 2012, when DelBello met
with Christ and was told they would be shipping cigarettes. Given the accumulated
circumstantial evidence, UPS knew that Two Pine Enterprises was shipping
cigarettes from the inception of its account on July 9, 2013.
Finally, the Court finds 90% to be a reasonable approximation of how much of
each of the separate entities’ shipments contained cigarettes.85
8.

Mohawk Spring Water

Robert Oliver opened an account with UPS on November 1, 2010, at 263
Frogtown Road, Hogansburg, New York, on the St. Regis Mohawk Reservation. (PX
281, row 72; PX 329.) This was shortly after the passage of the PACT Act. In the
first month the account was opened, UPS picked up 569 packages. (PX 281, sheet 2,
row 2.)
Oliver testified credibly at trial that when the account was opened, he
personally told Carmine Della Serra, the UPS sales support representative, “you
know, some of these boxes will contain cigarettes.” (Trial Tr. 1131:2-9 (Oliver).) In
response, Della Serra threw up his hands and said, “I don’t want to hear that,” and

85 The Court’s finding of 90% is based on the totality of the evidence and on its weighing of Christ’s
testimony that these entities shipped almost exclusively cigarettes with the fact that, based on the
testimony regarding other tobacco products, they sold other products, as well.

99

proceeded to open the account. (Id. 1131:2-9 (Oliver).) The Court credits Oliver’s
testimony in that regard. Oliver testified at trial that Mohawk Spring Water
manufactured cigarettes on the Akwesasne Reservation between June 2010 and
mid-October 2011. (PX 49; Oliver Trial Tr. 1128:9-11.) Mohawk Spring Water did
not manufacture little cigars.
Oliver testified that UPS driver Donald Jarvis made pickups from this
account. (Trial Tr. 1134:21-1135:1 (Oliver).) On one occasion, when Jarvis was
picking up packages from Mohawk Spring Water, Oliver saw boxes of cigarettes
inside UPS’s vehicle, including “Chiefs,” and “222s.” (Id. 1141:22-1142:22 (Oliver).)
During the period in which its account with UPS was active, Mohawk Spring
Water made “scores” of shipments of cigarettes in lots of 10,000. (PX 49 ¶ 6(b).) In
total, this entity shipped at least 2,556 cases of cigarettes, totaling 76,680 cartons
(each case consisting of 30 cartons). (PX 49 ¶ 6(c) and (d).) Oliver also testified that
the cigarettes were unstamped. (Trial Tr. 1132:5-1134:20 (Oliver).)
At his deposition, Jarvis testified that he knew that Mohawk Spring Water
had been shipping cheap cigarettes to Long Island (most of which were being
shipped to another Indian reservation there). (Jarvis Dep. Tr. 54:18-55:12, 56:711.). On multiple occasions, packages that Mohawk was shipping broke open at the
UPS Potsdam Center and Jarvis saw that they contained cigarettes. (Id. 70:3-20.)
In the fall of 2010, another UPS driver, Candace Sheridan, also concluded
that Mohawk Spring Water was shipping cigarettes. (Sheridan Dep. Tr. 66:2168:3.) This caused Sheridan to inform her supervisor, Terry Foster, that she no

100

longer wanted to make pickups from Mohawk Spring Water. (Id. 39:5-40:1.)
Sheridan also informed her union representative about the pickups at Mohawk
Spring Water and said she would not pick up untaxed cigarettes. (Id. 42:2-44:1.)
The union representative reported back that UPS employees at the highest levels of
the Potsdam Center (Roger Bousquet) instructed that drivers were to continue
making pickups. (Id. 43:19-44:1.) As a result, Sheridan continued to make pickups.
(Id. 46:1-47:3, 49:12-24, 68:14-25.) Sheridan testified, “[t]he more I covered the
routes, you know, the more suspicious I became, the more questions I started to
ask.” (Id. 67:18-19.) And, “[t]he more I covered the area, the more I didn’t want to.”
(Id. 58:8-9; see also id. 39:5-40:1.)86
As discussed in detail in other sections of this Opinion, on April 26, 2011,
UPS’s Potsdam facility supervisor, Steve Talbot, indicated to a UPS Account
Executive that there was a potential issue with pickups of cigarettes. (DX 74.)
Shortly thereafter, Talbot called UPS security employee James Terranova. (DX
389.) As discussed above, Terranova told Talbot that his State Police contact in
Syracuse told UPS to keep picking up cigarettes. (DX 389.) Talbot relayed this
information to his drivers but otherwise did not make a record of the calls(s). (DX
389; Trial Tr. 1268:16-20 (Talbot).) On June 22, 2011, the DTF Chief Investigator,
John Connolly, visited the Potsdam Center to discuss the possibility of shipments
from the Mohawk Reservation. (DX 389.) Connolly made arrangements for a

86 The Court finds Sheridan’s testimony supports the obvious red flags other drivers would have seen
with regard to other accounts, as well.

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seizure of cigarette shipments. (Id.) On June 28, 2011, UPS closed the account.
(PX 330.)
In sum, the Court finds that (1) there was a reasonable basis to believe
Mohawk Spring Water may have been tendering cigarettes the day the account was
opened on November 1, 2010;87 (2) Mohawk Spring Water was in fact shipping
cigarettes from the inception of the account on November 1, 2010, until the account
was closed on June 28, 2011 (based on the same facts); and (3) UPS knew that
Mohawk Spring Water was shipping cigarettes throughout the entire period (based
on the same facts).
The Court further finds that 90% is a reasonable approximation of the
percentage of packages that contained cigarettes.88
9.

Jacobs Tobacco Group

Rosalie Jacobs was the owner of Jacobs Manufacturing/Tobacco. She testified
live at trial and the Court found her to be a highly credible witness. She testified
that her entire business consisted of the shipment of unstamped cigarettes to other
Indian reservations.89 Jacobs further testified that the majority of her shipments
were by the case and that cases included fifty cartons, which amount to 10,000
cigarettes. (Trial Tr. 1680:20-22 (Jacobs).) The account was opened on July 26,

This date is based on the red flags along with the Court’s crediting Oliver’s testimony that he
informed UPS of package contents.

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The Court’s finding of 90% is based on the testimony discussed above, but also takes into
consideration that, based on this testimony, this entity shipped other products as well.
88

89

Jacobs testified further that her company did not engage in sales of any type of cigar.

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2006, and the number of packages shipped by Jacobs Manufacturing/Tobacco
increased significantly in June and July 2010, the same timeframe as the June 29,
2010, effective date of the PACT Act. (PX 281; PX 410; PX 434.)
By the end of 2010, UPS had picked up more than 2,200 packages from
Jacobs Tobacco. The UPS driver assigned to the account was Donald Jarvis. Jacobs
testified that her warehouse contained “piles” of cigarette inventory. (Trial Tr.
1662:7-18 (Jacobs).) Jarvis confirmed that when he made pickups at Jacobs
Manufacturing/Tobacco he saw pallets of cigarettes. (Jarvis Dep. Tr. 55:1-6.) In
addition, another UPS driver, Candace Sheridan, testified that she also made
pickups for this account and saw packages from Jacobs on the conveyor belt at the
UPS Potsdam Center and that she knew the packages contained cigarettes because
of the smell and because they were “picked up by cigarette factories.” (See PX 410,
row 6223; Sheridan Dep. Tr. 50:20-52:6.)
In addition, in February 2011, customer inquiries regarding lost or damaged
packages shipped by Jacobs Tobacco indicated cigarettes, including “Canton,
Nation’s Best American Full, 100 Softpk/EA” and “Nation’s Best Full Flavor
Cigarettes.” (PX 468, rows 38-40.) In June 2011, the ATF seized a number of such
cases of cigarettes. (DX 89.)
In sum, the Court finds that (1) there was a reasonable basis to believe
Jacobs Manufacturing/Tobacco may have been tendering cigarettes from the

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inception of its account until it was terminated on June 22, 2011; 90 (2) based on
Jacobs’s testimony, her company was in fact shipping cigarettes throughout this
period; and (3) based on Jarvis’s and Sheridan’s testimony, UPS knew this. The
Court further finds that, based on the uncontroverted evidence, 100% of all Jacobs
Manufacturing/Tobacco shipments were cigarettes from the UPS Potsdam Center.
(DX 389.) 91
10.

Action Race Parts

UPS opened an account for Action Race Parts on May 11, 2009. (PX 281.) It
was located at 1552 State Road 37, Hogansburg, New York. UPS began regular
pickups for this account in February 2011. (PX 75.)
Between February and June 2011, Action Race Parts shipped 2,368 packages
with UPS. (PX 281.) Most of these packages were addressed to smoke shops,
including Rez Smoke Shop and Poospatuck Smoke Shop. (PX 75.) Three UPS
drivers primary shared responsibility for the account: Donald Jarvis, Amanda
Donaldson, and Gregory Labtake.92 (PX 590.) These drivers had to have known
that Action Race Parts was shipping primarily to smoke shops. These facts alone
should have raised red flags.

As discussed above, the term “Individual Consumer” as used in the AOD encompasses the
unauthorized commercial entities to whom Jacobs shipped cigarettes.

90

This finding is based on the totality of the evidence, including the fact that the evidence regarding
shipments was exclusively as to shipments of cigarettes.

91

92

Among Action Race Parts’s cigarette brands was “Chicos,” located in Donald Jarvis’s UPS vehicle.

104

On June 22, 2011, DTF Investigator Connolly visited the Potsdam Cacility,
which processed the Action Race Parts packages. Connolly inquired about accounts
located on reservations. UPS’s Steve Talbot identified four accounts: Mohawk
Spring Water, Jacobs Manufacturing/Tobacco, Tarbell/Mohawk Distribution, and
Action Race Parts. (See DX 389.) Packages that were picked up from Action Race
Parts were opened and revealed cigarettes; those packages were seized. (See DX
389.) On June 28, 2011, UPS told Action Race Parts that it would no longer accept
its packages. (PX 331.)
In sum, the Court finds (1) that not later than February 1, 2011, there was a
reasonable basis to believe Action Race Parts may have been tendering cigarettes;93
(2) that it was in fact shipping cigarettes from February 2011 to the termination of
its accounts (based on the same facts as well as confirmed through the audit); and
(3) that UPS knew that (based on the fact that UPS drivers saw sufficient red flags
that they would have had to turn a blind eye to the truth).
The Court further finds that 100% is a reasonable approximation of the
percentage of its packages that contained cigarettes.94
11.

Native Wholesale Supply

In 2002, UPS opened an account for Native Wholesale Supply, located at
11037 Old Logan Road, Perrysburg, New York on the Seneca Cattaraugus
reservation. This was a residential address. On or about April 4, 2007, UPS

93

This date is based on the volume of shipments from the location addressed to smoke shops.

This finding is based on the totality of the evidence, including the fact that the evidence regarding
shipments was exclusively as to shipments of cigarettes.

94

105

Operations Supervisor for UPS Supply Chain Solutions in Catoosa, Oklahoma,
asked its customer Native Wholesale Supply whether it wished to authorize
destruction of the company’s “cigarettes in the Catoosa Warehouse.” (DX 41 at
UPS92311-12.) Native Wholesale Supply agreed (the destroyed inventory consisted
of “156 cases of Opals [cigarettes] and 412 cases of cigars”). (Id. at UPS92358,
UPS92360-61.)
Fink was Native Wholesale Supply’s Account Executive. Native Wholesale
Supply was Fink’s fifth-highest revenue-generating account in 2011, generating
$215,382 in net revenue for UPS that year. (PX 104, line 7.) On or about October
17, 2012, UPS closed the Native Wholesale Supply account numbered RA0610 due
to a “bankruptcy issue.” (Fink Decl., DX 602 ¶ 79.) Fink then opened another
account for Native Wholesale Supply under the number A590X8. (Id. ¶ 79.)
On April 18, 2013, UPS picked up pallets that were to be delivered to HCI
Distribution; HCI (located in Nebraska) was one of the largest tribal cigarette and
tobacco distributors. (See PX 425, line 4; PX 182.) The payment for these
shipments was made by Seneca Promotions (another relevant shipper, discussed
below). (PX 425, line 4.) On October 2, 2013, Cook directed certain employees not
to deal with HCI. (PX 182.) Cook further directed such account managers to “stay
clear of any and all businesses associated with” HCI Distribution. (Id.) Despite this
instruction, on October 31, 2014, UPS picked up another large shipment (weighing
540 pounds) for this account, again paid for by Seneca Promotions. (PX 425, row 7.)

106

On October 16, 2015, a UPS Regulated Goods Coordinator, Matthew
Szelagowski, contacted Fink about an attempted audit for this account. (PX 467.)
Szelagowski stated UPS was looking for “cigarettes going to consumers” and
considered this account (along with Seneca Promotions) to be “Potential High Risk.”
(Id.)
Fink told Szelagowski that Native Wholesale Supply shipped advertising
material. (DX 381.) When Fink’s area Sales Manager, Michael Zelasko, asked Fink
whether he had “advised” Szelagowski, Fink responded “of course.” Zelasko in turn
responded, “[n]ever a doubt!” (PX 467.) UPS did not audit Native Wholesale
Supply. (See Cook Decl., DX 600 ¶ 139.)
In sum, the Court finds that (1) from April 4, 2007, there was a reasonable
basis to believe Native Wholesale Supply may have been tendering cigarettes;95 (2)
in light of the absence of information that it had altered its business model since
2007, the Court also finds that it was in fact tendering cigarettes throughout this
period; (3) the Court further finds that given its prior business model, high-volume
shipments, and shipments to HCI on April 18, 2013, not later than April 18, 2013,
UPS knew it was shipping cigarettes.
12.

Seneca Promotions

UPS opened an account for Seneca Promotions on May 31, 2013. (See PX
553.) The account was located at 10955 Logan Road, Perrysburg, New York, on the
Seneca Cattaraugus reservation. (Fink Decl., DX 602 ¶ 80.) While Seneca

95

The Court’s finding as to this date is based on the pallets shipped to HCI on that date.

107

Promotions has a corporate address at 464 Franklin Street, Buffalo, New York,
UPS’s pickups were from the residential address located in Perrysburg. (Id.)
Seneca Promotions remains a UPS account.
The location for Seneca Promotions is the same as that for Native Wholesale
Supply (11037 Old Logan Road and 10955 Logan Road are geographically the
same). (Logan Dep. Tr. 103:16-108:3; PX 400.) The account contacts were also the
same for both accounts. (Fink Decl., DX 602 ¶ 81.) Even Fink conceded that he
believed there was some affiliation. (Id.)
Seneca Promotions paid for certain of Native Wholesale Supply’s shipments,
including the April 18, 2013 shipment of pallets to HCI, one of the largest tribal
cigarette and tobacco distributors. According to Cook, Seneca Promotions was,
itself, a low-volume shipper. However, between July 2013 and October 2014, it used
UPS to ship over 12,800 pounds of freight to entities such as “Blue Ridge Tobacco
Co.,” “Tobaccoville,” “Tobacco Town,” “Arrowhead Tobacco,” and HCI Distribution.
(PX 424.) Seneca Promotions also used UPS to ship over 30,000 pounds of freight
between September 2013 and February 2015 (under the name “ERW Enterprises,”
to companies identified as “Tobaccoville,” “Seneca Direct,” and “Tobacco Town”).
(PX 546.) UPS in fact shipped packages from Seneca Promotion to HCI
Distribution—ten months after Cook had instructed UPS personnel to “stay clear of
any and all businesses associated” with “tobacco shipper” HCI Distribution. (PX
182.)

108

In sum, the Court finds (1) that from the inception of the account on May 21,
2013, there was a reasonable basis to believe Seneca Promotions may have been
tendering cigarettes;96 but (2) the circumstantial evidence supports that they were
shipping cigarettes from May 31, 2013 (based on the same evidence) and thus UPS’s
knowledge thereof (based on the same evidence); and (3) that UPS’s failure to audit
them evinces an affirmative act of conscious avoidance and demonstrates
knowledge.
Shippers as to Which There Is Only AOD Liability
As the Court previewed above, there are certain entities as to which the
Court finds that there is sufficient evidence to support a finding that there was a
reasonable basis to believe the account may have been tendering cigarettes—
triggering an audit obligation—but insufficient evidence to indicate whether they
were in fact shipping cigarettes and/or that UPS knew that.
1.

Native Outlet

UPS opened an account for Native Outlet on October 18, 2010, not long after
the implementation of the PACT Act.97 It was located at 11157 Lakeshore Road,
Irving, New York, and also used an address at 1525 Cayuga Road, Irving, New
York, both on the Seneca Allegany reservation. (Fink Decl., DX 602 ¶ 129.) The
1525 Cayuga Road address was associated with Pierce Trading Company and

96 The Court’s finding as to this date is based on the totality of the evidence, including the fact that
Seneca Promotions was known to have already paid for a shipment of pallets for Native Outlet to
HCI, a known cigarette shipper, and that the two companies shared the same address.

Plaintiffs describe Native Outlet as belonging within the “Smokes & Spirits Group.” However,
plaintiffs have not put forth sufficient evidence to establish that that Native Outlet was an alter ego
or was shipping on behalf of Smokes & Spirits.

97

109

“SenecaDirect.com,” a known cigarette shipper. (See PX 174, row 659.) The contact
person for the account was John Waterman. (PX 86, row 2183.) Its operations were
housed in a large commercial warehouse. (DX 490; Fink Decl., DX 602 ¶ 129.)
Fink was also Native Outlet’s Account Executive. In 2011, Native Outlet
generated over $190,000 in net revenue and was Fink’s eighth-largest account. (PX
104, row 10.) In 2012, account revenue remained strong at $148,593. (PX 102, row
14.) Native Outlet was a high-grossing, “must keep” account. (See PX 104, row 10;
PX 137; PX 138, row 3; PX 168; PX 169, row 30.) The fact that this was a highvolume shipper, on an Indian reservation known to be high risk, that acquired
significant business shortly after the effective date of the PACT Act, provided
sufficient red flags to have triggered an audit obligation. But there was more.
Fink testified that when the account was opened, he was told that Native
Outlet intended to ship cigars; the company then executed a Tobacco Agreement.
(Fink Decl., DX 602 ¶ 131.) The agreement was returned signed by John Waterman
at 1525 Cayuga Road. (See id.; DX 58; DX 371, row 3062.)
On March 21, 2013, UPS received a communication from the ATF requesting
that it investigate possible bulk shipments of cigarettes from “John Waterman.”
(PX 530.) Waterman was the listed customer contact for Native Outlets. (PX 86,
row 2183.)
On July 29, 2013, UPS received a subpoena from City Finance regarding
potential cigarette shippers. That subpoena requested information associated with
“Seneca Direct” or the address 1525 Cayuga Road, Irving, New York. UPS did not

110

audit Native Outlet until July 2013. Thereafter, it conducted five audits: On or
about July 10, 2013; January 2, 2014; October 6, 2015; January 14, 2016; and April
27, 2016. Each time it found only little cigars. (Cook Decl., DX 600 ¶¶ 86-91; DX
194; DX 244; DX 421; DX 363; DX 375.)
In sum, the Court finds that from the inception of the account on October 18,
2010, there was a reasonable basis to believe Native Outlet may have been
tendering cigarettes. This date is based on the Court’s assessment of the red flags
discussed above; inter alia, that the combination of high-volume business from the
same address as a known cigarette shipper, business acquisition so closely
correlated with the PACT Act, and association with John Waterman. The Court
further finds the audit obligation continued to July 9, 2013—the day before the first
of several audits. However, there is insufficient evidence that it was in fact
shipping cigarettes.98
2.

A.J.’s Cigars

A.J.’s Cigars opened an account with UPS in September of 2010—shortly
following implementation of the PACT Act.99 It was a relatively high-grossing
account assigned to Fink, with more than $100,000 in gross revenue per year. From
the outset, Fink knew that A.J.’s would be shipping tobacco products. He testified

While there is circumstantial evidence of the possibility that Native Outlet was shipping cigarettes
(that Waterman was suspected of making bulk shipments, the subpoena for documents relating to
this address), there is an insufficient basis to find actual shipments of cigarettes or UPS’s knowledge
thereof.
98

Plaintiffs also describe A.J.’s Cigars as belonging within the “Smokes & Spirits Group.” However,
plaintiffs have not put forth sufficient evidence to establish that that A.J.’s Cigars was an alter ego
or was shipping on behalf of Smokes & Spirits.

99

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that he had them execute a Tobacco Agreement in September 2010, but could not
locate the original when later asked to do so (he testified that he thought he left it
in the trunk of his car). (Fink Decl., DX 602 ¶¶ 87-89; DX 230.) The Court does not
credit this testimony and finds it more likely that he did not have A.J.’s execute a
Tobacco Agreement until the audit described below.
But in addition, as with other shippers, there were a number of tracer
inquiries made with regard to shipments originating with A.J.’s. In A.J.’s case,
there were a total of nine between August 2010 and August 2013. Each of those
inquiries concerned little or full-sized cigars. (DX 499, rows 106, 114, 115, 138, 145,
197, 199, 209, 221.)
On June 4, 2013, A.J.’s informed UPS that it would like to ship cigarettes,
and the UPS representative responded that he would check to see if that was
allowed and get back to them. The result of this inquiry is unknown.
UPS audited A.J.’s on October 2, 2013. The packages it opened contained
filtered cigars and other tobacco products. (Cook Decl., DX 600 ¶ 80; DX 219.) No
cigarettes were found in the audited packages. Thereafter, on October 24, 2013,
Fink had A.J.’s execute a Tobacco Agreement. (Fink Decl., DX 602 ¶¶ 92-93; DX
230; DX 357; DX 371, line 3030.)
In early February 2014, UPS learned from a news report that an entity
known as AJ’s Candy had plead guilty to cigarette trafficking. (Cook Decl., DX 600
¶ 81; DX 270.) UPS terminated A.J.’s Cigars on February 10, 2014. (Cook Decl.,
DX 600 ¶ 81; DX 272; PX 160.)

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In sum, the Court finds that not later than June 4, 2013, there was a
reasonable basis to believe A.J.’s Cigars may have been tendering cigarettes.100
However, there is insufficient evidence in the record to support a finding that A.J.’s
was shipping cigarettes through UPS. The request by the customer “to ship”
cigarettes falls short of proving that they “did” make such shipments.
3.

RJESS101

RJESS first opened an account with UPS before 2005, under the name Ross
John Enterprises - Iroquois Tobacco Direct (“RJE-ITD”). (Fink Decl., DX 602 ¶ 107;
DX 371, line 1344.) Its most notable fact is that it shared an address with Smokes
& Spirits.102
In 2005, RJE-ITD signed a Tobacco Agreement. (DX 371, row 1344.) In
November 2005, as part of what UPS has characterized as a “broader plan”
requiring all smoke shops in the area to open new accounts with Tobacco
Agreements, the RJE-ITD account was canceled. (Fink Decl., DX 602 ¶¶ 106-07;
Trial Tr. 200:6-14 (Cook); id. 499:22-500:3 (Fink).)

The audit obligation continued to October 1, 2013 (A.J.’s Cigars was audited on October 2, 2013).
Before this date, tracers indicated only non-cigarette goods being shipped. But, once A.J.’s Cigars
notified UPS that it would like to ship cigarettes (on June 4, 2013), that fact combined with its status
as a known tobacco shipper should have triggered an audit. This finding is therefore based on the
totality of the evidence, including the fact that A.J.’s informed UPS that it would like to ship
cigarettes.

100

101 In their final proposed findings of fact, plaintiffs did not attempt to support their prior assertions
of UPS’s liability for RJESS (though they did include them within their damage request). (ECF No.
491.)

Again, plaintiffs describe RJESS as belonging within the “Smokes & Spirits Group.” While
plaintiffs did demonstrate that RJESS and Smokes & Spirits shared an address for some purposes,
considering all the facts and circumstances, plaintiffs have not put forth sufficient evidence to
establish that that RJESS was an alter ego or was shipping on behalf of Smokes & Spirits.

102

113

On April 7, 2005, Ross John, the owner of RJE-ITD and a college professor,
opened a new account under the name Ross John Enterprises Smoke Shop
(“RJESS”). (Fink Decl., DX 602 ¶¶ 106, 108.) Both RJE-ITD and RJESS were
located in a warehouse behind a gas station at 6665 Route 417, Kill Buck, New
York. (Fink Decl., DX 602 ¶ 106; DX 490 at 4; DX 371, lines 1344, 3619.) Fink was
assigned account responsibility for RJESS. (DX 313; DX 520, lines 167-71; DX 542;
see Trial Tr. 640:16-21. (Fink).)
RJESS’s address (which was also the address for Smokes & Spirits) was
included on the NCL in association with Smokes & Spirits as of February 15, 2012.
(PX 450; Cook Decl., DX 600 ¶ 111.) This red flag should have triggered an audit.
In addition, the RJESS address—6665 Route 417, Kill Buck, New York—was
included in the subpoena issued by City Finance on July 29, 2013. (PX 248.)
On January 28 and 30, 2014, UPS subsequently conducted two audits of
RJESS, which revealed only little cigars. (Cook Decl., DX 600 ¶ 111; Trial
Declaration of Debra Blauvelt (“Blauvelt Decl.”), DX 609 ¶ 17(b); DX 264; DX 265.)
Additional spot audits of RJESS packages never revealed cigarettes. (Id. ¶ 12.)
RJESS and Smokes & Spirits had separate accounts and separate owners.
Plaintiffs did not introduce evidence that Ross John had involvement in Smokes &
Spirits. (DX 371, lines 3619, 1285; Fink Decl., DX 602 ¶¶ 38, 109; Trial Tr. 1190:201191:3 (Mitchell).) And RJESS was an active account of its own the entire time
Smokes & Spirits was in operation. Lastly, both RJE-ITD and RJESS were located
at 6665 Route 417, Kill Buck, New York, while Smokes & Spirits shipped from 270

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Rochester Street, Salamanca, New York 14779. (Fink Decl., DX 602 ¶¶ 31, 106; DX
490; DX 371, lines 1344, 3619.) In other words, nothing in UPS’s records provides
any basis to connect the two accounts.
In sum, the Court finds that as of February 15, 2012, when RJESS’s address
was listed in the NCL, there was a reasonable basis to believe it may have been
tendering cigarettes; this lasted until the day prior to the first audit on January 28,
2014. However, there is insufficient evidence that RJESS was in fact shipping
cigarettes.
Shipper as to Which There Is No Liability
1.

Sweet Seneca Smokes

Sweet Seneca Smokes opened its UPS account on February 14, 2014, and it
remains an active account.103 (Fink Decl., DX 602 ¶ 122.) It is located at 14411
Route 439, Gowanda, New York on the Seneca Cattaraugus reservation. Fink was
and is the Account Executive. He has always known that they shipped tobacco
products. (Id. ¶¶ 122, 123.) Indeed, that much is evident from the name alone.
UPS has approached the account with skepticism from the beginning, and it
has taken affirmative steps to investigate whether it was a terminated shipper
trying to obscure its identity (in this instance, A.J.’s Cigars) or was otherwise
shipping cigarettes. In light of various red flags, this was entirely appropriate. In
this regard, immediately after the account was first opened, Timothy McDowell, a

Plaintiffs place Sweet Seneca Smokes within what they identify as the “Smokes & Spirits Group.”
However, plaintiffs have not put forth sufficient evidence to establish that that Sweet Seneca
Smokes was an alter ego or was shipping on behalf of Smokes & Spirits.
103

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UPS sales representative, sent an email to Fink questioning whether this account
was merely “A.J.’s” trying to “get back in.” He then communicated with Jim
Phillips of Sweet Seneca Smokes. During that conversation, Phillips informed
McDowell that the company intended to ship only little cigars through UPS. UPS
informed Phillips of its Tobacco Policy. (Trial Tr. 667:1-17 (McDowell); Fink Decl.,
DX 602 ¶ 123; DX 371, line 3650.) McDowell’s investigation did not stop there,
however.
To ensure that Sweet Seneca Smokes was not shipping on behalf of the
Shipping Services or A.J.’s Cigars terminated accounts, McDowell contacted Fink.
(DX 274; DX 276; Fink Decl., DX 602 ¶ 124.) None of the three shippers shipped
from the same address, had the same contacts, or shared any other overlapping
information. (DX 371, rows 3024, 3030, 3650.) McDowell considered whether one of
the company’s contact names, “Bob Oldrow/Oldsdrow,” could be the same person as
an individual by the name of “Oldro,” Fink’s contact, at Smokes & Spirits. (DX 276;
Fink Decl., DX 602 ¶ 32; cf. DX 371, row 1285.) McDowell ultimately found no
evidence connecting Sweet Seneca Smokes to either shipper. McDowell then
investigated the Sweet Seneca Smokes website and product line, and he requested
photos of their cigars to satisfy himself that they marketed the products they
claimed. (DX 274.)
Plaintiffs have pointed to evidence that 62% of Sweet Seneca Smokes
customers were those of Smokes & Spirits but not to evidence that this percentage
concerned buyers of cigarettes versus other tobacco products. Comparing the

116

customer names and purchases on PX 54, a shipment inventory from Smokes &
Spirits, to the customer names in PX 557, a Sweet Seneca Smokes delivery
spreadsheet, supports a finding that Sweet Seneca Smokes shipped a significant
amount of non-cigarette tobacco products, in general, and to former Smokes &
Spirits customers, specifically.
An audit of Sweet Seneca Smokes’s packages over a three-day period revealed
cigars, chew, or other tobacco products, but no cigarettes. Another audit was
performed on April 27, 2016, by Cook. Cook personally audited all of the packages
shipped out of the Dunkirk Center, including seventy-one packages shipped by
Sweet Seneca Smokes. (Trial Tr. 359:23-360:16 (Cook); Cook Decl., DX 600 ¶¶ 90,
135-36; DX 327; DX 422; DX 550; DX 551; Trial Declaration of Jennifer Puleo
(“Puleo Decl.”), DX 608 ¶ 23(c).) None contained cigarettes. (Cook Decl., DX 600
¶¶ 136-37.)
UPS audited Sweet Seneca Smokes a third time on July 10, 2016, when the
“Designated Responders” for hazardous materials segregated and inspected the
contents of these Sweet Seneca Smokes packages because an unknown substance—
later identified as chocolate syrup—had leaked onto each package in the load.
(Cook Decl., DX 600 ¶ 137; DX 429.) Consistent with prior audits, the packages
contained filtered cigars, loose tobacco, and chewing tobacco. (Id.)
In sum, based upon UPS’s proactive efforts with regard to this account and
the lack of evidence of cigarette shipments, the Court declines to find that there was
a reasonable basis to believe Sweet Seneca Smokes may have been tendering

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cigarettes at any point in time prior to the first audit, or that it was shipping
cigarettes.
CONCLUSIONS OF LAW
Plaintiffs allege violations of the PACT Act, 15 U.S.C. §§ 375-78; the AOD,
PHL § 1399-ll;104 and the CCTA, 18 U.S.C. §§ 2341-46. Set forth below are the
Court’s conclusions of law. Analysis and interpretation of the AOD is the logical
starting point. As previewed above and discussed in detail below, if the AOD was
“honored” throughout the United States, UPS is statutorily exempt from the PACT
Act and PHL §1399-ll; if it was not, UPS is exposed to liability under the AOD, the
PACT Act, and PHL § 1399-ll, along with the CCTA. The Court therefore resolves
the question of AOD liability at the outset.
The Court next turns to the common issue of what it means to act
“knowingly.” Certain violations of the AOD and the PACT Act, and all violations of
PHL § 1399-ll and the CCTA, require that UPS have shipped cigarettes knowingly.
The Court addresses the legal standard for a finding of actual knowledge, including
conscious avoidance, or willful blindness, as well as the legal and factual
requirements regarding imputation of an employee’s knowledge to a large corporate
entity such as UPS. As part of this discussion, the Court discusses presumptions
that common carriers of regulated goods have knowledge of various regulatory

Plaintiffs’ alleged violations of N.Y. Exec. Law § 63(12) are co-extensive with their PHL § 1399-ll
claims.
104

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requirements. The Court then turns to each of the alleged violations, along with
specific arguments and defenses that UPS has asserted.
The AOD
The AOD, executed in October 2005, was a negotiated resolution to an
investigation commenced by the State of New York into whether UPS was violating
PHL § 1399-ll 105 and N.Y. Exec. Law § 63(12).106
Plaintiffs claim that UPS repeatedly violated a number of separate
provisions of the AOD. However, they seek penalties with regard to only one type of
violation: the audit requirement set forth in ¶ 24. Plaintiffs define such audit
violations as commencing as of the date there was a reasonable basis to believe that
a shipper may have been tendering packages containing cigarettes, and continuing
with regard to each and every package tendered thereafter. While plaintiffs do not
seek damages for other violations of the AOD, they nonetheless seek to prove that
UPS knowingly shipped cigarettes. Proof of knowing shipments provides for the
presumption of a PHL § 1399-ll violation; such presumption is found in AOD ¶ 43: A
violation involving the knowing shipment of cigarettes “to an Individual Consumer
within the State of New York” constitutes “prima facie proof of a violation of PHL
§ 1399-ll(2)[.]” (AOD, DX 23 ¶ 43.) For its part, UPS asserts that it has complied
with its AOD obligations and that the AOD is honored throughout the United

105

PHL § 1399-ll is titled “Unlawful Shipment or Transport of Cigarettes.”

106 N.Y. Exec. Law § 63(12) is the means by which the New York Attorney General commences an
enforcement action for violation of cigarette transport such as PHL § 1399-ll.

119

States. Thus, according to UPS, no penalties may properly be assessed under the
AOD, and UPS is exempt from both the PACT Act and PHL § 1399-ll.
The Court disagrees with UPS. The Court therefore proceeds to resolve the
parties’ positions with regard to whether calculating penalties in the manner
plaintiffs suggest would result in an excessive award.
1.

Background Described in the AOD

The AOD was the product of extensive negotiations. This is evident
throughout the text of the agreement. In particular, multiple pages describing the
parties’ respective positions precede the particular obligations UPS agreed to
assume. (See AOD ¶¶ 1-15.) These preliminary statements do not themselves
create binding commitments, but they do provide useful background for
understanding the intent of the parties.
In this regard, the AOD commences with a description of the parties’
respective views on UPS’s conduct prior to its effective date of October 21, 2005.
The State asserted that, based upon its investigation, it believed that UPS “ha[d]
delivered many packages containing cigarettes to persons who were not authorized
to receive them pursuant to PHL § 1399-ll in violation of PHL § 1300-ll(2) and
thereby engaged in repeated illegal acts and business activities in violation of EL §
63(12)[.]” (AOD, DX 23 ¶ 8.) UPS responded that even before the Attorney General
had initiated an investigation into its business practices in 2004, UPS had “adopted
revised policies governing the transportation of tobacco products, and that UPS
policies, among other things, are meant to insure that UPS does not knowingly

120

deliver cigarettes to unauthorized recipients in violation of various state laws,
including PHL § 1399-ll(2).” (Id. ¶ 9.)
In the AOD, UPS also described various actions it had taken following the
April 10, 2013 effective date of PHL § 1399-ll, including changing to its Tariff and
Terms and Conditions to add a provision that “Shippers are prohibited from
shipping, and no service shall be rendered in the transportation of, any tobacco
products that shippers are not authorized to ship under applicable state law or that
are addressed to recipients not authorized to receive such shipments under
applicable law.” (Id. ¶ 10.) UPS further asserted that since the implementation of
the PHL § 1399-ll, it had provided formal training to its employees, and that it had
written to approximately 400 UPS shippers to notify them of PHL § 1399-ll and
advising them that UPS would no longer accept packages containing cigarettes for
delivery to unauthorized recipients in New York. (Id. ¶¶ 11, 12.) UPS also referred
to its decision to adopt a formal Cigarette Policy, which stated:
1. UPS does not provide service for shipments of cigarettes to consumers.
2. UPS only accepts shipments of cigarettes for delivery to recipients who
are licensed or otherwise authorized by applicable federal, state,
provincial or local law or regulation to receive deliveries of cigarettes.
(Id. ¶ 15.)
The following “WHEREAS” clause recites that “UPS offers this Assurance
of Discontinuance” in settlement of alleged past violations, and “intending that this
[AOD] will promote further and ongoing cooperation between UPS and the Attorney
General concerning UPS’s compliance with PHL § 1399-ll[.]” (Id.) The AOD”s final

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WHEREAS clauses states that New York’s Attorney General “accepts the following
assurances from UPS pursuant to Executive Law § 63(12)” in lieu of commencing a
civil actions for past violation. (AOD, DX 23.)
2.

The Terms of the AOD

Paragraph 17 of the AOD contains a broad commitment by UPS to “comply
with PHL § 1399-ll(2), and adhere to the UPS Cigarette Policy[.]” (AOD, DX 23
¶ 17.) In ¶ 20, UPS agreed to “revise, to the extent that it has not yet done so
already, and maintain its delivery policies and procedures for Cigarettes in
accordance with this [AOD].” (Id. ¶ 20.)
In ¶ 21, UPS agreed to identify and compile a list of its customers that UPS
believes may be “Cigarette Retailers.” (Id. ¶ 21.) The list was to be compiled from a
number of sources, including UPS’s search of its own customer database for words
such as “cigarette,” “smoke,” and “tobacco,” as well as “UPS’s knowledge of known
Cigarette Retailers.” (Id.) When the list was completed, UPS was required to
provide it to the New York Attorney General. (Id.) The AOD also required UPS to
use an internet search engine on a periodic basis to investigate shippers who use
the “Cigarette Websites”107 to determine whether they ship via UPS (and to conduct
audits if so). (Id. ¶ 22.) However, if internet searches during any consecutive
twelve-month period do not uncover shippers who had tendered cigarettes to UPS
for delivery, this obligation ceases. (Id.)108
Defined as an internet website through or at which a person sells Cigarettes. (AOD, DX 23
¶ 16(D).)

107

108

This obligation in fact expired according to these terms in July 2010.

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Paragraphs 24 to 33 of the AOD relate to audits and remedial action for
shippers found to have shipped cigarettes. The audit provision states:
24. UPS shall audit shippers where there is a reasonable basis to believe
that such shipper may be tendering Cigarettes for delivery to Individual
Consumers, in order to determine whether the shippers are in fact doing so.
(Id. ¶ 24.)109 It is worth pausing on the standard for identifying shippers that
should be audited: As set forth in this provision, the standard is objective. There
must be a “reasonable basis to believe” that the shipper may be tendering
cigarettes.
UPS has a separate obligation under the AOD to maintain a database that
includes information regarding Cigarette Retailers. (Id. ¶ 25.) This is referred to as
the “Tobacco Shipper Database.” (Id.) Such database must include various
identifying information along with a shipper’s record of non-compliance with the
UPS Cigarette Policy, down to the level of tracking number for individual packages.
(Id. ¶ 25 A, B.) The database must also include the results of any audits and a
record of any discipline imposed by UPS. (Id. ¶ 25 C, D.)
The AOD requires that UPS undertake “progressive” discipline for shippers
its determines to have tendered a package of cigarettes for delivery. (Id. ¶¶ 26-33.)
That is, the discipline is organized into escalating steps. UPS’s obligation to impose
discipline commences when it discovers that a shipper has tendered “a shipment of

The AOD defines “Individual Consumer” as any person or entity other than an “Authorized
Recipient,” which in turn is defined as “tobacco manufacturers; licensed wholesalers, tax agents,
retailers, and export warehouses; government employees acting in accordance with their official
duties; or any other person or entity to whom cigarettes may be lawfully transported pursuant to
federal law and the law of the state in which delivery is made, including those persons described in
PHL § 1399-ll(1) with respect to the State of New York.” (AOD, DX 23 ¶ 16(G), (A).)

109

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Cigarettes to Individual Consumers.” (Id. ¶ 26.) A single shipment therefore
triggers the progressive discipline measures set forth in ¶¶ 26 to 33.
The first step requires that UPS create and maintain a record of the
offending shipper and packages or shipments. (Id.) This information would be
available to the New York Attorney General in response to a subpoena at a later
date. (Id.) Paragraph 27 provides for suspension of service to that shipper
altogether:
27. If UPS has a reasonable basis to believe that a shipper has willfully or
intentionally violated UPS’s Cigarette Policy, UPS shall immediately and
permanently suspend all Delivery Services for such shipper. For other
violations of UPS’s Cigarette Policy, which UPS has a reasonable basis to
believe are not willful or intentional, UPS shall apply the discipline
procedures established in Paragraphs 28 through 33 of this [AOD].
(AOD, DX 23 ¶ 27.) If triggered, the progressive discipline scheme requires UPS to
notify the shipper of the violation within five days after discovery; two days later
UPS must suspend delivery for ten days unless a reasonable and verifiable written
action plan for compliance is provided to UPS by the shipper. (Id. ¶ 28.) If a second
violation occurs within 180 days of the first, UPS must again immediately provide
notice to the shipper, but this time UPS must deliver a warning of a possible
suspension of service for up to three years for a third non-compliant shipment. (Id.
¶ 29.) A third violation within 180 days of the contact for the second violation
requires notice, as well as an in-person meeting with management-level personnel;
two days following such notice, UPS is required to suspend delivery for three years
(there are provisions to restore service after six months for non-cigarette products).
(Id. ¶ 30.)
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Paragraph 31 of the AOD contains an explicit acknowledgement that
shippers of cigarettes are known to try to persist in unlawful shipping by using the
same location under a different account name or having another person or entity
ship from a different address on the suspended shipper’s behalf. This provision
states in full:
31. The violations found to have occurred pursuant to this [AOD], as well
as the periods of suspension that are imposed, shall be applied both to the
shipper committing the violation, and to any other shipper, whether an
existing UPS customer or a new UPS customer, that UPS has a reasonable
basis to believe is shipping or seeking to ship Cigarettes (a) from the same
location as the suspended shipper, (b) on behalf of a suspended shipper, or
(c) with the same account number as the suspended shipper.
(Id. ¶ 31.)
Paragraph 32 recognizes that if a violation is inadvertent or immaterial,
and made by a shipper of products that are not predominantly cigarettes, UPS can
reasonably deviate from the procedures “for the limited purpose of affirmatively
assisting such shippers to implement safeguards intended to eliminate future
inadvertent and immaterial shipments of Cigarettes to Individual Consumers.” (Id.
¶ 32.) In order to avail itself of this provision, it is of course the case that UPS must
know (or have processes to verify) certain facts about the contents of the shippers’
packages; otherwise, it would be impossible to establish that 90% of packages (for
the previous year) contained goods other than cigarettes. (Id.) UPS has not
attempted to argue that any of its actions are based on this paragraph (indeed, it
must take this position to be consistent with its primary position that it lacks the
means to determine the contents of a customer’s packages).

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The AOD also requires UPS to provide ongoing training to its personnel to
ensure compliance with its Cigarette Policy. (Id. ¶ 34.) On at least an annual basis,
UPS is required to issue a PCM to UPS drivers, pre-loaders, and other personnel
involved in compliance measures to “help ensure that these personnel are actively
looking for indications that a package contains Cigarettes being shipped to an
Individual Consumer, alerting UPS management of such packages and attempting
to intercept such packages.” (Id. ¶ 35.)
The AOD also requires UPS to periodically train Account Executives
handling tobacco accounts on its Cigarette Policy, PHL § 1399-ll, and the
compliance measures agreed to in the AOD. (Id. ¶ 37.)
Additional provisions in the AOD outline the further actions UPS must take
in response to notice it may receive from the New York Attorney General or any
other governmental authority of evidence that a UPS customer is tendering
cigarettes. (Id. ¶ 39.) There is no obligation imposed on the New York Attorney
General or any other entity to provide such notice.
The AOD also contains two paragraphs that set forth terms relating to
enforcement of UPS’s obligations and to the imposition of penalties imposed for
violations thereof. (Id. ¶¶ 42-43.) In light of the importance of these provisions to
assessment of damages in this case, the Court sets them out in full:
42. UPS shall pay to the State of New York a stipulated penalty of $1,000 for
each and every violation of this [AOD] occurring after the Effective Date;
provided, however, that no penalty shall be imposed if (a) the violation
involves the shipment of Cigarettes to an Individual Consumer outside the
State of New York, or (b) the violation involves the shipment of Cigarettes to
an Individual Consumer within the State of New York, but UPS establishes
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to the reasonable satisfaction of the Attorney General that UPS did not know
and had no reason to know that the shipment was a Prohibited Shipment.110
(Id. ¶ 42.) The AOD further provides:
43. Pursuant to EL § 63(15), evidence of a violation of this [AOD] that
involves the shipment of Cigarettes to an Individual Consumer within the
State of New York shall also constitute prima facie proof of a violation of PHL
§ 1399-ll(2) in any civil action or proceeding that the Attorney General
hereafter commences against UPS for violation of PHL § 1399-ll(2).
(Id. ¶ 43.) Paragraph 51 explicitly provides that the “rights and remedies in this
[AOD] are cumulative and in addition to any other statutory or other right that the
New York Attorney General may have at law or equity, including but not limited to
any rights and remedies under PHL § 1399-ll.” (Id. ¶ 51.)
Finally, the AOD’s sole termination provision is contained in ¶ 47. It
provides that a legislative repeal or amendment of PHL § 1399-ll to allow common
carriers to deliver cigarettes to consumers, or a judicial determination of that
statute’s invalidity, would trigger a right to terminate by UPS upon thirty days
written notice. (Id. ¶ 47.)111

“Prohibited Shipment” is defined as “any package containing Cigarettes tendered to UPS where
the shipment, delivery or packaging of such Cigarettes would violate Public Health Law § 1399-ll.”
(AOD, DX 23 ¶ 16(H).)
110

The presence of this termination provision satisfies the rule against perpetuities. See Nicholas
Labs. Ltd. v. Almay, Inc., 723 F. Supp. 1015, 1018 (S.D.N.Y. 1989) (“A perpetual contract runs
without end or without provision for its termination. An indefinite contract runs without a fixed end
but contains provisions under which the contract might terminate at any time. . . . Thus where
termination has been provided for in the contract, even if continuous performance is a possibility,
courts should not refuse to enforce such contracts or read into them different conditions of
termination.”).
111

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Interpretation of the AOD
The AOD is a settlement agreement between UPS and the State of New
York. As such, its interpretation is governed by general principles of contract
law.112 See United States v. Sforza, 326 F.3d 107, 116 (2d Cir. 2003) (stating that
settlement are agreements construed in accordance with principles of contract law)
(citing Janus Films, Inc. v. Miller, 801 F.2d 578, 583 (2d Cir. 1986)). To be sure, the
AOD is a special type of contract—one entered into with the Attorney General for
the State of New York, who is presumed to act in the public interest. However,
similar to a consent decree entered into by the Department of Justice or other
government agency, once an AOD has been executed by the parties, it is a species of
contract governed by principles of contract construction. See People v. Condor
Pontiac, Cadillac, Buick & GMC Trucks, Inc., No. 02-1020, 2003 WL 21649689, at
*5 (N.Y. Sup. Ct. July 2, 2003) (An AOD “is a stipulation of settlement, which binds
the parties [and] will not be set aside or departed from absent a showing of such
good cause as would invalidate a contract.”); EEOC v. Fed. Express Corp., 268 F.
Supp. 2d 192, 206 (E.D.N.Y. 2003) (“It is well settled that consent decrees are
construed primarily as contracts and derive their legal force largely from the
parties’ voluntary agreement.”).
Several principles of contract interpretation are particularly relevant here.
First, it is black-letter law that “[w]hen an agreement is unambiguous on its face, it

112 Paragraph 44 acknowledges the AOD’s contractual status: “This [AOD] represents a voluntary
agreement, and is a settlement of the parties’ claims and defenses . . . .” (AOD, DX 23 ¶ 44.)

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must be enforced according to the plain meaning of its terms.” Lockheed Martin
Corp. v. Retail Holdings, N.V., 639 F.3d 63, 69 (2d Cir. 2011) (citing South Rd.
Assocs., LLC v. IBM, 826 N.E.2d 806, 809 (N.Y. 2005)). In addition, “wellestablished principles of contract interpretation . . . require that all provisions of a
contract be read together as a harmonious whole[.]” Schlaifer Nance & Co. v.
Estate of Warhol, 119 F.3d 91, 100 (2d Cir. 1997). Finally, a basic tenet of contract
law provides that “[c]ourts may not ‘by construction add or excise terms, nor distort
the meaning of those used and thereby make a new contract for the parties under
the guise of interpreting the writing[.]’” Riverside S. Planning Corp. v. CRP/Extell
Riverside, L.P., 920 N.E.2d 359, 363 (N.Y. 2009) (quoting Reiss v. Fin. Performance
Corp., 764 N.E.2d 958, 961 (N.Y. 2001)).
The Court finds the relevant provisions of the AOD to be unambiguous and
therefore applies the well-known principles of contract construction without resort
to parol evidence.
Violations of the AOD
An initial interpretive question concerns the definition of a “violation”
under ¶ 42 of the AOD which, if met, triggers the imposition of penalties. A second
question concerns whether AOD penalties are calculated on a per-violation basis; if
so, a third question is whether, textually or under principles of conscionability,
there are limits to the number of violations for which such penalties may or should
be assessed.

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The Court turns first to the proper interpretation of the term “violation.”
As used in ¶ 42, the term expressly equates a “violation” to a failure by UPS to
fulfill its obligations under the AOD. These obligations are many and varied, as set
forth in detail above. On its face, ¶ 42 does not limit “violations” for which penalties
may be imposed solely to any one type of obligation—that is, a failure to audit a
shipper or a failure to comply with PHL § 1399-ll (in “violation” of ¶ 17) by
knowingly transporting cigarettes to consumers.
Read in its entirety, the AOD is an attempt to establish a comprehensive
and interdependent set of obligations that collectively reduce the likelihood that
UPS accepts packages containing cigarettes or transports such packages. A failure
to abide by any one obligation—for instance, employee training—places at risk
other aspects of the overall compliance scheme. A failure to audit prevents
implementation of the discipline procedures designed to place shippers on notice of
possible suspension, and to give UPS and the shipper the opportunity to work
together to avoid such a result. In other words, failure to audit prevents that
mutual compliance effort, and failure to discipline diminishes the chances that a
shipper will alter its conduct. In sum, there is no reason for this Court to separate
one type of contractual obligation that UPS assumed in the AOD from another
when determining what constitutes a “violation” under ¶ 42. Any failure to comply
with a contractual obligation constitutes a separate violation of the AOD.
One argument that this Court has considered is whether the term
“violation” is used in ¶ 42 to mean only UPS’s knowing shipment of cigarettes. It is

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certainly the case that ¶ 42 refers to exclusions from the penalty provision in terms
of a “shipment.” It might therefore be reasonable to conclude that the entire
provision must be read in terms of shipments of cigarettes. However, after
considering this argument carefully, the Court is not persuaded. This argument
fails to take into account the interdependent obligations UPS assumed in the AOD.
The overall intent of the parties was to use the penalty provision as a method to
ensure compliance with all of the AOD obligations, which are of course ultimately
directed at preventing shipments of cigarettes. This ultimate goal, however, does
not limit the particular obligations. To read the term “violation” as limited to a
shipment of cigarettes (and one that UPS would then presumably have to have
known about) would mean that UPS could fail to comply with any of the host of
other obligations without consequence. This, frankly, makes no sense and is an
unreasonable reading.
The facts set forth earlier in this Opinion establish a number of separate
violations by UPS of its obligations under the AOD:
1. On numerous occasions, UPS failed to comply with PHL § 1399-ll(2), in
violation of ¶ 17;
2. On numerous occasions, UPS failed to audit a shipper where there was a
reasonable basis to believe that such shipper may have been tendering
cigarettes for delivery to Individual Consumers, in violation of ¶ 24;
3. On numerous occasions, UPS failed to input required information into
the Tobacco Database, in violation of ¶ 25;
4. On numerous occasions, UPS failed to implement the discipline of
shippers, in violation of ¶¶ 26-33;

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5. UPS provided inadequate compliance training and PCMs; such training
failed to help “ensure that [] personnel are actively looking for
indications that a package contains Cigarettes being shipped to an
Individual Consumer, alerting UPS management of such packages and
attempting to intercept such packages,” in violation of ¶ 35; and
6. On numerous occasions, UPS knowingly transported shipments
containing cigarettes to Individual Consumers, in violation of ¶ 42.
The Court turns, now, to the second and third questions concerning the
interpretation of the AOD. The factual findings already made by this Court support
numerous violations of the AOD. Did the parties really intend that each and every
such violation would carry a separate $1,000 penalty? If so, are there
conscionability or constitutional limits to the aggregate amount of such penalties?
It is clear that at the time the parties entered into the AOD, they were
wiping the slate clean: Although UPS did not agree that it had previously violated
PHL § 1399-ll, it nevertheless assumed clear obligations under the AOD to resolve
those concerns, and the State of New York agreed to settle any claims for past
violations that it might have. It is possible that, as so often occurs at the outset of
an agreement, the parties hoped the penalty provision would never become an
issue. If such a hope existed, it was long ago extinguished.
Of course, all parties were aware that the stakes were high: The State of
New York was specifically attempting to ensure compliance with a public health law
that recognized the enormous destructive power of cigarette use, and the particular
issues surrounding traffic in unstamped cigarettes.
Insofar as trafficking related to Indian reservations, historical difficulties
and restrictions with regard to enforcing state and federal cigarette laws on
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shippers directly rendered the AOD with a non-tribal courier all the more
important. UPS was—in 2005 as today—a large, highly sophisticated corporation.
It already had many thousands of employees in the United States and vast pickup
and delivery operations using local service centers. Both UPS and the State knew
then that many smoke shops on Indian reservations in New York had shipped and
would likely try to ship cigarettes. It is more than reasonable for this Court to
assume that the well-counseled UPS understood the obligations it assumed in the
AOD and the risks inherent in breaching those obligations.
It is therefore important that these sophisticated counterparties did not
negotiate a top end of penalties that could be imposed, or other limitations on
penalties, apart from the “$1,000 for each and every violation.” For instance, the
parties could have limited monetary penalties to only shipments of cigarettes by
agreeing that violations of certain AOD obligations would be treated differently
from violations of other AOD obligations. But they did not. The Court also finds
the language “each and every” violation, as used in ¶ 42, applies not only to the
potential number of violations (e.g., an instruction to count them all) but also to the
type of violations. That is, the AOD clearly provides that UPS shall pay penalties
for each and every violation, of whatever type. Conscionability issues are discussed
further below.

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Violations of the Audit Obligation Under the AOD
Plaintiffs seek penalties only for violations of the AOD’s audit obligation.
In other words, plaintiffs seek penalties only for violations of ¶ 24 and not ¶¶ 17, 25,
26-33, 35, or 42.
With that in mind, the Court must determine the date(s) on which the audit
obligation was first violated, and how to count violations. Plaintiffs assert that a
reasonable interpretation of the AOD supports determining damages by
establishing the date when UPS first failed to audit a shipper in compliance with its
obligations, and then assessing each and every package tendered to UPS thereafter
as a separate violation of that audit obligation. In other words, according to
plaintiffs, once UPS was obligated to audit a shipper, every package that was not
audited thereafter constituted a separate violation.
UPS, on the other hand, argues that the audit provision should be
interpreted at the “shipper” level versus at the “shipment” level. UPS focuses on
the obligation in ¶ 24 to audit “shippers.” According to UPS, if there is a reasonable
belief that a shipper may be tendering cigarettes for delivery, and UPS fails to audit
that shipper, such failure results in a single violation. Thus, no matter how long
that violation continues and no matter how many packages are tendered to UPS by
a shipper, the total number of violations per shipper would be “one.”
This is an unreasonable interpretation. The trigger for ¶ 24 is a reasonable
basis to believe the shipper may be tendering cigarettes. Audits are conducted with
regard to packages. Under UPS’s interpretation, if it allowed such tendering to go

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on day in and day out, without an audit, the penalty UPS would incur would be the
same on day one as on day 300 ($1,000). This would create a perverse counterincentive: The longer UPS failed to audit and thereby discover cigarettes (triggering
discipline), the longer a shipper could use UPS’s services for cigarette delivery.
Under this theory, once an audit obligation attached UPS would be financially
incented not to audit until at least the revenues associated with that shipper
exceeded the penalty. This makes no sense in light of the other provisions and
intent of the parties expressed in the AOD.
1.

Proof to the Reasonable Satisfaction of the State Attorney
General

UPS also argues that the penalty provision contained in ¶ 42 allows it to
avoid penalties when it has demonstrated “to the reasonable satisfaction of the New
York Attorney General that UPS did not know and had no reason to know that the
shipment was a Prohibited Shipment.” (AOD, DX 23 ¶ 42.) As discussed above, in
2011 the New York Attorney General communicated with UPS regarding penalties
for unspecified violations of the AOD in connection with only three shippers—the
so-called Potsdam Shippers (Action Race Parts, Mohawk Spring Water, and Jacobs
Manufacturing/Tobacco). Based on the fact that these communications followed the
seizure of cigarettes, it is reasonable to infer that the obligations specifically at
issue were those set forth in ¶¶ 17 and 43(a) (“knowing shipments”). Plaintiffs are
not seeking penalties for such violations here—they seek penalties only for
violations of the audit obligation in ¶ 24.

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Nevertheless, defendant points out that after some back and forth,
including a proffer by UPS of its position, the State did not take any action. UPS
points to this series of events as supportive of a finding that it had established “to
the reasonable satisfaction” of the Attorney General that it had not violated the
AOD in any regard. UPS points to the absence of any claims relating to the
Potsdam Shippers in plaintiffs’ original complaint as further evidence of the
Attorney General’s satisfaction. (See ECF No. 1.)113
UPS’s argument fails. As stated, plaintiffs are not seeking the imposition of
AOD penalties for knowing shipments. As a result, even if the Court were to find
that UPS had proven to the satisfaction of the New York Attorney General that it
had not knowingly transported cigarettes, such a finding does not eliminate liability
for separate violations of the audit obligation.114
UPS also argues that these same events support its waiver or laches
defenses with regard to the three Potsdam Shippers. These arguments are
similarly unavailing. The basic elements of laches are well established: “(1) the
plaintiff knew of the defendant’s misconduct; (2) the plaintiff inexcusably delayed in
taking action; and (3) the defendant was prejudiced by the delay.” Ikelionwu v.
United States, 150 F.3d 233, 237 (2d Cir. 1998). A waiver requires an intentional

UPS also makes a spoliation argument that was not raised before trial: that plaintiffs failed to
preserve certain 2011 documents, thereby prejudicing UPS. UPS waived this argument by failing to
raise it during the discovery period.

113

The Court does, however, take these considerations into account when assessing whether UPS
honored the AOD.

114

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relinquishment of a known right, based on full information. Capitol Records, Inc. v.
Naxos of Am., Inc., 372 F.3d 471, 482 (2d Cir. 2004).
The parties debate whether either of these defenses are applicable to the
governmental-entity plaintiffs. The Court need not resolve that question because,
as a factual matter, UPS has failed to carry its burden to establish the requisite
elements. Plaintiffs simply never had full information to support either defense.115
As for waiver, there is certainly insufficient evidence to support intentional
relinquishment of any rights.
2.

Implied Covenant of Good Faith and Fair Dealing116

UPS counters any purported violations of the AOD with an assertion that
plaintiffs may not recover for such violations if they have themselves breached the
covenant of good faith and fair dealing implicit in the AOD. Specifically, UPS
argues that the AOD implicitly obligated the State to provide UPS with information
the State had regarding particular shippers. Instead, according to UPS, plaintiffs
accumulated information regarding non-compliant shippers and then sued UPS at a
point when there was no longer any opportunity to remediate. This argument is
without merit.

The Court need look no further than UPS’s own response to the inquiries by the New York
Attorney General: UPS denied any violations of the AOD. While it is true that UPS provided the
State with information at that time, there is no doubt that additional information came to light
much later.

115

116 In its answer, UPS also asserted “impracticability and frustration” as separate defenses. These
were abandoned in its final proposed findings of fact and conclusions of law. In any event, for all of
the many reasons discussed throughout this Opinion, such defenses lack adequate factual support
with regard to the AOD or any other claim.

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Every contract is subject to an implied covenant of good faith and fair
dealing, which comprises “‘any promises which a reasonable person in the position
of the promisee would be justified in understanding were included’” in the contract.
Nat’l Mkt. Share, Inc. v. Sterling Nat’l Bank, 392 F.3d 520, 525 (2d Cir. 2004)
(quoting Dalton v. Educ. Testing Serv., 663 N.E.2d 289, 291 (N.Y. 1995)) (alteration
omitted). This covenant applies both in the context of an assurance of
discontinuance and where the party at issue is a governmental entity. C.f.
Handschu v. Special Servs. Div., No. 71-cv-2203, 2007 WL 1711775, at *10 n.10
(S.D.N.Y. June 13, 2007) (noting that the NYPD was subject to the covenant of good
faith and fair dealing where it was party to a consent decree).
This defense fails here for the simple reason that the State had (and has)
neither an implicit nor an explicit obligation to provide UPS with any
information.117 The AOD does not contain a contractual provision requiring any
such sharing of information, and to require the State to assume such an obligation
would add a significant term to the agreement. The law is clear that a court should
not, under the guise of the covenant of good faith and fair dealing, rewrite a
contract. Nat’l Gear & Piston, Inc. v. Cummins Power Sys., LLC, 861 F. Supp. 2d
344, 365 (S.D.N.Y. 2012) (“‘The duty of good faith and fair dealing is a tool of

117 UPS attempts to ground the State’s alleged breach in a statement in the AOD that the agreement
is intended to “promote further and ongoing cooperation between UPS and the Attorney General
concerning UPS’s compliance with [State law].” (AOD, DX 23 ¶ 15.) But this statement is contained
in a “whereas clause” recital which, as a matter of law, does not create a contractual obligation. See
Abraham Zion Corp. v. Lebow, 761 F.2d 93, 103 (2d Cir. 1985) (noting that “[a]lthough a statement
in a ‘whereas’ clause may be useful in interpreting an ambiguous operative clause in a contract, it
cannot create any right beyond those arising from the operative terms of the contract” (internal
quotation marks omitted)).

138

interpretation that cannot be used to rewrite a contract and impose new terms.
Thus, courts have generally been reluctant to find a breach of the implied covenant
of good faith when doing so reads so much into the contract as to create a new term
or when alleged misconduct is expressly allowed by the contract.’” (quoting In re
Musicland Holding Corp., 386 B.R. 428, 438-39 (Bankr. S.D.N.Y. 2008)); see also,
e.g., Filner v. Shapiro, 633 F.3d 129, 141 n.1 (2d Cir. 1980) (“Under the guise of
interpreting a contract, a court should not rewrite it.”); Reiss, 764 N.E.2d at 961
(“[C]ourts may not by construction add or excise terms, nor distort the meaning of
those used and thereby make a new contract for the parties under the guise of
interpreting the writing.” (quotation marks omitted)).
UPS next argues that even if the State’s cooperation with UPS is
discretionary, the implied covenant of good faith and fair dealing “includes a
promise not to act arbitrarily or irrationally in exercising that discretion,” TIG Ins.
Co. v. Newmont Mining Corp., 413 F. Supp. 2d 273, 281 (S.D.N.Y. 2005) (quoting
Dalton, 87 N.Y.2d at 389), aff’d, 226 F. App’x 49 (2d Cir. 2007). Thus, UPS argues,
even if the State were not required to share information, good faith precludes it
from withholding all cooperation, permitting damages to mount over a period of
years, and then suing UPS under the contract the State decided not to implement.
This defense fails for a clear factual reason: There is insufficient evidence to
support it. First, there is no evidence that the State acted arbitrarily or irrationally
in exercising its discretion. But second, the proven facts demonstrate that when
UPS actually was provided with certain information from other governmental

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authorities—namely, the NCLs from the ATF—it ignored them. For instance, Cook
noticed Smokes & Spirits on the NCL in August 2013, and in December 2013 New
York City warned UPS by email that Smokes & Spirits was a possible cigarette
shipper. (Cook Decl., DX 600 ¶¶ 109, 110, 96.) Yet UPS did not audit Smokes &
Spirits until late January 2014. (Id. ¶ 97.) The Court has no reason to believe that
such information (other than in a form indicating a formal investigation had begun)
would have resulted in prompt, compliant action by UPS.
Whether the AOD Was “Honored”
As discussed above, the PACT Act specifically exempts common carriers
with AODs (or similar agreements) relating to “tobacco product deliveries to
consumers” if those AODs are “honored” throughout the United States.
New York v. United Parcel Serv., 179 F. Supp. 3d 282, 294 (S.D.N.Y. 2016). This
includes:
(I) . . . the [AOD] entered into by the Attorney General of New York and
United Parcel Service, Inc., on or about October 21, 2005 . . . if each
of those agreements is honored throughout the United States to block
illegal deliveries of cigarettes . . . 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 . . . shall be made to consumers[.]
15 U.S.C. § 376a(e)(3)(B)(ii)(I), (II).
Thus, if UPS’s AOD is “honored throughout the United States to block
illegal delivery of cigarettes,” it is exempt from the PACT Act. If the AOD is not so

140

honored, the exemption is eliminated.118 This Court has issued two rulings on the
appropriate interpretation of what to be “honored” throughout the United States
means. (ECF Nos. 49, 206.) In short, the Court has previously held that if UPS
itself implements the AOD and honors its contractual obligations on a nationwide
basis, then the AOD has been honored by UPS. (See ECF No. 49 at 15-17, New
York v. United Parcel Serv., 131 F. Supp. 3d 132, 140-41 (S.D.N.Y. 2015).) As the
Court previewed in its April 19, 2016 Opinion on this topic, a common carrier’s
entitlement to the benefits of the PACT Act’s exemption would be lost if “the
effectiveness of UPS’s [compliance] policies [were] so compromised that the[] policies
are not in fact in place.” 179 F. Supp. 3d at 306. That conclusion of law is proven
by evidence of “a sufficiently large number of instances of shipments of contraband
cigarettes” as to establish that “UPS is, overall, turning a blind eye towards such
unlawful shipments” or that “UPS policymakers have in fact turned a blind eye to
shipments of contraband cigarettes.” Id.
It is, of course, of no moment if the violations here at issue originate only in
New York. Persistent or widespread violations wherever located can indicate that
the AOD is not being honored by UPS.119 Nothing in the PACT Act suggests the
contrary. Indeed, it would be odd to find that an AOD was not honored in its home
state (here, New York) due to flagrant and repeated violations, but that because the
home-state Attorney General did not prove violations in other states, the AOD was

118

Once the exemption is eliminated, as it is here, the Court must further determine “as of when.”

The evidence at trial, including addresses on cigarette tracers, supports UPS transporting
cigarettes to individuals outside of New York.

119

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nonetheless “honored” nationally. In all events, the mere fact of a single violation—
or even several—in any state (including New York) is insufficient to demonstrate
that UPS is not honoring its AOD. Thus, an audit violation regarding a single
shipper would be insufficient. The Court also considers the presence of procedures
to ensure compliance. As discussed above, the Court has found that until this
lawsuit was filed in February 2015, UPS’s procedures were inadequate.
Because UPS has violated so many different AOD obligations as to so many
shippers, this Court easily finds that, up to the date this lawsuit was filed, UPS was
not honoring the AOD.
In this regard, the Court observes that while plaintiffs seek penalties only
with regard to the audit provision in ¶ 24 of the AOD, there is ample evidence to
find numerous violations of ¶¶ 17, 25, 26-33, 35, and 42 as well. In addition, these
violations were in connection with accounts for a number of different shippers
overseen by different Account Executives and serviced by different UPS drivers and
Processing Centers. Moreover, these violations were not isolated in time but
occurred over a period of years. Together, these facts support a finding of UPS’s
widespread and persistent failure to honor the AOD.
The Court next turns to the further question of timing: When did UPS’s
conduct reach the point of failure to honor the AOD? That is, when was UPS’s
conduct persistent enough and widespread enough? As to that question, the Court
refers back to the findings of fact with regard to the Relevant Shippers. It is
apparent that at least as of the fall of 2010—when the PACT Act became effective

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and UPS began picking up business from other carriers as a result—UPS should
have “put two and two together;” when it received cigarette tracers for the Relevant
Shippers in the summer and fall of 2010, the scales tipped further. By November 1,
2010, there were already a number of instances when UPS had a reasonable basis
to believe shippers may have been tendering cigarettes, and it looked the other way.
Thus, the Court finds that not later than December 1, 2010 (a month later), it was
evident that UPS was not taking appropriate action and that UPS was no longer
honoring the AOD.
The next question is what, precisely, the lack of a PACT Act exemption
means. UPS’s violations continued until the filing of this lawsuit.120 The Court
finds that by the time of the lawsuit’s filing, UPS’s determined and serious actions
reached a point at which its compliance efforts to comply brought it back into a
position of honoring its obligations under the AOD. Thus, as of February 18, 2015,
UPS was again honoring the AOD.
In sum, the Court finds that UPS was exempt from the PACT Act until
December 1, 2010. It lost its exemption for the period between December 1, 2010
and February 18, 2015, but acquired it again after that point.
UPS argues that as late as 2013 the State conceded that UPS was entitled
to the PACT Act exemption. Its support for this rather surprising proposition are

As stated above, UPS remains in breach with regard to Seneca Promotions. However, as
mentioned, one ongoing audit obligation for one shipper is insufficient to support a finding that the
AOD is not being honored. Nevertheless, the Court strongly suggests UPS conduct random audits of
Seneca Promotion to resolve whether they are tendering cigarettes.

120

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the discussions between the State and UPS during the late summer and fall of 2013
regarding whether UPS would voluntarily agree to prohibit service to shippers
identified on the NCLs. (See Trial Tr. 269:23-270:20.) UPS draws an overbroad
conclusion from these discussions. While the discussions may lead to an inference
that the State did not have sufficient information at that time to suggest that the
AOD was not being honored, it does not prove that the AOD was actually being
honored. Until the State had access to the variety of materials it sought in
discovery in this case and in response to subpoenas, it did not possess full
information. The State did not knowingly and intentionally waive any claim to
violations of the AOD.
KNOWLEDGE
As previewed at the outset of this opinion, plaintiffs’ claims for violations of
the PACT Act, PHL § 1399-ll, CCTA, and ¶¶ 17 and 42 of the AOD require UPS’s
“knowing” transport of cigarettes. For instance, the PACT Act provides that,
subject to certain exceptions, “no person who delivers cigarettes . . . 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” a list of
non-compliant shippers maintained by the U.S. Attorney General (the NCLs). 15
U.S.C. § 376a(e)(2)(A) (emphasis added).121 PHL § 1399-ll requires that plaintiffs
prove that UPS “knowingly transport[ed] cigarettes to any person in this state

121 The PACT Act also provides that it does not require or obligate “[a]ny common carrier . . . making
a delivery subject to this subsection” to “(iii) open or inspect, pursuant to this chapter, any package
being delivered to determine its contents.” 15 U.S.C. § 376a(e)(9)(A).

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reasonably believed by such carrier to be” anyone other than an authorized
recipient, as defined in PHL § 1399-ll(1). Paragraphs 17 and 42 of the AOD
incorporate the liability standard from PHL § 1399-ll. Thus, a violation of the AOD
occurs if UPS knowingly delivered cigarettes.122 Paragraph 17 of the AOD
incorporates the provisions of PHL § 1399-ll(2). And finally, to establish a CCTA
violation, plaintiffs must prove that UPS knowingly shipped, transported, received,
possessed, sold, distributed, or purchased “contraband” cigarettes. 18 U.S.C.
§§ 2342(a), 2341(2).
The Court discusses the legal principles underpinning its findings of
knowledge below.
Knowledge
In 1969, the Supreme Court adopted the use of the word “knowledge” as set
forth in the then-current draft Model Penal Code (which remains in the Model
Penal Code today): “When knowledge of the existence of a particular fact is an
element of an offense, such knowledge is established if a person is aware of a high
probability of its existence, unless he actually believes that it does not exist.” Leary
v. United States, 395 U.S. 6, 46 n.93 (1969) (quoting Model Penal Code § 2.02 (Am.
Law Inst., Proposed Official Draft 1962)); Model Penal Code § 2.02(7) (2015). A
party acts knowingly when he/she proceeds intentionally with knowledge and “not
because of ignorance, mistake, accident or carelessness.” See United States v.
Kelly, 147 F.3d 172, 177 (2d Cir. 1998). While there are different ways one may

122

These are entirely separate breaches from the audit obligation set forth in AOD ¶ 24.

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acquire knowledge—for instance, directly, or through willful blindness/conscious
avoidance—the law does not privilege one over the other. See United States v.
Ferguson, 676 F.3d 260, 278 (2d Cir. 2011). Direct knowledge is most frequently
acquired by way of one’s own senses, e.g., one comes to know a fact by seeing it,
hearing it, touching it, otherwise sensing it. But one can “know” a fact without
direct sensory input. In this regard, the law deems a person to have “knowledge”
when he or she has a strong suspicion that a fact exists, but intentionally avoids
confirmation. Global-Tech Appliances, Inc. v. SEB S.A., 563 U.S. 754, 766 (2011);
Viacom Int’l v. YouTube, Inc., 676 F.3d 19, 34 (2d Cir. 2012); Tiffany (NJ) v. eBay,
Inc., 600 F.3d 93, 109-10 (2d Cir. 2010) (“[W]illful blindness is equivalent to actual
knowledge[.]” (citation and quotation marks omitted))
Intentionally avoiding confirmation of a fact is willful blindness or conscious
avoidance.123 See Global-Tech Appliances, 563 U.S. at 766; United States v.
Fofanah, 765 F.3d 141, 144 (2d Cir. 2014). These doctrines are materially similar.
Fofanah, 765 F.3d at 144. A finding of either requires proof that (1) the defendant
subjectively believe that there is a high probability that a fact exists, and (2) he/she
must have taken deliberate action to avoid learning of that fact. Global-Tech, 563
U.S. at 766; United States v. Svoboda, 347 F.3d 471, 477-78 (2d Cir. 2003). The
requirement of deliberate action gives willful blindness a scope that goes beyond

“Deliberate indifference” was once a third way in which courts described such avoidance. See,
e.g., United States v. Reyes, 302 F.3d 48, 54 (2d Cir. 2002). However, in 2011, the Supreme Court
held that the “deliberate indifference” standard fails to require sufficient active efforts to avoid
knowledge (though, in that case, the underlying facts were sufficient to support a finding of willful
blindness). Global-Tech, 563 U.S. at 769.
123

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recklessness or negligence. Global-Tech, 563 U.S. at 769. “Under this formulation,
a willfully blind defendant is one who takes deliberate actions to avoid confirming a
high probability of wrongdoing and who can almost be said to have actually known
the critical facts.” Id. As a result, a defendant may not escape a finding of
“knowing” a fact if he/she deliberately shields him/herself from clear evidence of
critical facts strongly suggested by the circumstances. Id.; see also Fofanah, 765
F.3d at 144; Svoboda, 347 F.3d at 477-78.
While Global-Tech requires proof of deliberate actions, the standard does not
require proof of an identifiable “affirmative act[].” Fofanah, 765 F.3d at 150 (Leval,
J., concurring) (“Our statements that the evidence must support a finding that the
defendant “consciously” or “deliberately” avoided referred to a requisite state of
mind, not to a need for affirmative acts. . . . A finding that a defendant’s ignorance
of incriminating facts was a conscious choice on the defendant’s part in no way
requires a finding that the defendant took affirmative steps to avoid gaining the
knowledge. It does not depend, for example, on the defendant having said ‘I don’t
want you to tell me how you obtained these stacks of neatly bound $100 bills,
packed in bags labeled ‘Brink’s’’”). Courts look to the totality of the circumstances.
“There must be evidence capable of supporting a finding that the defendant was
aware of a high probability of the [incriminating] fact in dispute and consciously
avoided confirmation of that fact.” Id. (quotation marks omitted). From time to
time, defendants have argued that while they may have believed a fact, they did not
“know” the fact to be true; binding case law has found that the difference between

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belief and knowledge is “a distinction without a difference.” United States v.
Nektalov, 461 F.3d 309, 315 (2d Cir. 2006). “The rationale for the conscious
avoidance doctrine is that a defendant’s affirmative efforts to ‘see no evil’ and ‘hear
no evil’ do not somehow magically invest him with the ability to ‘do no evil.’” United
States v. Adeniji, 31 F.3d 58, 62 (2d Cir. 1994) (internal quotation marks omitted);
see also Nektalov, 461 F.3d at 315. The Second Circuit has found that the presence
of “red flags” can support a finding of actual knowledge and conscious avoidance.
Ferguson, 676 F.3d at 278 (“Red flags about the legitimacy of a transaction can be
used to show both actual knowledge and conscious avoidance.”); see also Nektalov,
461 F.3d at 312, 317. In Ferguson, the Second Circuit found that red flags—such as
secret side agreements, a fake offer letter, and an insistence on strict
confidentiality—supported knowledge in the context of an allegedly fraudulent
reinsurance transaction. 676 F.3d at 278.
The Court has set forth its findings of fact with regard to the Relevant
Shippers above. It previewed its legal conclusions by separating the shippers into
three groups. The first group comprises those shippers as to whom the Court has
found sufficient facts to support finding violations of the audit obligation, as well as
facts supportive of actual shipments of cigarettes and UPS’s knowledge of such
shipments. A subgroup comprises those shippers as to whom this Court has found
sufficient evidence to support the violations of the audit obligation, but not the fact
of shipments and/or UPS’s knowledge thereof. The second group therefore
corresponds to the Liability Shippers as to whom the Court found plaintiffs have

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carried their burden as to AOD audit violations, but finds they have failed to carry
their burden with respect to statutory violations requiring knowledge. The Court
now turns to the basis for its legal conclusion that the facts support a finding of
UPS’s knowledge.
The knowledge at issue in this case concerns UPS’s knowledge that certain
shippers were tendering packages containing cigarettes, and that in the face of such
knowledge, UPS nonetheless stood down in various ways, including by not probing
further, not conducting audits, and ultimately agreeing to transport such packages.
As to each shipper, the Court made its ultimate finding based on a preponderance of
the evidence and based upon the legal principles recited herein.
Without reviewing each shipper again, the evidence supportive of the
Court’s finding of knowledge included, inter alia, the past history with the shipper;
knowledge of activity from its address; the tracers; the NCLs; the Tobacco Watchdog
Group letter; the wares a shipper sold; signage; visible inventory in a warehouse;
the use of the terms “cigar,” “tobacco,” or “cigarette” in a name or URL; the use of
multiple accounts; business acquisition or significant increase after the passage of
the PACT Act; proximity to a reservation with a prior history of cigarette shipping;
and high-volume shipments from residential addresses. There are additional facts
recited with regard to each shipper set forth above.
UPS’s knowledge of these facts was based on what different personnel
knew—individually and collectively. The question naturally arises as to whether
facts known to certain UPS employees, including an Account Executive, a driver, a

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customer service representative, the legal department, and the security group,
among others, establishes sufficient knowledge and whether that knowledge may be
imputed to UPS.124
Imputation of Knowledge125
It is true that certain facts upon which the Court has relied for its finding of
knowledge were known only to one or a limited number of employees within UPS.
The question next arises whether such knowledge may properly be imputed to UPS
as a corporate entity. On the facts in the trial record, the answer is yes.
As a corporate defendant, UPS acts only through its employees and agents.
Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 101 (2d Cir.
2001). Principles of agency law provide that a corporation can be held liable for the
acts of employees or agents when they are acting within the scope of their authority.
Reino de España v. Am. Bureau of Shipping, 691 F.3d 461, 473 (2d Cir. 2012).
Knowledge that an agent acquires during the course of performing his or her job

In all instances in which this Court has found a sufficient basis for a violation of the audit
obligation or statutory provision at issue, there was sufficient evidence to support such conclusion
based solely on the knowledge of assigned Account Executive and driver. The evidence supports an
interdependent working relationship between those two categories of personnel to support a client.
Nonetheless, the Court notes that the record contains additional evidence (supporting knowledge)
from the customer service representatives and legal groups (who had direct knowledge of the tracers
and NCLs). These individuals also played a role, though less direct, in supporting the client
relationship. As the Court describes, most information was distributed among various personnel.
124

The related doctrine of respondeat superior similarly provides that a corporation may be held
liable for the torts of its employees. E.g., Holmes v. Gary Goldberg & Co., 838 N.Y.S.2d 105 (N.Y.
App. Div. 2d Dep’t 2007) (“Pursuant to the doctrine of respondeat superior, liability for an employee’s
tortious acts may be imputed to the employer when they were committed ‘in furtherance of the
employer’s business and within the scope of employment.’” (quoting N.X., v. Cabrini Med. Ctr., 765
N.E.2d 844, 847 (N.Y. 2002)). It is certainly true that certain facts upon which the Court has relied
for its finding of knowledge were known only to one or a limited number of employees within UPS.
The question next arises whether such knowledge may properly be imputed to UPS. The answer in
all instances is yes.
125

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responsibilities may be imputed to an employer. Id. (For knowledge of an agent to
be imputed to a principal, “the information at issue . . . [must go] to matters within
the scope of the agency.”); Apollo Fuel Oil v. United States, 195 F.3d 74, 76 (2d Cir.
1999) (“In general, when an agent is employed to perform certain duties for his
principal and acquires knowledge material to those duties, the agent’s knowledge is
imputed to the principal.”). Under Apollo Fuel Oil, employees’ knowledge acquired
within the scope of their employment is imputed to the corporation. 195 F.3d at 76
(citing Restatement (Second) of Agency §§ 9(3), 268, 272, 275 (1958)); accord Consol.
Edison Co. of N.Y., Inc. v. United States, 221 F.3d at 364, 370 (2d Cir. 2000)
(discussing imputation of an employee’s knowledge to an employer); Steere Tank
Lines, Inc. v. United States, 330 F.2d 719, 722 (5th Cir. 1964) (same); United States
v. Inc. Vill. of Island Park, 888 F. Supp. 419, 437 (E.D.N.Y. 1995) (“An agent’s acts
are within the scope of his actual authority if it . . . is actuated, at least in part, by a
purpose to serve the master.” (internal quotation marks omitted)).
An act is deemed to be within the scope of employment if it is performed
while an employee is engaged generally in the business of his employer, or if his act
may be reasonably said to be necessary or incidental to such employment. Harisch
v. Goldberg, No. 14-cv-9503, 2016 WL 1181711 at *14 (S.D.N.Y. Mar. 25, 2016). In
addition, the presumption of corporate knowledge is conclusive, even if the
corporate employee never communicated the information to her superiors. N.Y.
Univ. v. First Fin. Ins. Co., 322 F.3d 750, 753 n.2 (2d Cir. 2002) (citing Center v.
Hampton Affiliates, 488 N.E.2d 898, 899 (N.Y. 1985)).

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Thus, “a corporation may be charged with the collective knowledge of its
employees[.]” First Equity Corp. of Fla. v. Standard & Poor’s Corp., 690 F. Supp.
256, 260 (S.D.N.Y. 1988), aff’d, 869 F.2d 175 (2d Cir. 1989). Corporations often
compartmentalize information, whether for efficiency, practicality, or both. But
such compartmentalization does not shield a company from knowledge maintained
by employees in such a structure.
United State v. Bank of New England is instructive. There, the court
stated:
Corporations compartmentalize knowledge, subdividing the elements
of specific duties and operations into smaller components. The
aggregate of those components constitutes the corporation’s knowledge
of a particular operation. It is irrelevant whether employees
administering one component of an operation know the specific
activities of employees administering another aspect of the operation:
[A] corporation cannot plead innocence by asserting that the
information obtained by several employees was not acquired by any
one individual who then would have comprehended its full import.
821 F.2d 844, 856 (1st Cir. 1987) (internal quotation marks omitted); see also id.
(“Since the Bank had the compartmentalized structure common to all large
corporations, the court’s collective knowledge instruction was not only proper but
necessary.”)). A corporation is considered to have acquired the collective knowledge
of its employees and is held responsible for their failure to act accordingly. Id. at
856 (internal citations omitted); see also In re Worldcom, Inc. Secs. Litig., 352 F.
Supp. 2d 472, 497 (S.D.N.Y. 2005) (“To carry their burden of showing that a
corporate defendant acted with scienter, plaintiffs . . . need not prove that any one

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individual employee of a corporate defendant also acted with scienter. Proof of a
corporation’s collective knowledge and intent is sufficient.”).
Imputation does not, however, apply to facts hidden from an employer. If
an employee has failed to disclose all material facts relating to performance of his or
her agency, such undisclosed facts may not be imputed to the principal, i.e., the
employer. Hampton Affiliates, 488 N.E.2d at 829-30. “However, ‘this [is the] most
narrow of exceptions,’ ‘reserve[d] . . . for those cases—outright theft or looting or
embezzlement—where the insider’s misconduct benefits only himself or a third
party; i.e., where the fraud is committed against a [principal] rather than on its
behalf.” Republic of Iraq v. ABB AG, 768 F.3d 145, 166 (2d Cir. 2014) (quoting
Kirschner v. KPMG LLP, 937 N.E.2d 941, 952 (N.Y. 2010)). “To come within the
exception, the agent must have totally abandoned his principal’s interests and be
acting entirely for his own or another’s purposes.” Id. (quoting Center, 488 N.E.2d
at 830). Here, the Court has already found that the acts of UPS employees
(including Fink) vis-à-vis the Liability Shippers were within the scope of their job
responsibilities.
The Court also finds imputation appropriate because the employees did not
hide or otherwise fail to disclose material facts necessary to its finding of
knowledge. Instead, the Court finds that information obvious to drivers and to
account personnel (much of which could not be or was not hidden), along with
information contained in UPS internal documents accessible to others within the
organization, are sufficient to support UPS’s liability. But in addition, the Court

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finds a corporate culture that broadly accepted non-compliance. Accordingly, while
the record does not indicate affirmatively that every fact was shared widely, the
evidence reasonably supports an inference that material facts were not withheld.
That the record does not contain direct evidence of explicit disclosure does not erase
the circumstantial evidence supporting widespread knowledge of material facts
relating to each account.
Presumptions of Knowledge for Common Carriers
Another way in which UPS may be deemed to have knowledge is through
“regulatory” imputation. As a regulated common carrier, UPS is presumed to
possess knowledge of all laws and regulations pertaining to its business, including
specifically as they relate to the transport of dangerous goods:
[I]nterstate motor carriers are members of a regulated industry, and
their officers, agents, and employees are required by law to be
conversant with the regulations in question. As a practical matter,
therefore, they are under a species of absolute liability for violation of
the regulations despite the ‘knowingly’ requirement. This, no doubt, is
as Congress intended it to be. Likewise, prosecution of regular
shippers for violations of the regulations could hardly be impeded by
the “knowingly” requirement, for triers of fact would have no difficulty
whatever in inferring knowledge on the part of those whose business it
is to know, despite their protestations to the contrary.
U.S. v. Int’l Minerals & Chem. Corp., 402 U.S. 558, 569 (1971) (Stewart, J.
dissenting) (citations and footnote omitted). “[A] corporate defendant is deemed to
have had knowledge of a regulatory violation if the means were present by which
the company could have detected the infractions.” United States v. T.I.M.E.-D.C.,
381 F. Supp. 730, 739 (W.D. W. Va. 1974).

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Here, UPS personnel are deemed broadly to be aware of the PACT Act,
CCTA, and PHL § 1399-ll. In addition, UPS certainly had the means to understand
that certain of its clients were shipping cigarettes. For instance, UPS had an audit
right, and it could open packages. And in the course of providing its services, it
learned information about a customer’s business. Of course, it would know a
customer’s location, its name, whether it was located in a storefront (or located at a
residential address), the goods it sold, the signage it used for advertisement; UPS
had its Tobacco Policy, which acknowledged tobacco shipments (and yet there were
instances in which even that was not enforced appropriately). UPS knew that
certain customers were high risk—indeed, at times it said so; it had access to the
NCLs. UPS had the means to monitor and discover regulatory violations, and there
were red flags aplenty.
Knowledge as to Each Shipper
Based upon the facts discussed in the Court’s findings of fact, and based upon
the application of the legal standard, the Court has made its determinations with
regard to UPS’s knowledge of facts relating to each Relevant Shipper’s shipments as
set forth above.
LIMITATIONS PERIOD
One of UPS’s defenses is that the applicable statutes of limitations bar
certain claims. According to UPS, the applicable statutes of limitations preclude
CCTA and PACT Act claims for violations prior to September 18, 2010; and

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preclude PHL § 1399-ll and AOD claims for violations prior to September 18, 2011.
(Def. Proposed Findings of Fact, ECF No. 492 at 264.)
The Court does not find violations of the CCTA or PACT Act prior to
September 18, 2010, and therefore need not address defendant’s statute-oflimitations arguments as to these bases for liability. Additionally, the Court agrees
that the statute of limitations for violations of PHL § 1399-ll is three years plus the
five months of a voluntary tolling agreed to by the parties. The Court’s rationale is
as follows: Under New York law, the applicable limitations period for an action to
recover upon a liability, penalty, or forfeiture created or imposed by statute is three
years. N.Y. C.P.L.R. § 214(2). For a claim to fall within the confines of C.P.L.R.
§ 214(2), the statute must impose liability “‘for wrongs not recognized in the
common or decisional law.’” Banca Commerciale Italiana v. N. Tr. Int’l Banking
Corp., 160 F.3d 90, 94 (2d Cir. 1998) (quoting State v. Stewart’s Ice Cream Co., 64
N.Y.2d 83, 88 (1984)). Here, plaintiffs’ claims against UPS for “knowingly
transport[ing] cigarettes” would not exist but for the statute and, therefore, are
governed under the three-year limitations period set forth in C.P.L.R. § 214(2). See,
e.g., Motor Vehicle Acc. Indem. Corp. v. Aetna Cas. & Sur. Co., 674 N.E.2d 1349,
1352 (N.Y. 1996) (“No-Fault Law does not codify common-law principles; it creates
new and independent statutory rights and obligations” and thus is governed by N.Y.
C.P.L.R. § 214(2). (quotation marks omitted)); Zeides v. Hebrew Home for the Aged
at Riverdale, Inc., 753 N.Y.S.2d 450, 452 (N.Y. App. Div. 1st Dep’t 2002) (plaintiff’s
cause of action under P.H.L. § 1801-d, which confers a private right of action on a

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patient in a nursing home for injuries sustained as the result of the deprivation of
statutorily specified rights, is governed by the three-year period of limitations of
C.P.L.R. § 214(2)). The parties also entered into a tolling agreement for a period of
five months, from July 24, 2014, through December 24, 2014. Accordingly, any
violations of PHL § 1399-ll are cognizable only if they occurred no earlier than three
years and five months prior to the filing of this suit, i.e., no earlier than September
18, 2011.
Defendant also seeks to limit recovery for AOD violations to the same threeyear statute of limitations. That is incorrect. The AOD is a contract, and under
New York law the statute of limitations for contract claims is six years. C.P.L.R.
§ 213(2); Town of Oyster Bay v. Lizza Indus., Inc., 4 N.E.3d 1024, 1030 (N.Y. 2013)
(“A breach of contract action must be commenced within six years from the accrual
of the cause of action.” (citations omitted)). Not only is the contractual nature of the
AOD clear from its form, its terms, and consideration provided by the parties, its
obligations are different from and in addition to statutory requirements. For
instance, the AOD’s audit requirement is an obligation that exists nowhere in state
or federal statutes and for which the AOD provides its own, independent remedy.
Therefore, the six-year statute of limitations applies to all claims arising from
breaches of UPS’s AOD obligations, including its audit obligation. As a result, none
of the AOD violations found by the Court are time barred.

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As discussed below, when the parties provide the number of defined
“Packages” and “Cartons” for the Liability Shippers, they should do so according to
these time frames.
THE PACT ACT
As explained above, the PACT act directs the Attorney General to compile a
list of cigarette and smokeless tobacco delivery sellers that have not registered with
the Attorney General or “are otherwise not in compliance with [the] Act” (i.e. the
“non-compliant list” or “NCL”). 15 U.S.C. § 376a(e)(1)(A). Sixty days after the
Attorney General distributes the NCL, “no person who receives the list . . . and no
person who delivers cigarettes or smokeless tobacco to consumers, shall knowingly
complete its portion of a delivery of any package for any person whose name and
address are on the list . . . .”126 Id. § 376a(e)(2)(A). Importantly, the PACT Act also
prohibits a carrier such as UPS from making deliveries on behalf of a known seller
identified on the NCL when the carrier knows that such seller “is using a different
name or address to evade the delivery restrictions.” Id. § 376a(e)(9)(B)(ii). All
recipients and common carriers are also subject to the prohibitions on delivery
described above with regards to any updates to the NCL thirty days after such
updates have been distributed or made available. Id. § 376a(e)(2)(B).
Plaintiffs allege that UPS violated the PACT Act by delivering packages from
sellers that UPS knew were identified on the NCLs (or were affiliated with entities
identified on the NCLs). Specifically, plaintiffs seek penalties under the PACT Act

126

There are certain exceptions that are not relevant here.

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for deliveries made by UPS to the “Elliott Enterprises Group,”127 Indian Smokes,
and the “Smokes and Spirits Group.”128
As the Court has already explained, UPS is not exempt from the PACT Act;
the Court finds that UPS violated the PACT Act by knowingly delivering packages
from sellers identified on the NCLs, which UPS received. However, the Court also
finds that plaintiffs are not entitled to PACT Act penalties relating to all of the
shippers for which they seek such penalties. The Court’s conclusions are as follows:


Elliott Enterprises first appeared on the NCL dated November 10,
2010. (PX 472.) UPS received the first NCL on November 11, 2010.
UPS lost its PACT ACT exemption by December 1, 2010. Because this
was the first NCL, UPS had sixty days to comply; its delivery of any
packages for Elliott Enterprises after January 10, 2011, was thus a
violation of the PACT Act.



Indian Smokes first appeared on the NCL dated May 6, 2011. (PX
450). This NCL was distributed by the ATF that day. As noted, UPS
had already lost its PACT Act exemption, and was therefore in
violation of the PACT Act for all shipments UPS delivered for Indian
Smokes starting thirty days thereafter, or as of June 6, 2011.



Smokes & Spirits first appeared on the NCL dated February 15, 2012.
(PX 450) The ATF distributed this NCL that day. Accordingly, UPS
became liable for PACT Act penalties for all shipments UPS delivered
for Smokes-Spirits on and after March 15, 2012.129

As discussed above, plaintiffs include Elliott Enterprises, Elliott Express (or EExpress), and
Bearclaw Unlimited/AFIA in this “group.”

127

As discussed above, plaintiffs include Smokes & Spirits, Native Outlet, A.J.’s Cigar, Sweet Seneca
Smokes, and RJESS in the “group.”

128

UPS argues that it cannot be liable under the PACT Act for deliveries made to Smokes & Spirits
because the PACT Act NCL identified Smokes & Spirits as being located at 6665 Route 417, Kill
Buck, New York, while UPS provided service to Smokes & Spirits at 137 Main Street, Salamanca,
New York 14779. This argument lacks merit. As the Court has already found in its findings of fact,
UPS knew, before the NCL was disseminated, that Smokes & Spirits was operating at 6665 Route
417, Kill Buck, New York (UPS provided service to Smokes & Spirits at that address). In all events,
plaintiffs have put forth sufficient evidence that UPS knew the Smokes & Spirits on the NCL was
the same Smokes & Spirits that UPS was servicing.

129

159

UPS’s liability under the PACT Act regarding Elliott Enterprises, Indian
Smokes, and Smokes & Spirits is clear. As the Court has described, however,
plaintiffs seek PACT Act penalties not only with regard to these entities (which
were explicitly identified on the NCLs), but also for other entities that plaintiffs
claim were affiliated in the same “groups.” UPS argues that even if they are subject
to PACT Act liability for Elliott Enterprises, Indian Smokes, and Smokes & Spirits,
they cannot be subject to PACT Act liability for other affiliated entities that were
not explicitly mentioned by “name and address” on the NCLs.
The Court finds that UPS is also subject to PACT Act liability for a subset—
but not all—of the additional shippers within the “groups” that plaintiffs identify.
Specifically, UPS is also subject to PACT Act liability for shipments made to
Bearclaw/AFIA and EExpress during the relevant time period identified above,130
but is not subject to PACT Act liability for Native Outlet, A.J.’s Cigars, Sweet
Seneca Smokes, or RJESS.
The PACT Act prohibits UPS from making deliveries on behalf of entities
known to be “using a different name or address [as those entities on the NCLs] to
evade the delivery restrictions.” 15 U.S.C. § 376a(e)(9)(B)(ii). The purpose of this
provision is clear from its text—to prevent cigarette shippers from using alternate

130

I.e after January 10, 2011.

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identities to evade delivery restrictions. The evidence in this case illustrates that
shippers did in fact use alternate identities to attempt to evade the law.
The facts here demonstrate that EExpress had a sufficiently close
relationship with Elliott Enterprises and that UPS Knew EExpress was in fact an
alter ego of Elliott Enterprises’s intended, inter alia, to evade the PACT Act’s
delivery restrictions.131 See Newspaper Guild of N.Y., 261 F.3d at 294; Empire
United Lines Co., 557 F. App’x at 45-46. EExpress was opened by Fink only days
after Elliott Enterprises’s account was terminated, and there was significant
customer overlap between the consignees of the two. There were clear connections
between Aaron Elliott, the principal of Elliott Enterprises—a known cigarette
shipper—and EExpress. These entities had significant overlap in customers,
business purpose, and operations. Cf. N.Y. Pattern Jury Instr., Civil 2:266, Liab.
for Conduct of Another (2016).
Similarly, there was a sufficiently close relationship such that UPS knew
Bearclaw was making shipments on behalf of Elliott Enterprises. As the Court has
already described, these entities shared a telephone number and Fink knew this
fact. Bearclaw was a mail-order business and its telephone number was therefore a
main point of contact (serving a similar function as a physical address would serve
for a non-mail-order entity). The Court has found that, based on the totality of the
evidence, UPS knew Bearclaw was shipping on behalf of Elliott Enterprises and

131

The Court has already described in detail the relevant legal principles concerning alter egos.

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used different names/addresses to avoid detection as a cigarette shipper. UPS is
thus liable for shipments to Bearclaw under the PACT Act.
UPS accurately points out that under the PACT Act it is “not . . . required to
make any inquiries or otherwise determine whether a person ordering a delivery is
a delivery seller on the list . . . who is using a different name or address in order to
evade the related delivery restriction . . . .” 15 U.S.C. § 376a(e)(9)(B)(i).
Significantly, however, UPS did have such an obligation under the AOD. In other
words, UPS is liable for the deliveries made to alter egos of known shippers on the
NCLs (i.e. Bearclaw/AFIA and EExpress”), even though the PACT Act does not
require UPS to acquire alias information.
The Court does not find, however, that there was a sufficiently close
relationship between Smokes & Spirits and the other entities plaintiffs included
within the “Smokes & Spirits Group” to warrant PACT Act liability for shipments to
those entities (Native Outlet, A.J.’s Cigar, Sweet Seneca Smokes, and RJESS). As
the Court has noted in its factual findings above, plaintiffs did not put forth
sufficient evidence that these additional entities were alter egos or were shipping on
behalf of Smokes & Spirits.
PHL 1399-LL
PHL § 1399-ll prohibits common carriers from “knowingly transport[ing]
cigarettes” to any person in New York State “reasonably believed by such carrier to
be other than a person described in paragraph (a), (b) or (c) of subdivision one of this

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section.” PHL § 1399-ll(2).132 UPS also assumed a separate, contractual obligation
to comply with PHL § 1399-ll in ¶ 17 of the AOD.
In enacting PHL 1399-ll the State legislature “declare[d] the shipment of
cigarettes sold via the internet or by telephone or by mail order to residents of [New
York] state to be a serious threat to public health, safety, and welfare, to the
funding of health care . . . , and to the economy of the state.” 2000 Sess. Laws of
N.Y., Ch. 262 (S.8177) § 1.
The PACT Act contains a provision that preempts state laws such as PHL
§ 1399-ll with regard to common carriers who have entered into an AOD and when
such AOD “is honored” throughout the United States. See 15 U.S.C.
§§ 376a(e)(5)(C)(ii), 376a(e)(3)(B)(ii)(I). The Court’s determination, set forth above,
that UPS’s AOD is not so honored eliminates this protection for UPS. The AOD
separately provides that a violation of its terms shall “also constitute prima facie
proof of a violation of PHL § 1399-ll(2), in any civil action or proceeding that the
Attorney General later commences.” (AOD, DX 23 ¶ 43.) Accordingly, in addition to
the violations of PHL § 1399-ll for knowing shipments of cigarettes described below,
the Court has separately found that UPS breached ¶ 42 of the AOD, and that this

There are exemptions of certain persons from PHL § 1399-ll that are not relevant here, including
“(a) a person licensed as a cigarette tax agent or wholesale dealer under article twenty of the tax law
or registered retail dealer under section four hundred eighty-a of the tax law; (b) an export
warehouse proprietor pursuant to chapter 52 of the internal revenue code or an operator of a
customs bonded warehouse pursuant to section 1311 or 1555 of title 19 of the United States Code; or
(c) a person who is an officer, employee or agent of the United States government, this state or a
department, agency, instrumentality or political subdivision of the United States or this state and
presents himself or herself as such, when such person is acting in accordance with his or her official
duties.” PHL § 1399-ll(2).
132

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breach involved the shipment of cigarettes. Thus, ¶ 43 of the AOD also provides a
basis for a violation of PHL § 1399-ll.
The facts as set forth above demonstrate that UPS in fact delivered
shipments of unstamped cigarettes to individuals who were not authorized to
receive them. The final issue is whether it did so with the requisite level of
knowledge.
As discussed above, as a common carrier of regulated goods, UPS is deemed
to have knowledge of whether the recipients of the packages it delivers “appear on a
list of licensed or registered agents or dealers published by the department of
taxation and finance, or . . . [are] licensed or registered as an agent or dealer under
article twenty of the tax law.” PHL § 1399-ll(1); see Int’l Minerals, 402 U.S. at 569;
Elshenawy, 801 F.2d at 859. Moreover, pursuant to PHL § 1399-ll(2), if a common
or contract carrier knowingly transports cigarettes “to a home or residence, it shall
be presumed that the common or contract carrier knew that such person was not a
person described in paragraph (a), (b) or (c) of subdivision one of this section.” PHL
§ 1399-ll(2). UPS has offered no evidence that the persons to whom it shipped
cigarettes were persons described in paragraph (a), (b), or (c) of subdivision one of
PHL § 1399-ll(2), i.e., were licensed tobacco dealers.
Moreover, UPS recorded in its delivery records the instances where it
delivered packages from Relevant Shippers to residential addresses; UPS is
therefore presumed to have actual knowledge that the recipients were unauthorized
for purposes of PHL § 1399-ll as to all of those deliveries.

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However, even as to its deliveries to commercial addresses, UPS could only
have believed that the recipients were authorized to receive cigarettes if it
confirmed that addresses were appropriately licensed. See N.Y. Comp. Codes R. &
Regs. tit. 20, § 74.3(a)(1). UPS has introduced no evidence that it performed such a
confirmation. In all events, as discussed at length above, the Court has already and
separately found sufficient knowledge to support a violation of this statute, as
described above.
THE CCTA
Plaintiffs’ final claim is for violations of the CCTA. The CCTA is a federal
statute designed to address “the flow of contraband cigarettes between jurisdictions
with differing tax obligations, and the resulting deleterious effects on state and local
tax collection.” City of New York v. Golden Feather Smoke Shop, Inc., No. 08-cv03966, 2013 WL 3187049, at *20 (E.D.N.Y. June 10, 2013). The statute makes it
unlawful for any person knowingly to ship, transport, sell, or distribute “contraband
cigarettes.” 18 U.S.C. § 2342(a); City of New York v. FedEx Ground Package Sys.,
91 F. Supp. 3d 512, 519 (S.D.N.Y. 2015).
“Contraband cigarettes” are defined as:
[A] quantity in excess of 10,000 cigarettes which bear no evidence of
the payment of applicable State . . . cigarette taxes in the State . . .
where such cigarettes are found, if the State . . . requires a stamp,
impression, or other indication to be placed on the packages . . . of
cigarettes to evidence of cigarette taxes, and which are in the
possession of any person other than [exceptions not relevant here].”
18 U.S.C. § 2341(2); FedEx, 91 F. Supp. 3d at 519-20 (footnote omitted).

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A CCTA violation therefore consists of four elements: A party must
(1) knowingly ship, transport, receive, possess, sell, distribute or purchase, (2) more
than 10,000 cigarettes, (3) that do not bear tax stamps, (4) under circumstances
where state or local cigarette tax law requires the cigarettes to bear such stamps.
FedEx, 91 F. Supp. 3d at 520.
In New York, the cigarette tax law referred to in the fourth element of a
CCTA claim is set forth in N.Y. Tax Law §§ 471 and 471-e. When it was first passed
in 1939, § 471 imposed a tax “‘on all cigarettes possessed in the state by any person
for sale’ except when the ‘state is without power to impose such tax.’” City of N.Y. v.
Golden Feather Smoke Shop, Inc., 597 F.3d 115, 122 (2d Cir. 2010) (“Golden
Feather II”) (quoting N.Y. Tax Law § 471). Section 471 has been amended
numerous times but has been continuously in place in some form. During the
period relevant to plaintiffs’ claims herein, § 471 has always required the affixation
of tax stamps on cigarettes sold by Indian reservation retailers to non-tribal
members. City of New York v. Milhelm Attea & Bros., No. 06-v-3620, 2012 WL
3579568, at *5-6 (E.D.N.Y. Aug. 17, 2012).
In June 2010, the State amended both N.Y. Tax Law §§ 471 and 471-e, with
an effective date of September 1, 2010. Milhelm Attea, 2012 WL 3579568, at *2.
The pre- and post-amendment versions of § 471 both contain the same initial
language broadly imposing a taxation requirement. As amended, § 471 requires the
affixation of tax stamps to all cigarettes sold on reservations to non-tribe members.
See id., 2012 WL 3579568, at *3.

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As set forth in its factual findings, the Court has found that plaintiffs have
met their burden with regard to each element of the CCTA. First, all cigarettes
possessed for sale or use within the State are presumed to be taxable, and hence
must bear a tax stamp, until the contrary is established. The person asserting
exemption from taxation bears the burden of proving non-taxability. See N.Y. Tax
Law § 471; N.Y.C. Admin. Code § 11-1302(d). “Whether taxable or tax-free, all
[packs of] cigarettes must bear a tax stamp.” Oneida Nation of N.Y. v. Cuomo, 645
F.3d 154, 160 n.8 (2d Cir. 2011). To indicate that the tax has been pre-paid on
cigarettes to which the tax applies, a stamping agent must purchase and affix a
cigarette tax stamp to each pack of cigarettes possessed by the agent for sale in the
State and/or City, as the case may be. N.Y. Tax Law § 471; 20 N.Y. Codes R. &
Regs. § 76.1(a)(1); Ad. Code § 11-1302(e). All cigarettes possessed for sale or use in
New York State and City, with exceptions not relevant to this action, must bear tax
stamps. N.Y. Tax Law § 471; 20 N.Y. Codes R. & Regs. § 76.1(a)(1); N.Y.C. Admin.
Code § 11-1302(g).
To comply with the foregoing requirements, stamping agents purchase tax
stamps from the State and City, the cost of which is nearly equal in cost to the
amount of the cigarette tax on a pack of cigarettes. 20 N.Y. Codes R. & Regs.
§ 74.2. By purchasing the tax stamps, the tax is paid. Id. By law, stamping agents
must incorporate the amount of the tax into the price of the cigarettes, thereby
passing the tax along to each subsequent purchaser in the distribution chain, and

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ultimately the consumer, as required by N.Y. Tax Law § 471 and N.Y.C. Admin.
Code § 11-1302(e) and (h).
At all relevant times (i.e., January 1, 2010, to the present), the State excise
tax has been either $2.75 or $4.35 per pack of cigarettes. See N.Y. Tax Law § 471(1)
(noting the July 1, 2010 change in the applicable tax from $2.75 to $4.35); Angell
Aff., PX 62 ¶ 16; Trial Tr. 1360:15-19. Accordingly, for each carton of cigarettes
(which typically contains ten packs of cigarettes), the State excise tax rate is $27.50
or $43.50 per carton. (See Angell Aff., PX 628 ¶ 16.) During the same time period,
the New York City excise tax has been $1.50 per pack or $15.00 per carton. (Angell
Aff., PX 628 ¶ 17.) Each pack of cigarettes in New York City, furthermore, it must
bear a joint New York State/New York City tax stamp. 20 N.Y. Codes R. & Regs. §
74.3.
New York law creates a presumption that all cigarettes are taxable, and are
all therefore required to be stamped, unless the person on possession of the
cigarettes rebuts the presumption. N.Y. Tax Law § 471 et seq.; Oneida, 645 F.3d at
159; New York v. United Parcel Serv., No. 15-cv-1136, 2016 WL 4747236, at *6
(S.D.N.Y. Sept. 10, 2016).
This Court has already found that the cigarettes transported by UPS,
whether to consumers or reservation-to-reservation, were required to bear tax
stamps. 2016 WL 4747236 at *4-5, *11-12.

This Court has also already held that

UPS bears the burden of rebutting that presumption. Id. at *6. UPS has
introduced no evidence doing so, and hence all of the cigarettes transported by UPS

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to or from Indian reservations were required by law to have been stamped. The
preponderance of the evidence proves that the packs of cigarettes delivered by UPS
were unstamped. The evidence proving this element is summarized as follows:
Rosalie Jacobs and Robert Oliver both testified that the cigarettes they shipped via
UPS did not bear tax stamps. (Trial Tr. 1661:15-17 (Jacobs); Id. 1132:5-1134:20
(Oliver)); the cigarettes seized at UPS’s Potsdam Center did not bear tax stamps (id.
1148:1-7 (Oliver)); Phil Christ testified that the cigarettes sold by Arrowhawk did
not bear tax stamps (id. 912:20-23, 913:17-914:6 (Christ)); it can be inferred from
the prices at which Smokes & Spirits and Arrowhawk sold cigarettes that the price
could not have included either or both State and City taxes (see PX 54; PX 55); and
the cigarettes delivered by UPS to the Office of the New York City Sheriff from
Seneca Cigars or www.senecacigarettes.com were unstamped (PX 40; PX 43). In
addition, there is no evidence in the record that any of the shippers at issue sold any
cigarettes with stamps.
Plaintiffs have also proven that the “10,000 cigarette” quantity requirement
for a CCTA violation. Rosalie Jacobs of Jacobs Manufacturing/Tobacco testified
that her company regularly shipped unstamped cigarettes in lots of 10,000
cigarettes. (Trial Tr. 1680:8-22 (Jacobs).) This is alone sufficient to establish this
element of a CCTA violation. But secondly, Robert Oliver of Mohawk Spring Water
also testified that he shipped pallets of cigarettes via UPS in an amount greater
than 10,000. (Trial Tr. 1152:23-1153:11 (Oliver)); PX 49.)

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Finally, as this Court and others have previously found, the CCTA permits
the aggregation of separate deliveries to satisfy the statutory quantity of 10,000
cigarettes. See 131 F. Supp. 3d at 139 (citing cases). The total number of packages
containing cigarettes delivered by UPS, and the average weights of those packages,
when applied to the known weight of a packaged carton of cigarettes (assumed here
to be one pound based in part on PX 40, PX 43, and the testimony elicited at trial),
demonstrates that the total volume of cigarettes underlying plaintiffs’ claims far
exceeds 10,000 cigarettes (fifty cartons).133
UPS asserts several defenses to plaintiffs’ CCTA claims. They first assert
that the forbearance policy followed by the State of New York prevents enforcement
of the law against UPS for deliveries during at least the first seven months of
claimed violations: December 2010 (which the Court found to be the first date on
which UPS had the requisite knowledge) and June 2011 (when forbearance ended).
UPS next argues that it reasonably believed that N.Y. Tax Law § 471 could be
interpreted to allow common carrier transport of unstamped cigarettes between
Indian reservations.

A common carrier “transporting the cigarettes involved under a proper bill of lading or freight bill
which states the quantity, source, and destination of such cigarettes” is not subject to CCTA liability.
18 U.S.C. § 2341(2). UPS has produced no bills of lading or freight bills for the cigarettes at issue in
this action and accordingly is not entitled to this exemption.
Moreover, for a common carrier to be entitled to the exemption provided by 18 U.S.C.
§ 2341(2), the cigarettes in question must be picked up from and delivered to persons legally entitled
to possess unstamped cigarettes. City of New York v. Gordon, 1 F. Supp. 3d 94 (S.D.N.Y. 2013); City
of New York v. LaserShip, Inc., 33 F. Supp. 3d 303 (S.D.N.Y. 2014). UPS has produced no evidence
that any person from which UPS picked up or delivered was entitled to receive, possess, distribute,
or sell unstamped cigarettes and accordingly cannot establish entitlement to this exemption.
133

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As to forbearance, the Court notes that it has addressed this defense
extensively in prior Opinions. (ECF Nos. 177, 406.)
UPS also argues that even if the State may assert a CCTA violation, the
City lacks standing with regard to the Potsdam Shippers and cannot. According to
UPS, this is because the Potsdam Shippers sent packages only to other reservations
in New York State—none of which were located in New York City. However, as
there is ample evidence to establish UPS’s knowing transport of cigarettes to
consignees in New York City, therefore establishing a CCTA violation, there is no
standing issue. Other issues are addressed in the damage discussion set forth
below.
As to § 471, the Court has found as a matter of fact that UPS presented
insufficient evidence to support a reasonable—or even widely held—belief in its
asserted statutory interpretation. At long last, despite the ink spilt, this is an ex
post lawyer argument.
PREEMPTION
UPS argues that plaintiffs’ interpretation of the AOD expands UPS’s audit
obligations beyond the contract terms and thereby regulates a common carrier in
contravention of the Federal Aviation Administration Authorization Act of 1994
(“FAAAA”), which explicitly preempts state laws related to a “price, route, or
service” of carriers that transport property. 49 U.S.C. §§ 14501(c)(1); 41713(b)(4).
UPS cites American Airlines, Inc. v. Wolens, in which the U.S. Supreme Court held
that private contractual obligations of an airline are not preempted by federal law

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in the same manner as state statutes, to conclude that plaintiffs’ interpretation of
the AOD is federally preempted. See 513 U.S. 219, 222 (1995).
This argument is flawed in at least two respects. First, it is premised on an
incorrect, overly narrow interpretation of the AOD’s audit provision. As discussed
above, plaintiffs are correct that a violation of the audit provision occurs on the date
when UPS first fails to audit a shipper in compliance with its obligations, and that
each and every package tendered to UPS thereafter effects a separate a violation.
This interpretation of the audit obligation is therefore within the terms of the AOD
contract. See Wolens, 513 U.S. at 222 (“We hold that the [Airline Deregulation
Act’s] preemption prescription bars state-imposed regulation of air carriers, but
allows room for court enforcement of contract terms set by the parties themselves.”).
Second, the Court views this as an effort by UPS to shoehorn a federal
preemption challenge to § 471 and PHL § 1399-ll into an argument about
interpretation of the AOD. This reflects an incorrect understanding of the FAAAA.
Indeed, UPS’s argument was tried and lost in 2003 by parties in another cigarette
contraband case in New York. See Ward v. New York, 291 F. Supp. 2d 188, 207-19
(W.D.N.Y. 2003). In Ward, plaintiff smoke shops raised the FAAAA preemption
argument as a reason why PHL § 1399-ll was inapplicable. The court there
reviewed the argument in detail and correctly rejected it.
Federal preemption may be express or implied; whether it is one or the
other is determined by the language of the statute. Ace Auto Body & Towing, Ltd.
v. City of New York, 171 F.3d 765, 771 (2d Cir. 1999) (citing Morales v. TransWorld

172

Airlines, Inc., 504 U.S. 374, 382 (1992)). Accordingly, analysis of preemption must
begin with analysis of the statutory text. Ace Auto, 171 F.3d at 771. In addition,
courts must “start with the assumption that the historic policy powers of the States
[are] not to be superseded . . . unless that is the clear and manifest purpose of
Congress.” Id.; Ward, 291 F. Supp. 2d at 209.
Here, the FAAAA expressly preempts state and local laws. It provides that
a state “may not” enact/enforce a law related to, inter alia, price, route, or service of
any motor carrier with respect to transportation of property. 49 U.S.C.
§ 14501(c)(1). As in Ward, the question here is what it means for a statute to be
“related to” price, route, or service of a motor carrier. Ward, 291 F. Supp. 2d at 208.
The FAAAA was designed to “even the playing field between motor and air
carriers.” Id. at 209 (citing Californians for Safe & Competitive Dump Truck
Transp. v. Mendoza, 152 F.3d 1184, 1187 (9th Cir. 1998)). In Mendoza, the court
observed that state law would not be preempted if it affects carriers in too tenuous
or remote a manner. Mendoza, 152 F.3d at 1188; see also Morales, 504 U.S. at 390.
State laws that only have indirect, peripheral effects on the subject matter of the
FAAAA are not sufficiently “related to” it. Cf. N.Y. State Conf. of Blue Cross & Blue
Shield Plans v. Travelers Ins. Co., 514 U.S. 645, 661-62 (1995).
Here, PHL § 1399-ll is a public health law. It has been enacted pursuant to
the State’s historic police powers. See Brown & Williamson Tobacco Corp. v.
Pataki, 320 F.3d 200, 216-17 (2d Cir. 2003). There is therefore a presumption
against preemption at the outset.

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The question is next whether Congress expressed a purpose to preempt this
type of state regulation. It did not. The FAAAA’s preemption provision was
designed to override economic regulation of interstate carriers, “not local safety
regulation.” Ace Auto, 171 F.3d at 776; see also Ward, 291 F. Supp. 2d at 209. On
its face and throughout the text, PHL § 1399-ll is designed and intended to address
public health issues associated with smoking. It is only one of a number of similar
New York laws that regulate transport of items implicating public health and safety
(e.g., fur, skin, hair, meat, alcoholic beverages, invasive species). See Ward, 291 F.
Supp. 2d at 210 (citing N.Y. Agric. & Mkts. Law § 96-h, N.Y. Alco. Bev. Cont. Law
§ 152, and N.Y Envt’l Conserv. Law. § 11-0507(4)). These and other similar laws
may have a peripheral impact on the business of carriage but are not preempted by
the FAAAA because of Congress’s intent to preserve state control over such items.
In short, PHL § 1399-ll is first and foremost a public safety regulation—not a
carriage regulation.
The fact that PHL § 1399-ll places special burdens on carriers does not
change this result. In this regard, the statute presumes that if cigarettes are
transported to a home or residence, the carrier knew that the person was not
authorized to receive them. This “home delivery” presumption does not alter the
primary character of the statute as concerning public safety. But in any event, it is
a presumption concerning the status (i.e., “unauthorized”) of the package’s
recipient, not its contents. See Ward, 291 F. Supp. 2d at 210.

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The CCTA and § 471 are analyzed similarly. Both are directed at public
safety. In addition, the CCTA in fact carves out of its definition of contraband “a
common or contract carrier transporting the cigarettes involved under a proper bill
of lading or freight bill which states the quantity, source and destination of such
cigarettes.” 18 U.S.C. § 2341(2)(B).
UPS’S REMAINING DEFENSES
Unclean Hands/In Pari Delicto
UPS has argued that plaintiffs may not recover for any of the asserted
violations based on their own unclean hands or fault. The offending conduct to
which UPS points includes the State’s forbearance policy, the fact that one state
trooper apparently responded to one inquiry from UPS by stating that it should
proceed with “business as usual,” and plaintiffs’ failure to provide UPS with
information regarding cigarette shippers in plaintiffs’ possession.
To support its “unclean hands” defense, UPS must show “egregious”
misconduct by plaintiffs. See, e.g., SEC v. Durante, 641 F. App’x 73, 78 (2d Cir.
Mar. 8, 2016); Republic of Iraq, 768 F.3d at 168 (noting that such egregious
misconduct “must ‘shock the moral sensibilities” (quoting Art Metal Works, Inc. v.
Abraham & Straus, Inc., 70 F.2d 641, 646 (2d Cir. 1934) (L. Hand, J., dissenting)));
Nat’l Distillers & Chem. Corp. v. Seyopp Corp., 214 N.E.2d 361, 362-63 (N.Y. 1966)
(holding that the doctrine of unclean hands “is never used unless the plaintiff is
guilty of immoral, unconscionable conduct and even then only when the conduct
relied on is directly related to the subject matter in litigation and the party seeking

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to invoke the doctrine was injured by such conduct” (internal quotation marks
omitted)); SEC v. Am. Growth Funding II, LLC, No. 16-cv-828, 2016 WL 8314623,
at *3 (S.D.N.Y. Dec. 30, 2016) (“[W]here courts have permitted equitable defenses to
be raised against the government, they have required that the agency’s misconduct
be egregious and the resulting prejudice to the defendant rise to a constitutional
level.” (quotation marks and citations omitted)).
The doctrine of in pari delicto reflects similar principles. To establish this
defense, UPS must show that plaintiffs “participated in wrongdoing equally with”
UPS; if it meets this burden, then plaintiffs may not recover damages. Republic of
Iraq, 768 F.3d at 160. This defense amounts to a showing that “as a direct result of
the plaintiff’s affirmative wrongdoing, the plaintiff bears at least substantially
equal responsibility, for the [same] violations of which it complains.” Id. at 167-68
(citations and internal quotations omitted). In other words, “[n]ot only must the
plaintiff ‘be an active, voluntary participant in the unlawful activity that is the
subject of the suit,’ but it is necessary that ‘the degrees of fault [be] essentially
indistinguishable or the plaintiff’s responsibility [be] clearly greater.’” Id. at 162
(quoting Pinter v. Dahl, 486 U.S. 622, 636 (1988)). This is because “[p]laintiffs who
are truly in pari delicto are those who have themselves violated the law in
cooperation with the defendant.” Pinter, 486 U.S. at 636 (quotation marks omitted);
see also Republic of Iraq, 768 F.3d at 168.
UPS bears the burden of proof on this affirmative defense. See Kirschner,
938 N.E.2d at 513 n.3. As a factual matter, it has failed to carry it. Thus, the Court

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need not address whether plaintiffs’ status as government entities eliminate or
limit the availability of these defenses.
First, the State’s forbearance policy suggests only “rational” government
conduct. N.Y. Ass’n of Convenience Stores v. Urbach, 712 N.Y.S.2d 220, 222 (N.Y.
App. Div. 3d Dep’t 2000). And the State’s asserted withholding of information fails
to suggest any constitutional prejudice to UPS. See SEC v. Durante, No. 01-cv9056, 2013 WL 6800226, at *12 (S.D.N.Y. Dec. 19, 2013) (noting that a 10-year
“delay” in enforcement is not “egregious”). The facts do not support anything
approaching egregious misconduct or wrongdoing equal with that of UPS.
Waiver
UPS also asserts that plaintiffs have waived their claims. This is based on
the circumstances relating, inter alia, to forbearance and, separately, to the
Attorney General’s 2011 investigation.
Waiver is the intentional relinquishment of a known right. U.S. D.I.D.
Corp. v. Windstream Commc’ns, Inc., 775 F.3d 128, 136 (2d Cir. 2014). Conduct
said to constitute a waiver “must be clear and unequivocal, as waivers are never to
be lightly inferred.” Id.; Gilbert Frank Corp. v. Fed. Ins. Co., 520 N.E.2d 512, 514
(N.Y. 1988) (“Waiver is an intentional relinquishment of a known right and should
not be lightly presumed.”). Courts will only infer a waiver “where the parties were
aware of their rights and made the conscious choice, for whatever reason, to waive
them. Mere negligence, oversight, or thoughtlessness does not create a waiver.”
Windstream, 775 F.3d at 136 (internal citations and quotation marks omitted).

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Generally, delay in government enforcement in the public interest does not
constitute a waiver or justify the application of laches. See United States v. Angell,
292 F.3d 333, 338 (2d Cir. 2002) (“[L]aches is not available against the [sovereign]
when it undertakes to enforce a public right or protect the public interest.”).
Putting aside that the plaintiffs here are governmental entities, the facts
here fail to support a waiver. Plaintiffs did not know all relevant facts until
discovery in this matter, and, as a factual matter, there is insufficient evidence of
an intentional relinquishment of a known right. Thus, this defense fails. Again,
therefore, the Court need not reach the question of whether plaintiffs’ status as
governmental entities eliminates or limits the availability of this defense.
Public Authority and Estoppel
UPS has also asserted public-authority, entrapment-by-estoppel, general
estoppel defenses. These defenses fail as a matter of fact. UPS bases these
defenses principally on the forbearance policy and purported instructions by Officer
Nitti to UPS employee Terranova. As stated above, there is no evidence that
anyone at UPS relied upon the State’s forbearance policy when agreeing to
transport cigarettes. In addition, as a factual matter, and for the reasons also
stated above, the Nitti/Terranova conversations cannot ground this defense. Even if
UPS had relied on the Nitti/Terranova communications, it would have been
unreasonable to do so.
The public-authority defense and the related entrapment-by-estoppel
defense have only been applied within the limited confines of a criminal action,

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which this case is not. See, e.g., Cox v. Louisiana, 379 U.S. 559, 569-71 (1965)
(addressing estoppel defense to a criminal conviction under Louisiana state law);
United States v. Giffen, 473 F.3d 30 (2d Cir. 2006) (addressing, inter alia, Federal
Rule of Criminal Procedure 12.3, which governs the notice requirement for a
defendant’s assertion of a public authority-defense, and defendant’s criminal
indictment for violations of several federal statutes); United States v. Schwartz, 924
F.2d 410, 421-22 (2d Cir. 1991) (addressing defendants’ appeal of their convictions
from criminal violations of RICO, among other federal statutes).
Even assuming, arguendo, that these criminal-law defenses could be
imported into a civil-law dispute, UPS’s evidence at trial fails to support such
defenses. In order for a defendant to succeed in raising these defenses, he or she
must have revealed the full extent of his or her criminal acts or illegal conduct—
simply raising a “reasonable suspicion” is insufficient. Giffen, 473 F.3d 30, 40 n.9
(noting that “[b]ecause neither Giffen nor the defendants in Schwartz revealed their
criminal acts, in neither case could governmental authorization to do the acts
revealed constitute authorization to do the illegal acts that were not revealed”); id.
41 n.10 (noting that “in order to establish authorization of criminal conduct through
the approval by government officials of the acts he described, Giffen must have
reasonably clearly revealed the criminal aspect of those acts—not merely raised a
suspicion about it”).
Here, Terranova never disclosed to Nitti the unlawful nature of UPS’s
deliveries—i.e., that UPS’s bulk shipments were being delivered by UPS to persons

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that were not licensed or authorized pursuant to federal or state law to possess such
cigarettes. (See Terranova Decl., DX 612 ¶¶ 1-2, 7 (failing to identify where such
bulk shipments of cigarettes were being delivered); Trial Tr. 1529:20-1530:24
(Terranova) (failing to identify where the cigarettes were being delivered to); id.
1532:20-25 (Terranova) (testifying that he did not reveal to Nitti the names of the
shipper accounts and that he no idea where the cigarettes being picked up by UPS
were being delivered).)
Indeed, the source of Terranova’s information—Steve Talbot, former UPS
Potsdam dispatch/preload supervisor—never told Terranova where or to whom the
“bulk shipments” of cigarettes were being delivered. (Talbot Decl., DX 606 ¶¶ 1, 79; see also id. 1267:1-14 (Talbot) (Talbot testifying that he did not recall where the
cigarettes were being sent to, and did not recall the details of his conversation with
Terranova); id. 1254:23-25 (Talbot) (Talbot testifying that he suffered a head injury
roughly five or six years ago—i.e., around the time of his conversation with
Terranova); id. 1255:1-3 (Talbot) (Talbot testifying his head injury affected his
short-term memory).) Terranova, moreover, took no steps to determine where, or to
whom, such cigarettes were being shipped. (See, e.g., Trial Tr. 1528:9-11
(Terranova) (Terranova testifying that he did not ask Talbot any questions during
his phone conversation with him); id. 1533:23-25 (Terranova testifying that he did
not contact any other UPS Centers regarding his conversation with Nitti); id.
1274:23-25 (Talbot) (Talbot testifying that he and Terranova never discussed
conducting an audit).)

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UPS’s records are furthermore devoid of any such phone conversation
between Terranova and Nitti. (See Trial Tr. 1528:12-1529:7 (Terranova) (Terranova
testifying that UPS policy required him to document all investigations in UPS’s IRS
system); id. 1534:20-22 (Terranova) (Terranova testifying that he could not recall
documenting his conversation with Nitti); see also id. 1268:16-20 (Talbot) (Talbot
testifying that he did not record his phone conversation with Terranova); id.
1268:23-25 (Talbot) (Talbot testifying that he did not make a practice of recording
his phone calls with UPS Security); id. 1269:15-18 (same)).
Given such evidence (or the lack thereof), in terms of the “public authority”
defense, Nitti could not have “authorized” UPS’s illegal or criminal conduct because,
as shown above, Terranova had no idea whether such deliveries were unlawful,
much less failed to disclose any facts that would suggest UPS’s delivery of cigarettes
to individual consumers or persons otherwise not authorized to possess such
cigarettes. As a result, UPS cannot take advantage of the actual public-authority
defense.
Similarly, UPS’s entrapment-by-estoppel defense fails. For this defense, a
defendant must show that “he reasonably relied on the statement or conduct of a
government official when he engaged in the conduct with which he is charged.”
United States v. Tonawanda Coke Corp., No. 10-cr-219, 2013 WL 672280, at *3
(W.D.N.Y. Feb. 22, 2013); see also United States v. Miles, No. 11-cr-581, 2012 WL
4178274, at *4 (S.D.N.Y. Sept. 20, 2012). There must also be “‘an affirmative
representation’ that the proscribed conduct ‘was or would be legal,’ not an

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affirmative representation that the proscribed conduct was against the law.” Miles,
2012 WL 4178274, at *4.
Perhaps most importantly, the defendant must similarly show “that he
reasonably disclosed the conduct alleged in the indictment to the government before
or at the time of authorization. That is, the disclosure and authorization must be
linked.” Tonawanda Coke, 2013 U.S. Dist. LEXIS 25398, at *9 (internal citations
omitted) (citing cases); see also Giffen, 473 F.3d at 42 (rejecting a defendant’s
entrapment-by-estoppel defense where “[he] failed to apprise the government
officials that he was engaged in bribery and fraud, [accordingly,] we do not see how
[he] could have reasonably understood the officials’ response as authorization to
engage in bribery and fraud”).
Here, as shown above, at no point did Terranova reveal the illegal or
criminal nature of UPS’s actions, because Terranova himself did not know (and did
not take any steps to determine) who the intended recipients of UPS’s delivered
cigarettes were. Given such evidence, UPS’s entrapment-by-estoppel defense is
unsupported and fails as a matter of law.
DAMAGES
The Court has found that UPS violated its obligations under the AOD, the
PACT Act, PHL § 1399-ll,134 and the CCTA. The Court turns now to the related
questions of compensatory damages and penalties.

134

Damages under N.Y. Exec. Law § 63(12) are the same as damages under PHL § 1399-ll.

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This is not the first case, nor will it be the last, where plaintiffs focused
their energies so intensely on questions of liability that they shortchanged their
damages case. UPS has made serious motions to strike plaintiffs’ damages
altogether based on two separate and self-inflicted wounds: (1) plaintiffs’ failure to
provide a robust pre-trial damage computation pursuant to Federal Rule of Civil
Procedure 26, and (2) their failure to anticipate evidentiary issues with the trial
presentation of their damages claim.135 The Court addresses the pre-trial issues
first, and then proceeds to damages issues that arose during the trial. Ultimately,
the Court finds that admitted evidence supports reasonable inferences regarding
damages and penalties, and that the methodology the Court applies here does not
require the use of an expert.
UPS’s Pre-Trial Damage Disclosure
The original complaint in this case contained a prayer for relief seeking
damages, penalties, injunctive relief, and the appointment of a monitor. (ECF No. 1
at 39.) Those requests are contained in the operative complaint as well. (ECF No.
189 at 48.) There was never any doubt that the case was significant—the
acknowledged reality of that fact was evident in the robust staffing and vigorous
litigation by both sides. Nevertheless, a defendant may know that a case is big—
even very big—and yet not understand how big, or how the plaintiffs intend to

It would have been far easier, and safer, to have retained a damages expert. Perhaps cost
informed plaintiffs’ decision not to do so—the Court cannot know. Plaintiffs should understand that,
while the Court ultimately determines that they are entitled to certain damages, the motion to
preclude all damages was quite a serious one.

135

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prove their particular claims. The Federal Rules of Civil Procedure are designed,
inter alia, to prevent trial by ambush. This applies to liability and damages issues
equally. Defendant asserts that it was not provided with disclosures to which it was
entitled under Rule 26(a)(1)(A)(iii), and that this Court should preclude plaintiffs’
damage claim on this basis. The Court declines to do so. While plaintiffs could
have had a more robust Rule 26 disclosure—and indeed, should have—the Court
finds that, under all of the relevant circumstances, preclusion of damages is
unwarranted.
The Court’s conclusion is based on a number of factors. To start, the Court
agrees with defendant’s basic premise that Rule 26(a)(1)(A)(iii) is designed to
prevent undue surprise regarding damages. It requires every plaintiff to provide its
opponent with “a computation of each category of damages claimed” and requires
disclosure of “the documents or other evidentiary material, unless privileged or
protected from disclosure, on which each computation is based, including materials
bearing on the nature and extent of injuries suffered.” Fed. R. Civ. P.
26(a)(1)(A)(iii).
The case law contains a number of examples of defendants seeking
preclusion of damages for failure to comply with Rule 26. This Court has itself, on
the facts of particular cases, granted such motions. While Rule 26(a)(1)(A)(iii)
provides for mandatory—not discretionary—obligations on the parties, a Court’s
determination to impose preclusion as a penalty for failure to comply is
discretionary. See Design Strategy, Inc. v. Davis, 469 F.3d 284, 294 (2d Cir. 2006).

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The Court has previously concluded that the principles underpinning Rule
26(a)(1)(A)(iii) apply to penalties as well as compensatory damages. (See ECF No.
413.)
It is not uncommon for plaintiffs to seek to delay the time that they must
commit to a damages calculation, and it is common for a defendant to press the
issue. That occurred here. By Order dated February 1, 2016 (ECF No. 169), this
Court required plaintiffs to provide UPS with information regarding the nature of
plaintiffs’ expected proof regarding an exemplar shipper. Plaintiffs complied with
that order with a disclosure dated March 3, 2016. (ECF No. 195.)
Plaintiffs’ March 3, 2016 disclosure provided detailed information, in chart
form, for the “Arrowhawk Group” of shippers (which then, as now, included
Arrowhawk Cigars, Seneca Cigars, Two Pine Enterprises, and Hillview Cigars).
Citing documents identified by Bates number from UPS’s production, the March 3,
2016 disclosure referenced the total number of packages transported by UPS.
Plaintiffs stated that they expected to prove that these shipments all contained
cigarettes based on, inter alia, witness testimony (which they described) and
shipping invoices. Plaintiffs further outlined that they intended to prove UPS’s
knowledge that these shipments contained cigarettes based on circumstantial
evidence of the pickup location, signage, and inventory. In addition, plaintiffs
indicated that testimony from and relating to UPS drivers would be used to support
their claims. This is, in fact, what plaintiffs did.

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Based on this evidence (which plaintiffs detailed in two single-spaced
pages), plaintiffs set forth a chart that indicated that plaintiffs would each seek
damages relating to separate violations of the CCTA, RICO, PACT Act, PHL § 1399ll, and the AOD.136 The chart further indicated the amounts for each claim for the
exemplar shipper group.
Following the chart, plaintiffs disclosed the methodology they intended to
use to arrive at their particular calculation for compensatory damages under the
CCTA, including a computation of cartons of cigarettes based on the number of
packages, the average weight of the packages, and the average weight of a carton of
cigarettes. In total, plaintiffs’ disclosure revealed that they would be seeking over
$100 million dollars for this shipper group alone. The other shipper groups at issue
were well known by this point in the litigation (and, as defendant itself has noted,
the initial list of shippers at issue shrunk between the time the case was filed and
trial).
Plaintiffs’ March 3, 2016 disclosure complied with this Court’s Order of
February 1, 2016, which required only an exemplar calculation. Defendant did not
seek reconsideration of that limitation. There is no doubt that UPS possessed the
information to replicate this same calculation for each shipper at issue: It knew the
shippers, it could easily locate the same types of documents for each, and it knew
plaintiffs’ general methodology. But more than that, the calculations were
ultimately based on known data points: penalty ranges generally set forth in the

136

The RICO claims were dismissed by Opinion & Order dated August 9, 2016. (ECF No. 322.)

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AOD and statutory schemes at issue, and compensatory damages based on the
statutory tax rate imposed on a carton of cigarettes.
While this was a “big” case—insofar as it was anticipated from the outset
that the number would be big as it concerns a number of shippers—it was not a
particularly complicated one. In addition, several weeks prior to trial, plaintiffs
offered to provide defendant with a full calculation for each shipper. To the extent
there was any remaining mystery, agreeing to accept this calculation would have
eliminated it. For reasons never explained but assumed to be tactical, defendant
declined that offer. Had defendant agreed to receive the calculation, it would have
been able to review it, assess prejudice based on late disclosure, and, if necessary,
seek an adjournment. This Court is left with the distinct impression that UPS’s
refusal to accept the calculation was a considered move designed to retain a
“cleaner” position on the very motion now under consideration. This Court is,
however, also left with the distinct impression that UPS had sufficient information
about the methodology to prepare for trial.
The key question is whether there is any real prejudice to UPS from the
incomplete March 3, 2016 disclosure combined with the trial disclosure of damages
sought. From the opening statement onward UPS expressed outrage that plaintiffs
could seek such a significant sum—over $800 million—without a full Rule 26
disclosure. But the Court’s February 1, 2016 order had allowed just that, and in
any event defendant turned down a full calculation several weeks before trial. UPS
ignored the fact that plaintiffs’ March 3, 2016 disclosure had left them in no

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suspense as to the magnitude of the case—it disclosed over $100 million in
damages; one could easily assume that the addition of the remaining shipper groups
would add significantly to that figure.
But UPS also had some specific complaints as to plaintiffs’ pre-trial
disclosure compared to their trial disclosure. Notably, certain assumptions
plaintiffs included in their March 3, 2016 disclosure changed. For instance, in
calculating compensatory damages (based on lost tax revenue), plaintiffs attempted
to estimate how many cartons were at issue. This requires calculation of how many
cartons are in a package. It is certainly true that plaintiffs’ position on the
appropriate weight assumption (per package or per box) changed—but of course,
that is only one input, and one which defendant itself could counter at trial with the
information it easily had at its disposal. Changes in such facts alone would rarely
form a basis for preclusion.
UPS asserts that it was prejudiced in other ways, as well. It argues that
plaintiffs’ failure to make adequate pre-trial disclosures prevented it from
identifying appropriate rebuttal witnesses and testimony. This argument rings
hollow. UPS had a detailed disclosure regarding the Arrowhawk Group yet did not
identify any rebuttal witnesses or seek to counter even that disclosure with an
expert. Had UPS done that, its argument that it was prejudiced by a lack of
information regarding other shippers would carry more weight. And in all events,
as to one main source of proof—the delivery spreadsheets—UPS knew as of March
3, 2016, that these spreadsheets would be used in connection with the calculations

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for all shippers. If UPS believed the spreadsheets were unreliable or were being
relied upon in an inappropriate manner, it could have called a witness to explain
why. It did not do so.
As discussed further below, the Court views UPS as having made
deliberate, tactical choices as to how it would approach plaintiffs’ damages case: It
drew careful lines to position this preclusion argument as best it could. In the end,
the Court is not convinced that UPS lacked adequate pre-trial notice to counter
plaintiffs’ damages claim, nor is it convinced that UPS suffered any real prejudice.
Defendant’s motion to preclude based on inadequate Rule 26 damages disclosure is
therefore DENIED.
Legal Principles Regarding Damages
Plaintiffs seek compensatory damages in connection with their CCTA and
PACT Act claims, as well as penalties for violations of the AOD, the PACT Act, and
PHL § 1399-ll.
1.

Compensatory Damages

Plaintiffs seek compensatory damages under the Pact Act and CCTA for
lost tax revenues associated with non-tribal members’ receipt of unstamped
cigarettes. The facts make it clear that unstamped cigarettes were delivered to
such consumers. However, how much lost tax revenues is properly associated with
such shipments is open to serious debate.
Defendants argue that to prove entitlement to such damages, plaintiffs bear
the burden of proving a causal connection between UPS’s transport of cigarettes

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and lost tax revenues. Plaintiffs argue that such a causal connection is not required
but that, in any event, they have shown one.
Plaintiffs are incorrect; a causal connection is required. As described above,
lost tax revenues are a type of compensatory damages. Compensatory damages are
intended to put a plaintiff back into “a position substantially equivalent to the one
that he or she would have enjoyed had no tort been committed.” Anderson Grp.,
LLC v. City of Saratoga Springs, 805 F.3d 34, 52 (2d Cir. 2015). Plaintiffs “bear[]
the burden of proving damages with reasonable certainty[.]” Raishevich v. Foster, 9
F. Supp. 2d 415, 417 (S.D.N.Y. 1998); see also Norcia v. Dieber’s Castle Tavern,
Ltd., 980 F. Supp. 2d 492, 500 (S.D.N.Y. 2013). Courts “will not permit recovery
when the connection between the claimed loss and the tortious act is speculative or
uncertain.” Anderson, 805 F.3d at 52. This means plaintiffs “bear[] the burden of
showing that the[ir] claimed damages are the ‘certain result of the wrong.’” Id. at
52-53. That said, when uncertainty in proving damages is caused by the
defendant’s own wrongful act, “justice and sound public policy alike require” that
the defendant “bear the risk of the uncertainty thus produced.” Story Parchment
Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 565 (1931); see also Whitney v.
Citibank, N.A., 782 F.2d 1106, 1118 (2d Cir. 1986) (“When a difficulty faced in
calculating damages is attributable to the defendant’s misconduct, some
uncertainty may be tolerated.”).
As discussed above, this Court has found that UPS is responsible for
transporting cigarettes to unauthorized recipients. But the determination of

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compensatory damages is complex: Had UPS not transported such cigarettes, would
the recipients of such shipments have purchased stamped cigarettes in New York
City and New York State? In other words, have plaintiffs demonstrated that UPS’s
transport of unstamped cigarettes more likely than not led to a quantifiable loss in
tax revenues?
As an initial matter, the evidence strongly supports consumer motivation to
purchase unstamped cigarettes as a method of acquiring lower-cost cigarettes.
However, the evidence supports that when prices of cigarettes increase, a nontrivial number of consumers switch to lower-cost tobacco products (such as little
cigars); the evidence also supports consumers seeking lower-cost cigarettes going to
other states with lower tax rates; and the evidence further supports some
consumers faced with higher-cost cigarettes ceasing use altogether.137
On the other hand, even Dr. Nevo agrees that up to 5.4% of package
recipients might have purchased stamped/taxed cigarettes instead. This percentage

Dr. Nevo opined that—in a “but-for world” where the untaxed cigarettes allegedly shipped by UPS
were not available—very few purchasers of unstamped cigarettes would instead have purchased New
York-tax-paid cigarettes. (Nevo Decl., DX 613 ¶¶ 11, 12.) Dr. Nevo concluded that the purchasers
would have diverted to other untaxed cigarettes and non-cigarette alternatives (such as little cigars,
cigars, and smokeless tobacco) while some would also have simply quit altogether. (Id. ¶¶ 38-40.)
Dr. Nevo concluded that buyers of the cigarettes at issue have revealed that they are less brand loyal
and more price sensitive, and, therefore, are far more likely to purchase untaxed or low-taxed
cigarettes or other, lower-cost non-cigarette tobacco products and nicotine products than an average
consumer. (Id. ¶ 39.) Dr. Nevo’s testimony relied, in part, on the New York Adult Tobacco Survey.
This survey was not representative of the consumer base at issue, and the Court considers it to be
weak evidence. However, based on this flawed survey, Dr. Nevo opined that mail-order purchasers
of cigarettes, such as those here, are 76% more likely than all other smokers to make a special effort
to obtain low-priced cigarettes, 308% more likely to report that cigarette prices influenced their use
of other non-cigarette tobacco products, 132% more likely to purchase cigarettes from an out-of-state
or out-of-country supplier, and 28% more likely to purchase cigarettes from a Native American
reservation. (Id. ¶ 55 Table 5.)
Dr. Nevo ultimately estimated that diversion in the but-for world from the untaxed
cigarettes at issue to NY-tax-paid cigarettes would be between zero and 5.4%. (Id. ¶ 63.)
137

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is unduly low. First, it ignores that seizures of packages occur without prior
notice—thus, consumers relying on the delivery of unstamped cigarettes to satisfy
their addiction would not be able to quickly take the various actions necessary to
immediately replace them (for instance, driving to another state or placing an order
with another company using a different courier). Dr. Nevo does not consider this
issue. Nor does he consider the transportation limitations of New York City
dwellers in accessing cars to drive out of state. These timing and location issues are
two serious flaws with Dr. Nevo’s 5.4% number.
On balance, the Court cannot arrive at a precise number of cigarette
cartons consumers would have purchased, but 50% is a reasonable number based on
the totality of facts. The Court therefore finds plaintiffs are entitled to
compensatory damages in the amount of 50% of Cartons (defined below) shipped by
the Liability Shippers. Plaintiffs shall submit to the Court for its review separate
compensatory damages calculations for plaintiffs successful claims under the PACT
Act and CCTA, in accordance with the findings and timeframes detailed by the
Court in this Opinion.
2.

Penalties

The AOD and each of the statutory schemes provide for the assessment of
penalties. In general, civil penalties are designed in some measure “to punish
culpable individuals” and not “simply to extract compensation or restore the status
quo.” Tull v. United States, 481 U.S. 412, 422 (1987); accord Johnson v. SEC, 87
F.3d 484, 492 (D.C. Cir. 1996) (“[T]he ordinary, contemporary, common meaning of

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the word ‘penalty,’ [is] a sanction imposed by the government for unlawful or
proscribed conduct which goes beyond remedying the damage caused to the harmed
party.”). Penalties are also designed to “deter future violations” and “prevent[] [the
conduct’s] recurrence.” Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528
U.S. 167, 185-86, 188 (2000); see also id. (explaining that remedies, such as civil
penalties, encourage defendants to discontinue violations that were ongoing at the
time of the complaint and to deter defendants from committing future violations
even if they can afford to compensate injured plaintiffs).
There is an “enormous range of penalties available to the district court in
the usual civil penalty case.” United States v. J.B. Williams Co., Inc., 498 F.2d 414,
439 (2d Cir. 1974); see also id. at 438 (A district court may properly consider “a
number of factors” in determining the size of a civil penalty, “including the good or
bad faith of the defendants, the injury to the public, and the defendants’ ability to
pay.”) The Second Circuit has articulated the factors a court should consider as
follows: (1) the level of the defendant’s culpability, (2) the public harm caused by the
violations, (3) the defendant’s profits from the violations, and (4) the defendant’s
ability to pay a fine. Advance Pharm., Inc. v. United States, 391 F.3d 377, 399 (2d
Cir. 2004).138 In Advance Pharmaceuticals, the United States brought a civil

Courts also have recognized that it is appropriate to consider the actions of plaintiffs when
assessing penalties. See Milhelm Attea, 2012 WL 3579568, at *33 (“[T]he Court believes that a
penalty award in this case should take some account of the fact that state tax authorities actively
acquiesced in the defendants’ business model for years, despite actual knowledge that large amounts
of untaxed cigarettes were being sold and distributed to non-Native Americans as a result of the
forbearance regime.”); United States v. White-Sun Cleaners Corp., No. 09-cv-2484, 2011 WL
1322266, at *9 (E.D.N.Y. Mar. 9, 2011) (one of the factors a court looks at when determining the
amount of damages under the Resource Conservation and Recovery Act is “the government’s
138

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enforcement action for statutory violations against defendants, a pharmaceutical
manufacturer of pseudoephedrine tablets, and its principals, for failure to report
shipments as required by statute. Failure to comply carried a statutory fine of up to
$10,000 per violation. Id. at 383. The alleged violations related to nine customers
and 159 shipments. Id. at 385. Testimony at trial supported gross profits on such
shipments in the amount of between $2,918,361 and $5,076,000. Id. at 389, 400.
The district court imposed a monetary penalty of $2 million; this exceeded the
amount sought by the government by $250,000. The Second Circuit noted that the
evidence supported a fine (based on the number of proven violations and the
maximum per penalty amount) of $2,490,000. Id. at 399. The Second Circuit
considered the four factors discussed above and affirmed the award despite
defendants’ argument that the business could not support the amount. Id. at 400.
In Tull, the defendant was accused of violating the Clean Water Act. 481
U.S. at 414-15. Violations of that statute carried penalties of up to $10,000 per day
during the period of violation. Id. at 414. Despite the fact that the defendant
demonstrated that he had realized no profits from his actions, the district court
imposed a fine of $35,000. Id. at 415. The district court stated that the purpose of
such a penalty was not simply disgorgement of profits, but also punishment. Id. at

conduct”); United States ex rel. Bunk v. Birkart Globistics GMBH & Co., Nos. 02-cv-1168, 07-cv1198, 2010 WL 4688977, at *8 n.14 (E.D. Va. Nov. 10, 2010) (“[T]he extent of the government’s
knowledge and its conduct in light of what it knew remains relevant considerations to the Court in
considering an appropriate civil penalty.”). The Court takes plaintiffs’ conduct into account when
assessing appropriate penalties here. However, the Court notes that UPS is not in the position of
the plaintiffs in Milhelm Attea. UPS is a carriage service that should never have expected
forbearance to apply to its actions.

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423. Tull argued on appeal that the district court had inappropriately denied him
the right to a jury trial on liability as well as the amount of penalty. The U.S.
Supreme Court found that while he was entitled to a jury trial on liability, Congress
had fixed the amount of penalty and delegated that determination to trial judges.
Id. at 426. “In this case,” the Court explained, “highly discretionary calculations
that take into account multiple factors are necessary in order to set civil penalties
under the Clean Water Act. These are the kind of calculations traditionally
performed by judges.” Id. (citing Albermarle Paper Co. v. Moody, 422 U.S. 405, 44243 (1975) (Rehnquist, J., concurring)).
In Laidlaw, the Supreme Court reiterated the basic principle that the
district court has wide discretion to fashion appropriate relief. See 528 U.S. at 192.
It further stated that when choosing an appropriate penalty—whether a fine,
injunctive relief, both, or neither—a court “should aim to ensure ‘the framing of
relief no broader than required by the precise facts.’” Id. at 193 (citing Schlesinger
v. Reservists Comm. to Stop the War, 418 U.S. 208, 222 (1974)).
The facts before this Court indicate that significant penalties are appropriate.
While the precise amount shall be calculated and considered against constitutional
principles (as discussed below) in a separate order, the Court discusses the basic
factors supporting the imposition of penalties here.
First, the Court considers the facts above to demonstrate a high level of
culpability by UPS. Numerous separate acts by numerous UPS employees allowed
vast quantities of unstamped cigarette shipments to be delivered to unauthorized

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recipients in New York. The New York Executive Branch and legislature, along
with Congress, had specifically attempted to prevent this with the AOD, the PACT
Act (which should have incented compliance with the AOD), the CCTA, and PHL
§ 1399-ll. UPS largely relied on its size and weak internal procedures to excuse
blatantly culpable conduct. But there were many, many people within UPS who
consciously avoided the truth, for years. Even so, the Court also recognizes that
UPS has now—since the lawsuit was filed—regained its footing. UPS now
approaches compliance with the AOD and the various statutory schemes with
renewed vigor and additional processes and procedures.
The second factor is the public harm caused by the conduct. The State and
federal legislatures have deemed transport of cigarettes as a public health issue,
and the effects of cigarette usage are well known. However, it is also the case that
UPS is not the cigarette manufacturer or seller—it is a transporter. Thus, it bears
a lower level of culpability for the impact on public health than other entities. In
addition, it is unclear whether, in the absence of UPS’s transport of cigarettes, the
same public health effects would still be felt. The Court cannot speculate as to this.
The Court focuses UPS’s unlawful enablement of a public health impact that the
political branches have proscribed and the costs of which New Yorkers must bear.
The third factor—defendant’s profits from the violations—suggests a low
amount of penalties. UPS has focused on its limited revenues and profits from its
transport of the shipments at issue. But these are not the only relevant metrics. It
is also the case that maintaining customers helps UPS’s overall competitive

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position; if there are many UPS routes in an area, it is reasonable to infer that this
assists with the acquisition of business through network effects and economies of
scale.
Finally, the Court weighs UPS’s ability to pay a fine. UPS is a large
company with significant assets. Its financial statements are public record. Not
only can it handle a hefty fine, only a hefty fine will have the impact on such a large
entity to capture the attention of the highest executives in the company—executives
who then, in a rational economic move, will cause changes in practice and
procedures to be strictly maintained. A fine that is in line with only the profits and
revenues associated with the conduct would not have this deterrent impact.
Constitutional/Conscionability Issues with Penalties
One of UPS’s principal arguments against the penalties plaintiffs seek
concerns the aggregate amount. According to UPS, the total amount in penalties
sought by plaintiffs—amounting to some $800 million—significantly exceeds
revenue from the shipments at issue and, therefore, its imposition would violate
constitutional prohibitions on excessive fines as well as case law limiting civil
penalties. UPS cites United States v. Bajakajian, 524 U.S. 321, 334 (1998), and
BMW of N. Am., Inc. v. Gore, 517 U.S. 559, 574, 581-83 (1996), for its arguments
that the Eighth Amendment’s requirement of proportionality and the Fifth
Amendment’s due process guarantee prohibit this Court from imposing the amount
plaintiffs seek. However, neither these nor other cases regarding penalties impose
per se limits on the amount a court may impose.

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The Eighth Amendment provides, in relevant part, that “[e]xcessive bail
shall not be required, nor excessive fines imposed[.]” U.S. Const. amend. VIII;
Bajakajian, 524 U.S. at 327. In Bajakajian, the Supreme Court observed that it had
never before applied the Excessive Fines Clause. Id. It had, however, previously
determined that the word “fine” as used in this clause means “‘payment to a
sovereign as punishment for some offense.’” Id. at 327-28 (quoting Browning-Ferris
Indus. of Vt., Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 265 (1989)). “The Excessive
Fines Clause thus ‘limits the government’s power to extract payments, whether in
cash or in kind, as punishment for some offense.” Id. at 328 (quoting Austin v.
United States, 509 U.S. 602, 609-10 (1993)). The “touchstone” of the constitutional
inquiry is proportionality. Id. at 335. “The amount of the [fine] must bear some
relationship to the gravity of the offense that it is designed to punish.” Id. at 334.
The Court held that a punitive fine “violates the Excessive Fines Clause if it is
grossly disproportional to the gravity of a defendant’s offense.” Id.
In Bajakajian, the defendant was charged with transporting more than
$10,000 in currency and violating a reporting requirement when the defendant
attempted to board a flight with $357,144. Id. at 324. The defendant pleaded
guilty, and the government sought forfeiture of the entire amount. At sentencing,
the district court found that while the entire amount was subject to forfeiture under
the applicable statute, to impose forfeiture would constitute an excessive fine (it
was important to the court’s decision in this regard that the amounts at issue were
not alleged to be proceeds of criminal activity). The court imposed forfeiture in the

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amount of $15,000, the government appealed, and the Ninth Circuit affirmed. Id. at
326.
The U.S. Supreme Court first reasoned that forfeitures were a penalty and
constituted a fine, bringing them under the Excessive Fine Clause of the Eighth
Amendment. It then turned to the analysis of proportionality. The Court held that
a proportional fine is one that bears “some relationship to the gravity of the offense
that it is designed to punish.” Id. at 354. The Court set forth the standard courts
should apply to fines to determine proportionality. It determined that “[e]xcessive
means surpassing the usual, the proper, or a normal measure of proportion.” Id. at
335.
The Court further held that to determine whether a fine is proper or
normal, courts should look first to any legislative pronouncement on the issue
because “judgments about the appropriate punishment for an offense belong in the
first instance to the legislature.” Id. at 336 (citing Solem v. Helm, 463 U.S. 277, 290
(1983) (“Reviewing courts . . . should grant substantial deference to the broad
authority that legislatures necessarily possess in determining the types and limits
of punishments for crimes.”), and Gore v. United States, 357 U.S. 386, 393 (1958)
(“Whatever views may be entertained regarding severity of punishment, . . . these
are peculiarly questions of legislative policy.”)). Second, the Court held that judicial
determinations regarding the gravity of a particular offense will be “inherently
imprecise.” Bajakajian, 524 U.S. at 336. In light of these two principles, the Court
cautioned “against requiring strict proportionality between the amount of the

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punitive [fine] and the gravity of a criminal offense[.]” Id. The Court therefore
“adopt[ed] the standard of gross disproportionality articulated in [its] Cruel and
Unusual Punishment clause precedents.” Id. (citing Solem, 463 U.S. at 288, and
Rummel v. Estelle, 445 U.S. 263, 271 (1980)).
Precedent therefore instructs courts to look at the amount of the fine
compared to the gravity of the offense, a deeply factual question. In Bajakajian, the
Supreme Court found that forfeiture of the entire $357,144 would violate the
Excessive Fines Clause because the defendant’s crime was solely a reporting offense
and unrelated to any other illegal activities. Bajakajian, 524 U.S. at 337. The
Court further noted that under the Sentencing Guidelines, the maximum fine for
such an offense was $5,000. Id. at 338. The Court next examined the harm caused
by the offense and found that in the case before it, the harm was minimal. Id. at
339. Finally, the Court turned to whether any applicable statutes provided
guidance; it traced the history of early forfeiture statutes for similar crimes and
determined that their original remedial purpose was reimbursement of the
government’s losses due to evasion of custom duties. Id. at 341-43. In the end, the
Supreme Court agreed that forfeiture of the entire amount was unwarranted and
affirmed forfeiture in the lower amount. Id. at 344.
Bajakajian guides this Court’s analysis. The Supreme Court instructs that
the aggregate penalties imposed by the various statutory schemes are properly
analyzed according to the Eighth Amendment proportionality standard. In this
regard, the Court observes the following here: (1) The AOD as well as each of the

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statutory schemes at issue are directed to maintaining and furthering important
social interests, namely the health of the public and preventing the costs associated
with cigarette-related disease; and (2) taxation schemes are designed to further
these interests and to raise revenue to offset associated costs. Thus, the basic
rationale underpinning the AOD and statutes points to serious and important
public interests. The Court further observes that, as discussed in more detail
below, the AOD and statutory schemes anticipated the possibility of imposing
multiple layers of penalties. For instance, the PACT Act provides an exemption
that is contingent: If the AOD is not honored, then the exemption is eliminated. It
was understood by Congress that this would expose an entity to AOD penalties,
PACT Act penalties, and PHL § 1399-ll penalties. This was a legislative judgment.
See Bajakajian, 524 U.S. at 335. Thus, layering penalties reflects congressional
intent regarding appropriate punishment. Bajakajian dictates serious
consideration of this fact.
Nonetheless, the Court must examine whether, in the aggregate, the
penalties become grossly disproportionate to remediation or deterrence under the
Eighth Amendment. In this regard, the Court turns to the record evidence
regarding the societal interests in preventing contraband cigarette trafficking, and
the associated health costs of cigarette use. The trial declaration and testimony of
Dr. Angell is instructive. As discussed above, Dr. Angell testified that tobacco use
kills approximately 28,200 New Yorkers each year, which exceeds the number of
deaths caused by alcohol, motor vehicle accidents, firearms, toxic agents, and unsafe

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sexual behaviors combined. (Angell Aff., PX 628 ¶ 5.) Dr. Angell also testified that
each year, tobacco-related healthcare costs New Yorkers $10.4 billion. (Id. ¶ 7.) Dr.
Angell further testified that “tobacco users are price sensitive, and higher taxes on
tobacco products decrease the demand for the affected products.” (Id. ¶ 10.)
Thus far, the Court has focused on the defendant’s Eighth Amendment
argument. As mentioned, defendant also relies on BMW for the proposition that
imposition of the amount of penalties plaintiffs seek would violate their rights
under the Fifth Amendment. BMW involved punitive damages—it did not concern
the imposition of contractually agreed-upon or statutory penalties. 517 U.S. at 562.
This ground alone distinguishes the case from that before this Court. But the facts
of BMW are also instructive. In that case, the plaintiff—Gore—had purchased what
he believed to be a new BMW; he later learned that it had been repainted. Id. at
563. At trial, BMW acknowledged that it did not advise its dealers (and hence their
customers) of pre-delivery damage to new cars when the cost of repairs was less
than 3% of the suggested retail price. Id. at 563-64. The jury awarded $4,000 in
compensatory damages and $4 million in punitive damages. Id. at 565. Defendant
challenged the punitive damage award as grossly excessive and in violation of the
Due Process Clause. Id. The state supreme court reduced the award to $2 million
but found no due process violation. Id. at 567. The Supreme Court granted
certiorari to review if and when a punitive damages award could violate
constitutional due process. BMW of N. Am., Inc. v. Gore, 513 U.S. 1125 (1995).

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The Supreme Court based its analysis on the “[e]lementary notion[] of
fairness enshrined in our constitutional jurisprudence” that a defendant must
receive fair notice “not only of conduct that will subject him to punishment, but also
of the severity of the penalty that a State may impose.” BMW, 517 U.S. at 574
(footnote omitted). Three factors led the Court to conclude that the award was
grossly excessive and violated due process: the degree of reprehensibility of nondisclosure; the ratio of the punitive damage award to the harm or potential harm
suffered by the plaintiff; and the difference between the punitive damage award and
the civil penalties authorized or imposed in comparable cases. Id. at 575-85. The
Court noted that the “most important indicium of the reasonableness of a punitive
damages award is the degree of reprehensibility of a defendant’s conduct.” Id. at
575. The Court cited its statement in an 1852 decision that “exemplary damages
imposed on a defendant should reflect ‘the enormity of his offense.’” Id. (quoting
Day v. Woodworth, 13 How. 363, 371 (1852)). “This principle reflects the accepted
view that some wrongs are more blameworthy than others.” Id. In analyzing this
factor, the Court found that “none of the aggravating factors associated with
particularly reprehensible conduct is present.” Id. at 576.
The Court then turned to the most commonly cited “indicium of an
unreasonable excessive punitive damages award:” its ratio to the actual harm
inflicted on the plaintiff. Id. at 580. Based on its determination regarding the
degree of harm suffered, the Court noted that the award of $2 million was more
than 500 times the amount of compensatory damages determined by the jury. Id. at

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582. The Court stated that “we have consistently rejected the notion that the
constitutional line is marked by a simple mathematical formula[.]” Id. Finally, the
Court turned to statutory schemes that provided for civil penalties for comparable
conduct. Id. at 585. The Court noted that the equivalent statutory violation would
be for a deceptive trade practice, carrying a maximum fine of $2,000 in the state in
which the action was commenced—and penalties ranging from maximums of $5,000
to $10,000 in other states. Based on the totality of specific facts before the Court, it
held that the award was in fact constitutionally excessive, and it reversed and
remanded the case.
The BMW case is distinguishable from the case before this Court on a
number of bases. First, unlike BMW, this case does not present any real notice
issues. While defendant has asserted a lack of notice by virtue of a failure to comply
with Rule 26, as discussed above the Court has found that argument unpersuasive.
Here, the face of the AOD and the statutes themselves set forth quite clearly the
penalties that may be imposed for violations. But in addition, the harm in BMW
was of a very different nature. BMW was not a class action; it was a single suit by a
single plaintiff. The harm that he suffered does not compare to the public interests
harmed by assisting in transporting contraband cigarettes on the scale at issue
here. See BMW, 517 U.S. at 585-86. In short, while the principles of BMW are
useful to bear in mind, the outcome of that case does not dictate the Court’s
determination as to the appropriate amount of penalties here.

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As discussed below, the Court will see the quantum of penalties once it
receives the information it directs at the conclusion of this Opinion.
The Penalty Provisions at Issue Here
As stated, each of the AOD, the PACT Act, PHL § 1399-ll, and the CCTA
provide for the imposition of penalties. In this regard, ¶ 42 of the AOD provides for
a $1,000 penalty per violation; and the PACT Act provides that a common carrier
that violates the statute is subject to a penalty not to exceed $2,500 for a “first
violation,” and $5,000 for “any violation within 1 year of a prior violation.” 15
U.S.C. § 377(b)(1)(B). The PACT Act explicitly provides for the imposition of a civil
penalty that is “in addition to . . . any other damages, equitable relief, or injunctive
relief awarded by the court . . . .” Id. § 377(b)(2).
PHL § 1399-ll provides for penalties in an amount not to exceed the greater
of (a) $5,000 for “each such violation;” or $100 for “each pack of cigarettes shipped,
caused to be shipped or transported in violation[.]” PHL § 1399-ll(5).139 While both
the State and the City may recover civil penalties under this provision, “no person
shall be required to pay civil penalties to both the state and a political subdivision
with respect to the same violation of this section.” Id. § 1399-ll(6). That is, PHL
§ 1399-ll prohibits duplicative damages.
The CCTA provides that a State or local government may bring an action to
obtain appropriate relief, including civil penalties. The CCTA does not specify the

139The State and City seek only penalties provided prior to the amendment of the statute in 2013.
See New York v. United Parcel Serv., No. 15-cv-1136, 2016 WL 4094707 (S.D.N.Y. June 10, 2016).

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amount of penalties, nor whether they are to be assessed on a per-violation basis or
otherwise. The CCTA does, however, provide that such remedy is in addition to
those also available under federal, State or local law. 18 U.S.C. § 2346(b)(1)-(3).140
Calculation of Penalties141
The Court turns to the complicated question of determining the appropriate
penalties to be imposed for the violations of the AOD and various statutory
schemes. The facts and case law indicate a number of considerations.
1.

Defining a Package

With respect to the AOD and each of the statutes, plaintiffs seek the
imposition of penalties on a “per package” basis. To determine what packages are
counted with regard to each shipper, plaintiffs referred at trial—as they did in their
March 3, 2016 disclosure—to UPS’s delivery spreadsheets: They sort these
spreadsheets by account number and add up the packages shipped. Neither the
plaintiffs nor UPS presented witness testimony with regard to the delivery
spreadsheets. Rather, they each seek to have the Court draw inferences from
information on the face of the spreadsheets themselves. For plaintiffs, the exercise

Certain cases have suggested that that the Court may look to the analogous penalty provisions of
the PACT Act. See, e.g., Cnty. of Suffolk v. Golden Feather Smoke Shop, Inc., No. 09-cv-162, 2016
U.S. Dist. LEXIS 109176 (E.D.N.Y. Aug. 16, 2016); City of New York v. Golden Feather Smoke Shop,
Inc., No. 08-cv-3966, 2013 WL 5502954 (E.D.N.Y. Oct. 1, 2013).
140

141 UPS has vigorously argued that the Court should not consider what has been marked for
identification as “Court Ex. 1.” That exhibit was presented by plaintiffs during opening arguments
and sets forth a calculation by claim of penalties sought. The Court has not relied on Court Ex. 1.
Therefore, the arguments made to preclude its admission into evidence are irrelevant. As discussed
herein, the Court ultimately determines that the appropriate methodology is to simply add up the
packages at issue consistent with the instructions provided by the Court herein.

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is straightforward: All packages are summed and duplications are eliminated. The
Court views this approach as generally sensible, with the caveats described below.
For its part, UPS argues that simply counting packages captures many
categories of packages that should be excluded. According to UPS, because
plaintiffs are only entitled to count packages containing cigarettes, counting lettersized envelopes makes no sense (Native Wholesale, for instance, shipped a number
of these). Similarly, according to UPS, since the evidence at trial supports a carton
(of cigarettes or little cigars) as weighing approximately one pound, packages
weighing less than a pound should also not be included. The Court agrees with both
of these arguments. The spreadsheets are in Excel format and are searchable, and
it is straightforward to exclude both of these categories from the penalties assessed
below (along with duplicative entries).
UPS further argues that packages billed to third parties or billed “collect”
should be excluded. The Court disagrees. There is no evidence in the record that
the identity of the billed party made it less likely that cigarettes would be included
in the package. Indeed, in certain instances involving Seneca Promotions and
Native Wholesale Supply, for instance, the billed third party made it more likely
that cigarettes would contain cigarettes. The Court does not require such packages
to be excluded.
UPS also argues that plaintiffs have included packages that have been
shipped “to” the shipper, rather than those tendered by the shipper. From the
Court’s review of the spreadsheets, it appears that there may be instances of this.

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As the penalties in this matter are assessed based on what shippers tendered to
UPS, only packages tendered by the Liability Shippers should be included.
UPS next argues that plaintiffs have inappropriately included packages
returned to the shipper as undeliverable; the Court does not view that fact as
reducing UPS’s liability for having transported the package in the first instance.
Once a package containing cigarettes is on its way to an unauthorized recipient—
and UPS knows that—UPS has violated the AOD and statutes at issue. Whether
that package is ultimately returned or not is irrelevant. Finally, UPS argues that
“voided” packages should also be excluded. There is no evidence in the record as to
what a “voided” package is—it could be a package tendered for shipment and sent
out for delivery, or not. Plaintiffs have proffered the spreadsheets as evidence of
shipments, and certainly the weight of the evidence supports that the packages
contained on such spreadsheets were tendered for delivery. UPS has not countered
this with specific evidence. Accordingly, the Court finds that the reasonable
inference to be drawn from the “voided” packages is that they were tendered for
delivery and therefore are countable.
The Court’s determinations above define what constitutes a “Package” for
purposes of the imposition of penalties. Having determined what constitutes a
Package, the Court now turns to its method for determining the contents therein.
2.

Package Contents

The Court next turns to the rather thorny question regarding package
contents. Throughout this matter, UPS has argued that neither it—nor plaintiffs—

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can know the contents of a shipper’s package. The Court makes its findings based
on a reasonable approximation based on the preponderance of the evidence. There
is ample evidence as to each Liability Shipper—either direct or circumstantial—to
support the fact that packages contained cigarettes. The Court has further set forth
the reasonable approximation as to the particular percentage of its shipments that
contained cigarettes versus something else. Additionally, the Court has set forth its
factual and legal findings regarding UPS’s knowledge above.
The Court has considered what constitutes a reasonable percentage of
package contents that included cigarettes separately for each shipper, based on the
facts and circumstances relevant to that shipper.
3.

Reasonable Approximation of Contents

It is well established that once the existence of damages is determined, a factfinder may make a reasonable approximation of their amount. Tractebel Energy
Mktg. v. AEP Power Mktg., Inc., 487 F3d 89, 110 (2d Cir. 2007). The reasonable
approximation of package contents here is done for this purpose.
Under New York law, “when it is certain that damages have been caused by a
breach of contract, and the only uncertainty is as to their amount, there can rarely
be good reason for refusing, on account of such uncertainty, any damages whatever
for the breach.” Id. While a fact-finder “may not base its award on speculation or
guesswork,” Raishevich v. Foster, 247 F.3d 337, 343 (2d Cir. 2001), a plaintiff “need
only show a stable foundation for a reasonable estimate of the damage incurred as a
result of the breach,” Tractebel, 487 F.3d at 110 (internal quotation marks omitted).

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A reasonable approximation of uncertain data assisting in calculating
damages is especially appropriate when a defendant’s wrongdoing contributed
significantly to that uncertainty. “‘Any other rule would enable the wrongdoer to
profit by his wrongdoing . . . . It would be an inducement to make wrongdoing so
effective and complete in every case as to preclude any recovery, by rendering the
measure of damages uncertain.’” J. Truett Payne Co. v. Chrysler Motor Corp., 451
U.S. 557, 566 (1981) (quoting Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251,
264-65 (1946)). In these circumstances, a plaintiff has “no obligation to offer a
mathematically precise formula as to the amount of damages.” Raishevich, 247
F.3d at 343. Rather, the fact-finder may determine the amount of damages “within
a certain range,” and when damages are “at some ascertainable amount below an
upper limit,” that upper limit “will be taken as the proper amount.” Id. (citing
Gratz v. Claughton, 187 F.2d 46, 51-52 (2d Cir. 1951)).
UPS’s failure to conduct audits in compliance with its AOD obligations
prevents precise knowledge of the proportion of packages containing cigarettes and,
as a result, precludes a more certain quantification of damages. The Court’s
existing authority to make a reasonable approximation of damages is therefore
bolstered by the fact that UPS’s own wrongdoing contributed substantially to any
uncertainty regarding the specific amount of damages in this case. Thus, the Court
relies upon, inter alia, evidence of tracer inquiries, driver reports, witness
testimony, and the audits that were conducted to make reasonable approximations
of damages arising from UPS’s violations as to each Liability Shipper.

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4.

Defining a Carton

In order to determine compensatory damages under the CCTA, this Court
must determine how many cartons of unstamped cigarettes UPS delivered. The
Court has already found that 50% of this number, multiplied by State and City
taxes, constitutes the amount of lost tax revenues.
Based upon the evidence, the Court defines the term “Cartons” as follows: A
carton of cigarettes weighs approximately one pound. The Court may infer the
actual weight of a Package based on information evident from the face of the
delivery spreadsheets—under the column “actual weight.” Any Packages weighing
less than a pound should not be included because, according to the Court’s factual
determinations, such Packages could not have included cigarettes and therefore
could not constitute lost tax revenues.
The total actual weight for all Packages should be summed and divided by
the total number of Packages. The resulting number is the number of Cartons. The
assessment of 50% of lost tax revenues should be based on this number.
5.

The AOD

The violations of the AOD for which plaintiffs seek the imposition of
penalties are different from the violations of the statutory schemes. The AOD
violations at issue with regard to penalties concern the failure to audit (while
plaintiffs have proven other violations, as mentioned above, they seek penalties only
for violations of the audit obligation). This necessarily means that the amount
imposed with respect to the AOD violations is not duplicative of other penalties.

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In terms of the AOD audit violations, the Court relies on its findings of fact.
As to each shipper, the Court has found the date not later than which there was a
reasonable basis to believe that a shipper was tendering cigarettes. This is the
“start date” for the imposition of penalties. The next issue relates to whether the
violations are as to each package tendered for transport that was not audited, or
something else. As the Court has also indicated above, it is reasonable to interpret
a violation of the audit obligation as each instance in which a Package (as the Court
has defined that term above) was tendered to UPS following the specified start date.
The AOD provides for an assessment of $1,000 per violation; this is referred
to in the AOD as a “stipulated” penalty. The aggregate penalty for which UPS is
liable under the AOD is the total number of Packages tendered. The parties shall
jointly confer on the number of such Packages based on the date ranges set forth in
the Court’s findings.
6.

The PACT Act and PHL § 1399-ll

Plaintiffs also seek the imposition of penalties for violations of the PACT
Act and PHL § 1399-ll. The Court has already determined as a factual matter that
as of December 1, 2010, UPS was no longer exempt from the PACT Act, and
therefore no longer exempt from PHL § 1399-ll; this lasted until February 18, 2015.
Both the PACT Act and PHL § 1399-ll limit penalties to amounts “[n]ot to
exceed” specified “per violation” amounts. For the PACT Act, that amount is $2,500
for the first violation and $5,000 for any violation within a year of another violation;
for PHL § 1399-ll, the amount shall not exceed $5,000 for each violation or $100 per

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pack of cigarettes. Thus, while the statutes plainly allow for the imposition of
penalties on a per-violation basis, penalties need not be assessed on such a basis.
The Court may not impose more than such a calculation allows, but it is not
required to simply mechanically apply such a methodology. This is sensible, as the
principles outlined above require the Court to assess whether the aggregate penalty
imposed on a defendant appropriately balances the various punitive, remedial,
deterrence, and proportionality concerns. Such balancing cannot be done simply by
taking the appropriate number of Packages and multiplying them by the possible
number.
Using the Court’s definition of Package above, as well as the applicable date
range, the Court directs the parties to determine the number of Packages that fall
within those parameters. The Court shall then, in a separate order, assess what
the amount of an appropriate penalty is (using that calculation as the outside
parameters allowed by statute and considering any constitutional concerns).142
7.

The CCTA

The CCTA is a separate statutory scheme from those discussed above. It
contains a mandatory provision that one who knowingly transports contraband
cigarettes “shall be fined.”143 18 U.S.C. § 2344. The statute does not define the

PHL § 1399-ll refers to “to ship[ping] or caus[ing] to be shipped any cigarettes . . . .” See § 1399ll(1), (2). The AOD defines “Prohibited Shipment” as “any package containing Cigarettes tendered to
UPS where the shipment, delivery or packaging of such Cigarettes would violate Public Health Law
§ 1399-ll.” (AOD, DX 23 ¶ 16(H)).
142

The term “contraband cigarettes” is defined to include a quantity in excess of 10,000 cigarettes
which bear no evidence of the payment of applicable taxes. 18 U.S.C. § 2341(2). In its findings of
fact above, the Court has found that UPS transported more than 10,000 cigarettes. This occurred in

143

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amount of any such fine, but in assessing the amount of any fine, the Court is
mindful of the proportionality limitations set forth in Bajakajian as well as the
other penalties already imposed. The Court has already stated its intention to
impose penalties on a per-violation basis pursuant the PACT Act and PHL § 1399-ll.
The amount of such penalties shall be determined once the parties have provided
the Court with the directed information. Under these circumstances, there does not
seem to be any particular advantage to assessing a CCTA penalty based on the
same “per Package metric.” Certainly, the number of Packages plays a role in the
assessment of any penalties. But in connection with the CCTA, the Court balances
the mandatory requirement that some penalty be imposed (the statute dictates that
a violator “shall be fined,” 18 U.S.C. § 2344), against the purpose of an additional
penalty.
There are, of course, statutory differences. The CCTA is its own statutory
scheme with its own history and purpose. It is the statute that would allow for
compensatory damages. That leaves the Court with the question of whether an
additional fine would serve any additional and separate remedial purpose. If not, it
would be hard to justify its imposition. The fact that a statute allows for a fine, and
indeed requires one, does not dictate that it need be as large as the others. The
CCTA more or less seeks to punish the same conduct, for the same reasons, as the
other statutes.

single shipments transported on behalf of Jacob Manufacturing/Tobacco, as well as through
aggregation of the thousands of packages shipped that contained cigarettes.

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The Court has directed the parties to provide certain information in order to
issue its order on penalties. When that information is provided, the Court will be
able to assess the appropriate amount of a separate fine, if any, for violations of the
CCTA.
INJUNCTIVE RELIEF
In addition to compensatory damages and penalties, plaintiffs seek the
imposition of injunctive relief. Injunctive relief is available for violations of the
CCTA, the PACT Act, and PHL § 1399-ll (and N.Y. Exec. Law § 63(12)).
The PACT Act provides that “[a] State, through its attorney general, or a
local government or Indian tribe that levies a tax subject to [15 U.S.C.]
§ 376a(a)(3)[,] through its chief law enforcement officer, may bring an action in a
United States district court to prevent and restrain violations of this chapter [15
USCS §§ 375 et seq.] by any person or to obtain any other appropriate relief from
any person for violations of this chapter, including civil penalties, money damages,
and injunctive or other equitable relief.” 15 U.S.C. § 378(c).
PHL § 1399-ll(6) provides that “[t]he attorney general [and corporation
counsel of a locality imposing a cigarette tax] may bring an action to recover the
civil penalties provided by subdivision five of this section and for such other relief as
may be deemed necessary.”
N.Y. Exec. Law § 63(12) provides that the State Attorney General may seek
to hold accountable any person engaging in “repeated fraudulent or illegal acts” or
who “otherwise demonstrate[s] persistent fraud or illegality in the carrying on,

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conducting or transaction of business[.]” Upon finding a violation of § 63(12), the
Attorney General may seek, inter alia, an “order enjoining the continuance of such
business activity or of any fraudulent or illegal acts, directing restitution and
damages[.]” Id.
The CCTA provides that a State or local government may bring an action
“to prevent and restrain violations of this chapter by any person (or by any person
controlling such person)” and may obtain “any other appropriate relief for violations
of this chapter . . . including . . . injunctive or other equitable relief.” 18 U.S.C.
§ 2346(b). These remedies provide State and local governments with “broad
remedial provisions.” Golden Feather, 2013 WL 318709 at *22.
An injunction prohibiting a statutory violation is warranted only when
there is a likelihood that, unless enjoined, the violations will continue. S.E.C. v.
First Jersey Sec., Inc., 101 F.3d 1450, 1477 (2d Cir. 1996); United States v. Carson,
52 F.3d 1173, 1184 (2d Cir. 1995) (A permanent injunction requires a “reasonable
likelihood that the wrong will be repeated.”).
Plaintiffs have persuasively shown that UPS engaged in repeated violations
of the AOD and various statutes by failing to audit and knowingly transporting
cigarettes. However, there was significant evidence presented by UPS that, in
particular, over the past two years, UPS has implemented oversight processes that
should prevent repetition. UPS has demonstrated that it is more likely than not
that it is far more capable today of affirmatively working to identify and take action
to ensure it honors the AOD, and with regard to non-compliant shippers. It has

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shown by a preponderance of the evidence that a sufficient number of future
violations are unlikely to support the rather harsh imposition of injunctive relief or
a monitor. In addition, it is likely that this lawsuit, including the resulting
reputational and financial costs, provide standalone economic motivation for UPS to
proceed more carefully in the future.
On the facts before the Court, injunctive relief and appointment of a
monitor are unwarranted.144
CONCLUSION
For the reasons set forth above, the Court finds liability on each of
plaintiffs’ causes of action. The Court requires the parties to submit the numbers of
Packages and Cartons as defined above and according to the Court’s findings and
rulings. Following receipt of such information, the Court shall issue a final order as
to damages and penalty. The parties shall submit the above information not later

144 The Court notes that this is not a situation in which a private plaintiff would remain in the dark
regarding future violations. Plaintiffs here are armed with various enforcement powers that allow
them to obtain information from UPS and others to identify compliance issues. Should UPS be found
to have again violated the AOD and various statutory schemes, imposition of injunctive relief could
be imposed at that time.

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than two weeks from the date of this Opinion & Order, i.e., Friday, April 7, 2017.
SO ORDERED.
Dated:

New York, New York
March 24, 2017

______________________________________
KATHERINE B. FORREST
United States District Judge

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