City of N.Y. v. U.S. Postal Serv.

• Decision Date: 15 February 2021
• Docket Number: 19-cv-5934 (BMC)
• Citation: 519 F.Supp.3d 111
• Court: U.S. District Court — Eastern District of New York
• Parties: CITY OF NEW YORK, State of California, State of Illinois, State of Connecticut, and Commonwealth of Pennsylvania, Plaintiffs, v. UNITED STATES POSTAL SERVICE and Louis DeJoy, in his official capacity as Postmaster General, Defendants.

519 F.Supp.3d 111

CITY OF NEW YORK, State of California, State of Illinois, State of Connecticut, and Commonwealth of Pennsylvania, Plaintiffs,

v.UNITED STATES POSTAL SERVICE and Louis DeJoy, in his official capacity as Postmaster General, Defendants.

19-cv-5934 (BMC)

United States District Court, E.D. New York.

Signed February 15, 2021

Filed February 16, 2021

Eric Proshansky, Corporation Counsel of the City of NY, Hope Lu, New York City Law Department, New York, NY, for Plaintiff The City of New York.

Laura W. Kaplan, Lesya Nikole Kinnamon, California Department of Justice, Sacramento, CA, for Plaintiff State of California.

Joshua Turner, Pro Hac Vice, Illinois Attorney General's Office, Springfield, IL, for Plaintiff State of Illinois.

Heather J. Wilson, Pro Hac Vice, State of Connecticut Office of the Attorney General, Hartford, CT, for Plaintiff State of Connecticut.

Edmund Berger, Pro Hac Vice, Megan Eileen Frtisch, Pro Hac Vice, Commonwealth of Pennsylvania Office of Attorney General, Harrisburg, PA, for Plaintiff Commonwealth Of Pennsylvania.

Ekta R. Dharia, James R. Cho, United States Attorneys Office, Eastern New York, Brooklyn, NY, for Defendants.

MEMORANDUM DECISION AND ORDER

COGAN, District Judge.

The Prevent All Cigarette Trafficking Act of 2009, known as the "PACT Act," seeks to prevent cigarette traffickers from evading state and federal law by shipping cigarettes through the mail. It thus provides that the United States Postal Service "shall not accept for delivery or transmit through the mails any package that it knows or has reasonable cause to believe contains any cigarettes." 18 U.S.C. § 1716E(a)(1). Four states and the City of New York ("plaintiffs") allege that the Postal Service has not fulfilled that obligation. They have sued the Postal Service and the Postmaster General (collectively, "defendant"),¹ seeking (1) damages and injunctive relief for violations of the PACT Act, (2) a declaratory judgment that defendant has violated the Act and that "contraband cigarettes" are "contraband per se " under civil forfeiture statutes, and (3) a writ of mandamus compelling defendant to comply with the Act. Defendant has moved to dismiss.

I conclude that plaintiffs have stated a claim under the PACT Act and can seek a declaratory judgment that defendant has violated the Act. Yet plaintiffs cannot seek a declaratory judgment that contraband cigarettes are contraband per se. This claim not only lacks an actual case or controversy; plaintiffs also lack standing to bring it. Finally, I lack jurisdiction over the mandamus claim because the PACT Act provides an adequate remedy. The motion to dismiss is granted in part and denied in part.

BACKGROUND

I. The PACT Act

It seems a truism that wherever there are taxes, there will be tax evaders, and the higher the tax, the greater the opportunities for evasion. This case reflects an effort by certain high-tax jurisdictions to prevent low-tax jurisdictions, and less indirectly to prevent third parties who purchase from these low-tax jurisdictions, from using the Postal Service to profit from the spread between the higher and lower taxes.

Congress passed the PACT Act to address the "increasing problem" of tobacco smuggling in the United States. H.R. Rep. No. 111-117, at 18 (2010). With existing laws inadequate in "the Internet age," smugglers could circumvent state and federal laws by selling over the internet and through the mail. Id. Smugglers would purchase cigarettes in a low-tax state (say, Virginia) and resell them in a high-tax state (here, New York), pocketing the difference. See, e.g., United States v. Hasan, 718 F.3d 338, 340 (4th Cir. 2013). The practice spawned "three evils: tobacco sales to minors, illicit cigarette trafficking, and circumvention of state taxation requirements." Gordon v. Holder, 721 F.3d 638, 642 (D.C. Cir. 2013) (alteration adopted) (quotation omitted). To address these problems, Congress imposed new restrictions on "delivery sales" – i.e. , sales that do not involve face-to-face transactions. Pub. L. No. 111-154, § 2(a), 124 Stat. 1087, 1088–89 (2010). These sales must now comply with excise taxes, licensing and tax-stamping requirements, restrictions on sales to minors, and other legal requirements "as if the delivery sales occurred entirely within the specific state and place" where the cigarettes are delivered. Id. § 2(b), 124 Stat. at 1091; see also New York v. United Parcel Serv., Inc., 942 F.3d 554, 565–66 (2d Cir. 2019) (detailing the specific requirements).

The PACT Act also imposed new restrictions on the Postal Service. Now codified in 18 U.S.C. § 1716E, these provisions, subject to exceptions not applicable here, see § 1716E(b), banned the Postal Service from shipping cigarettes:

All cigarettes and smokeless tobacco (as those terms are defined in section 1 of the Act of October 19, 1949, commonly referred to as the Jenkins Act) are nonmailable and shall not be deposited in or carried through the mails. The United States Postal Service shall not accept for delivery or transmit through the mails any package that it knows or has reasonable cause to believe contains any cigarettes or smokeless tobacco made nonmailable by this paragraph.

§ 1716E(a)(1). The Act defines "reasonable cause" as "a statement on a publicly available website, or an advertisement, by any person that the person will mail matter which is nonmailable under this section in return for payment" or "the fact that the person is on the list created under section 2A(e) of the Jenkins Act." § 1716E(a)(2). Plaintiffs call this list the "Non-Compliant List," for it contains the names of "unregistered or noncompliant delivery sellers." 15 U.S.C. § 376a(e)(1)(a). The Attorney General compiles the list and distributes it to the Postal Service. Id.

II. The Alleged Violations

Generally speaking, plaintiffs allege two distinct violations of the PACT Act. First, they claim that defendant regularly "accept[s] for delivery" and "transmit[s] through the mails" packages that it knows or has reasonable cause to believe contain cigarettes. Soon after the Act's passage, plaintiffs explain, most domestic cigarette sellers ceased delivering cigarettes through the mail. Yet international sellers continued undeterred. The International Mail Facility at John F. Kennedy International Airport became a focal point. There, the Postal Service regularly received shipments from sellers on the Non-Compliant List. The Postal Service received notice of these shipments after investigations by cigarette manufacturers, state and local governments, and federal agencies. But the Deputy Postmaster General told field personnel not to "[i]nvestigate or seek information about the [the Non-Compliant List]" or "[i]nvestigate a customer's advertising" to "determin[e] whether the customer is mailing cigarettes." These tasks would "be reserved for specially designated personnel." The Postal Service never designated any such personnel, plaintiffs allege. Instead, it did "little or nothing when confronted with large shipments of cigarettes found within the mails." Plaintiffs allege that the Postal Service continues to deliver these shipments throughout the country.

For the second violation, plaintiffs point to the "Return to Sender Program." The Postal Service's Inspector General detailed this program in a special report.² It describes the Postal Service's view that unspecified "laws, regulations, and policies" regarding "prohibited international mailings" are "ambiguous and open to interpretation – particularly those related to how these items should be handled." Instead of seizing these items, the Postal Service returns them to their country of origin, as this is the "the most cost[-]effective method of disposal."

The report is somewhat candid about the costs. It states that the program "may not sufficiently deter mailers from trying to send prohibited items into the U.S.," which may "increase the risk that the items will re-enter the mailstream without detection." That effect could "negatively impact the Postal Service's brand and image." Plaintiffs agree with these last few points. They brand the Return to Sender Program as "[i]llegal and [i]neffective," arguing that the PACT Act requires the Postal Service to seize and destroy cigarettes.

Plaintiffs contend that these ongoing violations have hampered their efforts to collect taxes and safeguard public health. They represent several high-tax jurisdictions, and they allege that the Postal Service has diverted millions of dollars in tax revenue per year to low-tax jurisdictions. Plaintiffs bring claims for (1) damages and injunctive relief under the PACT Act, (2) a declaratory judgment that defendant has violated the Act and that so-called "contraband cigarettes" are "contraband per se " under civil forfeiture statutes, and (3) a writ of mandamus compelling defendant to comply with the PACT Act and to end the Return to Sender Program.

Defendant wants the complaint dismissed in its entirety. It first contends that the PACT Act does not provide a cause of action against the Postal Service. Even if plaintiffs have a cause of action, defendant continues, plaintiffs have not adequately alleged a violation. Next, defendant argues that plaintiffs lack standing to seek a declaratory judgment that contraband cigarettes are contraband per se. Last, defendant maintains that plaintiffs have not satisfied the requirements for the mandamus claim.

DISCUSSION

I. The PACT Act Claim

A. The Cause of Action

The Postal Service is an "independent establishment of the executive branch" that enjoys federal sovereign immunity. Dolan v. USPS, 546 U.S. 481, 483, 126 S.Ct. 1252, 163 L.Ed.2d 1079 (2006) (quoting 39 U.S.C. § 201 ). But the immunity is not absolute. FDIC v. Meyer, 510 U.S. 471, 114 S.Ct. 996, 127 L.Ed.2d 308 (1994), and USPS v. Flamingo Industries (USA) Ltd., 540 U.S. 736 (2004), outline a two-step framework for determining when a plaintiff can sue the Postal Service. The first step...