City of N.Y. v. FedEx Ground Package Sys., Inc.

• Decision Date: 05 October 2018
• Docket Number: 13 Civ. 9173 (ER)
• Citation: 351 F.Supp.3d 456
• Parties: The CITY OF NEW YORK and the People of the State of New York, Plaintiffs, v. FEDEX GROUND PACKAGE SYSTEM, INC., Defendant.
• Court: U.S. District Court — Southern District of New York

351 F.Supp.3d 456

The CITY OF NEW YORK and the People of the State of New York, Plaintiffs,

v.FEDEX GROUND PACKAGE SYSTEM, INC., Defendant.

13 Civ. 9173 (ER)

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

Signed October 5, 2018

Filed October 15, 2018

Manisha M. Sheth, Dana Hope Biberman, Laura Jane Wood, Samantha Liskow, Lilia Isobel Toson, Paulina Stamatelos, Kathleen Konopka, Sandra Elizabeth Pullman, Brant Barrington Campbell, Christopher Kin Leung, Joshua Seth Sprague, John P. Oleske, Leslieann E. Cachola, New York State Office of the Attorney General, Tonya Jenerette, Corporation Counsel, Special Federal Litigation Division, Amy Nkemka Okereke, Hope Lu, Eric Proshansky, Krista Ann Friedrich, New York City Law Department, Joshua Paul Rubin, Corporation Counsel Office City of New York, Manisha M. Sheth, Quinn Emanuel Urquhart & Sullivan LLP, New York, NY, Joseph Michael Kowalczyk, Jr., New York State Office of the Attorney General, Albany, NY, for Plaintiffs.

Joel Cohen, Elizabeth C. Carter, Michele Lee Pahmer, Stroock & Stroock & LaVan LLP, Jeremy Barber, Ralia E. Polechronis, Wilkinson, Walsh & Eskovitz, New York, NY, Kenneth D. Sansom, Morgan B. Franz, Spotswood Sansom & Sansbury LLC, Birmingham, AL, Aleshadye Getachew, Beth A. Wilkinson, Brian Stekloff, Lori McGill, Paul J. Sampson, Enbar Toledano, Wilkinson, Walsh & Eskovitz, Washington, DC, Arun Thomas, Fedex Ground Package System, Inc., Coraopolis, PA, Joseph Milcoff, Paula J. Allan, Fedex Ground Package System, Inc., Moon Township, PA, Koren Larissa Bell, Wilkinson Walsh & Eskovitz LLP, Los Angeles, CA, Michael W. Higginbotham, Federal Express Corporation, Memphis, TN, for Defendant.

OPINION

Ramos, D.J.:

Before the Court are cross motions for partial summary judgment.¹ Plaintiffs, the City of New York and the People of the State of New York, move for summary judgment for (1) liability under the Contraband Cigarette Trafficking Act ("CCTA"), 18 U.S.C. § 2341 – 46 ; (2) liability under the 2006 Assurance of Compliance ("AOC") entered into by the State of New York and FedEx Ground; (3) liability for conspiracy under the Racketeer Influenced and Corrupt Organizations Act ("RICO"),² 18 U.S.C. § 1962(d) ; and (4) a determination of the proper formula for calculating damages under the CCTA in this case. Defendant FedEx Ground ("FedEx") moves for summary judgment against Plaintiffs on (1) its statute of limitations defense against Plaintiffs' CCTA, RICO, and AOC claims; (2) its equitable estoppel defense, as to all claims relating to Shinnecock Smoke Shop; (3) its liability for substantive RICO and RICO conspiracy offenses, 18 U.S.C. § 1962(c) – (d) ; and (4) its liability for all claims relating to Two Pine Enterprises ("Two Pine").

For the reasons set forth below, Plaintiffs' motion for summary judgment is GRANTED and FedEx's motion for summary judgment is GRANTED in part and DENIED in part.

I. BACKGROUND

Defendant FedEx Ground is a major common carrier with operations in the State of New York and the City of New York.³ Plaintiffs bring this action against FedEx for knowingly shipping massive quantities of untaxed cigarettes on behalf of unauthorized cigarette dealers. By doing so, Plaintiffs allege, FedEx violated federal and state law and deprived them of millions of dollars in tax revenue. To provide the necessary context for this opinion, the Court sets forth the factual and procedural background of the case.

A. Regulatory Background and Plaintiffs' Relationship with FedEx

Plaintiffs each impose an excise tax on the sale of cigarettes. N.Y. Tax Law § 471 ; New York City, N.Y., Code ("Ad. Code") § 11-1302. All cigarettes possessed for sale or use in the State of New York or the City of New York must be taxed. N.Y. Tax Law § 471 ; Ad. Code § 11-1302. The "use" of cigarettes in the State or City entails the "exercise of any right or power, actual or constructive, and shall include but is not limited to the receipt, storage or any keeping or retention for any length of time, but shall not include possession for sale." N.Y. Tax Law § 471-a ; Ad. Code § 11-1301. The State and City excise taxes are pre-paid by licensed cigarette stamping agents through their purchases of tax stamps, which they must then affix to every pack of cigarettes sold. N.Y. Comp. Codes R. & Regs. tit. 20, § 74.3. New York State mandates that stamping agents serve as the only entry point for cigarettes into New York's steam of commerce. Oneida Nation of N.Y. v. Cuomo , 645 F.3d 154, 158 (2d Cir. 2011). By law, stamping agents are required to incorporate the amount of the tax into the price of the cigarettes, thereby ultimately passing the tax along to the consumer. See N.Y. Tax Law § 471(2). The pack stamp evidences that the appropriate tax has been paid. See N.Y. Tax Law §§ 471, 473 ; Ad. Code §§ 11-1302, 11-1304.

There are 10 packs of cigarettes in every carton. At all times relevant to the case, the New York City excise tax was $1.50 per pack or $15.00 per carton. The New York state excise tax has changed over the years. Prior to June 3, 2008, the state excise tax was $1.50 per pack or $15.00 per carton. On June 3, 2008, the state excise tax was increased to $2.75 per pack or $27.50 per carton. On July 1, 2010, the state excise tax was again increased to $4.35 per pack or $43.50 per carton. Presently, the State and the City have the second highest combined state-and-local cigarette excise tax rate at $58.60 per carton. Def.'s 56.1(b) Supplemental Statement of Facts ¶ 6.

Plaintiffs are well aware of the black market for untaxed cigarettes in New York, whereby cigarette retailers sell their product directly to consumers, bypassing the stamping agents and thereby not paying the applicable taxes. Plaintiffs routinely prosecute cases involving the distribution of untaxed cigarettes. See, e.g., State v. United Parcel Serv., Inc. , 253 F.Supp.3d 583 (S.D.N.Y. 2017) ; City of New York v. Gordon , 1 F.Supp.3d 94 (S.D.N.Y. 2013) ; City of New York v. Golden Feather Smoke Shop, Inc. , 2013 WL 3187049 (E.D.N.Y. June 20, 2013).

Plaintiffs have also worked together with common carriers to stop cigarette trafficking. In 2004, the New York Attorney General investigated FedEx and other common carriers, including UPS, for violating federal and state laws relating to the unlawful delivery of cigarettes, including New York Public Health Law ("N.Y. P.H.L.") § 1399-ll.⁴ On August 13, 2004, the AG caused subpoenas to be served on FedEx pursuant to New York Executive Law ("N.Y. Exec. L.") § 63(12). Attached to the subpoenas was a "Schedule C," which identified names of shippers that sell and ship cigarettes in the course of their business. AOC ¶ 7; Def.'s 56.1(b) Responses ¶ 13. Among other shippers, Schedule C identified "Shinnecock Tobacco," "Shinnecock Indian," "Cigarettes Direct 2 U," and "Danny's Tobacco" as cigarette shippers. Def.'s 56.1(b) Responses ¶ 14.

On February 13, 2006, FedEx entered into an Assurance of Compliance ("AOC") with the Attorney General in which it agreed, inter alia , to comply with N.Y. P.H.L. § 1399-ll, terminate relationships with shippers that unlawfully attempted to use FedEx to ship cigarettes to residential addresses, and report those shippers to the AG's office. See generally AOC. The AOC also required FedEx to "revise any and all internal policies ... to ensure they are consistent with the terms of this Assurance of Compliance," Def.'s 56.1(b) Responses ¶ 29, and notify the AG if FedEx found that one of its customers had attempted to ship cigarettes more than once, see AOC ¶ 17. FedEx agreed that it would pay a $1,000 penalty for every violation of the AOC. See AOC ¶ 23.

In 2008, FedEx implemented an "Improper Shipping Form" ("ISF") procedure. Def's. 56.1(b) Responses ¶ 64. The ISF procedure required FedEx employees to complete a standardized form when they identified a package that was not in compliance with the company's rules and regulations concerning what items may be shipped and how they may be shipped. Def.'s 56.1(b) Responses ¶ 65. At first, the ISF form was dubbed the "Alcohol Shippers' Violation Form." As the name would suggest, the Alcohol Shippers' Violation Form did not contemplate the recording of tobacco shipments. Def.'s 56.1(b) Responses ¶ 64. A "tobacco" button was added to the form no later than March 2010. Def.'s 56.1(b) Responses ¶ 66.

In early 2013, FedEx and the City of New York entered into negotiations over FedEx's alleged shipments of cigarettes on behalf of a Louisville, KY business, Cigarettes Direct To You ("CD2U"). Pls.' 56.1(b) Responses ¶¶ 35, 37. An agreement was signed by both parties and became effective on March 15, 2013. Pls.' 56.1(b) Responses ¶ 36. Under the agreement, FedEx paid the City $2.4 million in exchange for a waiver of claims by the City concerning alleged deliveries of cigarettes on behalf of CD2U. Pls.' 56.1(b) Responses ¶¶ 37, 40. Both parties acknowledged that the agreement did not "constitute an admission of guilt, liability, or wrongdoing by FedEx Ground," and it would not be admissible in any litigation between the City of New York and FedEx Ground. Pls.' 56.1(b) Responses ¶¶ 43, 44. While the agreement was specific to CD2U, the language in the agreement was more expansive as concerns FedEx. Specifically, in the agreement, the City represented that it "has no information that suggests that FedEx Ground has delivered or transported unstamped cigarettes to New York City residents or into the geographic boundaries of New York City." Pls.' 56.1(b) Responses ¶ 41.

B. The Cigarette Selling Enterprises

This case is a consolidated case comprised of two formerly separate cases, FedEx I and FedEx II . Though the cases were consolidated, see Doc. 580, the complaints were not. The two operative complaints are the FedEx I Amended Complaint and the FedEx II Second Amended Complaint. Between the two operative complaints, Plaintiffs allege that FedEx knowingly shipped unstamped cigarettes on behalf of seven entities in total.⁵ These shippers are...