New York v. United Parcel Serv., Inc.

• Citation: 160 F.Supp.3d 629
• Decision Date: 08 February 2016
• Docket Number: 15-cv-1136 (KBF)
• Parties: The State of New York and the City of New York, Plaintiffs, v. United Parcel Service, Inc., Defendant.
• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

160 F.Supp.3d 629

The State of New York and the City of New York, Plaintiffs,

v.United Parcel Service, Inc., Defendant.

15-cv-1136 (KBF)

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

Signed February 8, 2016

Christopher Kin Leung, Dana Hope Biberman, Tatyana A. Trakht, Isaac C. Cheng, John Turrettini, Kevin M. Lynch, New York State Office of the Attorney General, Eric Proshansky, Leonard Matthew Braman, Lilia Isobel Toson, New York City Law Department, John P. Oleske, Nixon, Peabody, LLP, New York, NY, for Plaintiffs.

Gregory B. Koltun, Morrison & Foerster, Los Angeles, CA, Mark David McPherson, Amanda Aikman, Kendall Manlove, Morrison & Foerster LLP, New York, NY, Paul T. Friedman, Morrison & Foerster LLP, San Francisco, CA, for Defendant.

OPINION & ORDER

KATHERINE B. FORREST

, District Judge

This is a large, complex and vigorously litigated action brought by the City and State of New York (the “City” and “State”, respectively) against United Parcel Service, Inc. (“UPS”), for various claims relating to UPS's alleged shipping of contraband cigarettes. In the instant motion, plaintiffs seek to eliminate a large number of UPS's defenses from the case—thereby narrowing the issues for trial.¹ As set forth below, this Court agrees that some narrowing at this stage is appropriate; certain defenses may not be used with regard to certain claims, or at all. But, with limited exceptions, the Court cannot eliminate certain defenses as to all claims as a matter of law at this stage.

Plaintiffs assert claims pursuant to the Contraband Cigarette Trafficking Act, 18 U.S.C. § 2341 et seq.

(“CCTA”), the Prevent All Cigarette Trafficking Act, 15 U.S.C. § 375 et seq. (“PACT Act”), New York Executive Law § 63(12) (“N.Y. Exec. Law § 63(12) ”) and New York Public Health Law § 1399–ll (“N.Y. PHL § 1399–ll ”), as well for violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. (“RICO”), and breach of an Assurance of Discontinuance (“AOD”) with the New York State Attorney General (“NYAG”). (Second Am. Compl. ¶¶ 2, 95-180, ECF No. 86.) As available, plaintiffs seek penalties, damages and injunctive relief.

Plaintiffs have framed their motion as primarily seeking to eliminate two swathes of defenses—those which they refer to as the “Government Policy Defenses”, and those which they refer to as the “AOD Defenses”—as well as three additional defenses which fall into neither category. As briefed by plaintiffs, the Government Policy Defenses assert that plaintiffs' conduct or inaction relating to their enforcement of cigarette tax laws bars certain claims or recovery. These include UPS's Fifth, Sixth, Fourteenth, Sixteenth, and Seventeenth Defenses. According to plaintiffs, each of these defenses is an improper collateral attack on plaintiffs' enforcement decisions, particularly as to timing and targets: the Fifth Defense asserts a failure to mitigate including by failing to pursue claims against shippers/sellers or customers, the Sixth Defense asserts a reduction in damages based on a failure to collect taxes from others including consumers, the Fourteenth Defense asserts excuse from performance of the AOD based on impracticability or frustration arising from plaintiffs' conduct, the Sixteenth Defense asserts a bar to all claims based on plaintiffs' failure to enforce cigarette tax laws, and the Seventeenth Defense asserts laches, waiver, estoppel and other equitable doctrines based on plaintiffs' alleged knowledge of violations of shippers using UPS's services and failure to notify UPS or to otherwise take appropriate steps to prevent further violations.

As briefed by plaintiffs, the “AOD Defenses” include UPS's Ninth Defense asserting a lack of consideration, the Tenth Defense asserting lack of enforceability based on alleged misrepresentations set forth therein, the Eleventh Defense asserting that the AOD's stipulated damages provision is unenforceable as a matter of law, the Twelfth Defense asserting that any claim is barred by plaintiffs' own non-performance including breach of the implied covenant of good faith and fair dealing, and the Thirteenth Defense asserting plaintiffs' own inactivity with regard to the AOD and therefore laches, waiver and estoppel and similar doctrines.²

The three additional defenses plaintiffs also move against are UPS's Seventh Defense regarding the impact of certain injunctions to § 471 of the New York Tax Law

, the Eighth Defense regarding an interpretation of the CCTA, and the Fifteenth Defense, which asserts preemption of some or all claims by the PACT Act and the Federal Aviation Administration Authorization Act of 1994, 49 U.S.C. §§ 14501, 41713.

UPS disagrees both with how plaintiffs frame their defenses and with whether they can, in any event, be dismissed at this stage. In particular, UPS argues that plaintiffs' reference to the Government Policy Defenses as solely an attack on law enforcement decision-making is incorrect, and that these defenses relate to consequences which it asserts flowed from such decisions (thus, not whether the decisions should or should not have been taken in the first instance). According to UPS, once an enforcement choice has been made—whether to forbear from certain enforcement efforts (as was the case in New York State for a period of time) or not—plaintiffs are not immune from consequences of those decisions which may impact causation or damages. (See Def.'s Opp. Br. at 4, ECF No. 111 (“In fact, UPS's defenses simply ask the Court to consider whether, given the choice that plaintiffs made, they have established each of the elements of their asserted claims and whether they are entitled to recover the damages sought.”).) In terms of the AOD Defenses, UPS principally argues that the State lacked the authority to enter into or enforce the AOD and that a factual record is necessary before any conclusion may be reached as to the viability of any particular defense. UPS similarly vigorously contests that the remaining three defenses may be resolved at this stage in the absence of a factual record.

The Court does not view the issues raised on this motion as best framed as either plaintiffs or UPS has done. Questions as to what defenses are cognizable are specific both to particular defenses and claims to which they may apply. As to the Government Policy Defenses, when carefully parsed as to whether there is any set of facts with regard to any claim asserted as to which a defense might be cognizable, only two defenses fail altogether: the Sixth and Sixteenth Defenses. Only these two defenses are purely and properly cast as seeking redress based solely on a law enforcement choice. The Sixth Defense argues for a reduction in damages due to governmental entities' failure to collect taxes from other third parties—an act which is certainly a protected policy choice. The Sixteenth defense explicitly asserts a defense based on plaintiffs' failure to enforce the tax laws.³ Plaintiffs are therefore correct that these defenses are not cognizable as a matter of law. But here ends the straightforward resolution of the Government Policy Defenses.

As to the Fifth and Fifteenth Defenses, the Court concludes that they are not cognizable as to certain claims, but they are (or may be) as to others. Thus, the Court does not strike those defenses, but does find that they may not properly be asserted as to certain claims. In this regard, the claims brought under the CCTA, PACT Act, N.Y. Public Health Law and N.Y. Exec. Law are claims in which the State and City are seeking by this action to enforce certain laws in their traditional public capacity. Defenses which assert prior enforcement failures or shortcomings are not cognizable defenses against such claims. Thus, the Fifth and Seventeenth Defenses are not cognizable as to these specific claims.

Whether and how these two defenses—the Fifth Defense, which can be read to assert a general failure to mitigate, and the Seventeenth Defense, which asserts a variety of equitable defenses—may be available to UPS in defending against other claims (namely, the RICO and AOD claims) is a question which can only partially be answered on this motion.

In terms of the Fifth Defense, it is not (as explained below) cognizable with regard to plaintiffs' AOD claim, but may be as to the RICO claims. While the Court certainly appreciates that a defense that touches in any way on enforcement decision-making must be carefully reviewed, it is not prepared at this stage to find as a matter of law that there is no conceivable way in which the result of an enforcement decision (e.g. an asserted increase in trafficked cigarettes based on a forbearance policy or non-enforcement, or knowledge of issues with certain shippers and failure to act) may not be used with regard to plaintiffs' RICO claim (either in the context of the Fifth or Seventeenth Defenses). In short, a factual record will assist the Court in understanding whether the defense is in the realm of what is out of bounds as attacking an enforcement decision, or within bounds as arguing that whatever the decision, there are consequences that cannot be escaped. The Court has now carefully reviewed the case law in the area of law enforcement discretion and defenses available (or not) against governmental entities. There is no case law directly on point.

Similarly, the Seventeenth Defense asserts, among other theories, equitable estoppel, waiver, laches and in pari delicto . Plaintiffs are not immune from such theories under all fact patterns as a matter of law—though there may be limits to usage based on the development of the record. It is an open question as to whether, when pursuing certain claims such as a RICO claim, a governmental entity is immune from the impact on third parties (if any) of decisions it has made.

The AOD Defenses must similarly be parsed carefully. Certain of them—the Ninth, Tenth and Eleventh Defenses—are premised on incorrect statements of the law or are implausible...