State of New York v. United Parcel Service, Inc., 110719 FED2, 17-1993-cv

Docket Nº:17-1993-cv, 17-2107-cv, 17-2111-cv
Opinion Judge:Gerard E. Lynch, Circuit Judge:
Party Name:The State of New York, The City of New York, Plaintiffs-Appellees - Cross-Appellants, v. United Parcel Service, Inc., Defendant-Appellant - Cross-Appellee.
Attorney:Steven Wu, Deputy Solicitor General, State of New York, (Eric T. Schneiderman, Attorney General, State of New York, Barbara D. Underwood, Solicitor General, State of New York, Eric Del Pozo, Assistant Solicitor General of Counsel, State of New York, on the brief) for Plaintiff-Appellee - Cross-Ap...
Judge Panel:Before: Jacobs and Lynch, Circuit Judges, and Vilardo, District Judge. Dennis Jacobs, Circuit Judge, concurring in part and dissenting in part:
Case Date:November 07, 2019
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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The State of New York, The City of New York, Plaintiffs-Appellees - Cross-Appellants,

v.

United Parcel Service, Inc., Defendant-Appellant - Cross-Appellee.

Nos. 17-1993-cv, 17-2107-cv, 17-2111-cv

United States Court of Appeals, Second Circuit

November 7, 2019

Argued: March 8, 2019

In this civil action, filed in the United States District Court for the Southern District of New York (Forrest, J.), the State and City of New York charged UPS with violating the Contraband Cigarette Trafficking Act, 18 U.S.C. 2341 et seq., the Prevent All Cigarette Trafficking Act, 15 U.S.C. 375 et seq., and New York Public Health Law 1399-ll, as well as breaching its settlement agreement (the "Assurance of Discontinuance") with the New York State Attorney General. After a bench trial, the district court found that UPS had violated its obligations under the Assurance of Discontinuance in a number of respects and also knowingly transported contraband cigarettes from its shipper-customers on Native American reservations to consumers throughout the State and City in violation of several statutes. The district court ordered UPS to pay $9.4 million in unpaid cigarette taxes and $237.6 million in total penalties to the plaintiffs. UPS appeals from that judgment, arguing that the district court erred in both its liability and damages rulings. The State and City cross-appeal from aspects of the damages rulings. We AFFIRM the district court's liability rulings, MODIFY the damage and penalty awards, and AFFIRM the judgment as modified.

Steven Wu, Deputy Solicitor General, State of New York, (Eric T. Schneiderman, Attorney General, State of New York, Barbara D. Underwood, Solicitor General, State of New York, Eric Del Pozo, Assistant Solicitor General of Counsel, State of New York, on the brief) for Plaintiff-Appellee - Cross-Appellant State of New York.

Richard Dearing, Chief, Appeals Division, Corporation Counsel, City of New York, (Zachary W. Carter, Corporation Counsel, City of New York, Claude S. Platton, Deputy Chief, Appeals Division, Corporation Counsel City of New York, Jeremy W. Schneider, Senior Counsel, Appeals Division of Counsel, Corporation Counsel, City of New York, on the brief) for Plaintiff-Appellee - Cross-Appellant City of New York.

Mark A. Perry, Gibson, Dunn & Crutcher LLP, Washington, D.C., (Christopher J. Baum, Aidan Taft Grano, Gibson, Dunn & Crutcher LLP, Washington, D.C., Caitlin J. Halligan, Gibson, Dunn & Crutcher LLP, New York, NY, Deanne E. Maynard, Morrison & Foerster, LLP, Washington, D.C., Paul T. Friedman, Morrison & Foerster, LLP, San Francisco, CA, on the brief) for Defendant-Appellant - Cross-Appellee.

Barry S. Schaevitz, Beth G. Oliva, Oksana G. Wright, Fox Rothschild LLP, New York, NY, for Amicus Curiae Cigar Association of America, Inc.

Richard Pianka, ATA Litigation Center, Arlington, VA, for Amicus Curiae American Trucking Associations, Inc.

Kimo S. Peluso, Heather Yu Han, Sher Tremonte LLP, New York, NY, for Amici Curiae Campaign for Tobacco-Free Kids, American Cancer Society Cancer Action Network, American Lung Association, New York State American Academy of Pediatrics, Chapters 2 & 3, Public Health Law Center at the Mitchell Hamline School of Law, and Truth Initiative Foundation.

Nora Flum, Deputy Attorney General, California, Xavier Becerra, Attorney General, California, Karen Leaf, Senior Assistant Attorney General, California, Samuel P. Siegel, Associate Deputy Solicitor General, California, George Jepsen, Attorney General of Connecticut, Russell A. Suzuki, Acting Attorney General of Hawai'i, Lisa Madigan, Attorney General of Illinois, Curtis T. Hill, Jr., Attorney General of Indiana, Thomas J. Miller, Attorney General of Iowa, Brian E. Frosh, Attorney General of Maryland, Maura Healey, Attorney General of Massachusetts, Bill Schuette, Attorney General of Michigan, Gurbir S. Grewal, Attorney General of New Jersey, Ellen F. Rosenblum, Attorney General of Oregon, Josh Shapiro, Attorney General of Pennsylvania, Alan Wilson, Attorney General of South Carolina, Sean D. Reyes, Attorney General of Utah, Thomas J. Donovan, Jr., Attorney General of Vermont, Mark R. Herring, Attorney General of Virginia, Robert W. Ferguson, Attorney General of Washington, Peter K. Michael, Attorney General of Wyoming, Karl A. Racine, Attorney General of the District of Columbia, Wanda Vázquez Garced, Attorney General of Puerto Rico, for Amici Curiae California, Connecticut, Hawai'i, Illinois, Indiana, Iowa, Maryland, Massachusetts, Michigan, New Jersey, Oregon, Pennsylvania, South Carolina, Utah, Vermont, Virginia, Washington, Wyoming, the District of Columbia, and Puerto Rico.

Leslie Rutledge, Arkansas Attorney General, Nicholas Bronni, Deputy Solicitor General, Arkansas, Jeff Landry, Attorney General of Louisiana, Elizabeth B. Murrill, Solicitor General, Arkansas, Patricia H. Wilton, Deputy Solicitor General, Arkansas, for Amici Curiae Louisiana, Arkansas, and Kentucky.

Jeffrey S. Bucholtz, King & Spalding LLP, Washington, D.C., Merritt E. McAlister, Val Leppert, King & Spalding LLP, Atlanta, GA, Warren Postman, U.S. Chamber Litigation Center, Inc., Washington, D.C., for Amicus Curiae Chamber of Commerce of the United States of America.

Cory L. Andrews, Richard A. Samp, Washington Legal Foundation, Washington, D.C., for Amicus Curiae Washington Legal Foundation.

Before: Jacobs and Lynch, Circuit Judges, and Vilardo, District Judge. [*]

Gerard E. Lynch, Circuit Judge:

In this civil action, filed in the United States District Court for the Southern District of New York (Katherine B. Forrest, Judge), the State and City of New York (collectively "plaintiffs") charged UPS with violating the Contraband Cigarette Trafficking Act ("CCTA"), 18 U.S.C. 2341 et seq., the Prevent All Cigarette Trafficking Act ("PACT Act"), 15 U.S.C. 375 et seq., and New York Public Health Law ("PHL") 1399-ll, as well as with breaching its settlement agreement (the "Assurance of Discontinuance" or "AOD") with the New York State Attorney General ("NYAG"). After a bench trial, the district court found that UPS had violated its obligations under the Assurance of Discontinuance in a number of respects, and knowingly transported contraband cigarettes from its shipper-customers on Native American reservations to consumers throughout the State and City in violation of several statutes. The district court ordered UPS to pay $9.4 million in unpaid taxes and $237.6 million in total penalties to the plaintiffs. UPS appeals from that judgment, arguing that the district court erred in both its liability and damages rulings; the plaintiffs cross-appeal from aspects of the damages rulings. For the reasons explained below we AFFIRM the district court's liability rulings, MODIFY the damage and penalty awards, and AFFIRM the judgment as modified.

TABLE OF CONTENTS

BACKGROUND ........................................................ 7

I. Factual Background.. ........................................... 7

A. The State's and City's Cigarette Taxation Regime. . .............. 7

B. Tax Evasion in the State and City ...... ........................ 9

C. The NYAG's First Investigation of UPS ........................ 13

D. The NYAG's Second Investigation of UPS.. .................... 16

II. The Federal Regulatory Regime. . ............................... 17

A. The Contraband Cigarette Trafficking Act. . ................... 17

B. The Prevent All Cigarette Trafficking Act ...................... 18

III. Procedural History. . .......................................... 21

A. The Complaint Against UPS. . ............................... 21

B. Pre-Trial Motion Practice. . .................................. 23

C. UPS's Rule 26 Motion ................. ...................... 32

D. The District Court's Liability Opinion. . ....................... 37

E. The District Court's Damages and Penalties Opinion ............ 47

DISCUSSION.. ........................................................ 50

I. Standard of Review ............................................ 51

II. The Liability Theories .......................................... 51

A. UPS Did Not Honor the AOD and is Therefore Subject to Liability Under the PACT Act and PHL § 1399-ll.. ...................... 52

B. UPS is Liable for Violations of the AOD's Audit Requirement.. . . . 71

C. UPS Violated the CCTA by Knowingly Transporting More Than 10, 000 Unstamped Cigarettes.. ............................... 78

III. The Damages and Penalties Awards. . ........................... 82

A. The District Court Did Not Abuse Its Discretion in Allowing the Plaintiffs to Present Their Damages Case Nor Did It Clearly Err in Making Factual Findings Based on Record Evidence.. ........... 83

1. The District Court Reasonably Refused to Strike the Plaintiffs' Entire Damages and Penalties Case.. ....................... 84

2. The District Court's Factual Findings on Damages and Penalties Were Supported by the Evidence.. ......................... 88

(i) Package Quantity.. .................................... 89

(ii) Package Contents.. .................................... 91

3. The District Court Did Not Err By Ordering the Parties to Submit Post-Trial Calculations of Damages and Penalties.. .......... 95

B. The District Court Erred in Awarding the Plaintiffs Only Half of the Unpaid Taxes on Cigarettes UPS Unlawfully Shipped.. .......... 98

C. The District Court Abused Its Discretion in Awarding Per-Violation Penalties Under Both the PACT Act and PHL § 1399-ll.. ........ 104

CONCLUSION ............................ ........................... 114

BACKGROUND

I.

Factual Background

A.

The State's and City's Cigarette Taxation Regime

The deleterious effects of cigarette smoking and the...

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