United States District Court, S.D. New York
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For The City of New York, Plaintiff: Aaron Michael Bloom, New York City Law Department, New York, NY; Eric Proshansky, NYC Law Department, New York, NY.
For Robert Gordon, doing business as, All of Our Butts, Marcia Gordon, Defendants: Adam J Rader, Kerry Ann Sheehan, Michael A Lacher, Anderson Kill & Olick, P.C., New York, NY.
For Regional Integrated Logistics, Inc., doing business as, Regional Parcel Services, John Does 6-10, being persons who own, are employed by or are associates with Regional Integrated Logistics, Inc. d/b/a Regional Parcel Services, Defendant: Marybeth Priore, LEAD ATTORNEY, Paul G. Joyce, Colucci & Gallaher, P.C., Buffalo, NY.
OPINION AND ORDER
JESSE M. FURMAN, United States District Judge.
Plaintiff, the City of New York (" the City" ), brought this action seeking injunctive relief, penalties, and damages for violations of the Prevent All Cigarette Trafficking Act (" PACT Act" ), 15 U.S.C. § 375 et seq.; the Contraband Cigarette Trafficking Act (" CCTA" ), 18 U.S.C. § 2341 et seq.; the Cigarette Marketing Standards Act (" CMSA" ), N.Y. Tax L. § 483 et seq.; and the Racketeer Influenced and Corrupt Organizations Act (" RICO" ), 18 U.S.C. § 1961 et seq. The City has moved for a preliminary injunction pursuant to Rule 65(a) of the Federal Rules of Civil Procedure, enjoining Defendants Robert and Marcia Gordon (together " the Gordon Defendants" ) from violating the PACT Act and the CMSA; and Defendants Marcia Gordon and Regional Integrated Logistics, Inc. d/b/a Regional Parcel Services (" RPS" ) from violating the CCTA. Defendants have moved to dismiss the case for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons that follow, the City's motion for a preliminary injunction is GRANTED, and the Defendants' motions to dismiss are DENIED.
Both New York State and New York City impose taxes on cigarettes sold to
their residents. See N.Y. Tax L. § 471(1); Admin. Code of City of New York (" Admin. Code" ) § § 11-1302(a)(1), (2). Under New York law, these taxes must be prepaid through the purchase of tax stamps. See N.Y. Tax L. § § 471, 473; Admin. Code § § 11-1302, 11-1304. State and City laws require that the stamps be affixed to packages of cigarettes as evidence of payment. See N.Y. Tax L. § § 471, 473; Admin. Code § § 11-1302, 11-1304. The cost of this stamp then must be incorporated into the price of the cigarettes paid by the ultimate customer. See N.Y. Tax L. § § 471, 473; Admin. Code § § 11-1302(a)(3), (e), (h). The City alleges that Defendants operate a " 'mail-order' scheme to traffic unstamped cigarettes into New York City." (Mem. Supp. City's Mot. Prelim. Inj. (" City Mem." ) 2).
Defendant Robert Gordon, a member of the Seneca Nation of Indians, does business as and owns " All Of Our Butts," a company that sells tobacco products over the phone and internet, as well as in person on the Allegany Reservation of the Seneca Nation of Indians. (Am. Compl. ¶ 8; Proshansky Decl. Ex. A at 3, 5; Proshansky Decl. Ex. B, at 17; Proshansky Decl. Ex. D). Robert Gordon's wife, Defendant Marcia Gordon, who is not a member of the Seneca Nation, manages the daily operations of All Of Our Butts. (Am. Compl. ¶ 9; Proshansky Decl. Ex. B, at 46). The City alleges that since 2002, the Gordon Defendants, through All Of Our Butts, have sold thousands of cartons of unstamped -- and thus untaxed -- cigarettes to customers throughout the country, and in particular to New York City residents. (Am. Compl. ¶ 61). The City alleges that, beginning approximately June 29, 2010, Defendant RPS was the sole delivery service by which All Of Our Butts distributed cigarettes to City residents. ( Id. ¶ ¶ 40, 65, 66, 69).
In April of 2012, a City investigator ordered cigarettes from the All Of Our Butts website. ( Id. ¶ 43). The cost of the cigarettes -- two 200-count bags of " Rollies Menthol King" sold at fifteen dollars per bag ( id. ¶ 43) -- could not have included State and City taxes, which total over fifty dollars per bag. See N.Y. Tax L. § 471(1); Admin. Code § § 11-1302(a)(1), (2). Approximately two weeks later, the cigarettes were delivered in a box labeled " RPS Regional Parcel Services." (Am. Compl. ¶ 45). An office clerk, not the investigator who had placed the order, received and signed for the delivery. ( Id. ¶ 46). The delivery driver did not request that the clerk provide identification or any other form of age verification. ( Id.). The cigarettes were unstamped. ( Id. ¶ 49).
In June of 2012, a City investigator again ordered cigarettes from the All Of Our Butts website. ( Id. ¶ 52). Again, the cost of the cigarettes -- two cartons of Seneca Menthol Kings, priced at $29.20 per carton ( id.) -- could not have included State and City taxes, which total over fifty dollars per carton. See N.Y. Tax L. § 471(1); Admin. Code § § 11-1302(a)(1), (2). The order form stated that RPS would be responsible for shipping the order. (Am. Compl. ¶ 53). Approximately two weeks later, a delivery person for " LaserShip" delivery service delivered the cigarettes. ( Id. ¶ 55). An office clerk, not the investigator who had placed the order, received and signed for the delivery. ( Id.). The delivery driver did not request that
the clerk provide identification or any other form of age verification. ( Id.). The cigarettes were unstamped. ( Id. ¶ 59). All Of Our Butts did not report either of the City investigator's purchases to the chief law enforcement officer of the City of New York. ( Id. ¶ 60).
On September 28, 2012, the City filed the amended complaint that is the basis for this action. The City alleges that the Gordon Defendants, by failing to report All Of Our Butts' cigarette sales and by failing to use a delivery service that ensures that cigarettes are delivered only to those who meet the minimum age for the purchase of tobacco, have violated the PACT Act; and that by selling unstamped cigarettes to New York City residents, they have violated the CMSA. The City further alleges that by selling and distributing more than 10,000 unstamped cigarettes to City residents, Marcia Gordon and RPS have violated the CCTA. Finally, by depriving the City of tax revenue through conduct indictable under the CCTA, the City alleges that all Defendants have violated and conspired to violate RICO. The City seeks a preliminary injunction enjoining Defendants from all claimed statutory violations, except those under RICO. Defendants, in turn, move to dismiss the City's claims.
I. The City's Motion for a Preliminary Injunction
Generally, " a party requesting a preliminary injunction must establish (1) irreparable harm and (2) either (a) a likelihood of success on the merits, or (b) sufficiently serious questions going to the merits of its claims to make them fair ground for litigation, plus a balance of the hardships tipping decidedly in favor of the moving party." City of New York v. Golden Feather Smoke Shop, Inc., 597 F.3d 115, 120 (2d Cir. 2010) (internal quotation marks omitted). Here, however, because the City seeks a statutory injunction, irreparable harm is presumed. As the Second Circuit recently explained, both the CMSA and the CCTA " make unlawful specific conduct related to the sale and possession of certain unstamped cigarettes, indicating Congress and the New York Legislature's determination that such conduct, in and of itself, is harmful to the public." Id. at 121. It is therefore unnecessary for " a party seeking a statutorily-sanctioned injunction to make an additional showing of irreparable harm." Id. The City is " entitled to a presumption of irreparable harm with the caveat that it must show a likelihood of success on the merits of its CMSA and CCTA claims." Id. Although the Second Circuit did not specifically address the PACT Act, its enforcement provisions are, in relevant part, identical to those of the CCTA. Compare 18 U.S.C. § 2346(b)(1) with 15 U.S.C. § 378(c)(1)(A). Therefore, the Court of Appeals' holding applies with equal force to the PACT Act as well.
Because the Court presumes irreparable harm under the CMSA, CCTA, and the PACT Act, the City is entitled to a preliminary injunction if it can demonstrate that it is likely to succeed on its claims that Defendants violated these statutes. The City has satisfied this burden.
A. The PACT Act
First, the City alleges that the Gordon Defendants failed to comply with the reporting requirements of the PACT Act, see 15 U.S.C. § 376(a), as well as the Act's age verification requirements, see id. § 376a(b)(4). (Am. Compl. ¶ 4). In relevant part, the PACT Act requires " [a]ny person who sells, transfers, or ships for profit cigarettes . . . in interstate commerce" into a state or city that taxes " the sale or use of cigarettes" to file " a memorandum or a copy of the invoice covering
each and every shipment of cigarettes" with the " chief law enforcement officers of the local governments . . . that apply their own local . . . taxes on cigarettes." 15 U.S.C. § 376(a). All Of Our Butts shipped cigarettes from an Indian reservation to New York City residents, thus selling cigarettes in interstate commerce to a locality that taxes cigarette sales. The Gordon Defendants do not dispute that under the PACT Act, they are required to report these sales to the chief law enforcement officer of New York City. The record contains undisputed evidence that they did not do so. All Of Our Butts sold two shipments of cigarettes to a City investigator, neither of which was reported to the City. ( See Proshansky Decl. ¶ ¶ 27-28; Monell Decl. ¶ ¶ 12, 23). Furthermore, the Gordon Defendants admitted that in 2012, All Of Our Butts did not file " any memoranda or copies of invoices covering . . . [the] shipment[s] of cigarettes All Of Our Butts made into New York City." (Bloom Decl. Ex. A, at 7).
The record also contains undisputed evidence that, in addition to violating the PACT Act's reporting requirements, the Gordon Defendants violated the Act's age verification requirements. Section 376a(b)(4) of the Act provides:
A delivery seller who mails or ships tobacco products --
. . . .
(ii) shall use a method of mailing or shipping that requires --
(I) the purchaser placing the delivery sale order, or an adult who is at least the minimum age required for the legal sale or purchase of tobacco products, as determined by the applicable law at the place of delivery, to sign to accept ...