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City of New York v. Tobacco

United States District Court, Second Circuit

September 9, 2013

THE CITY OF NEW YORK, Plaintiff,
v.
WOLFPACK TOBACCO; CLOUD AND COMPANY; ALLEGANY SALES AND MARKETING; PHILIP JIMERSON; HEIDI JIMERSON, JOHN DOES 1-5, being persons who own, are employed by or are associated with Wolfpack Tobacco, PM DELIVERY, MICHAEL W. JONES, and JOHN DOES 6-10, being persons who own, are employed by or are associated with PM Delivery, Defendants.

Aaron Bloom, Eric Proshansky, Corporation Counsel of the City of New York, New York, NY, For plaintiff.

Paul J. Cambria, Jr., Lipsitz Green Scime Cambria LLP, Buffalo, NY, For defendants Wolfpack Tobacco, Cloud and Company, Allegany Sales and Marketing, Philip Jimerson, and Heidi Jimerson.

OPINION AND ORDER

DENISE COTE, District Judge.

This action concerns the alleged sale and distribution of cigarettes from an establishment on the Allegany Reservation of the Seneca Nation of Indians to customers in New York City and elsewhere in violation of various State and Federal laws. Plaintiff the City of New York ("the City") brings suit against defendants Wolfpack Tobacco, Cloud and Company, Allegany Sales and Marketing, Philip Jimerson, Heidi Jimerson, and John Does 1-5 (collectively, the "Wolfpack Defendants" or "Wolfpack") for violations of the Prevent All Cigarette Trafficking Act ("PACT Act"), 15 U.S.C. § 375 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. As to PM Delivery, Michael W. Jones, and John Does 6-10 (collectively, the "PM Delivery Defendants"), the City alleges violations of the Contraband Cigarette Trafficking Act ("CCTA"), 18 U.S.C. § 2341 et seq. and RICO. Before the Court is the City's March 25, 2013, motion for a preliminary injunction against the Wolfpack Defendants. For the reasons stated below, the motion is granted.

BACKGROUND

New York State and City law both impose excise taxes on cigarettes sold to their residents, and require that these taxes be paid by means of a "stamp." See Oneida Nation of New York v. Cuomo , 645 F.3d 154, 158 (2d Cir. 2011). State-licensed stamping agents pay the tax in advance by purchasing stamps from the State's Department of Taxation and Finance and are then required to affix the stamps to each pack of cigarettes before selling them to wholesalers or retailers. Id . The taxes are thus incorporated into the price of a pack of cigarettes and passed to the consumer. Id .; N.Y. Tax L. §§ 471, 473. The City alleges that the Wolfpack Defendants sell "unstamped" (i.e., tax-free and therefore significantly cheaper) cigarettes by mail order to consumers in New York City.

The City alleges that defendants Philip and Heidi Jimerson sell and distribute unstamped cigarettes through companies they own and operate: Wolfpack Tobacco, Cloud and Company, and Allegany Sales and Marketing. These companies advertise through mailings and, formerly, through a website, and take orders from customers by mail and by telephone. One mailing sent out by Wolfpack advertised "Tax Free Native Brand Cigarettes by Mail" and listed prices for various brands, the highest of which was $33.49 per carton. The prices offered thus could not have included New York State and City taxes, which alone amount to over fifty dollars per carton. See N.Y. Tax L. § 471(1); Admin. Code of City of New York §§ 11-1302(a)(1), (2).

On January 10 and December 27, 2012, an investigator from the Office of the New York City Sheriff placed orders for several cartons of cigarettes from Wolfpack by filling out Wolfpack's mail order form and attaching a money order. In neither order did the investigator pay more than $34.45 for a carton, meaning that the cigarettes were not taxed. When the cigarettes were delivered, the packages did not indicate that they contained cigarettes, the delivery driver did not ask for identification, and the packs of cigarettes in the boxes were not affixed with tax stamps. Records obtained by the City show that since December 2, 2010, PM Delivery has shipped thousands of packages weighing more than 45, 000 pounds in total from the Wolfpack Defendants to customers in the City.

The City filed its complaint on March 21, 2013. The complaint alleges that the Wolfpack Defendants have violated the PACT Act by failing to report their cigarette sales to the City, failing to properly label their shipments, failing to verify the age of those receiving the cigarettes, and exceeding the maximum weight allowed for individual shipments under the Act. The complaint alleges that the Wolfpack Defendants have violated the CMSA by selling unstamped (and therefore tax-free) cigarettes to City residents. The complaint also advances a claim against the PM Delivery Defendants for violations of the CCTA. Finally, the complaint advances a RICO claim against the Wolfpack and PM Delivery Defendants for violating the CCTA, although it does not make a CCTA claim against the Wolfpack Defendants directly.[1]

On March 25, the City filed the instant motion, which sought a preliminary injunction against both the Wolfpack and PM Delivery defendants. After receiving pro se letter-answers from Michael W. Jones and John L. Powers, however, the City on May 5 withdrew its motion for a preliminary injunction as against the PM Delivery defendants and on May 31 voluntarily dismissed Powers from the case entirely. In its current form, the City's motion thus seeks a preliminary injunction against the Wolfpack Defendants for violations of the PACT Act and CMSA only.[2] The Wolfpack Defendants filed their opposition to the City's motion on May 21, and the City filed its reply on June 4.

DISCUSSION

A party seeking a preliminary injunction is generally required to show (1) 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, (2) that the moving party is likely to suffer irreparable injury in the absence of a preliminary injunction, (3) a balance of the hardships tipping in favor of the moving party, and (4) that the public interest would not be disserved by the issuance of a preliminary injunction. WNET, Thirteen v. Aereo, Inc. , 712 F.3d 676, 684 (2d Cir. 2013). Where a party seeks a statutory injunction, however, a presumption of irreparable harm often applies, since the party is said to be acting as "a statutory guardian charged with safeguarding the public interest." SEC v. Management Dynamics, Inc. , 515 F.2d 801, 808 (2d Cir. 1975). In such cases, the party seeking the injunction must make a "clear showing" of success on the merits and likelihood that the violations will recur. SEC v. Unifund SAL , 910 F.2d 1028, 1039 (2d Cir. 1990).

The Second Circuit has held that a presumption of irreparable harm applies to injunctions under the CMSA and CCTA. City of New York v. Golden Feather Smoke Shop, Inc. , 597 F.3d 115, 121 (2d Cir. 2010). This conclusion was based on the fact that "[b]oth statutes 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 . Both statutes also explicitly allow local governments to obtain injunctive relief for violations of their substantive provisions. Id .; see also 18 U.S.C. § 2346(b)(2); N.Y. Tax L. § 484(b)(1). Because the PACT Act contains enforcement provisions identical to those in the CCTA, see 15 U.S.C. § 378(c)(1)(A), and also "make[s] unlawful specific conduct related to the sale and possession of [cigarettes], " Golden Feather , 597 F.3d at 121, the City is entitled to a presumption of irreparable harm when seeking an injunction under the PACT Act as well.[3]

The Wolfpack Defendants do not take issue with the application of Golden Feather to the PACT Act. Instead, they argue that the Second Circuit's decision in Golden Feather is "in direct contravention of Supreme Court precedent." In support of this contention, Wolfpack cites Winter v. Natural Res. Def. Council, Inc. , 555 U.S. 7, 22 (2008), and eBay Inc. v. MercExchange, LLC , 547 U.S. 388, 392-93 (2006). Both of those cases, however, predate Golden Feather, and the Wolfpack Defendants do not point to any case decided since Golden Feather that calls its holding into question. Nor do Winter and eBay undermine the holding of Golden Feather, as they deal with private plaintiffs enforcing private rights, not statutory injunctions like the one sought by the City. See Golden Feather , 597 F.3d at 120 ("The function of a court in deciding whether to issue an injunction authorized by a statute of the United States to enforce and implement Congressional policy is a different one from that of the court when weighing claims of two private litigants.") (quoting United States v. Diapulse Corp. of Am. , 457 F.2d 25, 27 (2d ...


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