United States District Court, S.D. New York
THE CITY OF NEW YORK and THE PEOPLE OF THE STATE OF NEW YORK, Plaintiffs,
FEDEX GROUND PACKAGE SYSTEM, INC., Defendant.
OPINION AND ORDER
Edgardo Rambs, U.S.D.J.
the Court are FedEx's motion to dismiss Plaintiffs'
claims under New York Public Health Law §
1399-ll and New York Executive Law § 63(12),
and Plaintiffs' request for certain discovery they allege
is relevant to those claims. For the reasons discussed below,
FedEx's motion to dismiss is DENIED and Plaintiffs'
request for discovery is GRANTED.
FedEx I and FedEx II
consolidated suit centers on allegations that FedEx Ground
Package System, Inc. (“FedEx”) knowingly
delivered, on behalf of several cigarette sellers, thousands
of cartons of unstamped cigarettes throughout the country,
including New York City and State. The City of New York
(“City”) instituted the first action, 13 Civ.
9173 (ER) (“FedEx I”), on December 30,
2013, seeking damages, civil penalties, treble damages,
injunctive relief, the appointment of a special master, and
attorney's fees for FedEx's violations of 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”), the Racketeer Influenced
and Corrupt Organizations Act, 18 U.S.C. § 1961 et
seq. (“RICO”), and New York Public Health
Law (“NYPHL”) § 1399-ll, as well as
for FedEx's creation and maintenance of a public nuisance
in violation of New York law. Compl. (FedEx I, Doc.
1) at 32-34. Initially, the City's action focused on
FedEx's shipments from 2005 to 2012 on behalf of only one
cigarette seller. Id. ¶ 3. On March 30, 2014,
the City amended its Complaint to add the State of New York
(“State”) as a plaintiff (collectively,
“Plaintiffs”), allegations related to three other
cigarette sellers, and a cause of action for FedEx's
violation of the Assurance of Compliance (“AOC”)
that FedEx entered into with the New York State Attorney
General in February 2006. Am. Compl. (FedEx I, Doc.
13) ¶¶ 3, 171-174.
course of discovery, Plaintiffs allegedly learned the
identities of additional cigarette sellers for whom they
believe FedEx knowingly made illegal deliveries. Plaintiffs
attempted to obtain discovery related to these entities, but
their efforts stalled in October 2014, when Magistrate Judge
Fox, to whom all general pretrial matters were then assigned,
issued a ruling limiting the scope of discovery to only the
four cigarette sellers named in the Amended Complaint. Rather
than seek leave to amend their Complaint a second time, on
November 12, 2014, Plaintiffs instituted a second action
against FedEx, 14 Civ. 8985 (ER) (“FedEx
II”), seeking the same type of relief as was
sought in FedEx I. Compl. (FedEx II, Doc.
1) at 31-34. In FedEx II, however, Plaintiffs
focused on FedEx's shipments from 2005 to 2013 on behalf
of all cigarette sellers, known and unknown, other than the
four previously identified in FedEx I. Id.
¶¶ 3, 16.
April 15, 2016, the Court consolidated FedEx I and
FedEx II and directed that all future filings in the
case be filed under FedEx I. Although FedEx
II is now closed, the parties maintain separate
pleadings in each of the two actions.
Court Dismisses Plaintiffs' NYPHL Claim in FedEx
13, 2014, FedEx moved to dismiss Plaintiffs' CCTA, RICO,
NYPHL, and public nuisance claims in FedEx I. By way
of an Opinion and Order dated March 9, 2015, the Court denied
FedEx's motion with respect to Plaintiffs' CCTA and
RICO claims, but granted the motion with respect to
Plaintiffs' NYPHL and public nuisance claims. City of
New York v. FedEx Ground Package Sys., Inc., 91
F.Supp.3d 512, 531 (S.D.N.Y. 2015). In relevant part, the
Court concluded that Plaintiffs are not authorized to sue for
violations of NYPHL § 1399-ll taking place
between 2005 and 2012-the time period alleged in FedEx
I-because the September 27, 2013 amendment to the
statute, which granted the City and State the authority to
enforce it, is not retroactive. Id. at 527-29;
see also Gold v. N.Y. Life Ins. Co., 730 F.3d 137,
143 (2d Cir. 2013) (“Generally, ‘retroactive
operation of statutes is not favored by [New York]
courts' and it ‘takes a clear expression of the
legislative purpose to justify a retroactive
application.'”) (quoting Majewski v.
Broadalbin-Perth Cent. Sch. Dist., 91 N.Y.2d 577, 584
the Court's decision in FedEx I, Plaintiffs
amended their Complaint in FedEx II in four material
respects. Am. Compl. (FedEx II, Doc. 23). First,
Plaintiffs dropped their PACT Act and public nuisance claims.
Id. Second, Plaintiffs added a claim for civil
penalties under New York Executive Law (“N.Y. Exec.
Law”) § 63(12), premised on FedEx's repeated
and persistent violations of NYPHL § 1399-ll.
Id. ¶¶ 126-129. Third, Plaintiffs extended
the time period of their allegations to encompass FedEx's
conduct from 2005 to the date of the filing, May 8, 2015.
Id. ¶ 63. Finally, Plaintiffs specifically
named twenty-one cigarette sellers, apart from those named in
FedEx I, for whom FedEx allegedly made unlawful
deliveries. Id. Plaintiffs later agreed to pursue
their claims in FedEx II with respect to only six of
those entities. See FedEx's Feb. 18, 2016 Ltr.
(FedEx II, Doc. 65).
Court Dismisses Plaintiffs' NYPHL and N.Y. Exec. Law
Claims in FedEx II
16, 2015, FedEx moved to dismiss all of Plaintiffs'
claims in FedEx II. By way of an Opinion and Order
dated March 31, 2016, the Court denied FedEx's motion
with respect to Plaintiffs' CCTA, RICO, and AOC claims,
but granted the motion with respect to Plaintiffs' NYPHL
and N.Y. Exec. Law claims. City of New York v. FedEx
Ground Package Sys., Inc., 175 F.Supp.3d 351, 372
(S.D.N.Y. 2016). Among other things, the Court concluded that
Plaintiffs' allegations, coupled with the evidentiary
record developed in FedEx I, rendered it entirely
plausible that FedEx knowingly delivered unstamped cigarettes
for the named cigarette sellers. Id. at 359-60.
Court also found that the PACT Act preempted Plaintiffs'
NYPHL and N.Y. Exec. Law claims. Id. at 360-64. In
short, Plaintiffs may not enforce NYPHL §
1399-ll against FedEx without proof that FedEx is
not exempt from the PACT Act's provisions, see
15 U.S.C. § 376a(e)(5)(C)(ii), and the PACT Act
specifically exempts FedEx, but only if the AOC “is
honored throughout the United States to block illegal
deliveries of cigarettes or smokeless tobacco to consumers,
” id. § 376a(e)(3). In its decision, the
Court concluded that the word “honored” in the
statute means “recognized” by the states, but
that “[u]ltimately, recognition by both the
states and the carrier is necessary to serve the PACT
Act's purpose of exempting a common carrier from suit if
a settlement agreement is truly nationwide in its
operation.” FedEx, 175 F.Supp.3d at 362-63
& n.11. Because Plaintiffs had not made any allegations
suggesting that the AOC did not have nationwide effect, the
Court dismissed Plaintiffs' NYPHL claim. Id. at
363. The Court also dismissed Plaintiffs' N.Y. Exec. Law
claim, finding that, because of the preemption issue,
Plaintiffs had not adequately pleaded that FedEx could be
held liable for repeated and persistent violations of NYPHL
§ 1399-ll. Id. at 364.
Plaintiffs Amend Their Complaint in FedEx II a
Second Time and FedEx Again Moves to Dismiss the NYPHL and
N.Y. Exec. Law Claims
the Court's decision, and with the Court's leave,
Plaintiffs amended their Complaint in FedEx II for
the second time. Second Am. Compl. (FedEx II, Doc.
74). Plaintiffs supplemented their allegations in two ways.
First, Plaintiffs now allege that, on information and belief,
the AOC is not recognized by the various states to block
illegal deliveries of cigarettes or smokeless tobacco to
consumers. Id. ¶¶ 103-107. Second,
Plaintiffs now allege that FedEx does not honor its agreement
throughout the United States to block illegal deliveries of
cigarettes to consumers. Id. ¶ 108. Plaintiffs
thus assert that the PACT Act does not preempt their NYPHL
and N.Y. Exec. Law claims. See id.
14, 2016, FedEx moved to dismiss Plaintiffs' NYPHL and
N.Y. Exec. Law claims. FedEx first argues that, as in
FedEx I, Plaintiffs lack the authority to bring
these claims, since the specific factual allegations in the
Second Amended Complaint pre-date the September 27, 2013
amendment to NYPHL § 1399-ll. FedEx's Mem.
(FedEx I, Doc. 210) at 5-8. FedEx alternatively
argues that Plaintiffs' claims are preempted, both by the
PACT Act and the Federal Aviation Administration
Authorization Act, 49 U.S.C. § 14501 et seq.
(“FAAAA”). Id. at 8-17. Plaintiffs filed
an opposition to the motion, and FedEx filed a reply.
Pls.' Opp'n Mem. (FedEx I, Doc. 224);
FedEx's Reply Mem. (FedEx I, Doc. 229).
briefing FedEx's motion, Plaintiffs submitted a letter to
the Court alleging that FedEx improperly refused to produce
certain discovery, namely: (1) “improper shipping
forms”related to the shipment of cigarettes or
tobacco, regardless of shipper; (2) nationwide shipping
records for the shippers at issue in FedEx II; and
(3) documents concerning an investigation by the California
State Attorney General's Office related to FedEx's
shipment of cigarettes within that state. Pls.' July 6,
2016 Ltr. (FedEx I, Doc. 219) at 1. Plaintiffs argue
that the foregoing discovery goes to FedEx's knowledge,
or willful blindness, concerning the contents of the packages
it shipped, which will be relevant to all of their claims, as
well as their request for injunctive relief, the appointment
of an outside monitor, and civil penalties. Id. at
2. Plaintiffs also argue that the nationwide shipping records
and improper shipping forms will be relevant to determining
FedEx's entitlement to the PACT Act exemption.
Id. FedEx filed a response to Plaintiffs'
letter, and Plaintiffs filed a reply. FedEx's July 21,
2016 Ltr. (FedEx I, Doc. 227); Pls.' July 28,
2016 Ltr. (FedEx I, Doc. 228).
light of the relationship between Plaintiffs' discovery
requests and the issues to be decided by the Court in ruling
on FedEx's motion to dismiss, the Court withdrew its
Order of Reference to Magistrate Judge Fox for general
pretrial purposes. July 7, 2016 Order (FedEx I, Doc.
223). Both the motion to dismiss and the discovery dispute
are now ripe for review.
ruling on a motion to dismiss pursuant to Rule 12(b)(6), the
Court must accept all factual allegations in the complaint as
true and draw all reasonable inferences in the
plaintiff's favor. Nielsen v. Rabin, 746 F.3d
58, 62 (2d Cir. 2014). The Court is not, however, required to
credit “mere conclusory statements” or
“threadbare recitals of the elements of a cause of
action.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S.
544, 555 (2007)); see also Id. at 681 (citing
Twombly, 550 U.S. at 551). “To survive a
motion to dismiss, a complaint must contain sufficient
factual matter . . . to ‘state a claim to relief that
is plausible on its face.'” Id. at 678
(quoting Twombly, 550 U.S. at 570). A claim is
facially plausible “when the plaintiff pleads factual
content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Id. (citing Twombly, 550
U.S. at 556). More specifically, the plaintiff must allege
sufficient facts to show “more than a sheer possibility
that a defendant has acted unlawfully.” Id. If
the plaintiff has not “nudged [the] claims across the
line from conceivable to plausible, [the] complaint must be
dismissed.” Twombly, 550 U.S. at 570;
Iqbal, 556 U.S. at 680.
question on a motion to dismiss “is not whether a
plaintiff will ultimately prevail but whether the claimant is
entitled to offer evidence to support the claims.”
Sikhs for Justice v. Nath, 893 F.Supp.2d 598, 615
(S.D.N.Y. 2012) (quoting Villager Pond, Inc. v. Town of
Darien, 56 F.3d 375, 378 (2d Cir. 1995)). “[T]he
purpose of Federal Rule of Civil Procedure 12(b)(6) ‘is
to test, in a streamlined fashion, the formal sufficiency of
the plaintiff's statement of a claim for relief without
resolving a contest regarding its substantive merits,
'” and without regard for the weight of the
evidence that might be offered in support of plaintiff's
claims. Halebian v. Berv, 644 F.3d 122, 130 (2d Cir.
2011) (quoting Global Network Commc'ns, Inc. v. City
of New York, 458 F.3d 150, 155 (2d Cir. 2006)).
FedEx's Motion to Dismiss Plaintiffs' NYPHL and N.Y.
Exec. Law Claims 1. Plausibility and Retroactivity
first argues that the Court should dismiss Plaintiffs'
NYPHL and N.Y. Exec. Law claims because the Second Amended
Complaint contains no factual allegations regarding
deliveries taking place after September 27, 2013, when NYPHL
§ 1399-ll was amended to grant the City and
State the authority to enforce it. FedEx's Mem. at 1-4,
6. In response, Plaintiffs urge the Court to reconsider its
prior ruling that the 2013 amendment is not retroactive, so
as to permit them to seek civil penalties against FedEx for
pre-amendment violations of the statute. Pls.' Opp'n
Mem. at 15-22. Alternatively, Plaintiffs argue that they have
sufficiently pleaded post-amendment violations, and thus
their claims should survive at least as to that time period.
Id. at 22-24.
Court has already held that “Plaintiffs'
allegations combined with the evidentiary record developed in
FedEx I render Plaintiffs' claim that FedEx
knowingly delivered unstamped cigarettes for the shippers
named in the [Amended] Complaint entirely plausible.”
FedEx, 175 F.Supp.3d at 360. The Amended Complaint
and the Second Amended Complaint in FedEx II are
largely identical, and both contain allegations that FedEx
engaged in unlawful conduct from 2005 to 2015.
Compare Am. Compl. (FedEx II, Doc. 23),
with Second Am. Compl. (FedEx II, Doc.