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City of New York v. Fedex Ground Package System, Inc.

United States District Court, S.D. New York

February 21, 2017

THE CITY OF NEW YORK and THE PEOPLE OF THE STATE OF NEW YORK, Plaintiffs,
v.
FEDEX GROUND PACKAGE SYSTEM, INC., Defendant.

          OPINION AND ORDER

          Edgardo Rambs, U.S.D.J.

         Before 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.

         I. BACKGROUND[1]

         A. FedEx I and FedEx II

         This 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.[2]

         In the 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.

         On 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.

         B. The Court Dismisses Plaintiffs' NYPHL Claim in FedEx I

         On May 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 (1998)).

         Following 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.[3] 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).[4]

         C. The Court Dismisses Plaintiffs' NYPHL and N.Y. Exec. Law Claims in FedEx II

         On July 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.

         The 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.[5]

         D. Plaintiffs Amend Their Complaint in FedEx II a Second Time and FedEx Again Moves to Dismiss the NYPHL and N.Y. Exec. Law Claims

         Following 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.

         On June 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).

         E. Discovery Dispute

         While 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”[6]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).

         In 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.[7]

         II. LEGAL STANDARD

         When 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.

         The 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)).

         III. DISCUSSION

         A. FedEx's Motion to Dismiss Plaintiffs' NYPHL and N.Y. Exec. Law Claims 1. Plausibility and Retroactivity

         FedEx 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.

         The 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. 74).[8] To ...


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