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State v. United Parcel Service, Inc.

United States District Court, S.D. New York

March 24, 2017

THE STATE OF NEW YORK and THE CITY OF NEW YORK, Plaintiffs,
v.
UNITED PARCEL SERVICE, INC., Defendant.

          OPINION & ORDER

          KATHERINE B. FORREST United States District Judge

         Table of Contents

         I. INTRODUCTION..................................................................................................1

         II. PROCEDURAL HISTORY....................................................................................3

         A. Pre-Trial Proceedings.......................................................................................3

         B. The Trial...........................................................................................................8

         III. FINDINGS OF FACT............................................................................................9

         A. Public Health Issues Associated with Cigarettes............................................9

         B. Plaintiffs' Investigations of UPS....................................................................10

         C. UPS's Business...............................................................................................13

         D. UPS's Business and Specific Conduct............................................................19

         1. UPS's Tobacco Policy...................................................................................19

         2. UPS's Training Efforts................................................................................21

         3. The Role of Account Executives..................................................................24

         4. The Role of UPS Drivers.............................................................................27

         5. UPS's Interactions with Shippers..............................................................29

         6. UPS's Information Systems and Information Sharing..............................31

         E. UPS's Asserted Reliance on Governmental Action/Inaction........................32

         1. Governmental Action..................................................................................33

         2. Governmental Inaction...............................................................................35

         F. UPS's Audits...................................................................................................37

         IV. CURRENT STATUS OF UPS'S COMPLIANCE EFFORTS.............................40

         V. BACKGROUND CONCERNING THE TAXATION OF CIGARETTES AND LITTLE CIGARS.................................................................................................43

         VI. THE PACT ACT...................................................................................................45

         VII. CONSUMPTION OF TOBACCO PRODUCTS..................................................46

         A. Cigarettes........................................................................................................46

         B. Little Cigars....................................................................................................48

         VIII.CERTAIN COMMON EVIDENCE.....................................................................51

         A. The Fink Accounts..........................................................................................51

         B. The Non-Compliant Lists...............................................................................53

         C. The "Tobacco Watchdog Group" Letter..........................................................56

         D. Inquiries Regarding Lost or Damaged Packages..........................................58

         1. Smokes & Spirits.........................................................................................59

         2. RJESS..........................................................................................................59

         3. Sweet Seneca Smokes.................................................................................60

         4. Elliott Enterprises/EExpress......................................................................60

         5. Bearclaw Unlimited....................................................................................60

         6. Shipping Services........................................................................................61

         7. Native Wholesale Supply............................................................................61

         8. Seneca Promotions......................................................................................61

         9. Native Gifts.................................................................................................61

         10. Jacobs Manufacturing/Tobacco...................................................................61

         E. The Cigarettes Shipped Were Unstamped....................................................62

         IX. SHIPPERS AT ISSUE.........................................................................................63

         A. Overview of the Shippers and the Court's Findings.....................................63

         B. Liability Shippers...........................................................................................67

         1. Elliott Enterprises.......................................................................................67

         2. Eexpress......................................................................................................73

         3. Bearclaw/AFIA............................................................................................77

         4. Shipping Services/Seneca Ojibwas/Morningstar Crafts & Gifts...............80

         5. Indian Smokes.............................................................................................85

         6. Smokes & Spirits.........................................................................................88

         7. Arrowhawk/Seneca Cigars/Hillview Cigars/Two Pine Enterprises..........92

         8. Mohawk Spring Water................................................................................99

         9. Jacobs Tobacco Group...............................................................................102

         10. Action Race Parts......................................................................................104

         11. Native Wholesale Supply..........................................................................105

         12. Seneca Promotions....................................................................................107

         C. Shippers as to Which There Is Only AOD Liability....................................109

         1. Native Outlet.............................................................................................109

         2. A.J.'s Cigars...............................................................................................Ill

         3. RJESS........................................................................................................113

         D. Shipper as to Which There Is No Liability..................................................115

         1. Sweet Seneca Smokes...............................................................................115

         X. CONCLUSIONS OF LAW.................................................................................118

         A. The AOD........................................................................................................119

         1. Background Described in the AOD...........................................................120

         2. The Terms of the AOD..............................................................................122

         B. Interpretation of the AOD............................................................................128

         C. Violations of the AOD...................................................................................129

         D. Violations of the Audit Obligation Under the AOD....................................134

         1. Proof to the Reasonable Satisfaction of the State Attorney General......135

         2. Implied Covenant of Good Faith and Fair Dealing..................................137

         E. Whether the AOD Was "Honored"...............................................................140

         XI. KNOWLEDGE...................................................................................................144

         A. Knowledge.....................................................................................................145

         B. Imputation of Knowledge.............................................................................150

         C. Presumptions of Knowledge for Common Carriers.....................................154

         D. Knowledge as to Each Shipper.....................................................................155

         XII. LIMITATIONS PERIOD...................................................................................155

         XIII.THE PACT ACT.................................................................................................158

         XIV.PHL 1399-LL.....................................................................................................162

         XV. THECCTA.........................................................................................................165

         XVI.PREEMPTION...................................................................................................171

         XVII. UPS'S REMAINING DEFENSES...................................................................175

         A. Unclean Hands/In Pari Delicto....................................................................175

         B. Waiver...........................................................................................................177

         C. Public Authority and Estoppel.....................................................................178

         XVIII.DAMAGES......................................................................................................182

         A. UPS's Pre-Trial Damage Disclosure............................................................183

         B. Legal Principles Regarding Damages..........................................................189

         1. Compensatory Damages............................................................................189

         2. Penalties....................................................................................................192

         C. Constitutional/Conscionability Issues with Penalties................................197

         D. The Penalty Provisions at Issue Here.........................................................205

         E. Calculation of Penalties................................................................................206

         1. Defining a Package....................................................................................206

         2. Package Contents......................................................................................208

         3. Reasonable Approximation of Contents...................................................209

         4. Defining a Carton......................................................................................211

         5. The AOD....................................................................................................211

         6. The PACT Act and PHL § 1399-11.............................................................212

         7. TheCCTA..................................................................................................213

         XXI. INJUNCTIVE RELIEF.....................................................................................215

         XXII. CONCLUSION.................................................................................................217

         I. INTRODUCTION

         Issues surrounding the appropriate taxation and collection scheme for cigarettes sold on Indian reservations in the State of New York have presented persistent and complex challenges. Cigarettes sold on reservations to tribal members for personal use are exempt from tax; those sold to non-tribal members are not. The tracking and collection of appropriate taxes has proceeded in fits and starts-including a lengthy period of forbearance by the State of New York from enforcing existing tax laws on reservations, which continued until June 2011.

         This lawsuit concerns a non-tribal member, United Parcel Service, Inc. ("UPS"), which allegedly transported, inter alia, cigarettes from and between New York State Indian reservations for a number of shippers ("Relevant Shippers"). Plaintiffs, the State of New York and the City of New York (collectively, "plaintiffs, " and, respectively, the "State" and/or the "City"), assert that in transporting unstamped (and therefore untaxed) cigarettes, [1] UPS has violated an Assurance of Discontinuance ("AOD") it signed with the State in 2005, as well as New York Executive Law ("NY. Exec. Law") § 63(12); New York Public Health Law ("PHL") § 1399-U;[2] the Prevent All Cigarette Trafficking Act ("PACT Act"), 15 U.S.C. §§ 375- 78; the Contraband Cigarettes Trafficking Act ("CCTA"), 18 U.S.C. §§ 2341-46; and the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961-68.[3]

         UPS has denied plaintiffs' assertions from the commencement of this action, and it vigorously defended itself through trial. While UPS pursued a number of defenses discussed in more detail below, a few are worth additional focus at the outset. First and foremost, UPS has disputed that it ever violated its obligations under the AOD or knowingly transported unstamped cigarettes from or between Indian reservations to unauthorized recipients.

         Second, UPS argues that even if it had violated the statutes or the AOD, plaintiffs have failed to carry their burden with regard to establishing damages.[4]UPS's primary legal arguments in support of this contention are that plaintiffs failed to adequately disclose their damages computation prior to trial and then made a separate error at trial by attempting to introduce the details of their damages claim through a demonstrative when it should have been presented by an expert. According to UPS, these legal issues provide two independent bases for the Court to preclude plaintiffs' damages claim altogether. UPS has also made factual arguments in furtherance of preclusion. UPS argues that plaintiffs improperly and without sufficient factual support seek damages for every package transported by UPS after a certain point in time. UPS also asserts that, in all events, neither UPS nor plaintiffs can possibly know the contents of any particular package, rendering assessment of damages on a per-package basis impossible.

         Upon careful review and consideration of the entire trial record, the Court finds that UPS violated its obligations under the AOD in a number of respects and, in addition, knowingly[5] transported cigarettes from and between Indian reservations for all but one of the shippers (the "Liability Shippers").[6] For this reason and others detailed below, UPS's arguments against any liability fail. The more complicated issue, however, relates to damages. Plaintiffs left their damages case open to severe attack; such exposure could and should have been avoided. However, the Court finds that plaintiffs are entitled to compensatory damages as well as monetary penalties in amounts yet to be determined, but not injunctive relief or the appointment of a monitor.

         II. PROCEDURAL HISTORY

         A. Pre-Trial Proceedings

         The State and City initiated this action by filing a complaint against UPS on February 18, 2015. (ECF No. 1.) They filed an amended complaint ("Amended Complaint") on May 1, 2015, a second amended complaint ("Second Amended Complaint") on November 30, 2015, and a third amended complaint ("Third Amended Complaint") on February 24, 2016. (ECF Nos. 14, 86, 189.) The Second Amended Complaint contains fourteen causes of action seeking various forms of relief under the AOD, [7] N.Y. Exec. Law § 63(12), [8] PHL § 1399-U;[9] the PACT Act;[10]the CCTA;[11] and RICO.[12]

         The parties agreed that the affirmative defenses asserted by UPS in its answer to the Amended Complaint, (ECF No. 110), were deemed asserted as to the Second Amended Complaint. On December 4, 2015, plaintiffs moved to strike UPS's Fifth through Seventeenth Affirmative Defenses. (ECF No. 89.) In an Opinion & Order dated February 8, 2016, the Court granted the motion in part and denied it in part. (ECF No. 177, New York v. United Parcel Serv.. Inc.. 160 F.Supp.3d 629 (S.D.N.Y. 2016).) UPS moved for reconsideration with regard to the portion of the decision that struck its Seventh Affirmative Defense. (ECF No. 187.)

         There has been significant motion practice regarding UPS's Seventh Affirmative Defense. (See, e.g.. ECF Nos. 91, 111, 122, 188, 198, 201, 287, 345, 384.) Although the Court granted UPS's motion for reconsideration, (ECF No. 258), [13] and vacated certain portions of its prior decision, the Court ultimately granted plaintiffs' renewed motion for summary judgment on the Seventh Affirmative Defense. (ECF No. 406.) The Court refers the reader to the Court's prior decisions for its full analysis. (ECF Nos. 177, 258, 406.)

         In summary, UPS's Seventh Affirmative Defense asserts that plaintiffs' claims are barred, at least in part, by orders issued by various courts between 2008 and 2011 pertaining to enforcement and/or implementation of N.Y. Tax Law §§ 471 and 471-e.[14] In its briefing, UPS has asserted that this defense encompasses its argument that the State's policy of "forbearance, " regarding enforcement of New York's cigarette taxation scheme on Indian reservations to June 2011, bars any recovery for a significant portion of the relevant time period. According to UPS, New York's forbearance policy rendered § 471 not "in effect"-and therefore unenforceable-during the period of forbearance. In addition, UPS has argued that under constitutional principles and § 471, the State and City were without power to tax cigarettes UPS delivered to Indian reservations;[15] such shipments constitute a significant portion of those at issue. This Court disagreed. It determined, in part, that § 471 has been "in effect" continuously since its inception, even during the period of forbearance. The Court found that the "forbearance policy" was directed at Indian tribal members and not at private actors such as UPS. Finally, the Court further held that neither constitutional principles nor the forbearance policy directed at Indian reservations immunized or excused UPS's actions. (ECF No. 406, New York v. United Parcel Serv., Inc., No. 15-cv-1136, 2016 WL 4747236 (S.D.N.Y. Sept. 10, 2016).)

         The parties also engaged in significant motion practice regarding whether the Court should strike certain of UPS's other defenses. In its Opinion & Order dated February 8, 2016, the Court struck UPS's Sixth, Eighth, Ninth, Tenth, Eleventh, and Sixteenth Affirmative Defenses. (ECF No. 177, New York v. United Parcel Serv.. Inc.. 160 F.Supp.3d 629, 665 (S.D.N.Y. 2016).) UPS's remaining defenses are:

Second Defense: To the extent plaintiffs have suffered any damages alleged in the Third Amended Complaint, such damages were not caused by UPS. (ECF No. 199 at 18.)
Third Defense: Plaintiffs' claims are barred, in whole or in part, by the applicable statutes of limitations. (Id.)
Fourth Defense: Plaintiffs lack standing to assert the claims set forth in their Third Amended Complaint. (Id.)
Twelfth Defense: The State's claim for violation of the AOD is barred, in whole or in part, by its breach or nonperformance with respect to the AOD, including but not limited to any covenants implied therein, such as the implied covenant of good faith and fair dealing. (Id. at 22.)
Thirteenth Defense: The State's own inactivity under the AOD, and with respect to cigarette tax laws more generally, bars, estops, or otherwise precludes it from complaining of, or seeking relief based on, UPS's alleged performance and/or nonperformance under the AOD, including, but not limited to, under principles of laches, waiver, estoppel, and similar doctrines. (Id.)
Fourteenth Defense: UPS was excused from performance under the AOD on grounds of impracticability and frustration, including such grounds created by the conduct of the State of New York or its agents, employees, or representatives. (Id.)
Fifteenth Defense: Plaintiffs' claims are barred and/or preempted, in whole or in part, by federal law pertaining to the transportation industry, including the Federal Aviation Administration Authorization Act of 1994, 49 U.S.C. §§ 14501, 41713, and any other applicable provisions of Title 49 of the United States Code, Title 49 of the Code of Federal Regulations, and related provisions, federal common law, or other federal law pertaining to the industry or the duties of common carriers. (Id.)
Seventeenth Defense: Plaintiffs' claims, including their request for civil penalties, are barred, in whole or in part, by the doctrines of waiver, estoppel, laches, unclean hands, in pari delicto, and/or other equitable doctrines, in that, among other things, plaintiffs had reason to know about unlawful cigarette sales by the shippers named in the Third Amended Complaint, yet failed to take appropriate steps as to them or their customers, or to notify UPS. (Id.)
Eighteenth Defense: Plaintiffs' claims are barred, in whole or in part, under the doctrine of estoppel by entrapment. (Id. at 23.)
Nineteenth Defense: Plaintiffs' claims are barred, in whole or in part, under the public authority defense. (Id.)
Twentieth Defense: Plaintiffs' claims are barred, in whole or in part, by judicial estoppel or similar doctrines. (Id.)
Twenty-First Defense: Plaintiffs' claims for civil penalties are barred to the extent that an award of such penalties does not comport with principles of substantive and procedural due process under the U.S. Constitution and other federal and state law. (Id.)
Twenty-Second Defense: The State is barred from seeking penalties under the AOD in circumstances where the State declined to pursue penalties after requiring UPS to make a showing to the State's "reasonable satisfaction" under ¶ 42(b) of the AOD. (Id.)
Twenty-Third Defense: The PACT Act exempts UPS from liability under the PACT Act or PHL § 1399-11, either because UPS is subject to the AOD, or because UPS had an AOD and continues to administer and enforce policies and practices throughout the United States that are at least as stringent as the AOD. 15 U.S.C. § 376a(e)(3)(A)(i), (ii). (Id.)
Twenty-Fourth Defense: The PACT Act exempts UPS from civil penalties under 15 U.S.C. § 377(b)(3)(B). (Id.)
Twenty-Fifth Defense: Plaintiffs' claims pursuant to the PACT Act are barred or limited by their own conduct, including their failure to comply with the PACT Act's provisions requiring state and local governments to provide the U.S. Attorney General with certain information used to create the PACT Act's list of unregistered or noncompliant delivery sellers. 15 U.S.C. § 376a(e)(1)(D), (6)(A). (Id.)
Twenty-Sixth Defense: Plaintiffs' claims pursuant to the New York Public Health Law are barred, in whole or in part, because they lack standing to enforce PHL § 1399-11 against UPS based on any alleged delivery occurring before September 27, 2013. (Id. at 24.)

         B. The Trial

         This case was tried to the bench on September 19, 2016, through September 29, 2016. The parties called thirty-eight witnesses in total-twenty-two live[16] and sixteen by way of deposition designation.[17] The Court also received into evidence more than 1, 000 documents, amounting to thousands of pages.[18] Following post-trial submissions, the Court held closing arguments on November 2, 2016. The instant Opinion & Order constitutes the Court's findings of fact and conclusions of law.

         In sum, and for the reasons set forth below, the Court finds that plaintiffs are entitled to a liability determination with regard to all but one of the Relevant Shippers.[19] The Court further finds that compensatory damages and penalties are appropriate, but declines to award injunctive relief or to appoint an independent monitor. In accordance with the rulings below, the Court directs the parties to submit calculations of the number of "Packages" (a term the Court defines below) and "Cartons" of cigarettes (also defined below) to enable this Court to make a final determination as to the quantum of compensatory damages and penalties.

         III. FINDINGS OF FACT[20]

         A. Public Health Issues Associated with Cigarettes

         The facts concerning the public health issues associated with cigarette usage were largely uncontested. Plaintiffs called Dr. Sonia Angell, Deputy Commissioner of the Division of Prevention and Primary Care, New York City Department of Health and Mental Hygiene. (Affidavit of Sonia Angell ("Angell Aff"), PX 628; Trial Tr. 1353:24-1370:22 (Angell).) Dr. Angell testified that tobacco use kills approximately 28, 200 New Yorkers each year. (Angell Aff, PX 628 ¶ 5.) This exceeds the number of deaths caused by alcohol, motor vehicle accidents, firearms, toxic agents, and unsafe sexual behaviors combined. (Id.) Dr. Angell also testified that each year, tobacco-related healthcare costs New Yorkers $10.4 billion. (Id. ¶ 7.) The CCTA, PACT Act, and PHL § 1399-U are each intended to address serious public health issues and other costs associated with cigarettes. See, e.g., Prevent All Cigarette Trafficking Act of 2009, Pub. L. No. 111-154 § 1, 124 Stat. 1087, 1088 (2010) ("It is the purpose of this Act to[, inter alia, l . . . prevent and reduce youth access to inexpensive cigarettes . . . through illegal Internet or contraband sales."); H.R. Conf. Rep. No. 95-1778 at 8 (1978) (stating that "the purpose of [the CCTA is] to provide a timely solution to [the] organized crime problem" of trafficking in contraband cigarettes); 2000 N.Y. Sess. Laws Ch. 262 (S. 8177) § 1 (McKinney) ("The legislature finds and declares that the shipment of cigarettes sold via the internet or by telephone or by mail order to residents of this state poses a serious threat to public health, safety, and welfare, to the funding of health care pursuant to the health care reform act of 2000, and to the economy of the state.")

         The State and City of New York also impose taxes on the sale and use of tobacco products, such as cigarettes, to combat these harms and to protect public health. The revenue generated by such taxes is, however, dwarfed by actual healthcare costs spent by New Yorkers. (Angell Aff, PX 628 ¶ 28.)

         B. Plaintiffs' Investigations of UPS

         This lawsuit by the State and City followed prior investigations into UPS's transport of unstamped cigarettes; the first such investigation commenced in approximately 2003.[21] As discussed further below, UPS eventually resolved this investigation by entering into a settlement agreement in the form of an AOD with the State. The AOD was executed in October 2005 and became effective approximately one month later.

         During the summer/fall of 2011, UPS and the State (in particular, Dana Biberman, Chief of the Tobacco Compliance Bureau at the New York State Office of the Attorney General, who is also counsel in the instant action) engaged in a series of communications regarding a group of shippers referred to as the "Potsdam Shippers" (based on their common geographic location near Potsdam, New York). As relevant to plaintiffs' claims herein, these shippers include Action Race Parts, Jacobs Manufacturing (also referred to as "Jacobs Tobacco"), and Mohawk Spring Water.

         On June 24, 2011, Biberman wrote to counsel for UPS concerning packages containing cigarettes that had been seized at the UPS Potsdam facility on June 22, 2011. The letter requested that UPS pay a stipulated penalty of $1, 000 for each and every violation of the AOD, unless UPS established that it "did not know and had no reason to know that the shipment was a Prohibited Shipment." (DX 89.)

         On August 9, 2011, counsel for UPS met with Biberman and others regarding the seized packages. At that meeting, UPS told Biberman of a conversation between one of its security department employees, Jim Terranova, and a New York state trooper, Alfonse Nitti, that occurred in April 2011. Terranova had told Nitti that UPS was concerned that certain of the Potsdam Shippers were shipping cigarettes. Nitti informed Terranova that there was an ongoing investigation. Terranova asked whether UPS should continue to pick up packages from these shippers, and Officer Nitti responded affirmatively.

         Following the August 9, 2011, meeting between UPS and the State, UPS provided the State with delivery information with regard to the Potsdam Shippers through July or August 2011. (Trial Declaration of Carl H. Loewenson, Jr. ("Loewenson Decl."), DX 605 ¶ 21; DX 125; DX 126.) The State Attorney General's office took no further action as to these shippers until the events in connection with this lawsuit. The Potsdam Shippers were eventually included in the amended complaint filed herein. As discussed below, UPS points to these circumstances as evidence that, pursuant to the AOD, it had "establish[ed] to the reasonable satisfaction of the Attorney General that UPS did not know and had no reason to know the shipment[s] [were] Prohibited Shipment[s]." (AOD, DX 23 ¶ 42). In addition, UPS uses these events to support its laches, waiver, estoppel, estoppel-by-entrapment, and "public authority" defenses. As discussed below, the Court disagrees with inferences and conclusions UPS asserts based on these events.

         Approximately two years later, on July 29, 2013, the New York City Department of Finance ("City Finance") served a subpoena on UPS seeking delivery records for a number of shippers, including the Relevant Shippers. (Affidavit of Maureen Kokeas ("Kokeas Aff."), ECF No. 389-8 ¶ 6.)[22] Between the time UPS received the subpoena in July 2013 and February 18, 2015 (when this lawsuit was commenced), the parties engaged in a number of communications. Plaintiffs provided UPS with, inter alia, a draft complaint. The parties were unable to resolve their differences, and this lawsuit was filed on February 18, 2015.

         C. UPS's Business

         The size and conduct of UPS's business operations are relevant to a number of issues in this case, including what constitute reasonable operating procedures, the extent to which UPS can be expected to know the contents of packages, the scope of employees' job responsibilities, and whether UPS bears legal responsibility for acts and knowledge of certain employees. The facts regarding UPS's size and operations were largely uncontested. The legal conclusions drawn from those facts were vigorously contested.

         UPS is a global company with very substantial U.S. operations. It is a massive employer, with over 350, 000 employees in the United States alone. Its employees are responsible for establishing and maintaining account relationships and for the pickup, processing, and delivery of millions of packages each day. To perform its operations, UPS uses over 1, 800 separate physical facilities, 104, 926 vehicles, and 237 aircraft. (Trial Declaration of Bradley J. Cook ("Cook Deck"), DX 600 ¶ 24.) The vast majority of shipments UPS receives for transport (well over 90%) are processed on electronic shipping systems such as UPS Worldship. (Id. ¶ 29.) The shipper itself inputs certain information-not including package contents-and prints a bar-coded label that is affixed to the exterior of the package. (Id.) The package-level detail is then electronically transmitted to UPS. (Id.)

         At trial, the primary witness who described UPS's business operations was Bradley J. Cook, UPS's Director of Dangerous Goods and Director of Package Solutions. The Court found Cook generally credible and found that, from the fall of 2013 onwards, Cook dedicated himself to "righting the ship" with regards to UPS's compliance efforts. With that said, he is an interested witness insofar as much of the conduct at issue occurred in an area for which he had (and has) significant oversight responsibilities. As Director of Dangerous Goods, Cook had primary responsibility, along with legal counsel, for overseeing issues relating to UPS's shipment of tobacco products and compliance with the AOD.

         As described throughout this decision, UPS's efforts to comply with the AOD were inadequate until the commencement of this lawsuit; its efforts fell woefully short until the fall of 2013, after which it increased it proactive efforts. But it was not until this lawsuit was filed that UPS's efforts became adequate. The persistent inadequacies are surprising in light of UPS's clear awareness when it signed the AOD that it had assumed a number of explicit obligations. Indeed, the AOD required affirmative efforts, including particular and, when appropriate, directed vigilance to ensure compliance with its terms. The AOD precluded UPS from conducting "business as usual;" the AOD precluded UPS from ignoring red flags, and it precluded UPS from relying on self-serving statements by shippers in the face of red flags.

         Throughout the relevant period, Cook was aware of the AOD and its requirements. He also demonstrated in-depth knowledge of UPS's business. He knew, for instance, that customers located on or near Indian reservations were at a higher risk of shipping unstamped cigarettes (as others within UPS also knew); he knew that UPS did not require customers to declare the contents of their packages (as others within UPS also knew); and he knew that short of a package inadvertently breaking open or being subject to an audit, UPS had no clear, routine method to determine a package's contents (as others within UPS also knew). Cook, and others in positions of responsibility at UPS, knew that in many respects, UPS was "flying blind" regarding whether Indian-reservation-based customers were shipping cigarettes. But UPS was in a special position: It had assumed particular obligations under the AOD, and all that stood between UPS and penalties under the PACT Act and PHL § 1399-U was honoring the AOD. The stakes were high. Yet, UPS failed to do what was necessary to ensure sufficient compliance. Perfection was never required, but more should and could have been done. That UPS could have done more is demonstrated by the material improvements it has implemented in its procedures since this lawsuit was filed. UPS has now-too late to avoid liability, but in sufficient time to avoid imposition of an injunction or independent monitor-transformed itself from a willfully blind actor to one actively doing far more.

         The Court finds that Cook was by no means incompetent or acting inconsistently with corporate expectations. By all accounts, UPS's lack of commitment to true, active AOD compliance pervaded its corporate culture. As discussed below, when tools were available to assist UPS (and Cook) in their efforts-for example, lists of shippers deemed to be tendering cigarettes in violation of, inter alia, the PACT Act (and, thereby, likely a variety of other statutory schemes) created and disseminated by the Bureau of Alcohol, Tobacco, Firearms, and Explosives ("ATF") (referred to as "non-compliant lists" or "NCLs")-UPS failed to distribute them broadly, including to the one person who certainly should have had them, Cook. Once Cook had the lists of non-compliant shippers in the fall of 2013, he used them.

         In addition, as a corporate entity, UPS had information available to it in various places that provided certain employees insight into the contents of packages. For instance, UPS received inquiries regarding lost or damaged packages (so called "tracers") of cigarettes shipped by the very shippers at issue here. But this information remained largely compartmentalized. Contrary to UPS's argument at trial, such compartmentalization does not explain, justify, support, or excuse lack of knowledge of package contents by those managing the Relevant Shippers' accounts. UPS had, after all, undertaken (and was separately legally obligated) to do what it could to prevent transport of cigarettes. UPS therefore bears responsibility for a serious failure of process and procedures. UPS's size is not an excuse to shift responsibility for its business failings to taxpayers who ultimately cover the investigative, healthcare, and other costs associated with unlawful transport (and, ultimately, use) of cigarettes.

         Moreover, UPS understood that all of the Relevant Shippers were located on or closely proximate to an Indian reservation known previously to have one or more smoke shops and/or cigarette shippers. The UPS drivers and sales account personnel who met with customers saw signage on or near shippers' businesses indicating that cigarettes or tobacco were among their wares. From time to time during in-person visits, UPS personnel saw cigarettes on display racks; and UPS of course knew that even the names of certain shippers contained the words "cigar(s)" or "tobacco." UPS knew that certain shippers were shipping hundreds of packages a day from residential addresses; it knew that certain shippers opened multiple accounts, sometimes under different names. These and other signs described below were nothing short of blinking red lights-lights that flashed, "PROCEED WITH EXTREME CAUTION!"-yet no particular instructions from Cook or others at a high level were directed at such accounts, nor were personnel given particular instructions as to how to proceed under such circumstances. The Court finds that such facts support, in part, the existence of a "reasonable basis to believe" a shipper may have been tendering cigarettes, thereby triggering an audit obligation under theAOD. (See AOD, DX 23 ¶ 42.)

         In March 2010 Congress passed the PACT Act, which went into effect in late June 2010. UPS was mentioned explicitly in the text of the statute as one of the common carriers subject to an AOD. There is no doubt that UPS was aware of this statute. UPS knew that national attention was directed at preventing transport of cigarettes; it should have understood that the NCLs generated as a result of this statutory scheme contained information indisputably relevant-and, at the very least, that the NCLS were useful tools to ensure that its AOD was being "honored."[23] The NCLs were also useful tools to assist compliance with the CCTA. And yet, inexplicably, UPS ignored the NCLs, deeming them irrelevant. Until the fall of 2013, it never used them to identify at-risk shippers. UPS's position vis-a-vis the NCLs confused a required usage with a rational and reasonable usage. Had UPS actively created and used its own list equivalent to the NCLs, its position that the NCLs were irrelevant might be more compelling. Given UPS's general lack of proactive efforts to identify at-risk shippers, ignoring the relevance and utility of the NCLs made no sense.

         Finally, the evidence at trial showed a notable increase in UPS's business and customer acquisitions following the effective date of the PACT Act-when the U.S. Postal Service ("USPS") and other carriers were prohibited from transporting unstamped cigarettes without serious penalty. Yet UPS argued at trial that it did not "put two and two together, " and that it did not associate this increased business with any particular event. For a company with UPS's sophistication, and its evident commercial interests, this also makes no sense. Frankly, the Court does not buy it. Nor, apparently, did at least one UPS employee who noted in an email that "UPS has gained a lot of tobacco business from the USPS this year due to PACT Act taking effect at the end of June[.]" (PX 198.)

         In sum, UPS had a legal obligation to comply with the AOD and the law, but it failed to take basic and reasonable steps to do so. Its size alone meant that proper procedures were all the more important-ad hoc measures could not be trusted or relied upon to ensure compliance in such a large organization.

         D. UPS's Business and Specific Conduct

         The Court makes the following additional findings regarding UPS's business and specific conduct.

         1. UPS's Tobacco Policy

         UPS is a commercial entity that has rules and a price structure relating to its transportation services; these are contained in, inter aha, UPS's Tariff/Terms and Conditions of Service ("Tariff). At all relevant times, UPS's Tariff has been posted on its website. (Cook Deck, DX 600 ¶ 33.) This document sets forth restrictions on shipping with UPS, including a prohibition on the shipment of regulated goods. (Id.) Cigarettes are among such regulated goods. Prior to 2004, UPS did not have a specific policy regarding shipment of tobacco products. (Id. ¶ 34.) However, a guide then available to customers (the "UPS Rate and Service Guide") did advise shippers that "[n]o service shall be rendered by UPS in the transportation of any shipment that is prohibited by law or regulation of any federal, state, provincial, or local government in the origin or destination country." (Id.)

         In 2003, Cook led an effort to create a program to address various states' increasing concerns regarding the sale and shipment of cigarettes to consumers. (Id. ¶ 35.) This effort included identifying likely shippers of tobacco products and cigarettes. (Id. ¶ 36.) As part of this effort, UPS examined its central customer database using search terms such as "cigarette, " "smoke, " and "tobacco;" reached out to employees in the field; and examined industry codes associated with a shipper. (Id.) These efforts resulted in the identification of approximately 400 at-risk shippers. (Id.)[24] Cook's team then oversaw an effort to inform these shippers of PHL § 1399-11 and advised them that UPS would no longer accept packages containing cigarettes for delivery to unauthorized recipients in New York. (Cook Deck, DX 600 ¶ 37.)

         In January 2004, UPS introduced revisions to its Tariff, including a new provision prohibiting shipments of tobacco in violation of state or federal law. (Id. ¶ 39.) In January 2005, UPS updated its Tariff again to include a requirement for a shipper to execute a "Tobacco Agreement" if it sought to ship tobacco products of any kind to consumers. (Id. ¶ 39.) Later in 2005, UPS instituted a policy of prohibiting shipments of cigarettes to consumers anywhere in the country. (Id. ¶ 40 .)[25]

         As previewed above, on October 21, 2005, UPS entered into the AOD with the State of New York. (AOD, DX 23.) The City of New York is not a party to the AOD. The AOD reflected UPS's agreement not to ship cigarettes to any consumers and to only ship such products to recipients that had appropriate state and federal licenses. (Id., ; Cook Deck, DX 600 ¶ 41.) To comply with the AOD, UPS updated its Tariff again, reflecting a new "Tobacco Policy." (DX 35; AOD, DX 23, Ex. A, B.) The new Tobacco Policy specifically prohibited shipments of cigarettes to consumers on a nationwide basis. (Cook Deck, DX 600 ¶ 42.) UPS posted its policy on its website. (Id., ¶ 43.)

         In addition, and to comply with the AOD, UPS created a database to track activity with its tobacco shippers. (Id. ¶ 63.) The database contains fields for shipper name, account number, and relevant activity; it presently contains entries for 4, 000 shippers from forty-nine states.[26] (Id., ¶ 63; DX 371.)

         2. UPS's Training Efforts

         The AOD requires that UPS train relevant personnel about its "Cigarette Policy" and various compliance measures. (AOD, DX 23 ¶¶ 34-37.) Plaintiffs assert that UPS has failed to fulfill this obligation. The Court agrees. Paragraph 34 of the AOD contains a very broad requirement:

UPS shall continue periodically to train its drivers and pre-loaders and other relevant UPS employees about UPS's Cigarette Policy and the compliance measures agreed to in this Assurance of Discontinuance.

(Id. ¶ 34.) There was substantial evidence at trial that until shortly before this lawsuit was filed, apart from a once-yearly "Pre-Work Communication Message" ("PCM"), little actual training in UPS's "Cigarette Policy" or compliance measures required by the AOD, occurred. In addition, there was little more than a broad overview of the Tobacco Policy provided to UPS employees. Several UPS witnesses testified to lacking specific knowledge regarding the "compliance measures agreed to in [the AOD]." (See, e.g.. Trial Tr. 665:24-666:25, 667:20-24 (McDowell); wL 1516:18-1519:4 (Terranova).)

         This case has no doubt demonstrated to UPS that its existing training was inadequate. Prior to receiving the subpoena from City Finance in July 2013, UPS's training consisted primarily of the above-mentioned annual PCMs.[27] PCMs are a general method of communication with UPS personnel. They are intended to provide personnel with specific information on a variety of topics in a format of longer than three minutes. While drivers and employees at UPS's processing centers were provided with a PCM that discussed its Tobacco Policy once a year, historically there was no procedure for an employee to "make up" a PCM that he or she has missed (for instance, due to absence on the day a PCM was shown or due to a start date at UPS after the yearly PCM had been shown). Several UPS witnesses testified to recalling the Tobacco Policy PCM, certain recalled the existence of the PCM but not its content, and others did not recall the PCM at all. Clearly, the Tobacco Policy PCM was itself inadequate to properly train employees on UPS's Tobacco Policy and was inadequate to train employees on AOD compliance measures or on how to recognize signs that shippers may have been tendering packages with cigarettes.

         Throughout the trial, UPS took the position that requiring personnel to approach certain accounts with questions or skepticism would be inappropriate. The insinuation was that vigilance directed at accounts located on or proximate to Indian reservations was some sort of inappropriate profiling. But this ignores the known reality that particular legal issues applicable to reservations (and to Native Americans making on-reservation purchases) did make reservations different. Moreover, the evidence revealed that UPS did not know whether on-reservation shippers from smoke shops were tribal members and, in fact, those operating smoke shops were not always tribal members. (Trial Tr. 192:14-16 (Cook); icL 904:6-9 (Christ).) In addition, Cook testified that UPS does not expect its drivers to be "investigators;" rather, it expects them to be alert for signs of cigarette shipments and to notify supervisors if they have suspicions. (Cook Deck, DX 600 ¶ 53.) In the context of the federal, state, and local attention paid to the unlawful transport of cigarettes, and UPS's statutory and AOD obligations, this was an incorrect perspective that unreasonably underestimated UPS's affirmative obligations. While drivers need not be "investigators" in a law-enforcement sense, they should have been proactive vis-a-vis high-risk accounts. As the AOD recites, training should have been designed to ensure personnel were/are "actually looking for indications that a package contains cigarettes . . . ." (AOD, DX 23 ¶ 35 (emphasis added).)

         Prior to the commencement of this lawsuit, UPS's training was not effective in preparing its employees to identify cigarette shippers on Indian reservations in New York or to ensure that its personnel were "actively looking" for indications that a package contained cigarettes. UPS's training on tobacco issues was designed to "check the box."

         UPS's tobacco-related training has improved recently. For instance, PCMs on tobacco training are now delivered in person, UPS has trained personnel in data analytics, it has posted a "red flag" poster at its service centers, and in 2016, UPS added device-based training for its drivers via "DIADs, " which are handheld devices that function as computers. Additional relevant facts are set forth below in the section titled "Current Status of UPS Compliance Efforts."

         3. The Role of Account Executives

         As relevant here, UPS's customers are "shippers" of packages. Sales and account management are handled by a UPS Account Executive (as well as other support personnel). UPS assigns an Account Executive to every shipper/customer.[28]UPS's Account Executives are responsible for capturing and maintaining accounts as well as addressing issues that might arise with regard to those accounts. In order to effectively market and support UPS's transport services, Account Executives are expected to understand their customers' businesses. To gain such understanding, Account Executives are expected to communicate with their larger customers on a regular basis. Evidence at trial supported that Account Executives regularly communicated with the Relevant Shippers both in person as well as by telephone or email. UPS expected that its Account Executives would enter notes regarding communications with clients in databases maintained for that purpose. Such databases were accessible to and used by others who might have an interest in a particular account or area. While the evidence made clear that there was spotty compliance with this expectation (and seemingly no enforcement mechanism), certain UPS Account Executives (most notably Gerard Fink) nevertheless entered details of meetings and communications with some of the Relevant Shippers into those databases. Various entries include evidence supporting liability, seriously impacting arguments that Fink's or any other Account Executive's actions were outside the scope of employment.

         Account Executives were also responsible for obtaining a Tobacco Agreement from those customers who were or would be shipping tobacco products. Such agreements were supposed to be an important part of UPS's already thin compliance efforts. The Account Executive was to record the receipt of the Tobacco Agreement in UPS's Tobacco Database. In theory, this was to assist in monitoring such an account. As relevant here, there were numerous instances in which the Account Executive either did not obtain a Tobacco Agreement when appropriate, did not retain a copy of an allegedly executed agreement, failed to enter it into the Tobacco Database, or all three.

         Account Executives would receive a variety of information relating to their accounts on a regular basis. For instance, they would receive periodic reports that set forth the amount of revenue attributable to particular customers. Multiple documents received into evidence support that a number of the Relevant Shippers on or near Indian reservations were among the largest customers for Account Executives. (See, e.g.. PX 568; PX 102, row 9; PX 104.)[29] Account Executives- including Fink and others at UPS responsible for the Relevant Shippers-actively reported on account activity to others within the UPS organization. Multiple documents and databases support generally diffuse knowledge and access to information regarding the Relevant Shippers. Put otherwise, the Account Executives-including Fink-took or failed to take actions within a UPS organizational structure that was monitoring account activity.

         4. The Role of UPS Drivers

         Packages are typically picked up by UPS drivers at a customer's location or are dropped off by a customer at a designated facility. The packages are then brought to a UPS Processing Center. (Cook Deck, DX 600 ¶25.)

         In all but a handful of instances relating to the Relevant Shippers, UPS drivers would pick up packages at the customer's location. Some of the locations were commercial storefronts (e.g., Arrowhawk Cigars, Morningstar Crafts & Gifts) and others (e.g., EExpress, Bearclaw) were residential locations. In certain instances, UPS drivers would pick up dozens or even hundreds of packages a week from a residential address. For instance, during October 2012, EExpress shipped approximately 2, 500 packages with UPS. (PX 559.)

         An issue that pervaded the trial was the extent to which UPS, as a corporate entity, knew or should have known of the contents of customer shipments. Typical practice included drivers and Processing Center personnel working with packages; the account team performed sales and service roles that did not include package handling but did include learning about a customer's business and monitoring his or her account activity. While drivers had limited opportunities (or time) to learn the contents of particular packages, there was ample evidence that they generally understood what a shipper was shipping and, from time to time, had quite specific information about package contents.

         UPS policy requires customers to have packages sealed and ready for pickup when the UPS driver arrives. With regard to the Relevant Shippers, this practice appears to have been followed most of the time. However, plaintiffs presented evidence that there were occasions when customers were still packing and sealing boxes at the time the UPS driver arrived or when UPS personnel were on site, and that UPS employees were therefore in a position to observe the contents of the packages.[30] (See, e.g., Jarvis Dep. Tr. 55:22-56:6.) In addition, there were instances where the type of goods a Relevant Shipper sold, including cigarettes, were prominently advertised on signage and within the premises. (See, e.g., PX 574 (signage for Morningstar Crafts & Gifts); DX 490 (signage for Arrowhawk Smoke Shop).) Moreover, UPS personnel, including drivers, did from time to time enter a Relevant Shipper's premises, providing the opportunity to observe cigarettes available for purchase or in inventory. These facts should have, but did not, cause UPS to alter its approach to and vigilance of a shipper; such facts formed pieces of the foundation for a "reasonable basis to believe" that a shipper may have been tendering cigarettes for delivery (the standard that triggered an audit obligation under the AOD). (See AOD, DX 23 ¶ 24.)

         5. UPS's Interactions with Shippers

         As discussed above, a customer using UPS's pickup and delivery services is referred to as a "shipper, " and shippers do not typically declare or provide UPS with information regarding the contents of packages. (Cook Deck, DX 600 ¶ 29.) On most occasions, the boxes in which a customer packs its goods are plain, corrugated cardboard, and the exterior of the boxes provides no indication as to whether the contents include cigarettes, cigars, spring water, coffee, or something else.[31] UPS's terms and conditions reserve its right to inspect package contents. Given the volume of packages processed daily, UPS tended to conduct audits only in very rare circumstances when there was a compelling reason to do so. The evidence at trial supported audits generally being conducted on those occasions when UPS had specific information regarding likely cigarette shipments. UPS did not, for instance, routinely or, even once as a matter of course, audit shippers known to ship tobacco products or whose inventory was also known to include cigarettes. Audits are discussed in further detail below.

         As a matter of UPS policy, when a customer seeks to ship certain regulated goods, including tobacco, he or she is required to disclose that fact to UPS. In the case of tobacco-related shipments (other than cigarettes), UPS policy requires that a customer execute a Tobacco Agreement.[32] This agreement is intended to represent an acknowledgment by the shipper that he or she understands UPS's Tobacco Policy, including its prohibition on shipping cigarettes.

         Despite the statutes regulating transport of cigarettes, UPS's obligations under the AOD, the passage of the PACT Act that reduced courier options, the profit motive of shippers, the conflicted position of UPS's own sales personnel (who had an interest in acquiring and maintaining business), and obvious signs in conflict with customer statements, UPS allowed its personnel to rely heavily (and often exclusively) on what their shippers claimed to be shipping. UPS often accepted the fact of a Tobacco Agreement with a customer, or a single conversation with a customer about its business, as sufficient to confirm that a tobacco shipper who advertised or displayed cigarettes was not using UPS to ship them. As one would expect, cigarette shippers acting contrary to law and UPS policy were rarely inclined to "confess" prohibited package contents (though, as discussed below, there was at least one instance in which the customer did so explicitly). And, given the volume incentive agreements UPS offered, there was an economic motive to use UPS. For a UPS customer shipping cigarettes during this time, being "caught" was a risk worth taking because the penalty was sometimes nonexistent or was, at most, termination. And sometimes termination was not the end of UPS service. The record reveals instances in which UPS personnel assisted in establishing a new, replacement account for a customer whose account had been terminated for cigarette shipments. In many instances, as described below, there were sufficient red flags to alert UPS to the need for additional measures-including random audits.

         6. UPS's Information Systems and Information Sharing

         As previewed above, one of UPS's consistent themes at trial was its claim that information known to one part of UPS was not known to another, and that it would be improper or at the very least unfair to attribute such compartmentalized knowledge to UPS more broadly. The facts support such compartmentalization- but not the conclusion UPS draws from it.[33]

         At the time of the events at issue, UPS did not have a centralized information system that collected and/or synthesized all of the information it might have regarding packages sent by a particular shipper. To the extent some part of UPS learned of the specific contents of packages, it was typically when packages broke open during processing, when UPS received inquiries ("tracers") regarding lost or damaged packages, or through audits. There was no evidence that UPS implemented or followed formal procedures to share the "broken open" packages or tracer information with all members of the account team, with Cook, or with legal counsel. In addition, there was no ongoing, formal mechanism within UPS to routinely review an at-risk shipper's sales materials or websites (some of which prominently indicated cigarette sales).[34] Nor was there any centralized practice of ensuring that email addresses with clues as to the likely focus of sales efforts (for instance, the word "cigarettes" appearing in a customer's email address) were further investigated. Had such information been routinely reviewed and shared with the appropriate personnel, it is highly likely that UPS would have identified certain shippers of cigarettes.

         E. UPS's Asserted Reliance on Governmental Action/Inaction

         UPS has vigorously argued that it took certain actions (or failed to take certain actions) in reliance upon interactions with law enforcement, and, in addition, that it relied on New York State's forbearance policy. UPS has urged that such facts regarding this governmental action/inaction support its laches, waiver, estoppel (including "estoppel by entrapment"), and public-authority defenses. These defenses have both factual and legal aspects. The Court deals with the former here, and with the latter in its legal conclusions below.

         1. Governmental Action

         Some of the relevant facts regarding such interactions (such as the "Terranova/Nitti" communications) are briefly described above in the section "Plaintiffs' Investigations of UPS." Throughout the pretrial process, UPS repeatedly referred to instructions to stand down with regard to compliance measures due to an "ongoing investigation." As it turned out at trial, the facts in this regard were far less robust than previewed and not at all compelling.

         The evidence can be briefly summarized: In April 2011, UPS driver Donald Jarvis, who was associated with UPS's Potsdam Processing Center, learned and believed that certain packages from the Potsdam Shippers contained cigarettes. Jarvis informed a UPS supervisor, Steve Talbot. Talbot contacted the UPS security representative assigned to the Potsdam Center, Jim Terranova, to ask for guidance (Terranova was not a high-ranking UPS employee). Terranova had apparently had undisclosed (and irrelevant) other dealings with members of the New York State Police, including state trooper Alfonse Nitti. In April 2011, Terranova contacted Nitti and told him there was a suspicion that certain accounts on the Mohawk/St. Regis reservation were shipping cigarettes. (Trial Declaration of James Terranova ("Terranova Decl."), DX 612.) Terranova did not tell Nitti where shipments (including bulk shipments) were being delivered. (Terranova Deck, DX 612 ¶¶ 1-2, 7; Trial Tr. 1529:20-1530:24, 1532:20-25 (Terranova).) Nitti informed Terranova that there was an active investigation into those shippers. Terranova then posed the question to Nitti as to whether UPS should continue picking up packages from those shippers; Nitti responded that UPS should. Nitti was not a representative from the State Attorney General's office; there was no evidence that Nitti was made aware of the AOD or knew about UPS's legal obligations with regard to it or any other statutory scheme. Subsequently, Terranova and others conveyed Nitti's comment down the chain to UPS drivers responsible for the Potsdam Shipper accounts. For a period of two months thereafter, UPS followed its own forbearance practice. This ended when, on June 22, 2011, the New York State Department of Taxation and Finance ("DTF") Chief Investigator, John Connolly, visited the UPS Potsdam Center. (Trial Declaration of Steven Talbot ("Talbot Decl."), DX 606 ¶ 10; Terranova Deck, DX 612 ¶ 10.) Connolly seized packages tendered by certain Potsdam Shippers. Connolly also informed UPS that New York State's forbearance policy vis-a-vis Indian reservations had ended and that UPS should not be shipping cigarettes "to their Native American customers." (DX 389; see also Ernst Dep. Tr. 86:23-87:4.)[35]

         These facts do not support UPS's characterization of this interaction as a formal instruction by law enforcement-upon which it could reasonably rely-to stand down on AOD obligations or other statutory requirements. As is evident from the above, such a portrayal overinflates a rather limited, non-senior contact between one lower-level UPS employee and one state trooper. Indeed, there was no independent evidence as to the basis for this trooper's purported statements to Terranova or his authorization to convey any instructions to UPS.[36] There is insufficient evidence to support Nitti's authority to provide the official position of the New York State Police, let alone provide an exemption from the AOD and statutory obligations.

         But in all events, the facts do not support widespread reliance on these Terranova/Nitti communications. At most, the evidence supports unreasonable reliance by a small handful of people within the Potsdam Center for a two-month period only, and by no one at a high level. For instance, there is no evidence that Cook was informed about this communication at the time. In sum, the Court rejects any reasonable reliance on the Terranova/Nitti communication.

         2. Governmental Inaction

         In addition, UPS has argued that prior to June 22, 2011, "UPS believed" that transporting shipments of packages containing cigarettes originating with the Potsdam Shippers (including Action Race Parts, Jacobs Manufacturing/Tobacco, and Mohawk Spring Water) and destined for tobacco retailers on other Indian reservations, was authorized by the State's forbearance policy or was otherwise lawful. The "otherwise lawful" portion of this position is the heart of what has been referred to in this litigation as UPS's "§ 471" argument. Putting aside the Court's legal determination regarding the viability of UPS's Seventh Defense (relating to, inter alia, the forbearance policy), there is a separate factual question as to whether, before June 22, 2011, personnel within UPS in fact believed that it could lawfully transport shipments from the Potsdam Shippers to reservation retailers or other Indian reservations (that is, based on some misunderstanding that § 471 or other legal principles allowed such transport), and acted in reliance on such a belief. The Court determines that factual question against UPS. There is simply insufficient credible evidence to support UPS's factual claim that this was a widely held view in the organization.

         As a result of the lack of sufficient factual support, UPS's arguments as to its reliance on governmental authority or inaction fail. There is also no indication that relevant personnel received legal advice that they could rely on a New York State policy of forbearance as to Indian reservations applied to its actions as a private, non-tribal entity. Nor is there sufficient evidence that UPS personnel had any other reasonable basis for such an understanding. In addition, such a position is in conflict with UPS's overall story that it consistently trained its personnel in its Tobacco Policy; no evidence suggests that its training was modified to allow for a distinction between shipments going to reservation retailers (i.e., the shipments UPS argues were protected by constitutional principles) and all other recipients.[37]For instance, there was no credible testimony that UPS drivers were instructed to allow certain shipments to reservation retailers but not to residential consumers. UPS did present anecdotal evidence that certain witnesses had heard or thought such reservation-to-reservation retailer shipments were allowed-but it was never clear where this came from, and it is in conflict with other evidence.

         Finally, of course, it is clear that the AOD did not exempt shipments from or between reservations; that is, there is no basis for "§ 471" or "forbearance policy" arguments with respect to UPS's obligations.

         F. UPS's Audits

         UPS presented evidence that it conducted at least twenty-eight audits between 2011 and 2016, several of which were of certain Relevant Shippers.[38] (See, e.g.. Cook Decl., DX 600 ¶ 18; DXs 161, 165, 194, 219, 221, 222, 244, 257, 263, 264, 265, 303, 311, & 363.) The facts show that audits were conducted relatively infrequently and were inadequate to comply with UPS's audit or other obligations under the AOD.

         As discussed below, ¶ 24 of the AOD requires that UPS audit shipments where "there is a reasonable basis to believe that such shipper may be tendering cigarettes for delivery to Individual Consumers, in order to determine whether the shipper is in fact doing so."[39] (AOD, DX 23 ¶ 24.) An audit obligation is therefore triggered when there is a "reasonable basis to believe, " and the audit serves a particular purpose: "to determine" whether a shipper may be tendering cigarettes.

         The vast majority of audits to which UPS points occurred in 2013 and 2016- that is, after UPS had already received a subpoena and was thus aware this lawsuit was likely or that UPS had already been sued. Of the twenty-eight audits, twenty-six fall into this category. The remaining two audits took place on September 21, 2012.[40] (See DXs 161, 165.) Cigarettes were found during these audits and both accounts were terminated.

         UPS points to the audits it conducted as evidence of compliance with the AOD and evidence that it acted responsibly vis-a-vis likely cigarette shippers. The Court disagrees. Cigarettes should not have had to fall out of a broken box, more or less, for UPS to have initiated an audit. As discussed in specific detail below, the Court finds that there was a reasonable basis to believe that a number of the Relevant Shippers may have been tendering cigarettes well before they were audited.

         Certain facts should have led to more frequent and broader audits. As an initial matter, UPS had a right to audit packages, it had the personnel to do so, and it had an affirmative obligation under the AOD to do so when facts supported a "reasonable basis to believe" that a shipper "may" be tendering cigarettes. Certainty or even a high degree of likelihood was not required to trigger this obligation. Facts "on the ground" should have pushed UPS toward more proactive audits. For instance: It knew that certain shippers had names that included the words "tobacco, " "cigar, " or "smokes, " indicating a certainty of tobacco shipments and a reasonable possibility of cigarette shipments; it knew that a number of others (without eponymous names) sold cigarettes, making shipments all the more likely; it knew that certain shippers on Indian reservations refused to disclose (allegedly) what they were shipping; it knew that others had opened multiple accounts or that a new account was opened at the same address as one recently terminated for cigarette shipments; and, of course, all of this was against the backdrop of such shippers being located on Indian reservations that had for years been associated with sales and shipments of unstamped cigarettes. For instance, in an email sent June 23, 2011, a UPS security employee stated that New York Indian reservation retailers have been "selling cigarette[s] without paying taxes .... This has been an ongoing situation over the years throughout the state with several different reservations doing the same thing." (PX 460.)

         As discussed with regard to certain shippers below, the presence of some numbers of these (and other) facts supported the existence of a reasonable basis to believe that such shippers may have been tendering packages containing cigarettes. UPS gave too much weight to seemingly innocuous explanations given by shippers for the goods they claimed to be tendering, and it did so when many of the above facts were present. Such self-serving explanations were inherently unreliable and did not eliminate the reasonable basis to believe that a shipper "may" be tendering cigarettes.

         Audits that were conducted did, however, serve an additional purpose: They provided UPS, and now provide this Court, data regarding package contents as well as a basis for estimating the percentage of a shipper's packages that contained cigarettes. A corollary is that the failure to conduct audits despite an audit obligation reduced the amount of information available regarding the contents of the Relevant Shippers' packages. Had UPS conducted more audits (as it was obligated to do under these facts), it would have greater detail on the percentage of shipments containing cigarettes versus other goods. As discussed in the legal conclusions below, UPS-not plaintiffs-therefore bears the responsibility for this lack of information.

         IV. CURRENT STATUS OF UPS'S COMPLIANCE EFFORTS

         As discussed throughout this Opinion, there is no doubt that UPS could have and should have done more to identify shippers likely to be tendering cigarettes. However, there is strong evidence that UPS has taken a number of steps in the past three years to dramatically improve its compliance efforts.

         After UPS received the subpoena from City Finance in late July 2013, UPS requested outside counsel to conduct an investigation (using available information) into 540 active shippers listed in UPS's Tobacco Database. (Cook Decl., DX 600 ¶¶ 83-84.) That investigation yielded a group of thirty shippers as to whom additional investigative steps were taken. (Id. ¶ 84.) This list was then further reduced to six shippers, including three that are among the Relevant Shippers in this case. (Id. ¶ 84.) Cook required audits of each of these three shippers.[41] (Id. ¶85.)

         Commencing in the fall of 2013, UPS also began to utilize the NCLs prepared and updated quarterly by the ATF. QxL ¶¶ 102-03.) In early 2014, UPS added personnel to its compliance efforts, including Derrick Niemi. Niemi testified live at trial and the Court found him credible. His demeanor was sincere and his answers were thoughtful and careful. Niemi has made specific trips to visit UPS Processing Centers and reservations with shippers; Niemi has also performed data analysis to identify other shippers who pose a risk of non-compliance.

         Cook has taken more immediate action to terminate shippers for which audits revealed cigarettes. For instance, on January 8, 2014, UPS received the results of an audit for Shipping Services; three of five packages opened contained filtered cigars, and two packages contained cigarettes. (Cook Deck, DX 600 ¶ 93.) UPS terminated this account. In 2014, UPS also investigated a shipper known as Cloud & Co. located in Salamanca, New York, and terminated this shipper after the investigation revealed it had been sued by the City for alleged shipment of cigarettes. QA ¶ 138.)

         On January 22, 2014, UPS received the results of an audit of Smokes & Spirits, processed through its Olean, New York Center. (Id. ¶ 97.) Out of fifteen packages opened, nine contained cigarettes; the remainder contained chewing tobacco and filtered cigars. (Id.; see also DX 257.) Immediately upon receiving these results, UPS terminated this account. (Cook Deck, DX 600 ¶ 98.)

         In September 2014, UPS changed its account-opening process to increase screening of tobacco shippers in New York State. (Id. ¶ 144.) Each account opened on an Indian reservation is investigated to determine if it might be shipping tobacco products. (Id.) Additionally, UPS monitors the volume of shipments from reservation-based shippers on a weekly basis to identify red flags in volume patterns. (Id. ¶ 145.) (This is the use of "data analytics" to support UPS's compliance efforts).

         In addition, on April 27, 2016, Cook traveled to upstate New York and personally participated in audits of all packages shipped out of the Dunkirk, New York, Processing Center (the Center that processes Native Outlet, among others). Ten of the packages opened were shipped by Native Outlet, and all contained little cigars.[42] Cook also personally delivered UPS's Tobacco Policy PCM at the Dunkirk, Olean, and Jamestown Centers; interviewed each center manager; participated in a "ride along" with each center driver; conducted audits of the packages picked up by each Center; and documented any packages of tobacco picked up by each Center. (Cook Deck, DX 600 ¶ 143.) Three other members of UPS's Corporate Compliance Group conducted similar audits in other centers in New York serving reservations. (Id.)

         The Court view UPS's compliance efforts as increasing in rigor since the fall of 2013 and achieving actual compliance as of the date this lawsuit was filed on February 18, 2015. Prior to February 18, 2015, the efforts were in what the Court views as a "ramping up" process; throughout 2014, for instance, audits that should have been conducted long before were still only just being done. Determining the date when efforts coalesced to a point of compliance is therefore not a precise exercise. But the Court views the filing of the lawsuit as marking a time when UPS had put its non-compliance largely behind it.[43]

         V. BACKGROUND CONCERNING THE TAXATION OF CIGARETTES AND LITTLE CIGARS

         New York imposes a tax on all cigarettes for sale in the State, except where the State "is without power to impose such tax." N.Y. Tax Law § 471. Taxes are paid by purchasing and affixing a tax stamp. See N.Y. Comp. Codes R. & Regs. Tit. 20, § 74.3(a)(1)(iii) ("§ 74.3"). New York's cigarette excise taxes increased significantly in the 2000s. (Trial Declaration of Farrell Delman ("Delman Deck"), DX611 ¶ 17.) On March 3, 2000, New York increased its cigarette tax to $1.11 per pack from $0.56 per pack. (Id. ¶ 18.) On April 3, 2002, the State increased the excise tax on cigarettes again, this time to $1.50 per pack, where it remained until June 3, 2008, at which time it was increased to $2.75 per pack. (Id. ¶ 19.) On July 1, 2010, the State's excise tax on cigarettes was raised to $4.35 per pack, where the tax remains today. (Id., ¶ 20 (citing N.Y. Tax Law § 471).) By 2015, New York's cigarette excise tax was $2.72 more than the national average for state cigarette excise taxes. (Delman Deck, DX 611 ¶ 20.)

         For its part, New York City imposed an eight-cents-per-pack tax on cigarettes until July 2002, at which time the City's excise tax was raised to $1.50 per pack, where it remains today. (Id., ¶21 (citing N.Y.C. Admin. Code § 11-1302(e)).) Federal excise taxes on cigarettes also increased significantly during the 2000s, leading to a significant increase in the cost of cigarettes for consumers. (Delman Deck, DX 611 ¶ 14.) The federal excise tax on cigarettes increased from $0.24 per pack to $0.34 per pack on January 1, 2000, and then to $0.39 per pack on January 1, 2002. (Id. ¶ 15.) Following passage of the Children's Health Insurance Program Reauthorization Act ("CHIPRA") in 2009, the federal excise tax on cigarettes increased from $0.39 to $1.01 per pack, where the tax remains today. (Id. ¶ 16 (citing Pub. L. 111-3, ¶ 703(b)).)

         These increases in State, City, and federal cigarette taxes meant that by July 2010, the combined taxes on a pack of cigarettes were $6.86 in New York City and were $5.36 in the rest of New York State. The taxes in New York City were $5.23 more than the taxes in a majority of locations across the United States that have neither city nor county taxes. (Delman Decl., DX 611 ¶ 22.) Only cigarette consumers in Chicago face a higher tax rate. (Id.)

         Revenue generated by taxes imposed by the State and City of New York are substantially less than the amounts needed to cover tobacco-related healthcare costs incurred by New Yorkers. (Angell Aff, PX 628 ¶ 18.)

         VI. THE PACT ACT

         The PACT Act was enacted on March 31, 2010, and took effect on June 29, 2010. Pub. L. No. 111-154, 124 Stat. 1087 (2010). As pertinent here, for common carriers other than those who had entered into an AOD (and otherwise met the exemption requirements)-primarily the USPS and smaller carriers-the PACT Act sets forth an extensive regulatory scheme.

         Plaintiffs pointed to various pieces of evidence supporting UPS's view that the passage and implementation of the PACT Act provided a business opportunity. That is, as other couriers were required to terminate cigarette shippers as a result of the PACT Act, UPS picked up the business. This is borne out by the facts. The evidence supports an increase in shipments via UPS by the Relevant Shippers in the months immediately following the effective date of the PACT Act. Account personnel and others within UPS understood that this surge was likely due, in part, to capturing business lost by the USPS.[44] For instance, in an email dated September 23, 2010, a UPS Senior Account Manager noted that "UPS has gained a lot of tobacco business from the USPS this year due to the PACT Act taking effect at the end of June." (PX 198.)

         VII. CONSUMPTION OF TOBACCO PRODUCTS

         Cigarettes are one of a number of consumable tobacco products. Tobacco products are many and varied; they include "little cigars" and "big" or "regular" cigars, flavored cigars and cigarettes, loose tobacco, and chewing tobacco. The evidence at trial supported UPS's claim that all but one of the Relevant Shippers (Jacobs Manufacturing/Tobacco) sold a variety of tobacco products and, in certain instances, other items as well.[45] For instance, there was both testimony and documentary evidence of shipments of cigars as well as cigarettes. (See, e.g., PX 72; PX 113; PX 211; Trial Tr. 384:8-16 (Cook).)

         A. Cigarettes

         The characteristics of cigarettes are well known: Filtered sticks of tobacco, about the length of a finger, are rolled in paper and typically sold in small boxes. Each box contains twenty cigarettes; each carton contains ten boxes. A carton of cigarettes, irrespective of brand, weighs approximately one pound. It is well known that cigarettes are highly addictive. The market for sales of cigarettes is far larger than those for other tobacco products, including little cigars. (See generally PX 11.)

         The manner in which consumer demand correlates with price and brand is subject to debate. Testimony at trial supported strong brand loyalty, but testimony similarly supported price sensitivity for cigarette consumers and tobacco users generally. Among the evidence received at trial were cartons of cigarettes marketed by the Relevant Shippers. The Court was able to evaluate the size, shape, and weight of the packaging as well as the packaging's characteristics. In addition, plaintiffs introduced evidence of the size of boxes used to ship cigarette cartons. Boxes containing cigarette cartons had the capacity to hold anywhere from a pound of goods to more than twenty pounds; this equates with a capacity of between one and twenty cartons of cigarettes.[46]

         Not all boxes were shipped at full capacity; that is, a box with twenty pounds of capacity might have fewer than twenty cartons of cigarettes inside (or a box of some other capacity might not be full). UPS's databases included a field for "actual weight." The Court draws the fair inference from the fact of such documents that this phrase reflected a package's measured weight. UPS's shipment records indicate that there was frequently a difference between a package's "actual weight" and "billed weight." Billed weight was typically a number rounded up from actual weight. Based upon UPS records, rounding occurred when any increment of a package's weight was above a whole number. (See, e.g., PX 74; PX 75; PX 227.) For instance, a package weighing 19.1 pounds in actual weight would be increased to twenty pounds for billed weight. (Id.) Thus, any aggregation of "billed" weight for a number of packages would inflate their actual weight.

         In addition, cigarettes were generally shipped in boxes. There was some evidence at trial of shippers sending letter-sized envelopes. (See, e.g., Trial Tr. 511:5-512:17 (Fink); id, 769:23-770:12 (Keith).) The evidence that cigarettes were shipped in letter-sized envelopes was extremely thin and not particularly credible (apparently, from time to time, loose cigarettes might be sent in envelopes); the economics of sending a handful of loose cigarettes via UPS makes no sense. Indeed, it is hard to imagine that it would have been cost effective to have sent loose cigarettes-presumably in an amount of less than one box-in a letter-sized package via UPS. The Court finds that no appreciable volume of cigarettes was sent via letter-sized packages and that packages of such size more likely than not contained something other than cigarettes.

         B. Little Cigars

         Little cigars account for under 10% of the tobacco market. (See PX 11.) They are rolls of tobacco, wrapped in leaf tobacco with an integrated filter, that resemble cigarettes in size, shape, and packaging. (Delman Deck, DX 611 ¶ 24; see also Trial Tr. 1584:16-25 (Delman).) While UPS's tobacco expert, Delman, testified that little cigars are "total substitutes" for cigarettes, the evidence was in fact far more equivocal. First, even Delman conceded that little cigars are made up of "lesser quality" tobacco. (Trial Tr. 1573:2-24 (Delman); id, 1568:12-1569:18 (Delman).) Little cigars are made from reconstituted tobacco floor sweepings. (Id. 1569:19- 1570:12 (Delman).) Second, based on her experience, Dr. Angell testified that little cigars are in fact distinguishable from cigarettes. (Trial Tr. 1369:2-7 (Angell).)

         Like cigarettes, little cigars may be sold twenty to a pack and ten packs to a carton. (Delman Deck, DX 611 ¶ 25.) Also like cigarettes, little cigars may be sold in cartons weighing approximately one pound. All but one of the Relevant Shippers (Jacobs Manufacturing/Tobacco) sold little cigars and shipped them via UPS. The boxes in which they were shipped were the same as those used to ship cigarettes.

         The exterior packaging of little-cigar packs and cartons is similar in size, shape, and color to those of cigarettes. Moreover, the brand names of the little cigars sold by the Relevant Shippers were often quite similar to those of cigarettes-and the Court at least found it very difficult to distinguish between packs of little cigars and those of cigarettes without examining the exterior of a carton with care.

         At the relevant times, little cigars were considerably cheaper than taxed cigarettes. (Id. ¶ 35.) For instance, as of August 2016, the average base price of little cigars was $12 per carton versus $33 per carton for discount/non-premium cigarettes and $55 per carton for premium-brand cigarettes. (Id.) However, cartons of little cigars can be more expensive than cartons of Native brand cigarettes. (Trial Tr. 1564:13-1565:22 (Delman).)

         The evidence supports significant growth in the demand for little cigars throughout the 2000s, though the demand for little cigars never came close to that for cigarettes. (Delman Deck, DX 611 ¶¶ 40, 41; PX 11.) The increase in demand was due, in part, to the higher cost of cigarettes compared to little cigars combined with a willingness by at least some consumers to substitute one for the other. (Id. ¶¶ 40-42 (citing DX 43 at 11).) Tobacco users are price sensitive, and higher taxes on tobacco products decrease the demand for the affected products. (Angell Aff, PX 628 ¶ 10.) The evidence fell far short of supporting a total substitution of little cigars for cigarettes.

         UPS dedicated a considerable amount of time and evidence at trial to the factual proposition that increases in cigarette taxes drove an increase in the demand for little cigars, and that this is all the more reason for the Court not to accept that packages shipped by the Relevant Shippers were cigarettes. According to UPS, the increased demand for little cigars increased the likelihood that such packages did not contain cigarettes at all. There is some force to this argument- but not to the extent UPS asserts.

         Several studies confirm the link between increased taxes and the possibility of increased demand for little cigars and other alternative tobacco products, even as cigarette consumption has declined. In fact, the decision by the Food and Drug Administration to bring cigars under the regulation of the Family Smoking Prevention and Tobacco Control Act by its Center for Tobacco Products on May 5, 2016, [47] (DX 425), was based on research showing that various demographic groups continued to use cigars even when there was a broader migration away from cigarettes, especially during the period from 2010-2014. (Delman Decl., DX 611 ¶ 44.) Dr. Angell also testified that if little cigars cost less than cigarettes, they are one product that cigarette consumers might turn to as an alternative. (Trial Tr. 1363:1-4 (Angell); see also Trial Declaration of Aviv Nevo ("Nevo Decl."), DX 613 ¶¶ 76-84 (concluding that diversion to "non-cigarette products, " including little cigars, would be "substantial").)

         VIII. CERTAIN COMMON EVIDENCE

         A. The Fink Accounts

         As discussed in detail below, one UPS Account Executive-Gerard Fink-was assigned to a number of the Relevant Shippers. He testified both live at trial and by trial declaration. Because his testimony impacts a number of issues in the case, the Court provides an overview here.

         During the period relevant to this suit, UPS first employed Fink as a part-time loader, then promoted him to External Technician, and then promoted him to Account Executive in 2005, a position in which he remains today. (Fink Decl., DX 602 ¶ 2.) Fink manages UPS's "small customer accounts" (defined as accounts which generate package revenue of up to $300, 000 per year) in what is his designated "Patch of Land;" he is also part of the Buffalo-area sales team. Fink's Patch of Land includes the UPS Centers in Dunkirk, Jamestown, Olean, and Hornell, New York. (Id. ¶ 9.) UPS's Dunkirk and Olean Centers serve two Seneca Nation reservations. (Id. ¶ 10.)

         As discussed below, a number of Fink's accounts in fact shipped unstamped cigarettes through UPS. These accounts included Elliott Enterprises, Elliott Express (or EExpress), Bearclaw Unlimited/AFIA, Shipping Services, Seneca Ojibwas, Morningstar Crafts & Gifts, Indian Smokes, and Smokes & Spirits. Each of these shippers tended to ship in volume and were, at some point in the relationship, among Fink's largest accounts.

         Fink, like other Account Executives, is paid a salary and has the opportunity to earn a bonus; the bonus is based in part on sales. An Account Executive's bonus does not play a significant role in his or her overall compensation. Nevertheless, it plays some role. The evidence at trial supported a desire by Account Executives to grow, and not lose, business. Emails exchanged between Fink and other UPS employees regarding certain Relevant Shipper accounts demonstrated a shared interest in protecting the accounts. For example, after an audit of EExpress revealed only coffee being shipped, Fink sent an email to Michael Zelasko, a UPS sales manager, stating that the audit revealed only packages containing coffee, and concluding with a "smiley face" emoticon. (PX 569.) Zelasko forwarded this email to Brian Weber of UPS Customer Solutions, telling Weber, "The audit for EExpress came back as coffee!! Dodged a bullet." (Id.) For instance, emails reflected Fink's reporting on account activity to supervisors, databases reflected certain of his contacts, and sales data was widely shared. Fink, in short, was not a rogue employee hiding his activities from others at UPS. While he may not have informed others at UPS of everything he knew or suspected, he was not hiding (and did not personally have the ability to hide) many obvious facts (such as the name of a shipper, its location, its address, or its client contact; the inventory that drivers saw; the smell emitted by certain packages; tracer inquiries; etc.). The Court concludes that with regard to the Relevant Shippers, Fink was acting within the scope of his employment. Fink's testimony along with other evidence also convinced the Court that he was not a lone wolf and that his conduct was known and supported by certain other individuals within UPS.

         The Court did not find Fink a generally credible witness. He struck the Court as an intelligent man who understood a great deal about UPS's business and about the accounts for which he was responsible. He also appeared evasive and as attempting to find the "right answer, " sometimes at the expense of the truth. The Court does not credit testimony that he did not know what a number of his largest accounts were shipping; this finding is based on Fink's demeanor as well as the totality of facts regarding his knowledge of, and interactions with, the accounts. Indeed, his testimony convinced the Court that he generally understood that certain of his clients were shipping cigarettes and that there was a reasonable basis to believe that those accounts and others may have been tendering cigarettes.

         B. The Non-Compliant Lists

         One important component of the PACT Act is the creation of "non-compliant lists" or NCLs. Specifically, the PACT act directs the Attorney General to compile and distribute a list of cigarette and smokeless tobacco delivery sellers that have not registered with the Attorney General or "are otherwise not in compliance with [the] Act." 15 U.S.C. § 376a(e)(1)(A). Inter alia, the PACT Act prohibits deliveries to any person named on the NCLs, unless certain exceptions are met. Id. § 376a(e)(2)(A).

         After the PACT Act went into effect on June 29, 2010, entities that had shipped cigarettes through the USPS, and had a continued desire to ship cigarettes, sought alternative arrangements. There was substantial evidence at trial that the timing of new UPS customer acquisitions during 2010 was more likely than not related to the effective date of the PACT Act. (See, e.g.. PX 198.) Evidence demonstrated that at least certain of the new accounts were recognized as "competitive conversions" from other carriers at the time. (See, e.g., (PX 198.))

         UPS has argued that the same time period also correlates with an increase in the cigarette tax and an increase in the demand for little cigars (and thus, that new customers were simply responding to increased mail order demand for little cigars.) That may be so, but there is insufficient evidence to support this theory. While the evidence does support increased taxes and consumer demand for little cigars, it does not support that the contents of the packages shipped by the new customers were therefore little cigars, or reasonably believed to be such. Instead, the evidence supports a reasonable inference that many customer acquisitions (particularly in 2010), including competitive conversions, were the result of the passage of the PACT Act, and thus a switch away from another carrier to UPS.

         As discussed, the PACT Act required the periodic creation of NCLs. The PACT Act's mandate in this regard was, of course, public knowledge. But in addition, commencing in November 2010, the ATF distributed the NCLs to UPS. Several of the Liability Shippers, or individuals associated with them, were on one or more NCLs. For instance, Elliott Enterprises appeared on the first NCL distributed by the ATF in November 2010, (PX 514); Indian Smokes was added on May 6, 2011, (PX 524); and Smokes & Spirits was added on February 15, 2012, (PX 514).

         Plaintiffs argue that UPS's receipt of the NCLs put them on notice of cigarette shippers but that UPS failed to take remedial action (such as conducting audits). According to plaintiffs, the NCLs also provide evidence of UPS's knowledge of shipper violations to support plaintiffs' claims.

         For its part, UPS argues that because it was exempt from the PACT Act due to the AOD, the NCLs were irrelevant to its business. This position is misguided. The NCLs were plainly relevant and should have been used by UPS to identify cigarette shippers. As discussed below in the Court's legal conclusions, UPS's argument fails to fully grasp the conditional nature of the relevant PACT Act exemption, and that the NCLs plainly provided relevant information to meet the necessary conditions. UPS ignored the NCLs at its peril. While the NCLs may not have obligated UPS to take action with regard to certain shippers, UPS had separate obligations with regard to those same (and other) shippers under the AOD.[48]

         UPS further argues that in any event, the NCLs were sent to one part of UPS while the domestic client accounts and courier service operations were performed out of another. Thus, UPS claims it was operationally unaware of the NCLs and that certain shippers were on the NCLs. While factually true, the conclusion that UPS draws from this-that it was justified in ignoring the NCLs-is unpersuasive. The point remains that UPS received the NCLs.[49] It should have provided information it received regarding known cigarette shippers to others within UPS.[50]As the Court has found, the NCLs were, as a factual matter, relevant information regarding the shipping practices of certain entities.

         In sum, the Court finds that the NCLs did put UPS on notice, and provided some knowledge, of shippers who tendered cigarettes.

         C. The "Tobacco Watchdog Group" Letter

         On November 10, 2010, an entity referring to itself as the "Tobacco Watchdog Group" sent a letter addressed to the "UPS Service Center Managers" in which it identified a number of known or suspected shippers of unstamped cigarettes. (DX 62.) Various UPS employees received copies of this letter, including Gerard Fink, Steve Kinney, Scott Winkley, Rich Kincade, and Tina Mahon. (Id.) The letter was emailed to Fink by Winkley, the Business Manager for the Jamestown and Olean Centers. (Id.) Winkley instructed Fink, "Please read." (Id.) At trial, Fink testified that he recalled receiving the letter at or about the time it was issued. (See Trial Tr. 601:14-17 (Fink); see also Fink Deck, DX 602 ¶ 33.) Six entities were identified in the letter-all of which were located in Salamanca, New York. Among them were the following shippers: Smokes & Spirits at 270 Rochester Street, Elliott Enterprises at 38 Main Street, and Native Express, also at 38 Main Street. (Id.) Smokes & Spirits and Elliott Enterprises are both Relevant (and Liability) Shippers.

         Fink's reply to Winkley's email stated that he had only "one account" on the list and was "certain" they were only shipping cigars. The account to which Fink was referring was Smokes & Spirits. In fact, Elliott Enterprises, located at 38 Main Street in Salamanca, was also one of Fink's largest accounts at that time. Fink did not state his basis for his "certain[ty], " and there is no evidence that he was further probed by any of the other letter recipients. In light of UPS's affirmative obligations under the AOD and statutory schemes, it should have done more in response to this letter.

         UPS argues that the Court should give no weight to the letter because it was of unknown origin and veracity. The Court disagrees. The emails among UPS personnel discussing the contents of the letter establish that UPS recipients read the letter and discussed it. It was properly viewed by UPS employees as relevant. The letter provided some notice of a possible issue; the Court agrees, however, that the letter did not itself "prove" anything.

         D. Inquiries Regarding Lost or Damaged Packages

         Plaintiffs introduced evidence showing that at various times UPS customers inquired about lost or damaged packages. (PXs 72, 113, 190-91, 208, 211-215, 403, 405-06, 468-70.) As described above, UPS refers to these inquiries as "tracers." Tracers captured various methods of inquiry, such as calls to a 1-800 customer service line or an online report entered into UPS's system. Tracers typically include information regarding the reported contents of the package(s) at issue.[51]

         It is clear that until recently (as described above), UPS did not use tracers as tools to identify cigarette shippers. Nevertheless, tracers put UPS on notice that some shippers were likely tendering cigarettes.[52] The tracers also provided UPS notice regarding other items being shipped by the Relevant Shippers (such as tobacco, flyers, and other items).

         1. Smokes & Spirits

         Several tracers in 2011 (in April, September, October, and November) for Smokes & Spirits were for packages containing "nectar filled cigars full flavor 100's, " "1 of 3 box of 6 pouches of tabacco [sic], " "2 of 5 tobacco product, " and "1 of 10; 1 pack out of a carton of 10 was crushed." (PX 191, rows 260, 262-63.)

         Tracers relating to packages shipped by Smokes & Spirits in April, September, and December of 2012 indicated package contents as an unidentified good, seven cartons of "Menthol Box 100s" (cigarettes), and Timber Wolf Long (tobacco), respectively. (PX 190, rows 293-95; see also PX 214, rows 293-95.)

         A tracer in September 2012 for a package shipped by Smokes & Spirits contained the UPS remark in all caps: "PROHIBITED ITEM SENT TO CONSUMER." (PX 72.) Additional inquiries relating to packages shipped by Smokes & Spirits occurred on May 15, 2013; September 12, 2013; and October 17, 2013. (PX 113, rows 970-72.) Of these, two (the May and October inquiries) were for non-cigarette tobacco products, while the September inquiry was for cigarettes. (Id.)

         2. RJESS

         A tracer for RJESS in July 2013 was for "8 of 20 Cigars." (PX 113, row 968.)

         3. Sweet Seneca Smokes

         A tracer for Sweet Seneca Smokes in November 2014 indicated package contents of "8 Nectar Filtered Cigars Full Flavor 100's." (PX 211, row 627.)

         4. Elliott Enterprises/EExpress

         In 2011, tracers for Elliott Enterprises (in March, April, May, and December) were for one empty box and three packages of cigarettes. (PX 191, rows 267-70; PX 470, row 2865.) Tracers in March, April, May, and December of 2011 for packages shipped by Elliott Enterprises were for an empty box, "cigarettes/pdmm, " "cartons of ...


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