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State v. United Parcel Service, Inc.

United States District Court, S.D. New York

May 25, 2017


          OPINION & ORDER

          KATHERINE B. FORREST United States District Judge.

         This case was tried to the bench on September 19, 2016, through September 29, 2016. Following the trial, on March 24, 2017, the Court issued a preliminary Opinion & Order setting forth, inter alia, its findings of fact and conclusions of law, and on May 25, 2017, the Court issued a Corrected Opinion & Order (the "Liability Opinion"). (See ECF Nos. 526, 534.) The Court found defendant United Parcel Service, Inc. ("UPS") liable on each claim asserted against it. Plaintiffs New York State and New York City are entitled to compensatory damages and penalties. The sole remaining question is the quantum to be awarded.

         The preliminary Opinion & Order ordered the parties to submit certain information to the Court not later than April 7, 2017. (Id.) Having received submissions from the parties, (see ECF Nos. 530, 531), the Court now sets forth its determination of compensatory damages and penalties awarded, as discussed below, and directs that final judgment be entered against defendant UPS.

         In this case, significant penalties are appropriate given the public harm specifically sought to be addressed by the statutes at issue and given the egregious and prolonged nature of UPS's conduct. The Court is also troubled by UPS's consistent unwillingness to acknowledge its errors; UPS has persisted in claiming it did nothing wrong. While it is of course UPS's right to take this position, the Court appropriately considers this in determining what quantum of damages and penalties are appropriate.

         Furthermore, in light of all the relevant facts, significant penalties are needed to deter future conduct. The Court finds that only significant penalties will have a sufficient impact such that the highest levels of executives at UPS will understand the cost of UPS's conduct and take effective action to prevent such conduct in the future. The Court is convinced that modest penalties would not make a sufficient corporate impact on UPS as a whole. Given what this case has demonstrated about UPS's size, complexity, and lack of willingness to change unless compelled to do so, a very significant award is necessary. Deterrence is a significant consideration here.

         In making its damages and penalties determination, the Court is mindful of the constitutional principles requiring proportionality, as discussed in the Liability Opinion. The Court carefully considered whether, in the aggregate, the damages and penalties awarded are grossly disproportionate to remediation or deterrence under the Eighth Amendment. The Court concludes that the measure of damages and penalties awarded is fair and appropriate and comports with all applicable constitutional requirements, as discussed below.


         As detailed in the Liability Opinion, the Court has found that plaintiffs have proven UPS's liability under the Assurance of Discontinuance ("AOD") and each statutory scheme at issue with respect to eighteen entities;[1] have proven UPS's liability under the AOD only with respect to three entities;[2] and have not proven any liability with respect to one entity.[3] The preliminary Opinion & Order thus directed the parties to submit specific information-information regarding the numbers of "Packages" and "Cartons, " as defined by the Court and according to the Court's findings and rulings-before the Court issued a final order as to damages and penalties. The parties were required to submit such information not later than April 7, 2017.

         Plaintiffs filed their submission on April 7, 2017. (See ECF No. 530.) Per the Court's order, plaintiffs provided their view of the number of Packages and Cartons for each of plaintiffs' respective claims brought under the (1) AOD; (2) Prevent All Cigarette Trafficking Act ("PACT Act"); (3) New York Public Health Law Section 1399-ll("PHL § 1399-ll"); and (4) Contraband Cigarette Trafficking Act ("CCTA").

         Plaintiffs explained that their reported numbers of Packages and Cartons were the result of applying the relevant dates, definitions, and findings provided by the Court.[4] Plaintiffs further detailed-for each shipper as to which they had proven liability-the specific exhibits admitted during trial that plaintiffs used to identify the Packages and Cartons figures that they submitted to the Court. (ECF No. 530 at 3-4.)

         Defendant also filed its submission on April 7, 2017. (See ECF No. 531.) In sharp contrast to plaintiffs' submission, defendant's submission demonstrates a lack of cooperation and, frankly, odd abrasiveness. In an apparent reaction to this Court's liability decision against it, defendant refused to include a majority of the information requested by the Court. Specifically, defendant provided its Packages count with regards to only three entities: Smokes & Spirits; Seneca Cigars; and Jacobs Tobacco. (Id.) Thus, this Court deems defendant to have waived arguments relating to the calculations submitted by plaintiffs.

         Defendant made clear why it chose to provide information with regards to these three entities only: Defendant explained that it did so not because it was incapable of providing the information for the other entities as ordered by the Court-and as plaintiffs did-but because, according to defendant, these three entities were the only entities "that could potentially be considered in assessing damages or penalties because they are the only ones for which plaintiffs introduced evidence of shipments that UPS had an opportunity to test at trial." (Id. at 1-2.) In other words, UPS intentionally chose to ignore the Court's order and instead chose to reargue a point the Court already decided, as set forth in the Liability Opinion.[5]Accordingly, because defendant failed to comply with the Court's order, the Court calculates its determination of damages and penalties using the uncontested numbers of Packages and Cartons supplied by plaintiffs where appropriate.[6] This Court finds such conduct consistent with UPS's lack of acceptance of responsibility for their actions at issue in this case, as discussed in the Liability Opinion, and such conduct further informs the Court's views on the need for a significant award to deter future conduct. In all events, the Court's determination of penalties and damages is set forth below.


         A. Legal Principles

         In the Liability Opinion, the Court provided a detailed discussion of the relevant legal principles concerning damages and penalties. The Court will not repeat those principles in full here. Nevertheless, the Court reiterates a few important considerations.

         In general, civil penalties are designed in some measure "to punish culpable individuals" and not "simply to extract compensation or restore the status quo." Tull v. United States. 481 U.S. 412, 422 (1987); accord Johnson v. SEC. 87 F.3d 484, 492 (D.C. Cir. 1996). Penalties are also designed to "deter future violations" and to "prevent[] [the conduct's] recurrence." Friends of the Earth, Inc. v. Laidlaw Envtl. Servs., Inc., 528 U.S. 167, 185-86, 188 (2000).

         Furthermore, there is an "enormous range of penalties available to the district court in the usual civil penalty case." United States v. J.B. Williams Co., Inc.. 498 F.2d 414, 439 (2d Cir. 1974); see also id, at 438 (noting that a district court may properly consider "a number of factors" in determining the size of a civil penalty, "including the good or bad faith of the defendants, the injury to the public, and the defendants' ability to pay."). In Laidlaw, the Supreme Court reiterated the basic principle that a district court has wide discretion to fashion appropriate relief. See 528 U.S. at 192. It further stated that when choosing an appropriate penalty, a court "should aim to ensure 'the framing of relief no broader than required by the precise facts.'" Id. at 193 (citing Schlesinger v. Reservists Comm. to Stop the War, 418 U.S. 208, 222 (1974)). The Second Circuit has articulated the factors a court should consider as follows: (1) the level of the defendant's culpability, (2) the public harm caused by the violations, (3) the defendant's profits from the violations, and (4) the defendant's ability to pay a fine. Advance Pharm., Inc. v. United States, 391 F.3d 377, 399 (2d Cir. 2004).[7]

         In addition to the principles noted above, the Court is mindful of the Eighth Amendment's requirement of proportionality. Supreme Court precedent instructs courts, in determining whether a fine is proper or normal, to look to any legislative pronouncement on the issue and to consider the amount of the fine compared to the gravity of the offense, a deeply factual question. See United States v. Bajakajian, 524 U.S. 321, 334-38 (1998). The Court must examine whether, in the aggregate, the penalties become grossly disproportionate to remediation or deterrence under the Eighth Amendment. (Id.)

         In this case, the facts before this Court indicate that significant penalties are appropriate. First, the facts demonstrate a high level of culpability by UPS. Numerous separate acts by numerous UPS employees allowed vast quantities of unstamped cigarette shipments to be delivered to unauthorized recipients in New York. The New York Executive Branch and legislature, along with Congress, had specifically attempted to prevent this with the AOD, the PACT Act (which should have incented compliance with the AOD), the CCTA, and PHL § 1399-11. UPS largely relied on its size and weak internal procedures to excuse blatantly culpable conduct. As the Court found in its Liability Opinion, there were many, many people within UPS who consciously avoided the truth, for years. Even so, the Court also recognizes that UPS has now-since this lawsuit was filed-regained its footing. UPS now approaches compliance with the AOD and the various statutory schemes with renewed vigor and additional processes and procedures.

         The second factor is the public harm caused by the conduct. The state and federal legislatures have deemed transport of cigarettes to be a public health issue, and the effects of cigarette usage are well known. However, it is also the case that UPS is not the cigarette manufacturer or seller-it is a transporter. Thus, it bears a lower level of culpability for the impact on public health than other entities. In addition, it is unclear whether, in the absence of UPS's transport of cigarettes, the same public health effects would still be felt. The Court cannot speculate as to this. The Court focuses UPS's unlawful enablement of a public health impact that the political branches have proscribed and the costs of which New Yorkers must bear.

         The third factor-defendant's profits from the violations-suggests a low amount of penalties. UPS has focused on its limited revenues and profits from its transport of the shipments at issue. But these are not the only relevant metrics. It is also the case that maintaining customers helps UPS's overall competitive position; if there are many UPS routes in an area, it is reasonable to infer that this assists the acquisition of business through network effects and economies of scale.

         Finally, the Court weighs UPS's ability to pay a fine. UPS is a large company with significant assets. Its financial statements are a matter of public record. Not only can it handle a hefty fine, only a hefty fine will impact such a large entity sufficiently to capture the attention of the highest executives in the company-executives who then, in a rational economic move, will cause changes in practice and procedures to be strictly maintained. A fine in line with only the profits and revenues associated with the conduct at issue would not have this deterrent impact.

         B. Measure of Aggregate Damages and Penalties Appropriately Awarded

         In accordance with the legal principles described above and in the Liability Opinion, the Court sets forth below its final determination as to the measure of aggregate damages and penalties appropriately awarded to plaintiffs New York State and New York City under the AOD and under each statutory scheme at issue. First, however, the Court sets forth a few additional points that have guided its analysis.

         As they acknowledge, plaintiffs cannot receive double compensatory damages. Accordingly, the Court awards plaintiffs compensatory damages under the CCTA-and not the PACT Act-because plaintiffs are entitled to a greater amount of compensatory damages under the CCTA. With regards to penalties, plaintiff New York State is entitled to a stipulated amount of ...

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