morning good morning your honor may please the court mark perry for u p s u p s is obligations regarding tobacco delivery are governed by contract law not state or federal criminal statutes new york agreed to that bargain in two thousand and five and the congress approved it in two thousand and ten exempting u p s by name from the sped rule and state laws under which penalties were imposed in this case judge forrest your honour's ignored the bar go way way way way way didn't quite state that exemption correctly right they didn't just exempt u p s they exempted u p s under certain conditions and that's really what the issue is in this case right whether that condition was met as as to the first issue judge lynch pact act exemption provides to any applies to any common carrier that is subject to a qualifying settlement agreement subject to a settlement no we know were subject to a settlement agreement so the only question is whether it's a qualifying settlement agreement  by name one says you are exempt based on this very agreement you're not relying on the separate clause absent applies to other people you're relying on the one that applies to you direct right and that no one says or exempt provided that the assurance of discontinuance is honored throughout the united states and the real issue in this case is whether that condition is met and what that condition means that's the hundred fifty that's what we're really talking about that's the hundred fifty seven million dollar question judge lynch and we submit that the that the basic principles of statutory interpretation mean that the honored clause as the parties have come to call it means this so long as the a o d has a nationwide operation it is operative nationwide it is recognized nationwide then the exemption is available and judge florist what puzzles me about what honored means here we're talking about honored in the specific context of a contract right that's that's what the context is here it's about honoring a contract yes you're now if i have an exclusive distributorship agreement from you for example and i hear rumors that you are negotiating with one of my competitors to let them be a distributor too and i call you up and you say don't worry we honor our commitments we honor our contracts what is that supposed to mean to me honor i think in the context of the court's hypothetical that tends to imply compliance and isn't that normally what honoring a contract means and that's not a weird hypothetical that's that's intended  most people would mean when they say this contract must be honored understood your honor but the but the clause in the statute is not written the way that the courts hypothetical is respectfully it's not and standalone word on or the contract it's passive tense past tense is honored throughout the united states and then there's the parallel clause that says operates through the throughout the united states for other contracts we have pointed out in new york doesn't dispute that those two things are synonyms in other words honored and operated but operates also somewhat ambiguous right i there something operates could mean indeed that it's effective throughout the united states and effective i guess already i'm in an interest in another ambiguity because effective could either mean it applies throughout the united states or that actually has some effect operates could mean it has relevance throughout the united states or could mean it actually operates as a practical matter throughout the united states and the key that runs through all of those interpretations is throughout the united states because remember what congress was looking at this is the trucking industry which must be subject to a uniform nationwide set of rules and it said either we're going to have the pact act which is a nationwide law which which supplants or we're going to have these contracts but they're only with one state new york and we will let them control so long as they operate throughout the united states because if we apply them only in new york we haven't solved the other forty nine states that makes a lot of sense to me indeed but then the question becomes how could it what does it even mean you acknowledge this is going to be complied with throughout the united states but the only person who can enforce it is the attorney general of new york or the corrector honor and that is how does that make it a nationwide rule or a nationwide applicability if it's not complied with in idaho what in new york doesn't have any particular stake in making sure that i don't hold collect his taxes the attorney general of the united states who wouldn't force the pact act doesn't necessarily have any interest united states without any consequence two answers your honor first today there is no dispute that the pact act does not apply to you p s u p s is governed soley by the contract and only new york can enforce it so that argument simply why do you decide today what ha changed today that forrest made a finding that new york didn't appeal that since two thousand and fifteen u p s has been in complete compliance with the a o d and therefore the pact act exemption under her own construction is available to you p s so so that's because you're now complying brecht your honor but  united states but no other state can enforce it to this day because congress made the decision to leave the enforcement power and the attorney general of new york is hypothetical i mean just following up on the questions asked let's say that u ship illegal cigarettes into i don't know what what remedy exists for for for for damages for penalties or do you just turn around and say contract and i know new york seems to have a you know full plate handling matters in new york your honor this the only time it's ever come up is in new york in this case this is the only dispute about this the policy applies nationwide it isn't forcible by new york as a matter of contract is not a pound sand situation rather it is a contract compliance situation in our complaint with this entire litigation is that should have been governed from start to finish by the ordinary law of contracts under new york law rather than these overarching penalty provisions t congress set aside whether that was a good or bad idea i couldn't why couldn't i go say g u v s you're going to have to enter into a contract just like the one you entered into in new york otherwise you were not honoring your obligations nationwide you may be honoring them in new york but you don't seem to be honoring them here and this is where we care about no state has done that you're all i don't i'm not asking that i'm saying why can't they if the violation involves the shipment of cigarettes to an individual consumer outside the state of new york so how can the state of new york then enforce the a o d with respect to the shipment to idaho that judge jacobs just asked about it has all of the contract remedies it has damages it has an injunction it has specific performance has a declaration york suffered damage it may not have your honor but that's the nature of a contract based regime but my son is higher i've had so so new york brings so so how does it get in forced i mean he there's a breach of contract actually i understand that they've got to pay their lawyers i understand that how does it get in forced where they can get specific performance from a federal judge to order us to do it right that's one contract remedy this is a compliance really not a punitive regime and it would be somebody just sanctions if we didn't do it of course i mean that's that's what the law of contract does your honor is not voluntary same as when i was talking about the law of contracts really we're talking about what congress intended by the word honored that is part of the statute not part of the contract with new york and the question it seems to me is why on earth would congress grant an exemption if the word honored is interpreted the way you want it interpreted based on the kinds of questions that we've all been asking your honor what we know is what congress did senator kohl the sponsor in the senate said that u p s is exempt from the so long as the a d quote unquote remains in effect representative wiener from new york the house sponsor said u p s will be permitted to follow its status quo operations under the a there is no doubt that congress intended the aoe deed to be this sole determinant of u p s s liability for not or if the a o d is honored across the country and your honor paragraph fifteen and seventeen specify that it must be applied across the country the evidence at the trial showed that it is on it across the country and there is no contrary evidence what you what new york brought in this case is a claim involving one one thousandth of one percent of u p s is shippers and shipments on four indian reservations in one state which is a matter of contract dispute which we can deal with but it is not a matter of not being complied with on or operative or anything else throughout the united states there's no evidence regarding any other state in this record that's true first of all the question of throughout the united states is a very interesting one i think it's a more interesting question and more difficult question than what honored means new york seems to suggest at times that if there is a single village where it's not complied with that it's not being honored throughout the united states but the district court it seemed to me had a much more nuanced view of this said it's not being honored throughout the united states if it's not being honored in significant ways now you can carve it up any way you like but the fact is that first of all new york is the key to this since there where it started it is one of the three four or five biggest states in the country and therefore that's a pretty significant matter there is plenty of evidence in the case that the real source of the problem in new york is that tier of places where this issue has a risen in this case so this is not just a matter of one tiny place where it's not being honored but everywhere else in the united states that is the court says this is not being honored in a way that is very significant and undermines the effectiveness of the of the agreement but even in new york your honor it's four centers it's a handful of it's one account executive responsible for virtually all of these accounts which is an issue that's been dealt with since then he does not and by the way the district court's this action is all this has a lot of significance it seems to me when we get to the penalty phase and what is an appropriate penalty to be adopted but it seems to me it's sort of like saying well you know there's a lot of legal business we do and we only disregard this agreement where there's actually a problem and that's where we don't do it this is a very same to me a very significant matter for syslog if there isn't much evidence about other other violations at least within new york it's these shippers on the indian reservations that are the whole reason that this exists and your honor if congress had actually meant what new york says that there would be a compliance inquiry and that if noncompliance with the agreement would then kick in federal law and kick in state law it would have written that clause very differently because what then is u p s s protection we have an agreement but as soon as we don't follow it we're subject to trouble liability under three different regimes subject to tribal liability because that seems on reasonable if you're going to look at what the penalties are and you're seeing that very roughly i mean and without making any assumption that the district court even got this right but that roughly there sort of an eighty million dollars penalty and then suddenly there are three eighty million dollars penalties there are lots of arguments that you haven't you made those arguments about whether that is a sensible penalty to impose yes or no but it doesn't seem to me that it's  peculiar for congress to say if you've got a nationwide agreement that's going to substitute for a nationwide law and be effective the way a nationwide law would be then you're exempt from the nationwide laws but if you have something that is filled with holes and isn't honored and is ignored in significant places in the united states then you don't have the exemption what's what's the rational about that your honor two other clauses of the pact act specifically use the word effective and provide an effectiveness requirement for those exemptions for parties that don't have agreement we've already seen i mean it's fine to say you use the same word in that all that stuff and we interpret the same probably in this very clause congress uses two different words that you say are actually the same operates and honored but neither of which has an effect in a says as judge forrest whose whose view is so new wants you to read this thing three different ways the first time she read it she got it correctly it has nothing to do with the common carriers compliance with the extensive understanding several hundred pages of understand age district court opinion plus all the other just recorded on the penalties and i will try to make this as simple as i can with you because it's not like it's like this morning your honor the failure of the adversarial process and the violation of u p s s due process are rights with regard to these penalties i just want to point the court to one thing the court does have a lot of resigned like to just try to fix this if i could everything two hundred thirty seven million dollars rests on one document in the records the the city in states april seventh submission it's j a five o seven to five eighteen that is the only document that's the arrow hawk let know that's the post trial expansion of the arrow hawk letter if you will we submit your honor we know the court will look at this paper if this had been submitted before trial as either an expert report or rule twenty six a disclosure it would have been deficient as a matter of law if this had been submitted at trial as evidence with a witness who could be cross examined it would be legally insufficient to support the judgment and it was neither of those things it was submitted after trial with no cross examination no right of response no inquiry and that is the only thing that a two hundred thirty seven million dollar judgment now rests on and this is a matter of significant import if i could just point out one example you know the city says these databases are u p s as we could have looked in them right you know setting aside the point that we don't have to bring a new store own hanging we did look at the evidence and we came up with very very different things for just one of these shippers  smokes and spirits new york says at page j a five eleven in the post trial submission that there are nine thousand eight hundred twenty packages for the same shipper u p s says in this is the page jane a five twenty one that there are three thousand four hundred thirty seven packages is roughly a three to one different if you extrapolate that to the case that's one hundred fifty million dollars different hundred forty million dollars difference right based on we think there were far fewer packages than they do just if we look at that so putting aside the fact that there may not be that kind of information everybody else on this smokes and spirits example we've got two different interpretations of what the spread sheets mean is that right at the spreadsheet and other evidence the art of shipping invoices and multiple spreadsheets which don't all say the same thing boeing to conclude that the district court clearly erred in selecting one of those interpretations again putting aside whether what impact any of this has on all the other shippers but this one that we're focused on is that the argument here that the district courts conclusion was clearly erroneous  adopting its interpretation of these documents and i guess adopting new york's rather than adopting yours correct your honor i mean our view is that there was legally insufficient evidence at the trial stage this is not of the red brief they say this is a large scale addition and division exercise and they say at the same page the required computations are time consuming and they say at page one sixteen you had to sort remove duplicate do addition and calculate none of those instruction is calculating why isn't this simply adding up numbers and knowing what boxes and what feels to add up and what is one expert going to do is that another expert doesn't well one answer judge as the want to just gave which is we come up with a three to one different count for the same shippers right and the other answer and this is the much more pragmatic one look at the shipper called shipping services for example new york says that they ship twenty two thousand five hundred twenty three packages and for that they cite p x four thirty three ok p x four thirty three is a database it contains thirty six point four million cells if you printed it out it would be a stack of paper thirty feet high if you laid them end in need to print it out and if you touch certain buttons then these people who know how to do these things can add boxes in certain fields your honor but we don't know who those people who did those things were what buttons they pushed we never got to cross examine them nobody has ever there's no evidence in the record we don't know of course there's twenty two thousand five hundred twenty three boxes listed in that spreadsheet but we don't know which ones they have identified they just have untethered by any computation calculation methodology addition subtraction division multiplication or anything else now what this says and they say there are two hundred something thousand boxes or whatever apparent whatever number are and then you segue into we don't know what was in them now that's a matter that the district court has explained very carefully what it's extrapolating from the evidence as to how we draw conclusions about what percentage of the boxes of the shipments contained cigarettes that seems to me a rather different question that totally different the question of it is this the right number of packages or not which seems  much simpler question totally different when i meant we don't know what's in there is like we don't know what's in the database we don't know which of the packages they're identifying from within the database but i thought his records conclusion was the database reflects for each shipper how much business u p s did with them it doesn't know you're on the databases reflects depending on which database you look at some of them are billing databases some of them are shipping databases reflects various information about packages often but not always clearly tied to account numbers and many assumptions are required many calculations are required to get from the database and again all the databases total in issue have eighty three point five million cells it's a huge dat set to get from there to a specific package account requires methodology assumptions calculation none of which have ever been disclosed we have never u p s and our experts you know back in the in the back room have never been able to replicate any of new york's numbers and they've never disputed that and they never told us how they got those numbers and we keep saying we can't replicate these numbers and the hallmarks of scientific evidence and this is you know scientific evidence the agreement numbers out of a huge dataset requires something we don't know where these numbers come from and there was never a witness on it there was never a disclosure on it there was never cross examination on it there's no evidence on it it's simply this six page document which you know the court will look at j five zero seven to five eighteen which is legally insufficient even if it were evidence at all which is not to support a quarter billion dollars judgment you know this is not the way trials are conducted in the united states of america we never had the opportunity to go through and figure this out and we think the please the court steven rule for the state of new york i'll be dividing my argument and my friend from new york city i'll cover the liability issues in point one of our response brief and the city will address damages and penalties including our cross appeal from point two and will reserve one minute of his time for robot all of that argument i'd like to make a couple of arguments on liability and to begin with the pact act the overriding purpose of the pact act as its name suggests was to actually prevent all cigarette trafficking nationwide we don't usually interpret statutes according to what acronym sure but with the but the exemptions here have to be understood against that purpose because the exemptions here were not an excuse from the objectives the congress wanted to accomplish they were to identify from congress's perspective alternatives way alternative ways of achieving the same goal which is to block cigarette trafficking and so what's relevant for congress was not the mere existence of a legal mechanism to enforce compliance but instead some demonstration that there was an existing mechanism that actually solved the problem and therefore made the federal regime unnecessary as a practical matter there was no need to adopt these additional obligations so the question becomes what is the validity of the district judges a distinction between reaching a little bit and reaching a lot and where do we get reaching a lot in this case where we've got millions of packages flying over the united states well i think i don't i don't understand that because it looks as though as under your analysis you'd have to have a trial under the a o d in order to find out whether the  even applies and it seems to me very irregular as a way of proceeding and very improbable well if i could start at the beginning of that process because here the district court's findings are the u p s of violations that you would be aware egregious and what i mean by the beginning is what the spelled out in considerable detail where a series of corporate policies and practices now u p s was supposed to institute when the agreement was entered into in two thousand and five training auditing and so on and the evidence at trial undisputed by u p s on the appeal was the company did none of this absolutely none of these are nationwide obligations that are imposed at the nationwide level that's correct at the centralized sort of corporate level by u p s that they agreed to commit to to accomplish the absolute objective spelled be to stop delivering cigarettes shipments to individual consumers that is a commitment that they made in the seo do to avoid significant statutory penalties and obligations and and again what the district court found was that they did none of these things they did not have any compliance training for the executive in charge of monitoring compliance brad cook was the director of dangerous goods they did basically no training for any employees or extensive testimony that employees really at all levels either was not aware the or didn't sort of like get regular training about what compliance matt they didn't respond when there were findings when there was actual evidence that the shippers were engaged and they didn't they didn't respond they didn't terminate their mind i didn't get my cigarettes and did none of i mean their work as a database the non compliant list that was compiled by the federal government and sent to u p s and there's evidence that they ignored that and did in violation of the federal law book and if you were trying to comply with the it would be a logical thing to say gee i wonder if we should look at these people that the attorney general things are shipping cigarettes that's correct and i think what this all goes to show is i think quite separate from how many cigarette shipments actually took place at the end of the day oh that we were able to prove at trial quite separate from that the evidence of noncompliance from the us was centralized was vast you know and extended to all levels until recently u p s actually began complying and i think that the the important point here u p s knew what it meant to comply by the time that this case really initiated as a district court found they started sort of beginning these steps required by the  hire more personnel send them out to the shippers to conduct their own audits and at that point was what they just were found to be the first meaningful steps to it here today to get i don't know maybe this is something you will say during will deal with  congress was seeking but you did use the word alternatives what happens here in your interpretation of the statute is that rather than being alternatives they become cumulative penalty regimes we're essentially the same give common kara like u p s is they can pick strict compliance with a and not have to comply with the pact and that is a fair choice that's a choice that they entered into but the reason why it's fair to impose a psych escalating series of penalties and other sanctions is because that's the problem that congress and the states were trying to address some of these statutes were not enacted at the same time they were enacted over time the agreement was entered overtime precisely because at every step of the way preexisting penalties sanctions compliance regimes were found to be inadequate and they're not precisely parallel i mean the pact act has a very robust compliance mechanism it absolutely prohibits deliveries from shippers the n c l list and it does so with regardless of what their shipping and it does because the obligation that you not ship cigarettes specifically turned out to be difficult to enforce and broadly not adhered to so each of these escalating steps was a separate and heightened means for congress and the state i take it when sure there are chances to  judge lynch's question is this is a quadruple damages case but it's not exactly could dribble damage on exactly quadruplets exactly treble damages plus a little more well it's not it's not exactly the same my friend from the city will deal with this but the bases for the liability are are somewhat different from each of these reflecting the different statutory purposes and the contractual purposes of these agreements and just to highlight one point that i do want to emphasize before i sit down is the ail the penalties here were imposed for a distinct violate the contract where does it say if you fail to art it you're going to be penalized for a thousand dollars for every single package you ship well so the penalty provision itself says that the penalty applies for each and every violation of right without without limitation a gotcha and the and the auditing requirement again does not stand alone the auditing requirement was meant to identify improper cigarette shipments and the response to an audit was to either temporarily and eventually permanently halt all deliveries from shippers or shipping cigarettes have been who you see the problem here is that lets you have it both ways you want to save the audit obligation is a separate and distinct obligation that is different than the obligations on the  obligations under the a o d to not ship cigarettes but then you want to turn around say because the audit geisha and is intended ultimately to be a preventative to those other violations then if they violate the audit obligation they don't just get a penalty you didn't audit they get a penalty that is for each and every shipment of cigarettes at least the maybe everything else that they ship just like under the pact act so it stops being a separate obligation it starts to be a duplicative measure of damages the reason is a separate obligation that it's proportional to the wrong that was committed here obviously the odd obligation is really central to the enforcement of a limited central but it good and the thing they want to say makes this whole thing ridiculous as every paperwork violation takes a one thousand dollars fine but you so ok everybody elation every audit violation already gets a penalty but then you want to transmogrify that into not just you know what's the unit of the offense so does that entails a violation is perhaps just we didn't do an audit now they may have other violations of the you may have proved other violations of the but this particular violation i'm not sure why central or not violating it gets you much more than a one thousand dollars penalty will because the violation here isn't just sort of a one shipment after a breach of the audit requirement it doesn't say that shipping a package after a violation of the audit duty is a violation of the agreement or that shipping without an audit is knowingly shipping  tobacco products it doesn't say any of those things it simply says there's an audit requirement and it makes it even more problematic given that u p s is only to be penalized the thousand dollars if they knowingly ship a package with tobacco products right it's got there's a there's a knowingly requirement in there so so when you say failure on it every every package get shipped you're taking that knowingly right out of the agreement well i think the answer to that comes from the obligations under the audit provisions right which is again is not just about opening every single package which is what an audit consists of but instead is when cigarettes are discovered to then halt deliveries from that ship or i mean again u p s committed to this robust enforcement mechanism this was not requir l to say that when you found cigarettes you altogether halt them at but they agreed to that mechanism precisely because the existing statutory mechanisms were not enough and that's the reason that the unit of the penalties under the able deal for the failure of the audit obligation has to extend to the deliveries that are made from an audited packages from shippers they had a reasonable basis to believe we're shipping cigarettes improperly and if i could make this one final point i mean the absurd consequence of u p s s argument is that they could fail to comply with the audit requirement get what they said is a twenty thousand dollars penalty one for each ship or for violating one of the central obligations that is key to the enforcement of the d and do so in a way that not only prevents the immediate compliance with the but also hampers law please the court richard during i just if i could start just briefly on this issue of the spreadsheet and then i'll turn to the what is clearly questions about the about the penalty regimes here the spreadsheets i think are in bloom magic of approach by u the procedural side of this case which is to make things that are pretty simple seem really complicated to ignore the fact that they were able to mount defenses and successfully did in many instances and to also ignore that they chose to forego other opportunities to make difference about these pressures so let's just talk about these are u p s a spreadsheet any row of the spreadsheet that we're talking about here we're talking about a tracking number which we know is a package a shipper number a date pick up the recipient name and address those the key fields the spread sheets are enormous but that's all you need that is prime official proof of a package pretty simple now let's talk about the letter the april seventh letter that letter came after after the district judge had made specific findings it was a mechanical after she's made all these specific findings on liability including dates how are you going to look at the spreadsheet she credited with many arguments of u p s to exclude certain kinds of and then each and shipper it's fifty percent of it is cigarettes ninety five percent of cigarettes and so on you make findings about what was the basis of those findings primarily the basis was evidence from u b s it was it was primarily i would say a combination of two things i shouldn't say primarily two major categories some of it was ship or evidence but in the in limited cases where shippers had been criminally convicted we had invoices testimony from shippers in those kinds of cases that's probably about forty percent total of your of your of your current of your package counts and current counts came from that kind of case when you didn't have shipper specific evidence most of the time it was evidence derived from u b s audit and i'll give you two examples just to illustrate this express express which is a shipper she puts it as one hundred percent shipper it's a shipper that was opened up to the account opened up by the same principle two days after his retail smoke shop account had been shut down he opens two days later a new account called an express there's there's indications of cigarette shipments all along eventually we get to a point where three packages break open all three of those packages have cigarettes two days later an audit is ordered ninety nine packages are opened ninety nine packages have cigarettes judge forest says that's going to be one hundred percent shipper i'll give you another example act race parts action race parts of the ship are that ship almost exclusively to smoke shops on you know each other smoke shops on indian reservations the cigarette manufacture at some point state department of tax and finance conducts a seizure they find they seize forty boxes of packages from action race parts they open them up all forty boxes have not just cigarettes but forty or forty cases of cigarettes meaning four hundred thousand cigarettes in that seizure she puts that is a one hundred percent shipper in other cases u p s is audit showed lower numbers and she credited that in u p s s favor by reducing the percentage let's turn to if we can to another subject which is the fifty percent diversion factor the judge found  fact that if a if a person who who gets on tax cigarettes through the mail couldn't get them through r p s u p s that fifty percent of them would buy taxed cigarettes that's about if you smoke you know a carton week that's like three thousand dollars in new york city and this is a very regressive tax so you're not talking about wealthy people how could anybody assume that fifty percent of the people who buy on tax cigarettes are just going to turn and pay three thousand dollars in their pockets in taxes they should that means it's not a lower number where does fifty percent come from you know this is how i would look at that and i think the best and cleanest answer is that is a legal one but i'll try to stay on your your question for a moment i think the i think the cleanest answer on the wrongdoer at a minimum even if you even if the court is going to entertain this kind of argument it's on the rug or at a minimum to show to to segregate the part of damages that's not appropriate and so if it's not on us to do that and if if their expert opinion is reliable and integrated expert testimony to your real position should be should be one hundred percent and that indeed is our position for that reason and the second one which i think and of course that's absurd right because the idea that hundred percent of people mainly  mainly addict limited income are going to go and pay three thousand dollars a year in taxes voluntarily because that's how it sort of works out if you're legally really doesn't make any sense well i do think there's a there's a dependency issues that's important there but i also would say two things about the judge and i'm trying to decide which order to go in but the first one is that i think when i say the first one is that our law one is a global a sort of general point and then a more specific one our law doesn't generally allow damages remedy or other remedy to be reduced based on the assumption of extrinsic other illegality would have filled that void that's what the court did well and i think i think that is our cross appeal and that is that was an error and that's i honestly that is the simplest answer is that this whole question was misbegotten cross appeal but then but then you end up with with something that is obviously contrary to fact and reason i don't think it is because because it is the proper even if we put aside this topsy turvy quality of pointing to other illegality is the source of diminished a diminished damages remedy basic tort prince basic causation principles would say that the taxes owed on the train we don't need to construct a complicated model of a hypothetical world we know these time these transactions actually happen and the simplest way to right that wrong in the but for world is taxes were paid on those transactions and the and the wrongdoers who are legally responsible for that like it's rather like we had this scandal some years ago in big jewelry stores in new york city that you probably are old enough to remember where  someplace i don't want to i want to say thank you but i don't want to libel any particular by naming it but some big draw the store would do this person walks and buys a twenty thousand dollar diamond ring the twenty thousand dollar diamond ring it's handed over the counter sales taxes due but the jewelry store sends an empty package to new jersey and claims that it contained the diamond ring and therefore no taxes are due it seems to me the jewelry store is responsible for the tax that's very high and we don't enquire we don't ask the question if they had said we're going to charge you sales tax would the person have said well then i don't want the diamond ring i'll go and buy it in a mall  paramus instead or would the person have found some other store in new york city that was willing to break the law and buy it there or say i'm not interested in diamonds anymore have to pay taxes on it because i object to paying sales tax the damage is done the transaction was completed without the tax being collected and the taxes due and owing and so it would seem to me that would certainly apply to the shippers and then the question is if you have a joint tortfeasor who aids and abets the transaction are they responsible and most of the time with aiding and abetting type things we don't require causation we don't say oh you gave the bank robber his gun well he probably would got it elsewhere if you didn't give it to him you aided and abetted the transaction is that kind of what you're i think that is the simplest way to break it down in fact u p s it mit's they say and if they say obviously the shipper would the causation of the injury end in doing so violates a separate duty to the plaintiff which is true here and of the c t a is responsible for the entirety of the injury and also a separate question that goes to so suppose we don't buy that argument and suppose we are looking to establish causation what what does an expert look to in this it seems to me that it's not just that their expert could be discredited in particular ways i have trouble understanding what methodology there would be do you ask questions like well if you live on the upper west side it's not that hard to get to new jersey where the tax is lower and so you can buy tanks and buy cigarettes at a lower tax rate you never pay the new york state and city taxes i'm not sure that's true if you live in syracuse or rochester as to where you go and how far you have to go to get cigarettes at a lower tax rate i'm not sure how you calculate how many people quit in response of course you want them to quit that's why the tax is so high so i take it the whole premise of your argument about public health consequences is that this is helping their behavior is helping people not break their addiction so somebody is go to it but how many are going to well people are willing to buy cocaine even though it's going to potentially send them to prison people are willing to smoke cigarettes even though it may cause them to die a painful death of cancer as somebody seems to think i need to be reminded with disgusting television all the time people still do these things so i mean it seems to me quite obvious that the five point four percent  number is ridiculous it implies that ninety six percent of people will find ways around the law or will stop smoking but somebody will so i'm saying from understand what you know how it is practicable to have this kind qualification requirement or what it would look like to make a real finding about this think that's a excellent point and it's sort of the third layer of reasons why this approach this diversion approach to causation was misbegotten from the outset is that it's an incredible there's a simple measure available that is legally appropriate and this is an incredibly complex sort of modeling of a counterfactual world we know transactions actually happen taxes were owed that's simple the law usually favors the simple causation versus the inordinately complex one and on just just sort of a kind of sort of that point on your put on your point about people quitting the i think the irony of that of the u p s approach is that those people didn't quit we want that as you said we want them to quit but they smoke those cigarettes and what they want to do is knock down the damages on the theory that in a counterfactual world they might not have smoked them at all but but but they did and the harms that risk public health harms that result from that happen so it's  these are not cigarette manufacturers these are not a ship and shipments of cigarettes you're you're seeking a quarter of a billion dollars essentially the judge seem to think in part on the basis that it cost ten billion dollars a year and illnesses associated with cigarettes a lot of these a lot of these figures seem to be assuming that the united parcel service is manufacturing and marketing cigarettes i mean and that sort of illustrates and points to what i think is key mr wu covered it which is not the a or d end these statutes were targeted at exactly the conduct u p s engaged in this is not marginal or peripheral to the point of the statute and and i'll explain this this way that the strategy of the statues was to say we have we've had we've had tax evasion of cigarette taxes which is not just a revenue matter but a public health matter for decades and there have been repeated attempts legislatively and through enforcement to shut it down i think it's fair to say with very mixed success we get to a point where we have a mail order cigarette problem right and then you have you have a few options one is you can focus your regulatory energies entirely on the the whack a mole game of tracking down all these individual the small shippers who don't have met much resources who are in indian reservations or you can do something else you can decide that you've got to choke point you have an a c to make mail order work point is you can collect the taxes from the shipping company no the choke point is you need a delivery service to make mail order work and and you need you need a service that will deliver cigarettes to someone's doorstep the way you get a book from amazon delivered to your doorstep and that's what the a t o the focus is on that's what the pact act focuses on and that's what the p h l focuses on and the point is extending your argument unduly strikes me as part of the problem i i entirely agree with you that it's appropriate to have some kind of penalty regime here i'm inclined to agree with you subject to conferring with my colleagues and hearing rebuttal that you're right about the hundred percent of course all a hundred percent as is it doubles a nine million dollars damage finding but that's a drop in the bucket compared to the penalty provisions that are being imposed that's not just the damages we double the damages the penalties are still vastly a multiple of the actual taxes evade now i understand that there are penalties in each of these but regimes i understand that there is considerable discretion in choosing the penalties under the statute under the pact act because there's a range and the judge has to pick what amount for a violation the thousand dollars  in the d is inflexible but then we've got the problem judge florida was referring to about what is the penalty for the audit violations on which the state concentrated but when you get right down to it what you just said is kind of all of these regimes are aimed at the same thing they're aimed at the same problem and when you have these cascading penalties put it i'm not even getting close to constitutional excessive fines or anything like that i'm trying to understand how it is a rational use of discretion to take the same set of violations which credit essentially the same calculations which are about how many cartons containing sure brit cigarettes were shipped with modest variations in them and you wind up with a number of that as jacobs is suggesting seems strange ok well it won't surprise you to say i don't think i don't think it's strange but but you know a few points and try to take them in order they they target the same problem but they do have different elements so and i understand your point goes to discretion and so i won't stay long on that i just want to make that clear that i'd like a blackbird double jeopardy not that kind of it's not close to that there are different elements different conduct at issue judge forest cut the penalties under the statutes in half so you don't really need a three regime you know three separate regimes to reach this number she could have reached the same number under to the i think the best way to understand it i think we're question goes to the exercise individual is enormous this is a fortune fifty company and and the judge properly i think decided when she was setting the amount of the penalty that that really matter that it needed to be a significant deterrent the second thing relate it to that is you've got a history here you have a history of a particular defendant before the court who had been a who's the enforcement the specific and forstmann energies of the state of new york had been turned to this defendant they had an a o d and as wu i think well explained the company blew it off they had you know maybe maybe right to the rebuttal which i'm going to ask about now so thank  you i correctly read the judge forrest left the bench is that right that's correct your honor i can understand why i won't comment on that and move straight along makes the argument that it can't you can't begin to say that u p s has honored the nationwide because the the focus of the of the illegal commerce is here in new york and and your client did nothing to comply and educate anybody or to conduct audits and it simply blew it off and if that is so wouldn't that be the easiest and simplest way of resolving the otherwise very diff question of saying whether the a o d needs to be set aside in favor of the pac dac and the public health law to answer your honor first mr were simply misrepresents the record u b s conducted audits twenty five of the twenty eight audits introduced  trial found no cigarettes this is not a period of noncompliance u p s conducted training the requires very specific training annual training using the p c s and so forth of drivers and package center people and u p s did everything required in the o t the district court faulted u p s s finding of that no yes that we have the district court finding fault in u p s for doing that not doing things that it does now that are not required by the a o d in other words their description of noncompliance you about any finding as to compliance with what is in the yes you are we what we said in our brief as to the actual findings we think shows compliance but more importantly and this is the second science but did not the district court find that the chief of compliance was are not challenging or not challenging and this goes to the second point which is the more important for today this is a regime of contract based supervision that's where it started and where i'd like to finish the new york bargained into this because it's law was preempted remember the supreme court agreed with us on that it couldn't do any of this except voluntarily under a contract and when you have a contract it is not going to have perfect compliance and u p s learned over time and there are findings on that and judge force very specifically found that by the time of trial u p s is in compliance and that surprising and i'm not sure that's really relevant it is relevant for this reason your honor when you have a contract that is the enforcement regime new york has the ability to pursue the contract remedies and to the pact at question which is where you started judge jacobs on honored congress could not have imagined that noncompliance with the contract would kick in all these other things because then what was the purpose of the exemption mr wu said if you have perfect compliance you're exempt well if you have perfect compliance you don't need an exemption not rely on perfect compliance judge forrest made findings that there was very little compliance there was inadequate compliance i forget the exact words she used to set her standard but the standard was sufficient noncompliance to make this not an effective regime period and your honor without and that's again something that you are not saying is clearly erroneous we are saying however that there is not evidence in this record of a single managerial employee ever knowing of cigarettes shipments and all those things don't crack but it was one more point if there's not guess all of this seems to me to be highly relevant to the question of what is appropriate in terms of punishment or in terms of penalties but to say that this regime was complied with in in gross and we have only immaterial type violations seems to blink the record here your honor and again we submit to the contract and to contract remedies our point is that noncompliance that the court has observed is not honored means and if the court has any questions about that by the way we have to interested parties here the justice department hasn't weighed in here this is a federal statute the court might want to know what the government thinks about this because it could worthwhile to weigh in  well i'm not sure anybody asked them but there's a point two other points if i may think you are on the penalties mr dering said this was proportionate to what others that's just false the only one we know about is  yellow brief at page one hundred ten they shipped ten million cartons of cigarettes and new york recommended a seven million dollars penalty we we shipped eighty thousand packages that nobody knows what they contained and they're getting a two hundred forty million dollars penalty  can't just you know make up numbers off the top of the head really those are real numbers but the point is they're i understand what they have to be arrived at by by some by some text so the idea of the correctness of the numbers where do they come from the district judge could not derive from them the figures that are now being imposed as penalties she had to ask after the close of evidence what the number after asking by the way on the first day of trial with you as you asked both parties or all three parties as to the rest there are only the databases these massive sets of information but you know mr dering said there's only a few relevant row headings the row headings alone if you print them out run across one thousand pages i mean these  are enormous your honor and to suggest that you know there must be a pony in here somewhere is that is the rule of law to be applied in this case it's not acceptable in any case and certainly not acceptable when two hundred fifty million dollars on the line w the court effectively did was bifurcate liability in damages after denying new york's motion to bifurcate liability damages but then we never got the damages trial we got the liability opinion and then we never had an evidentiary hearing on it like a  damages from what we think they lose because there's not sufficient evidence in the actual trial record and they close the record but at minimum we would need to remain to discern in the amount of penalties do under whatever liability regime this court may find you know i don't think it can be a troubled regime