Source: https://litigation.consusgroup.com/2017/05/25/ups-hit-with-165m-judgment-for-egregious-and-prolonged-misconduct-the-state-of-new-york-et-al-v-united-parcel-service-inc/
Timestamp: 2019-04-23 06:44:04+00:00

Document:
UPS Hit with $247M Judgment for “Egregious and Prolonged” Misconduct: The State Of New York et al v. United Parcel Service, Inc.
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.
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.
Hillview Cigars; Two Pine Enterprises; Mohawk Spring Water; Jacobs Tobacco Group; Action Race Parts; Native Wholesale Supply; and Seneca Promotions.
These entities are: Native Outlet; A.J.’s Cigars; and RJESS.
This entity is Sweet Seneca Smokes.
1399-ll (“PHL § 1399-ll“); and (4) Contraband Cigarette Trafficking Act (“CCTA”).
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.
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. 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. 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.
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.
“prevent [the conduct’s] recurrence.” Friends of the Earth, Inc. v. Laidlaw Envtl.
Servs., Inc., 528 U.S. 167, 185-86, 188 (2000).
F.3d 377, 399 (2d Cir. 2004).
have incented compliance with the AOD), the CCTA, and PHL § 1399-ll. 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.
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 AOD penalties; the Court’s calculation of the AOD penalties awarded is therefore straightforward.
Importantly, and in contrast with the AOD, the penalties provided by the PACT Act and PHL § 1399-ll are the maximum penalties that the Court may award. In addition, while the CCTA provides for penalties, it does so in an unspecified amount. As discussed in further detail below, the Court has decided to award plaintiffs 50% of the maximum PACT Act penalties to which they are entitled and 50% of the PHL § 1399-ll penalties to which they are entitled. The Court also awards plaintiffs nominal CCTA penalties.
The Court has thought long and hard about what measure of penalties is appropriate. The statutes at issue all undeniably seek to address the public harms caused by cigarette use and seek to regulate the unlawful transport of cigarettes that contributes to those harms. As the Court explained in the Liability Opinion, while the statutes have similar purposes, they are not entirely duplicative and target somewhat different (even if partially overlapping) conduct.
recipients and places the responsibility on carriers to determine whether a recipient is authorized to receive cigarettes. It is clearly not coextensive with the PACT Act.
Given the overlapping purposes of the statutes at issue—while also recognizing that they are different and independent statutory schemes—the Court has decided to award plaintiffs 50% of the maximum PACT Act penalties to which they are entitled; 50% of the PHL § 1399-ll penalties to which they are entitled; and nominal CCTA damages. The Court believes that awarding penalties in these proportions gives effect to each statute while also ensuring that the award in this case is not greater than necessary to punish UPS and deter future conduct. The Court emphasizes that it has the statutory authority and could have awarded plaintiffs the maximum amounts provided by the PACT Act and PHL § 1399-ll (as well as a greater than nominal amount under the CCTA); the Court has chosen not to award the maximum amounts given all of the facts and circumstances.
AOD penalties in the amount of $80,468,000.
As detailed in the Liability Opinion, plaintiffs New York State and New York City are entitled to compensatory damages for UPS’s violations of the PACT Act, which UPS violated by knowingly shipping for entities identified on the NCLs.
(Liability Opinion at 159-63; 190-93.) The Court explained that these compensatory damages are measured by plaintiffs’ lost tax revenue attributable to the number of packs/cartons of cigarettes delivered by UPS on behalf of those “Liability Shippers” identified on the PACT Act NCLs, using a 50% diversion rate—the Court found that 50% is a reasonable percentage of unstamped cigarette cartons consumers would have purchased. (Id. at 193.) The Court noted that during the relevant time period, the New York State tax rate was $4.35 per pack of cigarettes ($43.5 per carton) and the New York City tax rate was $1.5 per pack of cigarettes ($15 per carton). (Id. at 169.) In addition, the Liability Opinion laid out the Court’s findings regarding the reasonable approximation of Packages that contained cigarettes for each shipper, where applicable.
In their April 7, 2017, submission, plaintiffs complied with the Court’s instructions. Specifically, plaintiffs submitted to the Court a tally of Packages and Cartons of cigarettes (based on the percentages specified by the Court) for each shipper for which the Court found PACT Act liability attached. (ECF No. 530 at 6, 9.) Plaintiffs also specified the applicable start date from which they calculated their tally (based on the dates stated by the Court in the Liability Opinion). As the Court has already noted, defendants failed to comply with the Court’s order and did not submit the information ordered by the Court.
Based on the Court’s findings and the number of Packages and Cartons supplied to the Court, the Court hereby finds that plaintiff New York State is entitled to PACT Act compensatory damages in the amount of $2,767,600.50 and plaintiff New York City is entitled to PACT Act compensatory damages in the amount of $546,937.50.
However, as discussed below, plaintiffs New York State and New York City are also entitled to compensatory damages under the CCTA. Plaintiffs acknowledge that they “cannot recover compensatory damages for the same shippers under both [the PACT Act and CCTA].” (ECF No. 530 at 3 n.2.) Based on the Court’s findings and the number of Cartons submitted to the Court, plaintiffs are entitled to a greater amount of CCTA compensatory damages than PACT Act compensatory damages (the Court discusses CCTA compensatory damages below).
Therefore, in order to avoid double counting, the Court does not award plaintiffs compensatory damages under the PACT Act, because the Court awards plaintiffs compensatory damages under the CCTA, as described below.
UPS received. (Liability Opinion at 159-63.) As the Court explained in the Liability Opinion, penalties under the PACT Act are “not to exceed” $2,500 for the first violation and $5,000 per subsequent violation. (Id. at 214.) Violations are measured by each Package UPS delivered to a Liability Shipper that UPS knew was identified on the NCLs. (Id. at 159-163.) As the Court has stated, however, while the PACT Act allows for the imposition of penalties on a per-violation basis, penalties need not be assessed on such a basis.
Based on the Court’s findings and the number of Packages supplied to the Court—as PACT Act penalties may be imposed on a per-violation basis, but need not be—the Court finds that plaintiff New York State is entitled to receive a maximum of $70,517,500 in PACT Act penalties and plaintiff New York City is entitled to receive a maximum of $86,182,500 in PACT Act penalties. Again, these amounts are maximums; the Court need not, and does not, award plaintiffs PACT Act penalties in these amounts.
Having considered the totality of the facts and circumstances in this case and all of the relevant legal principles concerning damages and penalties, as detailed in the Liability Opinion and in this Opinion & Order, the Court awards plaintiffs 50% of the maximum PACT Act penalties to which they are entitled. Accordingly, the Court hereby awards plaintiff New York State $35,258,750 in PACT Act penalties and awards plaintiff New York City $43,091,250 in PACT Act penalties. The Court finds that these amounts are fair and not greater than necessary.
Cartons, as the Court has explained above in this Opinion & Order. In addition, the Liability Opinion laid out the Court’s findings regarding the reasonable approximation of Packages that contained cigarettes for each Liability Shipper.
In their April 7, 2017, submission, plaintiffs complied with the Court’s instructions. Specifically, plaintiffs submitted to the Court a tally of Packages and Cartons of cigarettes (based on the percentages specified by the Court) for each shipper to which the Court found PHL § 1399-ll liability attached. (ECF No. 530 at 7, 10-11.) Plaintiffs also specified the applicable start date from which they calculated the tally (as provided in the Liability Opinion). As the Court has already noted, defendants failed to comply with the Court’s order and did not submit the relevant information ordered by the Court.
Based on the Court’s findings and the number of Packages and Cartons of cigarettes supplied to the Court, the Court finds that plaintiff New York State is entitled to receive a maximum of $82,820,000 in PHL § 1399-ll penalties and plaintiff New York City is entitled to receive a maximum of $74,690,000 in PHL § 1399-ll penalties. Again, these amounts are maximums, as PHL § 1399-ll penalties are “not to exceed” these amounts. The Court need not, and does not, award plaintiffs PACT Act penalties in these amounts, as discussed below.
§ 1399-ll penalties and awards plaintiff New York City $37,345,000 in PHL § 1399-ll penalties. The Court finds that these amounts are fair and not greater than necessary.
revenue attributable to the number of packs/cartons of cigarettes UPS knowingly shipped to the Liability Shippers, using a 50% diversion rate—the Court found that 50% is a reasonable percentage of unstamped cigarette cartons consumers would have purchased. (Id. at 193.) Above, the Court has already reiterated how it defined a Carton of cigarettes in the Liability Opinion.
their tally (using the dates provided by the Court in the Liability Opinion). As the Court has already noted, defendants failed to comply with the Court’s order and did not submit the relevant information ordered by the Court.
Based on the Court’s findings and the number of Cartons submitted to the Court, the Court finds that plaintiff New York State is entitled to receive CCTA compensatory damages in the amount of $8,679,729, and plaintiff New York City is entitled to receive CCTA compensatory damages in the amount of $720,885.
Accordingly, and because the Court does not award plaintiffs PACT Act compensatory damages (as noted above), the Court hereby awards plaintiff New York State $8,679,729 in CCTA compensatory damages and awards plaintiff New York City $720,885 in CCTA compensatory damages.
Again, in their April 7, 2017, submission, plaintiffs submitted to the Court information that the Court could potentially use in its calculation of any CCTA penalties, i.e., the number of Packages and Cartons of cigarettes shipped by UPS during the timeframes specified by the Court. Again, defendant did not submit any such information to the Court.
Having considered the totality of the facts and circumstances in this case and all of the relevant legal principles concerning damages and penalties, as detailed in the Liability Opinion and in this Opinion & Order, the Court awards plaintiffs New York State and New York City $1,000 each in nominal penalties under the CCTA. The Court explained in the Liability Opinion that “[t]he CCTA more or less seeks to punish the same conduct, for the same reasons, as the other statutes.” (Id. at 216.) The Court determines that, given the measure of damages and penalties awarded under the AOD and other statutes at issue, further penalties under the CCTA would not serve a sufficient purpose (such as further deterrence).
The Court has set forth its determination of damages and penalties above. In total, plaintiff New York State is awarded $165,817,479 and plaintiff New York City is awarded $81,158,135. The Clerk of Court is directed to enter final judgment against defendant UPS.

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