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Appeals Court Finds UPS Liable For Illegally Transporting Contraband Cigarettes


A federal appeals court on Nov. 7 upheld a lower court's ruling that shipping giant United Parcel Service Inc. is liable for illegally transporting hundreds of thousands of cartons of untaxed cigarettes from Native American reservations to unlicensed recipients in New York state.

In its ruling, the 2nd U.S. Circuit Court of Appeals in Manhattan reduced the payout and penalties UPS Inc (NYSE: UPS) must pay to around $97.6 million, down significantly from approximately $247 million U.S. District Court Judge Katherine B. Forrest ordered the company to pay back in May 2017, according to Reuters.

UPS appealed Forrest's ruling a month later.

The appeals court agreed with Forrest that the Atlanta-based company violated New York's public health law to combat untaxed shipment of cigarettes "sold via the internet or by telephone or mail order" to unlicensed recipients in New York, according to court documents.

Circuit Court Judge Gerald Lynch agreed that UPS violated a 2005 settlement it reached with New York's attorney general that it would not ship cigarettes to unlicensed consumers, and that the company violated a federal anti-cigarette trafficking law.

"Today the 2nd Circuit agreed with many of UPS's key arguments, and significantly reduced the lower court's unwarranted damages," UPS said in a statement.

The company's civil penalties were lowered to $78.8 million from $237.6 million, while its tax payout doubled to $18.8 million from $9.4 million, according to Reuters. New York state is set to receive around $58.8 million and New York City around $38.8 million, the news outlet reported.

The shipping giant said it is reviewing the federal appeals court's 115-page decision and may consider appealing.

The ground delivery unit of FedEx Corp. (NYSE: FDX) has also tangled with New York state and New York City over shipping of contraband cigarettes. In January, FedEx agreed to pay $35.3 million to settle three lawsuits alleging that the Memphis-based carrier partnered with cigarette trafficking companies to ship hundreds of thousands of untaxed cigarettes to New York residents.

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