By Jonathan Stempel
NEW YORK (Reuters) - A federal judge said New York State and New York City may pursue a lawsuit accusing United Parcel Service Inc (UPS.N) of illegally delivering more than 683,000 cartons of untaxed cigarettes in the state, depriving them of millions of dollars in taxes.
U.S. District Judge Katherine Forrest in Manhattan rejected UPS' argument that the lawsuit, which sought more than $181 million of damages and penalties, did not properly allege that it delivered contraband cigarettes to unauthorized recipients, or did so deliberately.
"The amended complaint alleges that UPS knowingly delivered enormous quantities of unstamped, untaxed cigarettes to persons throughout the United States, including the State and the City," Forrest wrote on Wednesday. "That is sufficient."
UPS was accused of having since 2010 illegally shipped unstamped cartons of cigarettes to unlicensed wholesalers, unlicensed retailers and residences, often from smoke shops on Indian reservations within New York.
The lawsuit claimed that this violated UPS' October 2005 agreement with the state not to ship cigarettes to unlicensed dealers and individual consumers.
It also alleged violations of the federal Contraband Cigarette Trafficking Act, a federal racketeering law, and various state laws.
In a statement, UPS said it will continue to defend vigorously against charges it knowingly shipped cigarettes to unlicensed dealers or consumers and "will terminate service when it appears that a shipper is violating UPS policy."
Another Manhattan federal judge, Edgardo Ramos, in March said the state and city may pursue a similar lawsuit against UPS rival FedEx Corp (FDX.N) over the shipment of nearly 400,000 cartons of cigarettes.
A carton of cigarettes usually contains 10 packs.
In seeking a dismissal, UPS had also argued that many of the suspect deliveries may have contained other tobacco products, such as cigars.
Forrest, however, said this would not absolve it of liability for delivering unstamped cigarettes.
The judge did dismiss claims under the federal Prevent All Cigarette Trafficking Act, and a state public health law.
A spokesman for New York City's Law Department said the city is pleased that it can pursue its "most significant claims" against UPS, as "part of a comprehensive city effort to halt illegal shipments of cigarettes into the city."
Matt Mittenthal, a spokesman for New York Attorney General Eric Schneiderman, said that office is also pleased with the decision, which advances the state's effort to address "the public health catastrophe caused by cigarette smoking."
The case is New York et al v. United Parcel Service Inc, U.S. District Court, Southern District of New York, No. 15-01136.
(Reporting by Jonathan Stempel in New York; Editing by Grant McCool and Cynthia Osterman)