How much must a common carrier do to police its shipments? The U.S. Court of Appeals for the Second Circuit will have the opportunity to weigh in on a $246,975,614 judgment against the United Parcel Service, Inc., (“UPS”) now that the firm has filed a Notice of Appeal. The Notice was filed on June 23, 2017, in the U.S. District Court for the Southern District of New York.

Judgment for New York State and New York City (“Plaintiffs”) came on May 26, 2017.  The Court had already found UPS liable for violations under the following:

  • N.Y. Pub. Health Law § 1399-ll (“P.H.L. § 1399-ll”) (prohibiting the trafficking of untaxed cigarettes);
  • an Assurance of Discontinuance (“AOD”) (a 2005 settlement between UPS and the Attorney General of New York);
  • the federal Prevent All Cigarette Trafficking Act, 15 U.S.C. § 375, et seq. (“PACT Act”); and
  • the federal Contraband Cigarettes Trafficking Act, 18 U.S.C. § 1961, et seq. (“CCTA”).

The Court ultimately awarded Plaintiffs compensatory damages (for lost tax revenues) under the CCTA; penalties under the AOD; 50% of the maximum PACT Act penalties; 50% of the maximum penalties under P.H.L. § 1399-ll; and nominal CCTA penalties. The numbers broke down as follows:

Compensatory Damages

  State City
CCTA $8,679,729 $720,885


  State City
AOD $80,468,000 N/A
PACT Act $35,258,750 $43,091,250
P.H.L. § 1399-ll $41,410,000 $37,345,000
CCTA $1000 $1000


  State City
  $165,817,479 $81,158,135


Compensatory damages accounted for only slightly over 5% of the State’s award and less than 1% of the City’s. It seems to have been little solace to UPS that, as the Court noted in closing, “these amounts combined are less than three times the amount that plaintiffs disclosed . . . that they were seeking.”

As for the substantial penalties, the Court considered them “appropriate given the public harm specifically sought to be addressed by the statutes at issue and given,” what it termed, “the egregious and prolonged nature of UPS’s conduct.” It was “also troubled by UPS’s consistent unwillingness to acknowledge its errors”—specifically, that UPS “persisted in claiming it did nothing wrong.” Even though the Court acknowledged that “it [was] of course UPS’s right to take this position,” UPS’s taking that position figured into the Court’s determination of “what quantum of damages and penalties are appropriate.” All in all, the Court considered “culpability” and “ability to pay” to be the more significant factors, while “public harm” and “profits” were less concerning to it.

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.

The District Court’s award was largely foretold—specifically, by its earlier decision on liability. Even so, the extent of the penalties—particularly in relation to the relatively meager compensatory damages—are surprising. One might also surmise that UPS took issue with the treatment of its defensive posture in the litigation—“of course UPS’s right to take”—in the calculation of damages and penalties. In any event, the Second Circuit will now have the opportunity to examine the District Court’s decisions.