In The State of New York v. United Parcel Service, Inc., the State claimed that UPS illegally transported untaxed cigarettes from Native American reservations to New Yorkers. In ruling for the State, Judge Forrest walked a fine line in sanctioning UPS; she awarded damages, but denied the State’s request for injunctive relief, and a court monitor.

Judge Forrest awarded $166 million to New York State and $81 million to New York City. Given UPS’s “high level of culpability” and the public health issues related to cigarettes, Judge Forrest found that the financial penalties imposed were not unfair. “[O]nly a hefty fine will impact such a large entity sufficiently to capture the attention of the highest executives in the company.”

However, Judge Forrest also found that UPS “dramatically improve[d] its compliance efforts” in response to the lawsuit. Steps taken after the case started included  screening against non-compliant shipper lists, adding personnel to the compliance team, hiring an outside counsel to investigate active shippers, and boosting its audit procedures. As the Judge  put it, UPS “transformed itself from a willfully blind actor to one actively doing far more.” Of note, Judge Forrest recognized that “this lawsuit, including the resulting reputational and financial costs, provides standalone economic motivation for UPS to proceed more carefully in the future.”

The claims against UPS asserted that the company had violated the terms of an Assurance of Discontinuance (AOD) it negotiated with New York in 2005 as a resolution to a state investigation into whether the company was in compliance with the applicable laws on cigarette shipments. Plaintiffs argued, and Judge Forrest ruled, that UPS had violated the 2005 agreement by continuing to ship millions of dollars’ worth of untaxed cigarettes between Native American reservations and other locations throughout New York state. But despite violating the AOD, in the end UPS − at some financial cost − maintained control over its own business operations and avoided a third-party monitor.

Bottom line: UPS dodged a bullet, but did not escape uninjured.

Hat tip to Bethany Clarke for assisting with this post.