NEW YORK (Reuters) - New York City has sued FedEx Corp, accusing it of illegally delivering millions of contraband cigarettes to people’s homes and seeking $52 million in fines and unpaid taxes.
The lawsuit, filed in U.S. District Court in Manhattan, marks one of the last acts by the administration of Mayor Michael Bloomberg, whose more than decade-old campaign to ban smoking in various public and private places has been credited with saving thousands of lives and become a blueprint for other cities.
According to the city, package delivery company FedEx created a “public nuisance” through its partnership with Shinnecock Smoke Shop, located on the Shinnecock Indian Nation reservation in Southampton, New York, to ship untaxed cigarettes to residential homes.
FedEx allegedly did so despite, and even while negotiating, a February 2006 agreement with New York State’s then attorney general, Eliot Spitzer, to stop such deliveries in the state, an agreement later expanded to cover deliveries throughout the country.
The city said FedEx delivered about 19.5 tons, or 55,000 cartons, of cigarettes to city residents in 9,900 shipments from 2005 to 2012 and deprived it of a $15 excise tax on each carton. A typical carton has 200 cigarettes.
FedEx’s activity violated various federal and state laws, including an anti-racketeering statute, the complaint said.
The city wants FedEx to pay a $49.5 million fine, equal to $5,000 per shipment, plus $2.48 million representing triple the lost tax revenue. It also wants FedEx to hire an independent monitor to ensure future compliance and provide training.
In a statement, Memphis, Tennessee-based FedEx said it has stopped doing business with known shippers of untaxed cigarettes.
“Through its contracts with customers, FedEx prohibits the shipment of tobacco direct to consumers and believes the claims made by the city are overstated and not founded in law,” it said. “FedEx intends to defend this case while continuing to work with authorities to stop prohibited tobacco shipments.”
Eric Proshansky, deputy chief of the New York City Law Department’s affirmative litigation division, called the case “part of our comprehensive efforts to end the trafficking of contraband cigarettes into the city and to hold accountable any business that contributes to that illegal trade.”
City and state officials have long fought in court to collect taxes on cigarettes sold by Indian-owned businesses.
The Shinnecock Indian Nation did not immediately respond to a request for comment. Neither it nor the smoke shop are defendants in the lawsuit against FedEx.
The lawsuit comes two days before New York Mayor-elect Bill de Blasio takes office, ending Bloomberg’s 12-year mayoralty.
De Blasio has named Zachary Carter, the former U.S. attorney in Brooklyn, to succeed Michael Cardozo as corporation counsel, the city’s top lawyer. Cardozo filed the FedEx lawsuit.
The case is City of New York v. FedEx Ground Package System Inc et al, U.S. District Court, Southern District of New York, No. 13-09173.
Reporting by Jonathan Stempel in New York; Additional reporting by Nate Raymond; Editing by Dan Grebler and Leslie Adler