MANHATTAN (CN) — Making his final pitch for a tough line on illegal cigarette shipments, New York's assistant attorney general urged a federal judge to send UPS a more than $825 million message during daylong arguments on Wednesday.
The requested fine is more than 25 times higher than what the Empire State and the Big Apple demanded when they brought the joint enforcement action in February 2015.
New York did not reveal its intentions to seek hundreds of millions in damages until the beginning of an eight-day trial in September.
During proceedings that lasted roughly seven hours Wednesday, UPS's lawyers repeatedly described the eleventh-hour hike as an "ambush."
A single judge, U.S. District Judge Katherine Forrest, will decide whether the bill is justified, and the parties each made their best cases for and against to her from the early morning through the late afternoon.
New York Assistant Attorney General John Oleske based the ballooning estimate on UPS's own records as well as the company's failure to absorb the message since the case began 19 months ago.
"What we have learned from this case and from this trial is that UPS has learned nothing from this trial and from this case," he said in opening remarks.
Ripping UPS for what he called its "extreme escapism," Oleske said that company has been trying avoid enforcement by "conjuring magical escape hatches."
"It has not just embraced its failure," he said. "It has embraced them, wholeheartedly."
Morrison & Foerster attorney Carrie Cohen, a former federal prosecutor now representing UPS, said that the actual failure came from the government, which she said came to trial unprepared to defend its numbers.
New York wants a federal judge to assume that every box sent by known shippers of illegal smokes contained cigarettes, and tabulate the numbers accordingly.
Scoffing at this methodology, UPS's lawyers criticized New York's attorneys for relying on their own math rather than calling an expert witness.
Once on the public corruption team of the Manhattan U.S. Attorney's office, Cohen helped take down New York's former Assembly Speaker Sheldon Silver, and she continued to take a tough line on the state in private practice.
"They don't get a pass because they're the government, Your Honor," she said.
UPS, which has long denied the charges, continues to insist it did all it could to clamp down on illegal cigarette sells.
Anything more would have forced UPS to illegally discriminate on the Native American ZIP codes where the smokes originated, Cohen said.
"It would have been tantamount to unconstitutional discrimination and essentially red-lining the reservations," she said.
Somewhat off-message on this defense, Cohen's co-counsel Gregory Kulton argued later that UPS has since implemented remedial measures designed to specifically target new accounts from reservations.
Every time an account is opened within one of these 31 New York ZIP codes, UPS flags its corporate compliance division, Kulton said.
"Believe me, UPS gets it," he continued. "It's focused on it. It puts an extraordinary amount of effort on it."
New York must prove that UPS knew or should have known that its business was being used to transport illegal cigarettes, and Judge Forrest wondered why the company would have taken on so much risk for so little reward.
She noted that UPS only made $5 million in revenue on the sales.
"Who would do that?" she asked.
Oleske countered that the company might have thought it could get away with it.
"That makes sense if UPS is farsighted enough to know that it could get caught," the attorney said, adding: "UPS needs to wake up to the reality here."
On top of a whopping fine, New York wants the court to order a federal monitor to oversee the company.
Forrest indicated that she would not be likely to grant that request.
"I think a monitor is an extraordinary remedy of an extraordinary remedy," she said.
Not content to simply reduce their liabilities, UPS's lawyers want Forrest to throw out any potential fine, arguing that New York missed its chance to present a case with adequate notice and evidence.
"This is a total failure of proof," thundered attorney Jamie Levitt, the third attorney on UPS's tag-team of lawyers.
Though apparently sensitive to the company's due-process concerns, Forrest seemed unlikely to adopt UPS's position.
"Believe you me, this whole issue has gotten a whole lot of attention and will get a whole lot of attention," she said.
Concluding the daylong wrangle without a ruling, Forrest gave herself plenty of time to mull over the case further. She said that she hoped to issue an opinion sometime between Thanksgiving and Christmas.
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