Antitrust Law Daily Wrap Up, RICO—S.D.N.Y.: Enterprise requirement halts cigarette-trafficking claims against UPS, (Aug 10, 2016)

By Mark Engstrom, J.D.

New York City and the State of New York failed to allege an association-in-fact enterprise in their RICO claims against UPS, which allegedly trafficked cigarettes for smoke shops in New York, the federal district court in New York City has ruled. Partial summary judgment on the RICO claims was granted, with prejudice, to UPS (The State of New York v. United Parcel Service, Inc., August 9, 2016, Forrest, K.).

The plaintiffs alleged that UPS had knowingly shipped contraband cigarettes—for smoke shops located on Indian reservations in the State of New York—to locations throughout New York City and the State of New York. UPS thus engaged in thousands of related acts of cigarette trafficking, the plaintiffs reasoned, in violation of the Contraband Cigarette Trafficking Act (CCTA), a RICO predicate act.

According to the plaintiffs, UPS was the culpable RICO person that participated in the leadership, management, and operation of a RICO enterprise. The plaintiffs identified three alternative theories of a RICO enterprise, in which: (1) each cigarette dealer for whom UPS had shipped unstamped cigarettes was a RICO enterprise; (2) the owners and/or employees of each cigarette dealer for which UPS delivered unstamped cigarettes formed an "association-in-fact" enterprise; and (3) UPS and each cigarette dealer for which UPS delivered unstamped cigarettes (or the owners and/or employees of those dealers) formed an association-in-fact enterprise.

The court concluded that the evidence did not raise a triable issue of fact regarding the existence of a RICO enterprise, or UPS’s participation in it, because the plaintiffs failed to proffer any evidence of a common purpose, interpersonal relationships among those who associated with the shippers, or the longevity of the enterprises, as required by RICO.

The plaintiffs argued that their evidence showed that UPS had shipped thousands of packages of contraband cigarettes on behalf of its cigarette-dealer customers, which was sufficient, by itself, to preclude summary judgment—even absent additional evidence of the operation or management of an enterprise—because UPS was involved in the joint commission of predicate acts. According to the plaintiffs, the predicate acts of contraband cigarette trafficking in violation of the CCTA could not have occurred without the participation of UPS. Therefore, the plaintiffs reasoned, evidence of "the highest possible level of operation or management over the cigarette-dealer enterprises" was provided.

The court disagreed. The plaintiffs’ evidence did not raise a triable issue of fact under the operation or management test, according to the court. The plaintiffs had to proffer independent evidence to show that UPS had operated or managed the alleged enterprises, rather than its own affairs as a package delivery business, but none of the factual allegations indicated that UPS had participated in the operation or management of a separate enterprise that violated the law.

The plaintiffs’ assertions that UPS had shielded shippers from law enforcement by ignoring specific directives from federal investigators—and that UPS had consulted extensively with shippers to facilitate the avoidance of legal and regulatory issues—did not meet the difficult burden of showing that UPS had participated in the operation or management of the enterprise, the court explained. In short, the plaintiffs failed to proffer any evidence to support a reasonable inference that UPS had offered its customers something more than ordinary business services, even if those services were illegal under the circumstances.

Because the plaintiffs failed to raise a triable issue of fact regarding UPS’s actions on behalf of the purported enterprise—instead of simply conducting its own affairs—their RICO claims were dismissed.

The case is No. 15-cv-1136 (KBF).

Attorneys: Christopher Kin Leung, Office of the Attorney General, for the State of New York. Eric Proshansky, NYC Law Dept., for the City of New York. Carrie Heather Cohen and Deanne E. Maynard (Morrison & Foerster, LLP) for United Parcel Service, Inc.

Companies: United Parcel Service, Inc.

Cases: RICO NewYorkNews