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NYC Sues FedEx Over Deliveries Of Untaxed Cigarettes

A FedEx truck (credit: Getty Images)

A FedEx truck (credit: Getty Images)

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NEW YORK (CBSNewYork/AP) — FedEx knowingly violated the terms of a settlement when it delivered tons of untaxed cigarettes to New York City residents, the city government alleges in a civil lawsuit filed Monday.

The suit, filed at a federal court in Manhattan, accuses FedEx of violating the 2006 pact with New York’s attorney general in which the company agreed to stop all deliveries of mail-order cigarettes to state residents.

City lawyers said that even as that deal was being negotiated, FedEx continued to deliver cigarettes from select tobacco dealers, including the Shinnecock Smoke Shop, located on the Shinnecock reservation in eastern Long Island.

Between 2005 and 2012 the company shipped at least 55,000 cartons of cigarettes from the shop to consumers in New York City, according to the lawsuit. That total — an estimated 20 tons — doesn’t include cartons shipped elsewhere in the state or the country.

FedEx had a public policy of not delivering cigarettes to homes anywhere in the U.S., but the city claims the shipper ignored that policy when it came to the Shinnecock shop. The suit said FedEx even signed a written agreement giving the smoke shop discounted rates because it was doing so much business.

FedEx said in a statement that it supported the city’s efforts to stop illegal cigarette shipments and had ceased doing business with the shop involved, but it said the city’s claims are “overstated and not founded in law.”

The phone rang unanswered at the Shinnecock Smoke Shop on Monday evening.

In March, FedEx agreed to pay the city $2.4 million to settle an accusation that it delivered 70 tons of untaxed cigarettes from a mail-order company in Kentucky. That company was shut down by federal agents in 2009. FedEx said at the time that it was paying the money to avoid expensive litigation, and not because it had done anything wrong.

New York City’s legal department has also sued smaller delivery companies that did business with cigarette shops based on the state’s Indian reservations.

Cigarette dealers on tribal land do a brisk business supplying cigarettes to New York smokers at huge discounts, because the packs do not carry state or city taxes, which can drive up the price by as much as $5.85 per pack.

That business has been chiseled away somewhat in recent years by lawsuits and federal laws, which now make it illegal to ship cigarettes through the U.S. mails and also put restrictions on private delivery companies.

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