New York v. United Parcel Service, Inc. (253 F. Supp. 3d 583, 2017)

CORRECTED OPINION & ORDER

KATHERINE B. FORREST, District Judge:

Table of Contents

I. INTRODUCTION ...596

II. PROCEDURAL HISTORY .. .597

A. Pre-Trial Proceedings ... 597

B. The Trial ... 600

III. FINDINGS OF FACT ... 601

A. Public Health Issues Associated with Cigarettes ... 601

B. Plaintiffs’ Investigations of UPS ...601

C. UPS’s Business ... 603

D. UPS’s Business and Specific Conduct ...605

1. UPS’s Tobacco Policy ... 605

2. UPS’s Training Efforts ... 606

3. The Role of Account Executives ...608

4. The Role of UPS Drivers ... 609

5. UPS’s Interactions with Shippers ...610

6. UPS’s Information Systems and Information Sharing .. .611

E. UPS’s Asserted Reliance on Governmental Action/Inaction ... 612

1. Governmental Action ... 612

2. Governmental Inaction ... 613

F. UPS’s Audits ...614

IV. CURRENT STATUS OF UPS’S COMPLIANCE EFFORTS .. .616

V. BACKGROUND CONCERNING THE TAXATION OF CIGARETTES AND LITTLE CIGARS .. .617

VI. THE PACT ACT ...618

VII. CONSUMPTION OF TOBACCO PRODUCTS . . .618

A. Cigarettes ... 618

B. Little Cigars ... 619

VIII. CERTAIN COMMON EVIDENCE ...621

A. The Fink Accounts ... 621

B. The Non-Compliant Lists .. .622

C. The “Tobacco Watchdog Group” Letter ... 623

D. Inquiries Regarding Lost or Damaged Packages ... 624

1. Smokes & Spirits ... 624

2. RJESS...625

3. Sweet Seneca Smokes ... 625

4. Elliott Enterprises/EExpress ...625

5. Bearclaw Unlimited ... 625

6. Shipping Services ... 625

7. Native Wholesale Supply .. .625

8. Seneca Promotions ... 625

9. Native Gifts .. .626

10. Jacobs Manufacturing/Tobacco ...626

E. The Cigarettes Shipped Were Unstamped ...626

IX. SHIPPERS AT ISSUE ... 626

A. Overview of the Shippers and the Court’s Findings ... 626

B. Liability Shippers ... 628

1. Elliott Enterprises .. .628

2. EExpress ... 631

3. Bearclaw/AFIA ... 633

4. Shipping Services/Seneca Ojibwas/Morningstar Crafts & Gifts ... 635

5. Indian Smokes ... 637

6. Smokes & Spirits ... 638

7. Arrowhawk/Seneca Cigars/Hillview Cigars/Two Pine Enterprises ... 640

8. Mohawk Spring Water ... 644

9. Jacobs Tobacco Group ... 645

10. Action Race Parts ... 646

11. Native Wholesale Supply .. .647

12. Seneca Promotions ... 648

C. Shippers as to Which There Is Only AOD Liability ... 649

1. Native Outlet .. .649

2. A. J.’s Cigars ... 650

3. RJESS...650

D. Shipper as to Which There Is No Liability ... 651

1. Sweet Seneca Smokes .. .651

X. CONCLUSIONS OF LAW ... 653

A. The AOD... 653

1. Background Described in the AOD ...654

2. The Terms of the AOD ... 655

B. Interpretation of the AOD ... 658

C. Violations of the AOD ... 658

D. Violations ■ of the Audit Obligation Under the AOD ... 660

1. Proof to the Reasonable Satisfaction of the State Attorney General ... 661

2. Implied Covenant of Good Faith and Fair Dealing ... 662

E. Whether the AOD Was “Honored” ...663

XI. KNOWLEDGE ...665

A. Knowledge ... 666

B. Imputation of Knowledge ... 668

C. Presumptions of Knowledge for Common Carriers ... 670

D. Knowledge as to Each Shipper ...671

XII. LIMITATIONS PERIOD .. .671

XIII. THE PACT ACT ... 672

XIV. PHL 1399-LL .. .674

XV. THECCTA ...676

XVI. PREEMPTION .. .678

XVII. UPS’S REMAINING DEFENSES ...680

A. Unclean Hands/In Pari Delicto ...680

B. Waiver ... 681

C. Public Authority and Estoppel ...682

XVIII. DAMAGES ...684

A. UPS’s Pre-Trial Damage Disclosure ... 684

B. Legal Principles Regarding Damages ...687

1. Compensatory Damages ... 687

2. Penalties ... 688

C. Constitutional/Conscionability Issues with Penalties ... 691

D. The Penalty Provisions at Issue Here ... 694

E. Calculation of Penalties .. .695

1. Defining a Package .. .695

2. Package Contents ... 696

3. Reasonable Approximation of Contents ...696

4. Defining a Carton ... 697

5. The AOD... 698

6. The PACT Act and PHL § 1399-11 ...698

7. TheCCTA ...699

XXI. INJUNCTIVE RELIEF .. .699

XXII. CONCLUSION... 700

1. INTRODUCTION

Issues surrounding the appropriate taxation and collection scheme for cigarettes sold on Indian reservations in the State of New York have presented persistent and complex challenges. Cigarettes sold on reservations to tribal members for personal use are exempt from tax; those sold to non-tribal members are not. The tracking and collection of appropriate taxes has proceeded in fits and starts—including a lengthy period of forbearance by the State of New York from enforcing existing tax laws on reservations, which continued until June 2011.

This lawsuit concerns a non-tribal member, United Parcel Service, Inc. (“UPS”), which allegedly transported, inter alia, cigarettes from and between New York State Indian reservations for a number of shippers (“Relevant Shippers”). Plaintiffs, the State of New York and the City of ’New York (collectively, “plaintiffs,” and, respectively, the “State” and/or the “City”), assert that in transporting unstamped (and therefore untaxed) cigarettes, UPS has violated an Assurance of Discontinuance (“AOD”) it signed with the State in 2005, as well as New York Executive Law (“N.Y. Exec. Law”) § 63(12); New York Public Health Law (“PHL”) § 1399-11; the Prevent All Cigarette Trafficking Act (“PACT Act”), 15 U.S.C. §§ 375-78; the Contraband Cigarettes Trafficking Act (“CCTA”), 18 U.S.C. §§ 2341-46; and the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. §§ 1961-68.

UPS has denied plaintiffs’ assertions from the commencement of this action, and it vigorously defended itself through trial. While UPS pursued a number 'of defenses discussed in more detail below, a few are worth additional focus at the outset. First and foremost, UPS has disputed that it ever violated its obligations under the AOD or knowingly transported unstamped cigarettes from or between Indian reservations to unauthorized recipients.

Second, UPS argues that even if it had violated the statutes or the AOD, plaintiffs have failed to carry their burden with regard to establishing damages. UPS’s primary legal arguments in support of this contention are that plaintiffs failed to adequately disclose their damages computation prior to trial and then made a separate error at trial by attempting to introduce the details of their damages claim through a demonstrative when it should have been presented by an expert. According to UPS, these legal issues provide two independent bases for the Court to preclude plaintiffs’ damages claim altogether. UPS has also made factual arguments in furtherance of preclusion. UPS argues that plaintiffs improperly and without sufficient factual support seek damages for every package transported by UPS after a certain point in time. UPS also asserts that, in all events, • neither UPS nor plaintiffs can possibly know the contents of any particular package, rendering assessment of damages on a per-package basis impossible.

Upon careful review and consideration of the entire trial record, the Court finds that UPS violated its obligations under the AOD in a number of respects and, in addition, knowingly transported cigarettes from and between Indian reservations for all but one of the shippers (the “Liability Shippers”). For this reason and others detailed below, UPS’s arguments against any liability fail. The more complicated issue, however, relates to damages. Plaintiffs left their damages case open to severe attack; such exposure could and should have been avoided. However, the Court finds that plaintiffs are entitled to compensatory damages as well as monetary penalties in amounts yet to be determined, but not injunctive relief or the appointment of a monitor.

II. PROCEDURAL HISTORY

A. Pre-Trial Proceedings

The State and City initiated this action by filing a complaint against UPS on February 18, 2015. (ECF No. 1.) They filed an amended complaint (“Amended Complaint”) on May 1, 2015, a second amended complaint (“Second Amended Complaint”) on November 30, 2015, and a third amended complaint (“Third Amended Complaint”) on February 24, 2016. (ECF Nos. 14, 86, 189.) The Second Amended Complaint contains fourteen causes of action seeking various forms of relief under the AOD, N.Y. Exec. Law § 63(12), PHL § 1399-11; the PACT Act; the CCTA; and RICO.

The parties agreed that the affirmative defenses asserted by UPS in its answer to the Amended Complaint, (ECF No. 110), were deemed asserted as to the Second Amended Complaint. On December 4, 2015, plaintiffs moved to strike UPS’s Fifth through Seventeenth Affirmative Defenses. (ECF No. 89.) In an Opinion & Order dated February 8, 2016, the Court granted the motion in part and denied it in part. (ECF No. 177, New York v. United Parcel Serv., Inc., 160 F.Supp.3d 629 (S.D.N.Y. 2016).) UPS moved for reconsideration with regard to the portion of the decision that struck its Seventh Affirmative Defense. (ECF No. 187.)

There has been significant motion practice regarding UPS’s Seventh Affirmative Defense. (See, e.g., ECF Nos. 91, 111, 122, 188, 198, 201, 287, 345, 384.) Although the Court granted UPS’s motion for reconsideration, (ECF No. 258), and vacated certain portions of its prior decision, the Court ultimately granted plaintiffs’ renewed motion for summary judgment on the Seventh Affirmative Defense. (ECF No. 406.) The Court refers the reader to the Court’s prior decisions for its full analysis. (ECF Nos. 177, 258, 406.)

In summary, UPS’s Seventh Affirmative Defense asserts that plaintiffs’ claims are barred, at least in part, by orders issued by various courts between 2008 and 2011 pertaining to enforcement and/or implementation of N.Y. Tax Law §§ 471 and 471-e. In its briefing, UPS has asserted that this defense encompasses its argument that the State’s policy of “forbearance,” regarding enforcement of New York’s cigarette taxation scheme on Indian reservations to June 2011, bars any recovery for a significant portion of the relevant time period. According to UPS, New York’s forbearance policy rendered § 471 not “in effect”—and therefore unenforceable—during the period of forbearance. In addition, UPS has argued that under constitutional principles and § 471, the State and City were without power to tax cigarettes UPS delivered to Indian reservations; such shipments constitute a significant portion of those at issue. This Court disagreed. It determined, in part, that § 471 has been “in effect” continuously since its inception, even during the period of forbearance. The Court found that the “forbearance policy” was directed at Indian tribal members and not at private actors such as UPS. Finally, the Court further held that neither constitutional principles nor the forbearance policy directed at Indian reservations immunized or excused UPS’s actions. (ECF No. 406, New York v. United Parcel Serv., Inc., No. 15-cv-1136, 2016 WL 4747236 (S.D.N.Y. Sept. 10, 2016).)

The parties also engaged in significant motion practice regarding whether the Court should strike certain of UPS’s other defenses. In its Opinion & Order dated February 8, 2016, the Court struck UPS’s Sixth, Eighth, Ninth, Tenth, Eleventh, and Sixteenth Affirmative Defenses. (ECF No. 177, New York v. United Parcel Serv., Inc., 160 F.Supp.3d 629, 665 (S.D.N.Y. 2016).) UPS’s remaining defenses are:

• Second Defense: To the extent plaintiffs have suffered any damages alleged in the Third Amended Complaint, such damages were not caused by UPS. (ECF No. 199 at 18.)

• Third Defense: Plaintiffs’ claims are barred, in whole or in part, by the applicable statutes of limitations. (Id.)

• Fourth Defense: Plaintiffs lack standing to assert the claims set forth in their Third Amended Complaint. (Id.)

• Twelfth Defense: The State’s claim for violation of the AOD is barred, in whole or in part, by its breach or nonperformance with respect to the AOD, including but not limited to any covenants implied therein, such as the implied covenant of good faith and fair dealing. (Id. at 22.)

• Thirteenth Defense: The State’s own inactivity under the AOD, and with respect to cigarette tax laws more generally, bars, estops, or otherwise precludes it from complaining of, or seeking relief based on, UPS’s alleged performance and/or nonperformance under the AOD, including, but not limited to, under principles of laches, waiver, estoppel, and similar doctrines. (⅛)

• Fourteenth Defense: UPS was excused from performance under the AOD on grounds of impracticability and frustration, including such grounds created by the conduct of the State of New York or its agents, employees, or representatives. (Id.)

• Fifteenth Defense: Plaintiffs’ claims are barred and/or preempted, in whole or in part, by federal law pertaining to the transportation industry, including the Federal Aviation Administration Authorization Act of 1994, 49 U.S.C. §§ 14501, 41713, and any other applicable provisions of Title 49 of the United States Code, Title 49 of the Code of Federal Regulations, and related provisions, federal common law, or other federal law pertaining to the industry or the duties of common carriers. (Id.)

• Seventeenth Defense: Plaintiffs’ claims, including their request for civil penalties, are. barred, in whole or in part, by the doctrines of waiver, estoppel, laches, unclean hands, in pari delicto, and/or other equitable doctrines, in that, among other things, plaintiffs had reason to know about unlawful cigarette sales by the shippers named in the Third Amended Complaint, yet failed to take appropriate steps as to them or their customers, or to notify UPS. (Id.)

• Eighteenth Defense: Plaintiffs’ claims are barred, in whole or in part, under the doctrine of estop-pel by entrapment. (Id. at 23.)

• Nineteenth Defense: Plaintiffs’ claims are barred, in whole or in part, under the public authority defense. (Id.)

• Twentieth Defense: Plaintiffs’ claims are barred, in whole or in part, by judicial estoppel or similar doctrines. (Id.)

• Twenty-First Defense: Plaintiffs’ claims for civil penalties are barred to the extent that an award of such penalties does not comport with principles of substantive and procedural due process under the U.S. Constitution and other federal and state law. (Id.)

• Twenty-Second Defense: The State is barred from seeking penalties under the AOD in circumstances where the State declined to pursue penalties after requiring UPS to make a showing to the State’s “reasonable satisfaction” under ¶ 42(b) of the AOD. (Id.)

• Twenty-Third Defense: The PACT Act exempts UPS from liability under the PACT Act or PHL § 1399-11, either because UPS is subject to the AOD, or because UPS had an AOD and continues to administer and enforce policies and practices throughout the United States that are at least as stringent as the AOD. 15 U.S.C. § 376a(e)(3)(A)(i), (ii). (⅞)

• Twenty-Fourth Defense: The PACT Act exempts UPS from civil penalties under 15 U.S.C. § 377(b)(3)(B). (id.)

• Twenty-Fifth Defense: Plaintiffs’ claims pursuant to the PACT Act are barred or limited by their own conduct, including their failure to comply with the PACT Act’s provisions requiring state and local governments to provide the U.S. Attorney General -with certain information used to create the PACT Act’s list of unregistered or noncompliant delivery sellers. 15 U.S.C. § 376a(e)(1)(D), (6)(A). (Id.)

• Twenty-Sixth Defense: Plaintiffs’ claims pursuant to the New York Public Health Law are barred, in whole or in part, because they lack standing to enforce PHL § 1399—11 against UPS based on any alleged delivery occurring before September 27, 2013. (Id. at 24.)

B. The Trial

This case was tried to the bench on September 19, 2016, through September 29, 2016. The parties called thirty-eight witnesses in total—twenty-two live and sixteen by way of deposition designation. The Court also received into evidence more than 1,000 documents, amounting to thousands of pages. Following post-trial submissions, the Court held closing arguments on November 2, 2016. The instant Opinion & Order constitutes the Court’s findings of fact and conclusions of law.

In sum, and for the reasons set forth below, the Court finds that plaintiffs are entitled to a liability determination with regard to all but one of the Relevant Shippers. The Court further finds that compensatory damages and penalties are appropriate, but declines to award injunctive relief or to appoint an independent monitor. In accordance with the rulings below, the Court directs the parties to submit calculations of the number of “Packages” (a term the Court defines below) and “Cartons” of cigarettes (also defined below) to enable this Court to make a final determination as to the quantum of compensatory damages and penalties.

III. FINDINGS OF FACT

A. Public Health Issues Associated with Cigarettes

The facts concerning the public health issues associated with cigarette usage were largely uncontested. Plaintiffs called Dr. Sonia Angelí, Deputy Commissioner of the Division of Prevention and Primary Care, New York City Department of Health and Mental Hygiene. (Affidavit of Sonia Angelí (“Angeli Aff.”), PX 628; Trial Tr. 1353:24-1370:22 (Angelí).) Dr. Angelí testified that tobacco use kills approximately 28,200 New Yorkers each year. (Angeli Aff., PX 628 ¶ 5.) This exceeds the number of deaths caused by alcohol, motor vehicle accidents, firearms, toxic agents, and unsafe sexual behaviors combined. (Id.) Dr. Angelí also testified that each year, tobacco-related healthcare costs New Yorkers $10.4 billion. (Id. ¶ 7.) The CCTA, PACT Act, and PHL § 1399-ll are each intended to address serious public health issues and other costs associated with cigarettes. See, e.g., Prevent All Cigarette Trafficking Act of 2009, Pub. L. No. 111-154 § 1, 124 Stat. 1087, 1088 (2010) (“It is the purpose of this Act to[, inter alia,] ... prevent and reduce youth access to inexpensive cigarettes ... through illegal Internet or contraband sales.”); H.R. Conf. Rep. No. 95-1778 at 8 (1978) (stating that “the purpose of [the CCTA is] to provide a timely solution to [the] organized crime problem” of trafficking in contraband cigarettes); 2000 N.Y. Sess. Laws Ch. 262 (S. 8177) § 1 (McKinney) (“The legislature finds and declares that the shipment of cigarettes sold via the internet or by telephone or by mail order to residents of this state poses a serious threat to public health, safety, and welfare, to the funding of health care pursuant to the health care reform act of 2000, and to the economy of the state.”)

The State and City of New York also impose taxes on the sale and use of tobacco products, such as cigarettes, to combat these harms and to protect public health. The revenue generated by such taxes is, however, dwarfed by actual healthcare costs spent by New Yorkers. (Angelí Aff., PX 628 ¶ 28.)

B. Plaintiffs! Investigations of UPS

This lawsuit by the State and City followed prior investigations into UPS’s transport of unstamped cigarettes; the first such investigation commenced in approximately 2003. As discussed further below, UPS eventually resolved this investigation by entering into a settlement agreement in the form of an AOD with the State. The AOD was executed in October 2005 and became effective approximately one month later.

During the summer/fall of 2011, UPS and the State (in particular, Dana Biber-man, Chief of the Tobacco Compliance Bureau at the New York State Office of the Attorney General, who is also counsel in the instant action) engaged in a series of communications regarding a group of shippers referred to as the “Potsdam Shippers” (based on their common geographic location near Potsdam, New York). As relevant to plaintiffs’ claims herein, these shippers include Action Race Parts, Jacobs Manufacturing (also referred to as “Jacobs Tobacco”), and Mohawk Spring Water.

On June 24, 2011, Biberman wrote to counsel for UPS concerning packages containing cigarettes that had been seized at the UPS Potsdam facility on June 22, 2011. The letter requested that UPS pay a stipulated penalty of $1,000 for each and every violation of the AOD, unless UPS established that it “did not know and had no reason to know that the shipment was a Prohibited Shipment.” (DX 89.)

On August 9, 2011, counsel for UPS met with Biberman and others regarding the seized packages. At that meeting, UPS told Biberman of a conversation between one of its security department employees, Jim Terranova, and a New York state trooper, Alfonse Nitti, that occurred in April 2011. Terranova had told Nitti that UPS was concerned that certain of the Potsdam Shippers were shipping cigarettes. Nitti informed Terranova that there was an ongoing investigation. Terranova asked whether UPS should continue to pick up packages from these shippers, and Officer Nitti responded affirmatively.

Following the August 9, 2011, meeting between UPS and the State, UPS provided the State with delivery information with regard to the Potsdam Shippers through July or August 2011. (Trial Declaration of Carl H. Loewenson, Jr. (“Loewenson Deck”), DX 605 ¶ 21; DX 125; DX 126.) The State Attorney General’s office took no further action as to these shippers until the events in connection with this lawsuit. The Potsdam Shippers were eventually included in the amended complaint filed herein. As discussed below, UPS points to these circumstances as evidence that, pursuant to the AOD, it had “established] to the reasonable satisfaction of the Attorney General that UPS did not know and had no reason to know the shipment[s] [were] Prohibited Shipment[s].” (AOD, DX 23 ¶ 42). In addition, UPS uses these events to support its laches, waiver, estoppel, es-toppel-by-entrapment, and “public authority” defenses. As discussed below, the Court disagrees with inferences and conclusions UPS asserts based on these events.

Approximately two years later, on July 29, 2013, the New York City Department of Finance (“City Finance”) served a subpoena on UPS seeking delivery records for a number of shippers, including the Relevant Shippers. (Affidavit of Maureen Kok-eas (“Kokeas Aff.”), ECF No. 389-8 ¶ 6.) Between the time UPS received the subpoena in July 2013 and February 18, 2015 (when this lawsuit was commenced), the parties engaged in a number of communications. Plaintiffs provided UPS with, inter alia, a draft complaint. The parties were unable to resolve their differences, and this lawsuit was filed on February 18, 2015.

C. UPS’s Business

The size and conduct of UPS’s business operations are relevant to a number of issues in this case, including what constitute reasonable operating procedures, the extent to which UPS can be expected to know the contents of packages, the scope of employees’ job responsibilities, and whether UPS bears legal responsibility for acts and knowledge of certain employees. The facts regarding UPS’s size and operations were largely uncontested. The legal conclusions drawn from those facts were vigorously contested.

UPS is a global company with very substantial U.S. operations. It is a massive employer, with over 350,000 employees in the United States alone. Its employees are responsible for establishing and maintaining account relationships and for the pickup, processing, and delivery of millions of packages each day. To perform its operations, UPS uses over 1,800 separate physical facilities, 104,926 vehicles, and 237 aircraft. (Trial Declaration of Bradley J. Cook (“Cook Decl.”), DX 600 ¶ 24.) The vast majority of shipments UPS receives for transport (well over 90%) are processed on electronic shipping systems such as UPS Worldship. (Id. ¶29.) The shipper itself inputs certain information—not including package contents—and prints a bar-coded label that is affixed to the exterior of the package. (Id.) The package-level detail is then electronically transmitted to UPS. (⅛)

At trial, the primary witness who described UPS’s business operations was Bradley J. Cook, UPS’s Director of Dangerous Goods and Director of Package Solutions. The Court found Cook generally credible and found that, from the fall of 2013 onwards, Cook dedicated himself to “righting the ship” with regards to UPS’s compliance efforts. With that said, he is an interested witness insofar as much of the conduct at issue occurred in an area for which he had (and has) significant oversight responsibilities. As Director of Dangerous Goods, Cook had primary responsibility, along with legal counsel, for overseeing issues relating to UPS’s shipment of tobacco products and compliance with the AOD.

As described throughout this decision, UPS’s efforts to comply with the AOD were inadequate until the commencement of this lawsuit; its efforts fell woefully short until the fall of 2013, after which it increased it proactive efforts. But it was not until this lawsuit was filed that UPS’s efforts became adequate. The persistent inadequacies are surprising in light of UPS’s clear awareness when it signed the AOD that it had assumed a number of explicit obligations. Indeed, the AOD required affirmative efforts, including particular and, when appropriate, directed vigilance to ensure compliance with its terms. The AOD precluded UPS from conducting “business as usual;” the AOD precluded UPS from ignoring red flags, and it precluded UPS from relying on self-serving statements by shippers in the face of red flags.

Throughout the relevant period, Cook was aware of the AOD and its requirements. He also demonstrated in-depth knowledge of UPS’s business. He knew, for instance, that customers located on or near Indian reservations were at a higher risk of shipping unstamped cigarettes (as others within UPS also knew); he knew that UPS did not require customers to declare the contents of their packages (as others within UPS also knew); and he knew that short of a package inadvertently breaking open or being subject to an audit, UPS had no clear, routine method to determine a package’s contents (as others within UPS also knew). Cook, and others in positions of responsibility at UPS, knew that in many respects, UPS was “flying blind” regarding whether Indian-reservation-based customers were shipping cigarettes. But UPS was in a special position: It had assumed particular obligations under the AOD, and all that stood between UPS and penalties under the PACT Act and PHL § 1399-11 was honoring the AOD. The stakes were high. Yet, UPS failed to do what was necessary to ensure sufficient compliance. Perfection was never required, but more should and could have been done. That UPS could • have done more is demonstrated by the material improvements it has implemented in its procedures since this lawsuit was filed. UPS has now—too late to avoid liability, but in sufficient time to avoid imposition of an injunction or independent monitor—transformed itself from a willfully blind actor to one actively doing far more.

The Court finds that Cook was by no means incompetent or acting inconsistently with corporate expectations. By all accounts, UPS’s lack of commitment to true, active AOD compliance pervaded its corporate culture. As discussed below, when tools were available to assist UPS (and Cook) in their efforts—for example, lists of shippers deemed to be tendering cigarettes in violation of, inter alia, the PACT Act (and, thereby, likely a variety of other statutory schemes) created and disseminated by the Bureau of Alcohol, Tobacco, Firearms, and Explosives (“ATF”) (referred to as “non-compliant lists” or “NCLs”)—UPS failed to distribute them broadly, including to the one person who certainly should have had them, Cook. Once Cook had the lists of non-compliant shippers in the fall of 2013, he used them.

In addition, as a corporate entity, UPS had information available to it in various places that provided certain employees insight into the contents of packages. For instance, UPS received inquiries regarding lost or damaged packages (so called “tracers”) of cigarettes shipped by the very shippers at issue here. But this information remained largely compartmentalized. Contrary to UPS’s argument at trial, such compartmentalization does not explain, justify, support, or excuse lack of knowledge of package contents by those managing the Relevant Shippers’ accounts. UPS had, after all, undertaken (and was separately legally obligated) to do what it could to prevent transport of cigarettes. UPS therefore bears responsibility for a serious failure of process and procedures. UPS’s size is not an excuse to shift responsibility for its business failings to taxpayers who ultimately cover the investigative, healthcare, and other costs associated with unlawful transport (and, ultimately, use) of cigarettes.

Moreover, UPS understood that all of the Relevant Shippers were located on or closely proximate to an Indian reservation known previously to have one or more smoke shops and/or cigarette shippers. The UPS drivers and sales account personnel who met with customers saw signage on or near shippers’ businesses indicating that cigarettes or tobacco were among their wares. From time to time during in-person visits, UPS personnel saw cigarettes on display racks; and UPS of course knew that even the names of certain shippers contained the words “cigar(s)” or “tobacco.” UPS knew that certain shippers were shipping hundreds of packages a day from residential addresses; it knew that certain shippers opened multiple accounts, sometimes under different names. These and other signs described below were nothing short of blinking red lights—lights that flashed, “PROCEED WITH EXTREME CAUTION!”—yet no particular instructions from Cook or others at a high level were directed at such accounts, nor were personnel given particular instructions as to how to proceed under such circumstances. The Court finds that such facts support, in part, the existence of a “reasonable basis to believe” a shipper may have been tendering cigarettes, thereby triggering an audit obligation under the AOD. (See AOD, DX 23 ¶ 42.)

In March 2010 Congress passed the PACT Act, which went into effect in late June 2010. UPS was mentioned explicitly in the text of the statute as one of the common carriers subject to an AOD. There is no doubt that UPS was aware of this statute. UPS knew that national attention was directed at preventing transport of cigarettes; it should have understood that the NCLs generated as a result of this statutory scheme contained information indisputably relevant—and, at the very least, that the NCLS were useful tools to ensure that its AOD was being “honored.” The NCLs were also useful tools to assist compliance with the CCTA. And yet, inexplicably, UPS ignored the NCLs, deeming them irrelevant. Until the fall of 2013, it never used them to identify at-risk shippers. UPS’s position vis-a-vis the NCLs confused a required usage with a rational and reasonable usage. Had UPS actively created and used its own list equivalent to the NCLs, its position that the NCLs were irrelevant might be more compelling. Given UPS’s general lack of proactive efforts to identify at-risk shippers, ignoring the relevance and utility of the NCLs made no sense.

Finally, the evidence at trial showed a notable increase in UPS’s business and customer acquisitions following the effective date of the PACT Act—when the U.S. Postal Service (“USPS”) and other carriers were prohibited from transporting unstamped cigarettes without serious penalty. Yet UPS argued at trial that it did not “put two and two together,” and that it did not associate this increased business with any particular event. For a company with UPS’s sophistication, and its evident commercial interests, this also makes no sense. Frankly, the Court does not buy it. Nor, apparently, did at least one UPS employee who noted in an email that “UPS has gained a lot of tobacco business from the USPS this year due to PACT Act taking effect at the end of June[.]” (PX 198.)

In sum, UPS had a legal obligation to comply with the AOD and the law, but it failed to take basic and reasonable steps to do so. Its size alone meant that proper procedures were all the more important— ad hoc measures could not be trusted or relied upon to ensure compliance in such a large organization.

D. UPS’s Business and Specific Conduct

The Court makes the following additional findings regarding UPS’s business and specific conduct.

1. UPS’s Tobacco Policy

UPS is a commercial entity that has rules and a price structure relating to its transportation services; these are contained in, inter alia, UPS’s Tariff/Terms and Conditions of Service (“Tariff’). At all relevant times, UPS’s Tariff has been posted on its website. (Cook Deck, DX 600 ¶ 33.) This document sets forth restrictions on shipping with UPS, including a prohibition on the shipment of regulated goods. (Id.) Cigarettes are among such regulated goods. Prior to 2004, UPS did not have a specific policy regarding shipment of tobacco products. (Id. ¶ 34.) However, a guide then available to customers (the “UPS Rate and Service Guide”) did advise shippers that “[n]o service shall be rendered by UPS in the transportation of any shipment that is prohibited by law or regulation of any federal, state, provincial, or local government in the origin or destination country.” (Id.)

In 2003, Cook led an effort to create a program to address various states’ increasing concerns regarding the sale and shipment of cigarettes to consumers. (Id. ¶ 35.) This effort included identifying likely shippers of tobacco products and cigarettes. (Id. ¶ 36.) As part of this effort, UPS examined its central customer database using search terms such as “cigarette,” “smoke,” and “tobacco;” reached out to employees in the field; and examined industry codes associated with a shipper. (Id.) These efforts resulted in the identification of approximately 400 at-risk shippers. (Id.) Cook’s team then oversaw an effort to inform these shippers of PHL § 1399-11 and advised them that UPS would no longer accept packages containing cigarettes for delivery to unauthorized recipients in New York. (Cook Deck, DX 600 ¶ 37.)

In January 2004, UPS introduced revisions to its Tariff, including a new provision prohibiting shipments of tobacco in violation of state or federal law. (Id. ¶ 39.) In January 2005, UPS updated its Tariff again to include a requirement for a shipper to execute a “Tobacco Agreement” if it sought to ship tobacco products of any > kind to consumers. (Id. ¶ 39.) Later in 2005, UPS instituted a policy of prohibiting shipments of cigarettes to consumers anywhere in the country. (Id. ¶ 40.)

As previewed above, on October 21, 2005, UPS entered into the AOD with the State of New York. (AOD, DX 23.) The City of New York is not a party to the AOD. The AOD reflected UPS’s agreement not to ship cigarettes to any consumers and to only ship such products to recipients that had appropriate state and federal licenses. (Id.; Cook Deck, DX 600 ¶ 41.) To comply with the AOD, UPS updated its Tariff again, reflecting a new “Tobacco Policy.” (DX 35; AOD, DX 23, Ex. A, B.) The new Tobacco Policy specifically prohibited shipments of cigarettes to consumers on a nationwide basis. (Cook Deck, DX 600 ¶ 42.) UPS posted its policy on its website. (Id. ¶ 43.)

In addition, and to comply with the AOD, UPS created a database to track activity with its tobacco shippers. (Id. ¶ 63.) The database contains fields for shipper name, account number, and relevant activity; it presently contains entries for 4,000 shippers from forty-nine states. (Id. ¶ 63; DX 371.)

2. UPS’s Training Efforts

The AOD requires that UPS train relevant personnel about its “Cigarette Policy” and various compliance measures. (AOD, DX 23 ¶¶ 34-37.) Plaintiffs assert that UPS has failed to fulfill this obligation. The Court agrees. Paragraph 34 of the AOD contains a very broad requirement:

UPS shall continue periodically to train its drivers and pre-loaders and other relevant UPS employees about UPS’s Cigarette Policy and 'the compliance measures agreed to in this Assurance of Discontinuance.

(Id. ¶ 34.) There was substantial evidence at trial that until shortly before this lawsuit was filed, apart from a once-yearly “Pre-Work Communication Message” (“PCM”), little actual training in UPS’s “Cigarette Policy” or compliance measures required by the AOD, occurred. In addition, there was little more than a broad overview of the Tobacco Policy provided to UPS employees. Several UPS witnesses testified to lacking specific knowledge regarding the “compliance measures agreed to in [the AOD].” (See, e.g., Trial Tr. 665:24-666:25, 667:20-24 (McDowell); id. 1516:18-1519:4 (Terranova).)

This case has no doubt demonstrated to UPS that its existing training was inadequate. Prior to receiving the subpoena from City Finance in July 2013, UPS’s training consisted primarily of the above-mentioned annual PCMs. PCMs are a general method of communication with UPS personnel. They are intended to provide personnel with specific information on a variety of topics in a format of longer than three minutes. While drivers and employees at UPS’s processing centers were provided with a PCM that discussed its Tobacco Policy once a year, historically there was no procedure for an employee to “make up” a PCM that he or she has missed (for instance, due to absence on the day a PCM was shown or due to a start date at UPS after the yearly PCM had been shown). Several UPS witnesses testified to recalling the Tobacco Policy PCM, certain recalled the existence of the PCM but not its content, and others did not recall the PCM at all. Clearly, the Tobacco Policy PCM was itself inadequate to properly train employees on UPS’s Tobacco Policy and was inadequate to train employees on AOD compliance measures or on how to recognize signs that shippers may have been tendering packages with cigarettes.

Throughout the trial, UPS took the position that requiring personnel to approach certain accounts with questions or skepticism would be inappropriate. The insinuation was that vigilance directed at accounts located on or proximate to Indian reservations was some sort of inappropriate profiling. But this ignores the known reality that particular legal issues applicable to reservations (and to Native Americans making on-reservation purchases) did make reservations different. Moreover, the evidence revealed that UPS did not know whether on-reservation shippers from smoke shops were tribal members and, in fact, those operating smoke shops were not always tribal members. (Trial Tr. 192:14-16 (Cook); id. 904:6-9 (Christ).) In addition, Cook testified that UPS does not expect its drivers to be “investigators;” rather, it expects them to be alert for signs of cigarette shipments and to notify supervisors if they have suspicions. (Cook Deck, DX 600 ¶ 53.) In the context of the federal, state, and local attention paid to the unlawful transport of cigarettes, and UPS’s statutory and AOD obligations, this was an incorrect perspective that unreasonably underestimated UPS’s affirmative obligations. While drivers need not be “investigators” in a law-enforcement sense, they should have been proactive vis-a-vis high-risk accounts. As the AOD recites, training should have been designed to ensure personnel were/are “actually looking for indications that a package contains cigarettes ....” (AOD, DX 23 ¶35 (emphasis added).)

Prior to the commencement of this lawsuit, UPS’s training was not effective in preparing its employees to identify cigarette shippers on Indian reservations in New York or to ensure that its personnel were “actively looking” for indications that a package contained cigarettes. UPS’s training on tobacco issues was designed to “cheek the box.”

UPS’s tobacco-related training has improved recently. For instance, PCMs on tobacco training are now delivered in person, UPS has trained personnel in data analytics, it has posted a “red flag” poster at its service centers, and in 2016, UPS added device-based training for its drivers via “DIADs,” which are handheld devices that function as computers. Additional relevant facts are set forth below in the section titled “Current Status of UPS Compliance Efforts.”

3. The Role of Account Executives

As relevant here, UPS’s customers are “shippers” of packages. Sales and account management are handled by a UPS Account Executive (as well as other support personnel). UPS assigns an Account Executive to every shipper/customer. UPS’s Account Executives are responsible for capturing and maintaining accounts as well as addressing issues that might arise with regard to those accounts. In order to effectively market and support UPS’s transport services, Account Executives are expected to understand their customers’ businesses. To gain such understanding, Account Executives are expected to communicate with their larger customers on a regular basis. Evidence at trial supported that Account Executives regularly communicated with the Relevant Shippers both in person as well as by telephone or email. UPS expected that its Account Executives would enter notes regarding communications with clients in databases maintained for that purpose. Such databases were accessible to and used by others who might have an interest in a particular account or area. While the evidence made clear that there was spotty compliance with this expectation (and seemingly no enforcement mechanism), certain UPS Account Executives (most notably Gerard Fink) nevertheless entered details of meetings and communications with some of the Relevant Shippers into those databases. Various entries include evidence supporting liability, seriously impacting arguments that Fink’s or any other Account Executive’s actions were outside the scope of employment.

Account Executives were also responsible for obtaining a Tobacco Agreement from those customers who were or would be shipping tobacco products. Such agreements were supposed to be an important part of UPS’s already thin compliance efforts. The Account Executive was to record the receipt of the Tobacco Agreement in UPS’s Tobacco Database. In theory, this was to assist in monitoring such an account. As relevant here, there were numerous instances in which the Account Executive either did not obtain a Tobacco Agreement when appropriate, did not retain a copy of an allegedly executed agreement, failed to enter it into the Tobacco Database, or all three.

Account Executives would receive a variety of information relating to their accounts on a regular basis. For instance, they would receive periodic reports that set forth the amount of revenue attributable to particular customers. Multiple documents received into evidence support that a number of the Relevant Shippers on or near Indian reservations were among the largest customers for Account Executives. (See, e.g., PX 568; PX 102, row 9; PX 104.) Account Executives—including Fink and others at UPS responsible for the Relevant Shippers—actively reported on account activity to others within the UPS organization. Multiple documents and databases support generally diffuse knowledge and access to information regarding the Relevant Shippers. Put otherwise, the Account Executives—including Fink—took or failed to take actions within a UPS organizational structure that was monitoring account activity.

4. The Role of UPS Drivers

Packages are typically picked up by UPS drivers at a customer’s location or are dropped off by a customer at a designated facility. The packages are then brought to a UPS Processing Center. (Cook Decl., DX 600 ¶ 25.)

In all but a handful of instances relating to the Relevant Shippers, UPS drivers would pick up packages at the customer’s location. Some of the locations were commercial storefronts (e.g., Arrowhawk Cigars, Morningstar Crafts & Gifts) and others (e.g., EExpress, Bearclaw) were residential locations. In certain instances, UPS drivers would pick up dozens or even hundreds of packages a week from a residential address. For instance, during October 2012, EExpress shipped approximately 2,500 packages with UPS. (PX 559.)

An issue that pervaded the trial was the extent to which UPS, as a corporate entity, knew or should have known of the contents of customer shipments. Typical practice included drivers and Processing Center personnel working with packages; the account team performed sales and service roles that did not include package handling but did include learning about a customer’s business and monitoring his or her account activity. While drivers had limited opportunities (or time) to learn the contents of particular packages, there was ample evidence that they generally understood what a shipper was shipping and, from time to time, had quite specific information about package contents.

UPS policy requires customers to have packages sealed and ready for pickup when the UPS driver arrives. With regard to the Relevant Shippers, this practice appears to have been followed most of the time. However, plaintiffs presented evidence that there were occasions when customers were still packing and sealing boxes at the time the UPS driver arrived or when UPS personnel were on site, and that UPS employees were therefore in a position to observe the contents of the packages. (See, e.g., Jarvis Dep. Tr. 55:22-56:6.) In addition, there were instances where the type of goods a Relevant Shipper sold, including cigarettes, were prominently advertised on signage and within the premises. (See, e.g., PX 574 (signage for Morningstar Crafts & Gifts); DX 490 (signage for Arrowhawk Smoke Shop).) Moreover, UPS personnel, including drivers, did from time to time enter a Relevant Shipper’s premises, providing the opportunity to observe cigarettes available for purchase or in inventory. These facts should have, but did not, cause UPS to alter its approach to and vigilance of a shipper; such facts formed pieces of the foundation for a “reasonable basis to believe” that a shipper may have been tendering cigarettes for delivery (the standard that triggered an audit obligation under the AOD). (See AOD, DX 23 ¶ 24.)

5. UPS’s Interactions with Shippers

As discussed above, a customer using UPS’s pickup and delivery services is referred to as a “shipper,” and shippers do not typically declare or provide UPS with information regarding the contents of packages. (Cook Deck, DX 600 ¶ 29.) On most occasions, the boxes in which a customer packs its goods are plain, corrugated cardboard, and the exterior of the boxes provides no indication as to whether the contents include cigarettes, cigars, spring water, coffee, or something else. UPS’s terms and conditions reserve its right to inspect package contents. Given the volume of packages processed daily, UPS tended to conduct audits only in very rare circumstances when there was a compelling reason to do so. The evidence at trial supported audits generally being conducted on those occasions when UPS had specific information regarding likely cigarette shipments. UPS did not, for instance, routinely or, even once as a matter of course, audit shippers known to ship tobacco products or whose inventory was also known to include cigarettes. Audits are discussed in further detail below.

As a matter of UPS policy, when a customer seeks to ship certain regulated goods, including tobacco, he or she is required to disclose that fact to UPS. In the case of tobacco-related shipments (other than cigarettes), UPS policy requires that a customer execute a Tobacco Agreement. This agreement is intended to represent an acknowledgment by the shipper that he or she understands UPS’s Tobacco Policy, including its prohibition on shipping cigarettes.

Despite the statutes regulating transport of cigarettes, UPS’s obligations under the AOD, the passage of the PACT Act that reduced courier options, the profit motive of shippers, the conflicted position of UPS’s own sales personnel (who had an interest in acquiring and maintaining business), and obvious signs in conflict with customer statements, UPS allowed its personnel to rely heavily (and often exclusively) on what their shippers claimed to be shipping. UPS often accepted the fact of a Tobacco Agreement with a customer, or a single conversation with a customer about its business, as sufficient to confirm that a tobacco shipper who advertised or displayed cigarettes was not using UPS to ship them. As one would expect, cigarette shippers acting contrary to law and UPS policy were rarely inclined to “confess” prohibited package contents (though, as discussed below, there was at least one instance in which the customer did so explicitly). And, given the volume incentive agreements UPS offered, there was an economic motive to use UPS. For a UPS customer shipping cigarettes during this time, being “caught” was a risk worth taking because the penalty was sometimes nonexistent or was, at most, termination. And sometimes termination was not the end of UPS service. The record reveals instances in which UPS personnel assisted in establishing a new, replacement account for a customer whose account had been terminated for cigarette shipments. In many instances, as described below, there were sufficient red flags to alert UPS to the need for additional measures—including random audits.

6. UPS’s Information Systems and Information Sharing

As previewed above, one of UPS’s consistent themes at trial was its claim that information known to one part of UPS was not known to another, and that it would be improper or at the very least unfair to attribute such compartmentalized knowledge to UPS more broadly. The facts support such compartmentalization—but not the conclusion UPS draws from it.

At the time of the events at issue, UPS did not have a centralized information system that collected and/or synthesized all of the information it might have regarding packages sent by a particular shipper. To the extent some part of UPS learned of the specific contents of packages, it was typically when packages broke open during processing, when UPS received inquiries (“tracers”) regarding lost or damaged packages, or through audits. There was no evidence that UPS implemented or followed formal procedures to share the “broken open” packages or tracer information with all members of the account team, with Cook, or with legal counsel. In addition, there was no ongoing, formal mechanism within UPS to routinely review an at-risk shipper’s sales materials or websites (some of which prominently indicated cigarette sales). Nor was there any centralized practice of ensuring that email addresses with clues as to the likely focus of sales efforts (for instance, the word “cigarettes” appearing in a customer’s email address) were further investigated. Had such information been routinely reviewed and shared with the appropriate personnel, it is highly likely that UPS would have identified certain' shippers of cigarettes.

E. UPS’s Asserted Reliance on Governmental Action/Inaction

UPS has vigorously argued that it took certain actions (or failed to take certain actions) in reliance upon interactions with law enforcement, and, in addition, that it relied on New York State’s forbearance policy. UPS has urged that such facts regarding this governmental action/inaction support its laches, waiver, estoppel (including “estoppel by entrapment”), and public-authority defenses. These defenses have both factual and legal aspects. The Court deals with the former here,, and with the latter in its legal conclusions below.

1. Governmental Action

Some of the relevant facts regarding such interactions (such as the “Terrano-va/Nitti” communications) are briefly described above in the section “Plaintiffs’ Investigations of UPS.” Throughout the pretrial process, UPS repeatedly referred to instructions to stand down with regard to compliance measures due to an “ongoing investigation.” As it turned out at trial, the facts in this regard were far less robust than previewed and not at all compelling.

The evidence can be briefly summarized: In April 2011, UPS driver Donald Jarvis, who was associated with UPS’s Potsdam Processing Center, learned and believed that certain packages from the Potsdam Shippers contained cigarettes. Jarvis informed a UPS supervisor, Steve Talbot. Talbot contacted the UPS security representative assigned to the Potsdam Center, Jim Terranova, to ask for guidance (Terranova was not a high-ranking UPS employee). Terranova had apparently had undisclosed (and irrelevant) other dealings with members of the New York State Police, including state trooper Alfonse Nitti. In April 2011, Terranova contacted Nitti and told him there was a suspicion that certain accounts on the Mohawk/St. Regis reservation were shipping cigarettes. (Trial Declaration of James Terranova (“Terra-nova Deck”), DX 612.) Terranova did not tell Nitti where shipments (including bulk shipments) were being delivered. (Terra-nova Deck, DX 612 ¶¶ 1-2, 7; Trial Tr. 1529:20-1580:24, 1532:20-25 (Terranova).) Nitti informed Terranova that there was an active investigation into those shippers. Terranova then posed the question to Nitti as to whether UPS should continue picking up packages from those shippers; Nitti responded that UPS should. Nitti was not a representative from the State Attorney General’s office; there was no evidence that Nitti was made aware of the AOD or knew about UPS’s legal obligations with regard to it or any other statutory scheme. Subsequently, Terranova and others conveyed Nitti’s comment down the chain to UPS drivers responsible for the Potsdam Shipper accounts. For a period of two months thereafter, UPS followed its own forbearance practice. This ended when, on June 22, 2011, the New York State Department of Taxation and Finance (“DTF”) Chief Investigator, John Connolly, visited the UPS Potsdam Center. (Trial Declaration of Steven Talbot (“Talbot Decl.”), DX 606 ¶ 10; Terranova Decl., DX 612 ¶ 10.) Connolly seized packages tendered by certain Potsdam Shippers. Connolly also informed UPS that New York State’s forbearance policy vis-a-vis Indian reservations had ended and that UPS should not be shipping cigarettes “to their Native American customers.” (DX 389; see also Ernst Dep. Tr. 86:23-87:4.)

These facts do not support UPS’s characterization of this interaction as a formal instruction by law enforcement—upon which it could reasonably rely—to stand down on AOD obligations or other statutory requirements. As is evident from the above, such a portrayal overinflates a rather limited, non-senior contact between one lower-level UPS employee and one state trooper. Indeed, there was no independent evidence as to the basis for this trooper’s purported statements to Terranova or his authorization to convey any instructions to UPS. There is insufficient evidence to support Nitti’s authority to provide the official position of the New York State Police, let alone provide an exemption from the AOD and statutory obligations.

But in all events, the facts do not support widespread reliance on these Terra-nova/Nitti communications. At most, the evidence supports unreasonable reliance by a small handful of people within the Potsdam Center for a two-month period only, and by no one at a high level. For instance, there is no evidence that Cook was informed about this communication at the time. In sum, the Court rejects any reasonable reliance on the Terranova/Nitti communication.

2. Governmental Inaction

In addition, UPS has argued that prior to June 22, 2011, “UPS believed” that transporting shipments of packages containing cigarettes originating with the Potsdam Shippers (including Action Race Parts, Jacobs Manufacturing/Tobacco, and Mohawk Spring Water) and destined for tobacco retailers on other Indian reservations, was authorized by the State’s forbearance policy or was otherwise lawful. The “otherwise lawful” portion of this position is the heart of what has been referred to in this litigation as UPS’s “§ 471” argument. Putting aside the Court’s legal determination regarding the viability of UPS’s Seventh Defense (relating to, inter alia, the forbearance policy), there is a separate factual question as to whether, before June 22, 2011, personnel within UPS in fact believed that it could lawfully transport shipments from the Potsdam Shippers to reservation retailers or other Indian reservations (that is, based on some misunderstanding that § 471 or other legal principles allowed such transport), and acted in reliance on such a belief. The Court determines that factual question against UPS. There is simply insufficient credible evidence to support UPS’s factual claim that this was a widély held view in the organization.

As a result of the lack of sufficient factual support, UPS’s arguments as to its reliance on governmental authority or inaction fail. There is also no indication that relevant personnel received legal advice that they could rely on a New York State policy of forbearance as to Indian reservations applied to its actions as a private, non-tribal entity. Nor is there sufficient evidence that UPS personnel had any other reasonable basis for such an understanding. In addition, such a position is in conflict with UPS’s overall story that it consistently trained its personnel in its Tobacco Policy; no evidence suggests that its training was modified to allow for a distinction between shipments going to reservation retailers (he., the shipments UPS argues were protected by constitutional principles) and all other recipients. For instance, there was no credible testimony that UPS drivers were instructed to allow certain shipments to reservation retailers but not to residential consumers. UPS did present anecdotal evidence that certain witnesses had heard or thought such reservation-to-reservation retailer shipments were allowed—but it was never clear where this came from, and it is in conflict with other evidence.

Finally, of course, it is clear that the AOD did not exempt shipments from or between reservations; that is, there is no basis for “§ 471” or “forbearance policy” arguments with respect to UPS’s obligations.

F. UPS’s Audits

UPS presented evidence that it conducted at least twenty-eight audits between 2011 and 2016, several of which were of certain Relevant Shippers. (See, e.g., Cook Decl., DX 600 ¶ 18; DXs 161, 165, 194, 219, 221, 222, 244, 257, 263, 264, 265, 303, 311, & 363.) The facts show that audits were conducted relatively infrequently and were inadequate to comply with UPS’s audit or other obligations under the AOD.

As discussed below, ¶ 24 of the AOD requires that UPS audit shipments where “there is a reasonable basis to believe that such shipper may be tendering cigarettes for delivery to Individual Consumers, in order to determine whether the shipper is in fact doing so.”40 (AOD, DX 23 ¶ 24.) An audit obligation is therefore triggered when there is a “reasonable basis to believe,” and the audit serves a particular purpose: “to determine” whether a shipper may be tendering cigarettes.

The vast majority of audits to which UPS points occurred in 2013 and 2016— that is, after UPS had already received a subpoena and was thus aware this lawsuit was likely or that UPS had already been sued. Of the twenty-eight audits, twenty-six fall into this category. The remaining two audits took place on September 21, 2012. (See DXs 161,165.) Cigarettes were found during these audits and both accounts were terminated.

UPS points to the audits it conducted as evidence of compliance with the AOD and evidence that it acted responsibly vis-a-vis likely cigarette shippers. The Court disagrees. Cigarettes should not have had to fall out of a broken box, more or less, for UPS to have initiated an audit. As discussed in specific detail below, the Court finds that there was a reasonable basis to believe that a number of the Relevant Shippers may have been tendering cigarettes well before they were audited.

Certain facts should have led to more frequent and broader audits. As an initial matter, UPS had a right to audit packages, it had the personnel to do so, and it had an affirmative obligation under the AOD to do so when facts supported a “reasonable basis to believe” that a shipper “may” be tendering cigarettes. Certa