New York Sues FedEx Over Illegal Cigarette Shipments

New York City has sued FedEx Corp (NYSE:FDX), accusing the package delivery company of illegally delivering millions of contraband cigarettes to people's homes, violating a 2006 settlement.

Monday's lawsuit was filed in the U.S. District Court in Manhattan and seeks $52 million of civil fines and unpaid taxes from FedEx, which is based in Memphis, Tennessee.

It marks one of the last acts by the administration of New York City 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, 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 then-New York Attorney General Eliot Spitzer to stop such deliveries in New York, 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.

A FedEx spokeswoman was not immediately available to comment. A lawyer for the company had no immediate comment.

Corporation Counsel Michael Cardozo, who brings lawsuits on the city's behalf, was not immediately available to comment.

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 FedEx lawsuit.

New York City Mayor-elect Bill de Blasio takes office on Jan. 1, ending Bloomberg's 12-year mayoralty. De Blasio has named former U.S. Attorney Zachary Carter in Brooklyn, New York, to succeed Cardozo as the city's top lawyer.

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)