UPS must pay $247Mto N.Y. over untaxed cigarettes

United Parcel Service Inc. must pay $247 million to the state and city of New York for what a judge called the company's "egregious and prolonged" failure to stop shipments of untaxed cigarettes from American Indian reservations that undermined anti- smoking efforts.

U.S. District Judge Katherine B. Forrest in Manhattan said she wanted to send a message to the most senior executives at UPS about the cost of such misconduct. Modest penalties, she said in her ruling Thursday, "would not make a sufficient corporate impact" on the company.

"The court is also troubled by UPS's consistent unwillingness to acknowledge its errors; UPS has persisted in claiming it did nothing wrong," Forrest said.

The penalties help define how far some companies must go to police the activities of their customers in a era when online sales have greatly increased the number of packages being shipped. UPS and rival FedEx Corp. have each posted record package shipments in recent years.

Atlanta-based UPS pledged to appeal, contending New York's action was an attempt to force it into a quasi-law enforcement role that was never part of its agreement.

"The court's monetary award is excessive and far out of the bounds of constitutional limits, particularly given that the shipments at issue generat- ed around $1 million in revenue," the company said.

The decision comes two months after Forrest concluded that UPS failed to comply with a 2005 deal it struck with the state by continuing to service contraband cigarette enterprises operating out of smoke ships on Indian reservations throughout New York.

UPS had argued that it complied with the law, adopting a policy that went beyond the mandate of federal requirements, and that the dispute was triggered by the city mistaking cartons of legally shipped "little cigars" for cigarettes.