NEW YORK (Reuters) - New York state and city authorities took United Parcel Service Inc (UPS.N) to trial on Monday, urging a federal judge to make the company pay more than $872 million for making illegal deliveries of more than 683,000 cartons of untaxed cigarettes.
The non-jury trial before a federal judge in Manhattan came in a lawsuit by New York Attorney General Eric Schneiderman and New York City as part of the state's ongoing efforts to combat smuggling of cigarettes from lower-tax areas.
Lilia Toson, a lawyer for the city, told U.S. District Judge Katherine Forrest in her opening statement that UPS repeatedly ignored red flags that many of its shipments from American Indian reservations contained untaxed cartons of cigarettes.
"The evidence will show a sufficiently large number of contraband shipments to suggest that UPS is turning a blind eye," Toson said.
She urged the judge to appoint a monitor to ensure UPS's compliance with the law, and argued the world's largest package delivery company should be forced to pay over $872 million in penalties and damages.
The size of the potential penalties appeared to catch UPS's lawyers off-guard. Carrie Cohen, an attorney for UPS, complained the state had given it no notice that was the potential figure, having only previously said damages could be $180 million.
Cohen urged Forrest to reject the state and city's "misleading" allegations, as the evidence would should it complied with the law and that authorities had mistaken cartons of legally shippable "little cigars" as cigarettes.
"The plaintiffs' case is devoid of evidence that UPS knew it was delivering cigarettes," she said.
Filed in February 2015, the lawsuit contends that since 2010, UPS illegally shipped over 683,000 cartons of untaxed cigarettes mostly from smoke shops situated on Indian reservations throughout New York state.
The deliveries to residences, unlicensed wholesalers and unlicensed retailers were made despite a 2005 agreement between UPS and New York in which the company agreed to stop cigarette shipments to consumers and unlicensed dealers, the lawsuit said.
The lawsuit followed a similar case the state and city against FedEx Corp (FDX.N), accusing it of similarly illegally delivering contraband cigarettes to people's homes. That lawsuit remains pending.
The case is State of New York, et al v. United Parcel Service, U.S. District Court, Southern District of New York, No. 15-01136.
Reporting by Nate Raymond in New York; Editing by David Gregorio