By NYC Law Department
Chief Judge Carol B. Amon of the United States District Court for the Eastern District of New York (Brooklyn federal court) has granted the city's motion for summary judgment against two wholesale tobacco distributors accused of selling massive quantities of "unstamped" cigarettes on which cigarette taxes had not been pre-paid.
The two distributors' failure to include the cigarette taxes required by state law in the wholesale cigarette price permitted the cigarettes ultimately to be sold to consumers at illegally reduced prices, according to the city Corporation Counsel’s Office.
The wholesalers' sales were made to cigarette outlets located on the Poospatuck Reservation in Mastic, N.Y., from where they were bootlegged in large quantities into the city, according to the complaint.
The city's case against the tobacco wholesalers, filed in 2006, unfolded during a period in which New York state struggled to enact and enforce methods for collecting cigarette taxes from cigarette sellers located on Indian reservations.
The wholesalers sued in this case, contending that the absence of a state-imposed method of tax collection permitted them to sell unlimited quantities of unstamped cigarettes, on which taxes had not been pre-paid, to reservation cigarette retailers. However in a March 2008 decision, the federal court rejected this defense, holding that the plain language of New York's cigarette tax statute required that taxes be pre-paid on all cigarettes destined to be sold to the public, regardless of whether the cigarettes were sold by a tribal retailer.
In its Aug. 17 decision granting summary judgment to the city against wholesale distributors Gutlove & Shirvint Inc., of Long Island City, and Mauro Pennisi Inc., of Lindenhurst, N.Y., the court held that the city had proven that the vast majority of the unstamped cigarettes that Gutlove and Pennisi sold to reservation retailers were resold to and consumed by the public, "and that any reasonable wholesaler would have been well aware of that fact."
The sales by Gutlove & Shirvint, Inc. and Mauro Pennisi Inc. violated the federal Contraband Cigarette Trafficking Act ("CCTA") and the two defendants could be liable for a total of up to $15 million in penalties for the violations. The court has ordered a hearing will be held to determine the amount of the penalty.
Corporation Counsel Michael A. Cardozo said, "This decision demonstrates the strong legal basis for the city's efforts to curb illegal tobacco sales, and businesses at all levels of the illegal cigarette trade can expect future enforcement actions directed to them."