Last week, FedEx Corp. (NYSE: FDX) requested that a U.S. District Court in Manhattan dismiss a suit from the city of New York charging the company with illegally delivering 140 tons of contraband cigarettes to people’s homes. Then on Monday came news that the state of New York was joining the suit against FedEx.

The city sued FedEx last December for delivering untaxed cigarettes from the Shinnecock Smoke Shop in Southhampton, Long Island. The shop has been sued numerous times for selling untaxed cigarettes. Like other New York Indian tribes, the Shinnecock Indian Nation claims that its smoke shops are not subject to state and local cigarette taxes.

The city says the deliveries of online and mail orders were made in defiance of a 2006 agreement with the state that FedEx would cease such deliveries.

State Attorney General Eric Schneiderman said:

FedEx’s blatant disregard for its long-standing agreement with New York, as well as federal and state law, enabled tens of millions of cheap, untaxed cigarettes to be shipped to New Yorkers.

New York imposes an excise tax of $15 or more on each carton of cigarettes, and the suit alleges a loss of more than $10 million. It was filed in the U.S. District Court, Southern District of New York, and it seeks more than $239 million in damages and penalties. Other shipping companies are reportedly being investigated as well.

Investors do not seem overly concerned, as FedEx shares were up fractionally after the opening bell to $133.20. The 52-week range is $90.61 to $144.39.

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