Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.

Absolut Spirits Company, Inc. v. Monsieur Touton Selection


October 22, 2007


On appeal from State of New Jersey Department of Law and Public Safety, Division of Alcoholic Beverage Control, Docket No. 02-06.

Per curiam.


Argued September 10, 2007

Before Judges Cuff, Lihotz and Simonelli.

Monsieur Touton Selection, Ltd. (Touton), appeals from the final order of the Director of the Alcoholic Beverage Commission (ABC) that affirmed the initial decision of an Administrative Law Judge (ALJ) dated May 10, 2006. The ALJ granted the requests for relief sought by Absolut Sprits Company, Inc. (ASCI) in its petition before the ABC and dismissed all claims submitted by Touton in its cross-petition due to persistent discovery failures. We affirm the dismissal of Touton's cross-petition; however, for the reasons discussed, we reverse the grant of relief to ASCI, entered without presentation of proofs, and we remand to the ALJ for a hearing.

ASCI filed a petition with the ABC alleging that Touton, while an authorized wholesaler of Absolut Vodka (Absolut Blue), had implemented "a course of conduct detrimental to the brand" and ha[d] engaged in prohibited and improper trade practices. More specifically, ASCI asserted Touton had harmed the brand by pursuing "a business strategy to sell Absolut Blue as a loss leader" and refusing to provide marketing plans. ASCI maintained that these actions treated the brand as a "commodity brand" rather than a "premium brand" and were designed "to facilitate sales of [Touton's] premium wines to retailers in New Jersey."

ASCI requested an order declaring Touton had forfeited any protections as an authorized wholesaler under the Anti-Discrimination Law, N.J.S.A. 33:1-93.6, and confirming ASCI could terminate Touton as an authorized wholesaler of Absolut Blue. Alternatively, if Touton remained an authorized wholesaler, ASCI sought an order "[d]eclaring that ASCI is not required to supply Touton with Absolut Blue exceeding its average historical volume of 8,900 cases per year."

Initially, Touton responded to the petition by filing a motion for emergent relief on February 10, 2004. The application requested an order pursuant to N.J.S.A. 33:1-93.9 to prohibit all New Jersey wholesalers from purchasing vodka from ASCI and its affiliates until it complied with the ABC order dated July 18, 2002. This request was withdrawn and Touton filed an answer denying ASCI's allegations and a cross-petition against Future Brands, LLC, Jim Beam Brands Co. (Beam)*fn1 and ASCI. Touton's cross-petition requested that the ABC: 1) find that third-party respondents had discriminated against Touton; 2) direct third-party respondents to continue to sell all flavors of Absolut vodka to Touton; 3) oblige third-party respondents to fill Touton's February 2004 purchase orders, as well as future orders submitted prior to the ABC's final determination; 4) require third-party respondents to fill Touton's December 22, 2003 purchase order for Absolut Citron and Mandarin; 5) restrain all New Jersey wholesalers from purchasing any Absolut vodka or any other product from third-party respondents; and 6) prevent third-party respondents from eliminating Touton as an authorized wholesaler of Absolut vodka.

These parties had previously appeared before the ABC in 2002, on Touton's petition against ASCI's predecessor Beam, alleging a violation of the anti-discrimination law, after Beam eliminated Touton's designation as an authorized Absolut wholesaler. "Under the anti-discrimination law, once a supplier authorizes sales of a nationally advertised brand by a wholesaler, the wholesaler is entitled to continue to distribute the product absent exceptional circumstances." R & R Mktg., L.L.C., v. Brown-Forman Corp., 158 N.J. 170, 173 (1999). The ABC's final order in that proceeding, entered on July 18, 2002, required Touton to remain an authorized wholesaler of Absolut Blue. Touton asserts the July 18, 2002 order contained no limitation on the quantity of Absolut Blue supplied to Touton. Thereafter, in September 2003, ASCI, which replaced Beam, requested Touton to service B.J.'s Wholesale Club licensees in New Jersey, increasing the quantity of Absolut Blue Touton ordered from ASCI.

In the current action, the ABC issued its own order requiring ASCI to show cause "why [the ABC] should not issue an Order enjoining the [r]espondents from refusing to make available for purchase Absolut Vodka to [Touton] or . . . an Order stating that no wholesaler shall purchase such brand unless it is made available and sold to [Touton]." After argument, the ABC's order dated March 15, 2004, contained the following findings relevant to this disposition:

It is also clear from the facts presented to me that [Touton] sold Absolut Vodka to their retailer customers at a cost significantly less than the three other wholesalers dealing in the brand for the months of August, September and October 2003. In November and December 2003 and January and February 2004, [Touton's] prices were still less than their wholesale competiters, but not as markedly. While [Touton] did not sell Absolut below cost within the meaning of N.J.A.C. 13:2-24.8, it appears likely that it was sold below its economic cost.

I also find that, although there is some dispute as to the details, there is no question that ASCI put [Touton] in touch with representatives of B.J.'s Wholesale Club, a large volume retailer, when B.J.'s threatened to stop carrying Absolut unless it could get the lowest price, which was offered by [Touton]. [Touton] began selling Absolut to B.J.'s in [September] 2003. . . . ASCI appears to have made a conscious decision to tolerate the level of increased sales in 2002.

Touton's sales in 2002 totaled 16,000 cases.

The ABC's order concluded:

Nevertheless, the record to date is not clear on the implication of ASCI's conduct in allowing [Touton's] sales to grow to current levels. At the same time, ASCI has legitimate concerns about the meaning of product disparagement under Title 33. Emergent relief reflecting these competing interests is required.

ASCI was ordered to supply Touton's "normal requirements" of Absolut Blue "not to exceed 23,000 cases in calendar year 2004, which amount reflects the prior history from 1996 to 2001, a portion of increased sales in 2002 for which no objection was filed at the time, and sales to B.J.'s Wholesale Club[.]" The ABC noted that if evidence was uncovered during discovery revealing that there was no evidence of irreparable harm to Touton, the order could be reconsidered.

In a supplemental decision and order dated March 30, 2004, the ABC denied Touton's right to sell the various flavors of Absolut Blue concluding that each flavor was considered its own brand, pursuant to N.J.S.A. 33:1-2 and N.J.S.A. 33:1-93.6. The ABC found:

A review of the Division's records of brand registrations for Absolut reveals that each flavor of Absolut . . . was registered separately and the appropriate fee was paid separately for each. Additionally, each flavor is designated by a different brand registration number and several of these brand registrations designate different wholesalers as the authorized wholesaler for that product. Despite [Touton's] arguments that advertising and marketing are identical for the Absolut name, I find that based on the provisions of N.J.S.A. 33:1-2, each flavor constitutes a separate brand.

A reading of the brand registration statute in tandem with the anti-discrimination statute indicates that [Touton's] argument that Absolut is a single brand encompassing all of the separate flavors necessarily fails. Thus, I find that [Touton] is only authorized pursuant to N.J.S.A. 33:1-93.6[,] for Absolut Blue, and not any of the separate flavors.

The ABC certified the matter as a contested case and transmitted it to the Office of Administrative Law (OAL) for a plenary hearing, stating in part:*fn2

At this juncture, the record before me is incomplete with regard to the scope of the parties' authorization, and whether because of the changes in its business operations, [Touton] had materially deviated from its authorization in such a manner as to forfeit or limit its rights under the anti-discrimination law.

In a case management conference, the ALJ ordered the parties to respond to initial discovery demands by September 30, 2004, serve supplemental discovery requests by October 15, 2004, respond to supplemental discovery responses by November 15, 2004, and file any discovery motions within thirty days of a party failing to comply with the order.

On November 24, 2004, ASCI filed a motion to compel discovery and impose sanctions, pursuant to N.J.A.C. 1:1-14.14(a). The pleadings enumerated each deficient answer and why the information was germane to the litigation. Touton filed no responsive pleadings. Shortly before the return date, Touton transmitted interrogatory answers to ASCI. Then, on December 14, 2004, Touton produced 2,279 pages of documents. ASCI asserted, and Touton did not deny, that ninety-two percent of the documents responded to one inquiry.

ASCI's motion was argued on January 21, 2005. ASCI requested the dismissal of Touton's answer and cross-petition pursuant to N.J.A.C. 1:1-14.14(a)1 and 2. Touton's counterargument was ASCI failed to fully respond to Touton's discovery requests making the relief requested inappropriate. N.J.A.C. 1:1-1.3(a) and R. 4:23-5(a)(1).

It was clear from the parties' arguments that they disagreed on whether ASCI's claim of disparagement required production of the financial details of Touton's business operation. Touton declined to release verification of its income and expenses, asserting the information was proprietary and not relevant to the proceeding. In this regard, Touton claimed other Absolut wholesalers sold the product below economic cost and ASCI was unfairly targeting Touton. In addition, the ABC had determined Touton was not in violation of N.J.A.C. 13:2-24.8, making the requested discovery akin to "a fishing expedition." ASCI insisted that the documents were necessary to prove its claim that Touton used Absolut Blue as a "loss leader."

After extensive discussion on the scope of Touton's compliance, including a review of certain questions and Touton's answers, the ALJ determined it was necessary to finalize the issues in dispute before determining the necessary discovery. Touton was required to submit a list of issues it believed the ALJ must determine and to revise its responses to interrogatories. The ALJ declined to address Touton's oral application that ASCI was deficient in its discovery compliance because Touton had not filed any pleadings.

A second hearing was scheduled for March 9, 2005. That morning, Touton produced revised interrogatory answers. ASCI asserted the answers were inadequate; that Touton had not included a narrative response to its document request identifying which documents were produced in response to which question; and had not submitted a privilege log, despite citing privilege as a basis to decline to respond. Touton argued that ASCI had no right to request proprietary information, including Touton's overhead costs incurred and profit realized from its business operation. Nevertheless, Touton's counsel agreed to prepare a non-disclosure agreement, provide revised responses to specifically enumerated interrogatories within two days, and present additional documents as requested within nine days, excluding the proprietary information subject to the non-disclosure agreement.

Touton transmitted additional discovery to ASCI. In a letter to the ALJ dated April 26, 2005, ASCI enumerated the items it believed were missing from the discovery received, focusing on the incomplete responses regarding Touton's profitability in selling Absolut Blue and its failure to supply support for its cross-petition claims.

On January 4, 2006, ASCI sent another letter to the ALJ, renewing its motion to compel discovery and to suppress Touton's answer and cross-petition. This letter identified Touton's failure to disclose proof of its expenses, which ASCI asserted were required to assess the profitably of selling Absolut Blue, since "[o]ne of the central factual issues in this litigation is whether Touton sold Absolut Blue at a profit or at a loss." The letter also addressed deficiencies in the support supplied for Touton's cross-petition claims, including:

A key Touton claim alleges that Third-Party Respondents have not provided it the same level of marketing support as provided to other wholesalers. However, when asked to describe its alleged requests for support, Touton refuses to identify which Touton employee made the request, when, what was requested and the response to the requests . . . .

Touton's Verified Cross-Petition asserts that Third-Party Respondents' actions caused Touton to suffer monetary losses and damaged its reputation and credibility with customers. When asked to identify the customers with which its reputation was harmed or those from which it lost sales, Touton responds: "[d]ata is not currently available; will be provided at or prior to the conclusion of discovery."

Touton responded by letter on January 16, 2006, informing the ALJ that ASCI failed to submit an affidavit to support its request for sanctions in conformance with R. 4:23-5(a)(1). Further, Touton insisted it had complied with all discovery requests, suggesting the problem was ASCI did not like its answers and explained the reasons for not answering certain interrogatories. Finally, Touton asserted that ASCI was deficient in responding to discovery requests propounded by Touton.

The ALJ considered argument in a proceeding held on January 24, 2006. After reviewing Touton's revised interrogatory answers, the ALJ determined the answers were "not responsive." Touton's counsel stated: "I admitted it. We . . . both are remiss. Let us [have] time to cure it -- a short time to cure it." The ALJ responded:

In 30 days you are going to give me the suggestions of the sanctions that I should impose upon your client for its failure to answer Interrogatories, but only after you have certified to me that all answers have been furnished, fully and completely, so that even if I read them -- and not knowing anything about your industry, other than being on the consumer end -- I can understand.

Touton's oral motion for sanctions against ASCI for failure to provide sufficient discovery was denied because no pleadings had been filed. Following the hearing, Touton neither complied with the ALJ's request nor submitted additional responses to ASCI.

On March 10, 2006, the ALJ issued a written Initial Decision, which addressed ASCI's motion, and included a recommendation to the ABC for disposition on the contested case.

The ALJ determined sanctions should be imposed against Touton for its failure to comply with discovery obligations, and recommended suppressing Touton's defenses and claims. N.J.A.C. 1:1-14.14(a)1 and 2. The ALJ further recommended that ASCI's requests be granted and that the claims in Touton's cross-petition be denied. Touton filed exceptions to which ASCI replied. After review, the ABC affirmed the ALJ's decision in its Final Conclusion and Order dated May 10, 2006.

On appeal, Touton argues that less prejudicial sanctions should have been employed rather than dismissing Touton's pleadings; challenges, as arbitrary and capricious, the ABC's decision to grant ASCI's petition; and maintains the ABC erred in denying Touton the right to sell all flavors of Absolut vodka.

When considering the actions of administrative agencies, our scope of review is narrow. Aqua Beach Condo. Ass'n. v. Dep't of Comm. Affairs, 186 N.J. 5, 15 (2006). We will not overturn an agency's decision unless convinced the determination "'was arbitrary, capricious, or unreasonable, or that it lacked fair support in the evidence, or that it violated legislative policies expressed or implicit in the [enabling legislation].'" Id. at 16 (quoting Campbell v. Dep't of Civil Serv., 39 N.J. 556, 562 (1963)). We must analyze the ABC's decision to dismiss Touton's answer and cross-petition. We separately review the ABC's grant of affirmative relief to ASCI on what became its unchallenged petition.

The record includes the interrogatories propounded by ASCI along with Touton's initial and supplemental answers. Many of the answers submitted in Touton's first response were curt and limited in substance. The revised submissions, dated March 11, 2005, contained additional information to some questions. However, other questions remained unanswered, and many were answered with phrases such as "to be supplied" or "subject to further discovery."

"[P]rocedures for discovery in preparation for trial are essential to any modern judicial system in which the search for truth in aid of justice is paramount and in which concealment and surprise are not to be tolerated." Lang v. Morgan's Home Equip. Corp., 6 N.J. 333, 338 (1951). So too, effective provisions for the efficient enforcement of discovery rules are essential to manage litigation. In re Timofai Sanitation Co., 252 N.J. Super. 495, 503 (App. Div. 1991).

The Uniform Administrative Procedure Rules (UAPR), N.J.A.C. 1:1-1.1 to -21.6, govern the procedural aspects of conducting hearings and rendering decisions in all contested cases in the Executive Branch of the State government. N.J.A.C. 1:1-1.1.

The power to invoke sanctions against a party's "unreasonable failure to comply with an order" issued by an ALJ, including an order compelling discovery, is found at N.J.A.C. 1:1-14.14.

Clearly, dismissal of Touton's answer and cross-petition was drastic. However, our review of the record discerns that the ABC's determination, in this regard, was neither arbitrary nor capricious. The ALJ afforded great leniency to Touton during the fifteen months of the discovery dispute. Touton never filed any motions for relief. The ALJ also solicited Touton's suggested alternatives to dismissal, an opportunity it did not seize. The discovery sought by ASCI went to the very foundation of Touton's cross-petition claims, making dismissal appropriate. See Tsibikas v. Morrof, 5 N.J. Super. 306, 310 (App. Div. 1949) (dismissal should ordinarily be without prejudice unless it is based on matters going to the merits).

We reject as specious Touton's suggestion that the interrogatory responses were adequate and ASCI should have obtained more specific information through depositions. Such dilatory tactics cannot be tolerated.

We discern no basis on which to intervene with the ABC's final order dismissing Touton's answer and cross-petition and conclude that the agency's determination is appropriately "supported by sufficient credible evidence on the record as a whole." R. 2:11-3(e)(1)(D).

On the other hand, that the entry of an order granting ASCI's petition is entitled to the same deference. "'Administrative agencies must articulate the standards and principles that govern their discretionary decisions in as much detail as possible. When the absence of particular findings hinders or detracts from effective appellate review, the court may remand the matter to the agency for a clearer statement of findings and later reconsideration.'" R & R Mktg., supra, 158 N.J. at 178 (quoting In re Vey, 124 N.J. 534, 543-44 (1991) (internal quotations and citations omitted)).

ASCI asserted that Touton's actions of selling Absolut Blue below economic cost "diminished the premium status of the brand" and undermined ASCI's relationship with other wholesalers. The alternative remedies sought by ASCI were to terminate Touton as a wholesaler of Absolut Blue or limit supplies to Touton to "its average historical volume of 8,900 cases per year of Absolut Blue."

After initial examination, the ABC rendered a conclusion that Touton had not sold Absolut Blue below "cost" within the meaning of N.J.A.C. 13:2-24.8(b). The regulation defines "cost" as the product price paid to the distributor, plus applicable federal and state taxes, and freight charges to the distributor. Ibid. Had Touton sold Absolut Blue below cost, the ABC would have finalized the requests in ASCI's petition at the outset of the controversy. Instead, the case presented complex issues necessitating factual determinations by the ALJ.

The ALJ's initial decision and the ABC's final decision contain no factual findings. N.J.A.C. 1:1-18.3(c)(7). Even though Touton's answer was appropriately stricken, the relief sought by ASCI was not self-evident. A final conclusion by the ABC only could be reached after factual findings were made and correlated to legal consequences.

One issue requiring factual determination is whether Touton's sale of Absolut Blue below its economic cost "disparaged the brand." The claim in ASCI's petition is presented generally, unaccompanied by specific factual support. The record reflects that Touton did not heartily dispute it earned little from sales of Absolut Blue. After costs, profit was near break-even on some sizes and below economic cost on smaller sizes.*fn3 But this is only one part of the necessary proofs. To prevail on its claim, ASCI also needed to prove that ASCI suffered harm. The conclusory statements in ASCI's petition do not provide substantial evidence to support such a finding.

A related issue is the relationship, if any, of Touton's increased sales volume to ASCI's contentions of disparagement. No one disputed that "Touton's sales volume of Absolut Blue [had] grown dramatically" since 2002; however, the reason for the increased sales was in dispute. As noted in the ABC's initial order, it was ASCI that "made a conscience decision to tolerate the level of increased sales in 2002" by putting Touton in touch with B.J.'s Wholesale Club. ASCI must establish how Touton's sales growth disparaged the product if the growth was directly linked to ASCI's actions.

As it stands, the record contains no evidence to support the ABC's determination that Touton's increased sales, coupled with its low or in some cases nonexistent profit margin on the sale of the product, caused disparagement of the brand warranting the relief sought by ASCI.

We additionally note that ASCI's petition sought alternative relief: either to terminate Touton as a wholesale distributor of Absolut Blue or to limit its sales volume to its historic average, which ASCI contends was 8,900 cases per year.*fn4

The ABC's conclusion does not identify what specific relief was granted despite the fact that the two reliefs have widely disparate consequences to Touton. It is inappropriate to allow ASCI to choose its remedy. Instead, a factual basis must be established to support the final disposition made by the ABC.

In civil litigation in the Superior Court, prior to the entry of a default judgment, a proof hearing is required on notice to a defaulted party, "to determine the amount of damages or to establish the truth of any allegation," Rule 4:43-2(b), in matters other than a computation of a sum certain. The UAPR contains no parallel to Rule 4:43-2. An offer of proof provides a useful procedure to establish the right to relief as well as the appropriate remedy. We conclude that the sound policy of the rule should be utilized in this administrative proceeding, especially because a private party seeks agency relief.

Thus, we determine that ASCI is required to establish the facts necessary to justify the requested relief of either terminating Touton as an Absolut Blue wholesaler or, alternatively, limiting Touton's annual allowable sales volume to a level shown to be equivalent to Touton's actual historic sales. Accordingly, we reverse that portion of the ABC's final conclusion that granted relief to ASCI, and remand the matter to the ALJ to conduct a hearing wherein ASCI will submit its proofs supporting relief. The ALJ may, after making specific findings, limit Touton's participation in that hearing as a result of its failure to comply with its discovery obligations. See Chakravarti v. Pegasus Consulting Group, Inc., 393 N.J. Super. 203, 210-211 (App. Div. 2007) ("[e]ven though a defendant who has defaulted has relinquished the right to present affirmative proofs in the matter, the right to challenge a plaintiff's showings in a proof hearing by way of cross-examination and argument should not ordinarily be precluded."); Innes v. Carrascosa, 391 N.J. Super. 453, 496 (App. Div. 2007) (when faced with a defaulting defendant, trial judge acted reasonably and within his authority to restrict that party's participation in a proceeding including limiting introduction of evidence).

Finally, we affirm the ABC's determination that each Absolut vodka flavor constitutes a separate brand under N.J.S.A. 33:1-93.6. A "strong presumption of reasonableness accompanies an administrative agency's exercise of statutorily-delegated responsibility," Gloucester County Welfare Board v. State Civil Service Commission, 93 N.J. 384, 390 (1983), such that we defer to the agency's statutory interpretation provided it is not plainly unreasonable. Merin v. Maglaki, 126 N.J. 430, 437 (1992). We do not substitute our judgment for the agency's own policy determinations concerning regulation of the alcoholic beverage industry especially when substantial credible evidence supports an agency's conclusion. Greenwood v. State Police Training Ctr., 127 N.J. 500, 513 (1992).

Affirmed in part, and reversed and remanded in part.

Buy This Entire Record For $7.95

Official citation and/or docket number and footnotes (if any) for this case available with purchase.

Learn more about what you receive with purchase of this case.