August 3, 2010
THE ABSOLUT SPIRITS COMPANY, INC., PETITIONER-RESPONDENT,
MONSIEUR TOUTON SELECTION, LTD., RESPONDENT/CROSS-PETITIONER-APPELLANT,
THE ABSOLUT SPIRITS COMPANY, INC., JIM BEAM BRANDS CO., AND FUTURE BRANDS, LLC, THIRD PARTY RESPONDENTS-RESPONDENTS.
MONSIEUR TOUTON SELECTION, LTD., PLAINTIFF-APPELLANT,
FUTURE BRANDS, LLC., THE ABSOLUT SPIRITS COMPANY, INC., AND JIM BEAM BRANDS CO., DEFENDANTS-RESPONDENTS.
On appeal from a Final Decision of the Division of Alcoholic Beverage Control, Docket No. 02-06; and an appeal from the Superior Court of New Jersey, Law Division, Burlington County, Docket No. L-1048-04.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued: June 3, 2010
Before Judges Cuff, Payne and Fasciale.
These consolidated appeals concern a long-standing dispute between The Absolut Spirits Company, Inc. (Absolut), a manufacturer of vodka, and Monsieur Touton Selection, LTD. (M.Touton), a distributor of wines and a wholesaler of Absolut Blue, one of the licensed brands of vodka produced by Absolut. The current dispute commenced in 2004, when Absolut sought to terminate M.Touton as a wholesaler by filing a petition with the Alcohol Beverage Commission (ABC). M.Touton initiated an action in the Superior Court, Chancery Division, soon thereafter. After granting emergency relief, including an order requiring M.Touton to deposit $92,725.57 pending resolution of the dispute between them, the civil action was dismissed and the matter proceeded in the Office of Administrative Law. This matter returns to this court following our October 2007 remand to allow the ABC Director to make findings of fact in support of his decision allowing Absolut to terminate M.Touton as a wholesaler.
The ABC Director held that certain conduct by M.Touton constituted disparagement of product and unfair trade practices.
M.Touton argues that competitive pricing, i.e., selling product below economic cost, does not constitute disparagement of product and certainly did not justify termination as a wholesaler. It also contends that the evidence adduced on remand does not support the finding that it committed unfair trade practices. M.Touton also appeals from two orders entered by Judge Suter on March 20, 2007, denying M.Touton's motion to reinstate its Law Division complaint and releasing the funds on deposit to Absolut.*fn2 Finally, M.Touton insists that it is entitled to pursue its contract claims against Absolut in the Law Division. We affirm.
The agency decision we review in this appeal requires us to discuss briefly the regulatory context of the dispute and the Director's decision. Absolut is a manufacturer of premium vodkas. It manufactures several different kinds of vodkas, such as Absolut Blue, Absolut Vodka 100 (Absolut Red), and different flavors, such as Absolut Citron, and Absolut Mandarin. Each is registered as a separate brand. M.Touton has been a registered wholesaler of a single brand, Absolut Blue, for many years and is not permitted to sell any brand other than Absolut Blue.
The relationship between manufacturers, such as Absolut, and wholesalers, such as M.Touton, is strictly regulated by statute, which prohibits discrimination by importers and distillers between and among wholesalers. The Anti-Discrimination Act, N.J.S.A. 33:1-93.6, provides
There shall be no discrimination in the sale of any nationally advertised brand of alcoholic beverage other than malt alcoholic beverage, by importers, blenders, distillers, rectifiers and wineries, to duly licensed wholesalers of alcoholic beverages who are authorized by such importers, blenders, distillers, rectifiers and wineries to sell such nationally advertised brand in New Jersey.
The purpose of the statute is to "'ensure an equitable basis for competition between supplier franchised wholesalers of alcoholic beverages in New Jersey.'" R & R Mktg., L.L.C. v. Brown-Forman Corp., 158 N.J. 170, 176 (1999) (quoting Joseph H. Reinfeld, Inc. v. Schieffelin & Co., 94 N.J. 400, 408 (1983)).
The protections provided by the Anti-Discrimination Act do not prevent a supplier from terminating its relationship with a wholesaler in all instances. There may be exceptional circumstances that warrant termination, such as when a wholesaler has materially altered its authorization and is no longer the same type of company with which the supplier originally contracted; in that case termination may be permissible. Id. at 178.
Additionally, ABC's regulatory provisions outline ten scenarios in which a supplier's refusal to continue selling to a wholesaler is not discrimination. N.J.A.C. 13:2-18.1(b). Those scenarios include bankruptcy, lack of financial resources, improper trade practices, and product disparagement. Ibid. Disparagement is defined as "the specific suggestion that the product of the refusing seller not be purchased, or demonstration of a course of conduct that would lead a reasonable person to believe that the product of the refusing seller should not be purchased, and when called to the attention of key management personnel of the wholesaler, no reasonable corrective action is taken." N.J.A.C. 13:2-18.1(b)(8).
In its January 30, 2004 petition seeking permission to terminate M.Touton as a wholesaler of Absolut Blue, Absolut alleged that M.Touton engaged in a course of conduct detrimental to the brand by engaging in unfair trade practices, specifically treating the brand as a "loss leader" by selling it at discounted prices to enhance the sale of its wine products. Absolut argued that this tactic had a detrimental effect on the premium status of the brand and the long-term investment in the product by Absolut. M.Touton has never disputed that it sold Absolut Blue at times below its economic cost.
Although M.Touton filed a response to the Absolut petition and filed a cross-petition alleging discrimination by Absolut, it failed to engage in discovery and failed to comply with several orders issued by an administrative law judge (ALJ) regarding discovery. The ALJ issued an Initial Decision recommending the suppression of M.Touton's answer to Absolut's petition and its cross-petition. The Director accepted this recommendation and suppressed not only M.Touton's answer and cross-petition but also granted Absolut's petition to terminate M.Touton as a wholesaler.
M.Touton appealed the Director's order. In our October 22, 2007 opinion, we affirmed the suppression of M.Touton's answer and cross-petition but remanded to the Director for development of a record on the issue of termination of M.Touton's status as a wholesaler. We directed that the following issues required additional factual determination: 1) "Whether [M.]Touton's sale of Absolut Blue below its economic cost 'disparaged the brand'"; 2) Whether Absolut suffered harm as a result of M.Touton sales below the economic costs; and 3) "[H]ow [M.]Touton's sales growth disparaged the product if the growth was directly linked to [Absolut]'s actions." The Absolut Spirits Co. v. Monsieur Touton Selection, Ltd., No. A-5453-05 (App. Div. Oct. 22, 2007) (slip op. at 17-18). This court also held that M.Touton's participation in the hearing on remand would be limited because of its failure to comply with its discovery obligations.
The Director conducted the hearing at which James Schleifer, an Absolut Vice-President, testified. Following the hearing, the Director issued an opinion and order in which he concluded that Absolut had met its burden of demonstrating that M.Touton had engaged in proscribed trade practices and product disparagement, and further concluded that Absolut was entitled to its requested relief.
The Director found that M.Touton engaged in unfair trade practices. In doing so, he cited three separate claims: (1) a false reimbursement request for $67,071 pursuant to a Retail Incentive Program (RIP); (2) continued submission of purchase orders for brands other than Absolut Blue; and (3) sale of 155 cases of Absolut Blue below cost in April 2004. The Director commented on this claim as follows:
Mr. Schleifer authenticated a letter from [M.Touton] in December 2003 requesting $67,071.00 in reimbursement pursuant to [Absolut]'s RIP program, with an included certification that the wholesaler had complied with the requirements of the program. In support of [Absolut]'s claim that this request was false, Mr. Schleifer testified that during the administrative hearing process, [M.Touton] certified in its Answers to Interrogatories that it never filed a price list with the ABC indicating that it was participating in a RIP program, and that, despite submitting the request, it is clear that [M.Touton] did not comply with the program and was not entitled to any reimbursement. Upon cross-examination, Mr. Schleifer admitted that [Absolut] did not honor the request and [M.Touton] never received the requested $67,071.00.
Mr. Schleifer also authenticated numerous documents that [Absolut] claims demonstrate [M.Touton] continued to order Absolut flavored vodka brands, although the wholesaler certainly knew that it was not authorized to sell such brands. Specifically, Mr. Schleifer identified a letter from [M.Touton] requesting authorization for flavor brands and the responding letter, dated November 11, 2003 from [Absolut] denying such authorization. Mr. Schleifer testified that, subsequent to the denial of the authorization, [M.Touton] submitted a purchase order listing the flavors on December 22, 2003. Mr. Schleifer stated that in contravention of an Order issued by ABC affirming the denial of authorization for the flavors in March 2004,
[M.Touton] continued to submit purchase orders for the non-authorized brands. Mr. Schleifer speculated that [M.Touton] was attempting to slip the order by. . . .
Mr. Schleifer also testified regarding [Absolut]'s allegations that [M.Touton] sold product under cost in April 2004. Specifically, he pointed out that [M.Touton] requested relief from the ABC for an exemption from the sales below cost prohibition, which was denied by my order dated April 21, 2004. In that order, I reiterated my finding that [Absolut]'s price list, effective March 1, 2004, was in compliance with ABC law. Thus, [Touton's] cost of product was governed by those prices. However, the prices submitted by [M.Touton] on its March 15, 2004, price lists (to be used by retailers in April 2004) were apparently premised on [Touton's] claim that the price should have been at the pre-March 1, 2004 prices, a claim that I rejected. . . . Mr. Schleifer pointed out that this data reveals that the certification submitted by [M.Touton] in 2004 that it had not sold any product in April below cost was not correct, and, in Mr. Schleifer's opinion, disingenuous.
The Director also found that the conduct of M.Touton disparaged the product. He cited the sale by M.Touton of the brand below its economic cost as inconsistent with its premium brand status. This tactic undercut the marketing plan adopted by Absolut and affected sales of the brand by wholesalers in neighboring states. The Director found as follows:
Mr. Schleifer testified that Absolut views its vodka as a premium brand. According to Mr. Schleifer, Absolut utilizes high quality ingredients and a proprietary process, in addition to pricing its product at a premium level. Mr. Schleifer added that the Absolut brand has been the most heavily nationally advertised distilled spirits brand for many years, exceeding $30 million in advertising annually. He noted that Absolut depends on marketing by wholesalers to remain a premium product, and that [M.Touton] thwarted Absolut's marketing plan by selling its product as a commodity and at an economic loss. Mr. Schleifer stated that [M.Touton] increased its sales of Absolut Blue at the cost of other distributors' sales. Additionally, Mr. Schleifer testified that Absolut saw a significant decline in retailer advertisements and a decrease of product stacking in stores as a result of [M.Touton's] activities. This loss extended outside of New Jersey, according to Mr. Schleifer, since accounts in New York were purchasing Absolut in New Jersey because based on [M.Touton's] discount pricing, the retail price was lower than through New York wholesalers. Furthermore, Mr. Schleifer authenticated two flyers distributed by [M.Touton's] sales manager which he thought disparaged the Absolut brand. These flyers announced, "Don't get 'ripped' off. Get the 'Absolut' best price. Call your Monsieur Touton wine consultant." Mr. Schleifer explained that [Absolut] believed these flyers mocked the brand and its RIP program, and highlighted the fact that [M.Touton] was in actuality a wine wholesaler, using Absolut only as an entrée to accounts to sell its wines.
Appellate courts have a narrow scope of review when considering administrative determinations. Aqua Beach Condo. Ass'n v. Dep't of Cmty. Affairs, 186 N.J. 5, 15 (2006). An appellate court may only reverse an agency's final decision if "(1) it was arbitrary, capricious, or unreasonable; (2) it violated express or implied legislative policies; (3) it offended the State or Federal Constitution; or (4) the findings on which it was based were not supported by substantial, credible evidence in the record." Univ. Cottage Club of Princeton N.J. Corp. v. N.J. Dep't of Envtl. Prot., 191 N.J. 38, 48 (2007) (citing In re Taylor, 158 N.J. 644, 656 (1999)). In assessing these criteria, we must be mindful of, and afford deference to, an agency's "'expertise and superior knowledge of a particular field.'" Circus Liquors, Inc. v. Middletown Twp., 199 N.J. 1, 10 (2009) (quoting Greenwood v. State Police Training Ctr., 127 N.J. 500, 513 (1992)).
Courts must "give substantial deference to the interpretation an agency gives to a statute that the agency is charged with enforcing." Smith v. Dir., Div. of Taxation, 108 N.J. 19, 25 (1987). Additionally, substantial deference should be afforded to the ABC Director in enforcing the State's alcohol regulations as the "'Director has powers of supervision and control which set him apart from any other formal appellate tribunal.'" Circus Liquors, supra, 199 N.J. at 10 (quoting Blanck v. Mayor & Borough Council of Magnolia, 38 N.J. 484, 491 (1962)). We review the arguments advanced by M.Touton that the Director's findings of fact are unsupported by the record and his conclusions of law are contrary to law in the context of this standard of review.
We are satisfied that the Director's findings that M.Touton engaged in unfair trade practices and that its conduct warranted termination as a wholesaler of Absolut Blue are well supported by the record and are entirely consistent with the governing law. M.Touton tacitly admits that it had no right to the $67,071 RIP reimbursement. It seeks to excuse the submission as a mere request yet the record demonstrates that M.Touton never participated in the RIP and knew it had no right to any funds under this plan.
Similarly, M.Touton's repeated submission of purchase orders for brands other than the one it was authorized to sell cannot be considered innocuous. The sale of alcoholic beverages in New Jersey is highly regulated. M.Touton was aware of the limited nature of its authorization and the consequences of selling brands other than those for which it was a registered wholesaler. There is a qualitative difference between seeking permission to sell additional brands and submitting purchase orders for brands a wholesaler is not authorized to sell.
Finally, M.Touton admits that it sold some product below its economic cost in April 2004. Notably, at that time M.Touton had requested relief from the Director from the sales below cost prohibition but the Director denied relief. The Director ordered M.Touton to certify that it had not sold any product in April at a price reflected on its March 15, 2004 price list; M.Touton supplied a misleading response. On remand, the Director found that M.Touton sold 155 cases of Absolut Blue at prices below cost contrary to his ruling and N.J.A.C. 13:2-24.8(b).
Viewed in its entirety, the record demonstrates knowing violations of the terms of the business relationship between Absolut and M.Touton and knowing violations of the regulatory scheme governing wholesalers. The record also demonstrates a fractured business relationship that does not warrant the protection offered by statute.
The Director also found that M.Touton's business conduct disparaged the product. In doing so, the Director suggested that M.Touton's conduct might not fit the classic definition of product disparagement and noted the list of exceptions to the protection of the Anti-Discrimination Act is not exhaustive. N.J.A.C. 13:2-18.1. The Director accepted Absolut's position that M.Touton's treatment of the brand by undercutting the price and using the brand only as a method to gain entry to retailers to enhance the sale of its wines disparaged the premium status of that brand. Furthermore, he found, and we have no reason to question this finding, the distribution by one of its marketing executives of a flyer mocking the RIP program had the clear capacity of undermining the relationship between other wholesalers and Absolut. We need not determine, however, in this appeal whether this conduct falls within the classic definition of product disparagement or even a more expansive view of such prohibited conduct because we are satisfied that the unfair trade practices found by the Director are more than sufficient to justify termination of the wholesaler status of M.Touton for the Absolut Blue brand.
Finally, we address Judge Suter's March 20, 2007 order denying M.Touton's application to restore its complaint. Contrary to M.Touton's argument, it is not entitled to litigate its contract claims against Absolut in the Law Division, particularly given its conduct before the OAL. M.Touton had a full opportunity to develop the factual record in that forum and to obtain a hearing on its cross-petition against Absolut. Notably, in its cross-petition M.Touton alleged that Absolut discriminated against it, sought an order requiring Absolut to sell all brands of Absolut vodka to it, and sought an order restraining termination of its wholesaler status. Instead of pursuing that course, it effectively abandoned the matter. Reinstatement of the Law Division complaint would ignore the doctrine of primary jurisdiction, Muise v. GPU, Inc., 332 N.J. Super. 140, 159-60 (App. Div. 2000), avoid the consequences of its knowing behavior in the administrative proceedings, and essentially reward M.Touton for its recalcitrance and obdurate behavior in the OAL.