L.J. ZUCCA, INC., Plaintiff-Appellant/ Cross-Respondent,
ALLEN BROS. WHOLESALE DISTRIBUTORS INC., and PLAINFIELD TOBACCO & CANDY CO., INC., a/k/a RESNICK DISTRIBUTORS, Defendants-Respondents/ Cross-Appellants, and ASSOCIATED WHOLESALERS INC., BEE GEE CANDY CO., INC., CONSOLIDATED SERVICE DISTRIBUTORS, INC., CONTINENTAL TOBACCO & CANDY INC., COOPER-BOOTH WHOLESALE COMPANY and BUCKS COUNTY CIGAR & CANDY, GRABER BROTHERS, INC., GIBBY'S WHOLESALE, GLIKIN BROTHERS, INC., HAROLD LEVINSON ASSOCIATES, INC., JOSEPH FRIEDMAN AND SONS OF NJ, INC., KLEIN CANDY CO. L.P., MANDEL TOBACCO CO. OF NJ, INC., MIDDLESEX TOBACCO & CONFECTIONARY CO., INC., OCEAN TOBACCO, INC., PLANET WHOLESALE INC., and VALUE KING WHOLESALE, INC., Defendants
Argued September 23, 2013.
On appeal from Superior Court of New Jersey, Law Division, Cumberland County, Docket No. L-834-07.
Daniel R. Chemers, of the District of Columbia, Maryland, and Pennsylvania bars, admitted pro hac vice, argued the cause for appellant/cross-respondent L.J. Zucca, Inc. (Saul Ewing, L.L.P., attorneys; Mr. Chemers, of counsel and on the brief; Francis X. Riley III and Sarah F. Lacey of the Maryland bar, admitted pro hac vice, of counsel and on the brief).
Marvin J. Brauth argued the cause for respondents/cross-appellants (Wilentz, Goldman & Spitzer, attorneys for Plainfield Tobacco & Candy Co., Inc. a/k/a Resnick Distributors, Inc.; Pepper Hamilton, L.L.P., attorneys for Allen Brothers Wholesale Distributors, Inc.; Mr. Brauth, of counsel and on the joint brief; Karin K. Sage and Michael T. Pidgeon, on the joint brief).
Julian Wilsey argued the cause for respondent Consolidated Service Distributors, Inc. (Franzblau Dratch, attorneys; Mr. Wilsey, on the brief).
Amanda J. Lavis and Robert J. Tribeck (Rhoads & Sinon, L.L.P.), of the Pennsylvania bar, admitted pro hac vice, attorneys for respondent Associated.
Wholesalers Inc. (Ms. Lavis and Mr. Tribeck, on the brief).
Cooper Levenson April Niedelman & Wagenheim, P.A., attorneys for respondents Bee Gee Candy Co., Inc., and Starkman General Products (Katherine M. Morris, on the brief).
Paul V. Lucas, Jr. (Greenberg, Trager & Herbst, L.L.P.) and Kalvin Kamien (Greenberg, Trager & Herbst, L.L.P.) of the New York bar, admitted pro hac vice, attorneys for respondents Continental Tobacco & Candy Inc., M. Bernstein & Sons, and Rainbow Heaven Distribution, L.L.C. (Messrs. Lucas and Kamien, on the brief).
Blank Rome, L.L.P., attorneys for respondent Cooper-Booth Wholesale Company; Chance & McCann, L.L.C., attorneys for respondent Eby-Brown Company L.L.C.; Stradley Ronon Stevens & Young, L.L.P., attorneys for respondent McLane/MidAtlantic, Inc.; Lawrence Kalikhman (Kalikhman & Rayz, L.L.C.) and Eric Rayz (Kalikhman & Rayz L.L.C.) of the Pennsylvania bar, admitted pro hac vice, attorneys for respondent S & K Imports, Inc.; and Miller, Myerson & Corbo, attorneys for respondent Vikisha Corp. (Stephen M. Orlofsky, Sheila E. Branyan, of the Pennsylvania bar, admitted pro hac vice, Kevin P. McCann, Shanna McCann, Francis X. Manning, Mr. Rayz, and Gerald D. Miller, on the joint brief).
Choi & Park, L.L.C., attorneys for respondent M & J. Wholesale, Inc. (Chull S. Park, on the brief).
David A. Avedissian, attorney for respondent Sun Wholesale, Inc.
Before Judges Yannotti, Ashrafi and Leone.
Plaintiff L.J. Zucca, Inc., a wholesaler of cigarettes and other products, filed this action in 2005 against twenty-eight other wholesalers alleging violations of New Jersey's Unfair Cigarette Sales Act of 1952 ("the UCSA" or "the Act"), N.J.S.A. 56:7-18 to -38. Plaintiff now appeals from orders of the Law Division entered in November and December 2011 that denied its motion for partial summary judgment against one of the defendants and instead granted summary judgment to all defendants, thus dismissing plaintiff's complaint in its entirety. Plaintiff also appeals from earlier orders dated February 3 and 23, 2009, that dismissed its claims against two of the defendants pursuant to the entire controversy doctrine, Rule 4:30A.
Two defendants, Allen Bros. Wholesale Distributors Inc. ("Allen Bros.") and Plainfield Tobacco & Candy Co., Inc., a/k/a Resnick Distributors ("Resnick"), cross-appeal from December 17, 2010 orders that denied their motions for summary judgment on the ground that plaintiff lacks standing to bring a private enforcement action under the UCSA.
We affirm on the standing issue and on the denial of partial summary judgment to plaintiff as to liability of one of the defendants. We reverse the orders dismissing plaintiff's amended complaint and remand to the Law Division for further proceedings consistent with this opinion.
Plaintiff claims defendants violated the UCSA by engaging in underpricing of cigarettes on the wholesale market. After six years of pleadings, discovery, and motion practice, defendants prevailed on their motions for summary judgment. We view the relevant facts most favorably to plaintiff as the party against whom summary judgment was entered. See R. 4:46-2(c); Brill v. Guardian Life Ins. Co. of Am., 142 N.J. 520, 540 (1995).
The wholesale cigarette market in New Jersey is very competitive. The State imposes few administrative barriers on new entrants to the market, and the expenses of initial entry are not formidable. There are about one hundred or more wholesalers and subjobbers in the State. No person or entity controls a majority of the market. In fact, defendant Resnick, which is one of the larger wholesalers, held only about seven percent of the Statewide market at the time relevant to this litigation.
The Director of the New Jersey Division of Taxation ("the Director") periodically issues a pricing schedule for all cigarette brands. The schedule sets minimum base prices under the UCSA that wholesalers must presumptively charge their retailer accounts. The prices are calculated in accordance with a provision of the Act, N.J.S.A. 56:7-22, and a formula set forth in an implementing regulation, N.J.A.C. 18:6-3.1(b). The formula determines the base price for each brand of cigarette by adding "the basic cost of cigarettes and the total face value of any tax stamps required by the New Jersey Cigarette Tax Act [N.J.S.A. 54:40A-1 to -43] and any municipal ordinance, [and] the presumed cost of doing business by the wholesalers . . . as defined in [N.J.A.C. 18:6-1.1] (Definitions) of this Chapter." N.J.A.C. 18:6-3.1(b).
Generally, N.J.S.A. 56:7-19 and N.J.A.C. 18:6-1.1, define "[b]asic cost of cigarettes" as the manufacturer's "invoice cost of cigarettes to the . . . wholesaler, " with certain potential adjustments, including cigarette taxes if not already added to the invoice cost. The "cost of doing business" for a wholesaler is presumed by N.J.S.A. 56:7-22(b) and N.J.A.C. 18:6-1.1 to be 5.25% of the "'basic cost of cigarettes' to the wholesaler" plus a presumed 0.75% for cartage costs if paid by the wholesaler.
In other words, the Director's price schedule begins with the invoice price the wholesaler pays manufacturers for cigarettes, adds cigarette taxes, allows for certain adjustments, and finally adds a presumptive percentage as the "cost of doing business" or overhead costs. Using this formula, the price schedule sets the minimum wholesale price for each brand.
Plaintiff's amended complaint did not allege that defendants overtly charged retailers prices below the Director's price schedule. Rather, it alleged that defendants have for years given cash rebates and other credits to their retailer accounts, and that these concessions effectively drop the wholesalers' true prices below those shown on their invoices and below the prices fixed by the Director. No defendant had obtained the Director's approval to charge retailers prices lower than the Director's schedule, or to give rebates, credits, or other concessions.
After several years of document and deposition discovery, plaintiff attempted to establish the legal parameters of its private enforcement case with a "test" motion for partial summary judgment on the liability of one defendant. Plaintiff used information it had developed in discovery to show that defendant Resnick's effective prices were below those in the price schedule. Resnick's president had admitted in deposition that rebates and credits it had granted to its retailer accounts resulted in its actual prices being lower than those approved by the Director. Resnick claimed it was compelled to provide such concessions, as did many other wholesalers and subjobbers, in order to stay competitive in the cigarette market.
Resnick denied that the effective prices it charged its retailer accounts were below its own costs, and plaintiff produced no evidence to the contrary. In fact, neither side produced evidence of the actual overhead costs of cigarette sales incurred by Resnick or any of the defendants. Discovery was not complete at the time of the summary judgment motions, and actual costs to defendants were not addressed in the summary judgment record. No expert reports were produced regarding the economics of any party's business activities.
Plaintiff conceded it could not prove Resnick or any other defendant had the ability to recoup the losses it allegedly suffered when it underpriced its cigarettes, or even that Resnick or any other defendant in fact suffered losses as a result of the underpricing. Plaintiff's executive vice-president testified in deposition that some out-of-state wholesalers had lower labor and overhead costs than New Jersey wholesalers and, consequently, were able to sell cigarettes at lower prices than those set by the Director. This testimony contradicted plaintiff's claim that defendants sold cigarettes at a loss. Nevertheless, plaintiff maintained it was entitled to partial summary judgment against Resnick because, as a matter of law, Resnick's admitted rebates and credits violated the Act.
Defendants, on the other hand, contended that plaintiff could not prove defendants had the ability to recoup alleged underpricing losses in the highly competitive cigarette market and, therefore, that they had the anticompetitive intent required to prove a violation of the UCSA. Because intent to injure competitors or to destroy or lessen competition is an element of a UCSA violation, and because antitrust law views the ability to recoup losses as vital to proving such a violation, defendants claimed they were entitled to summary judgment.
The trial court agreed with defendants. It concluded that "predatory intent" in conformity with antitrust law must be proven to show a violation of the UCSA. Because plaintiff concededly could not prove predatory intent, ...