NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION DOCKET NO. A-2723-11T1
L.J. ZUCCA, INC., APPROVED FOR PUBLICATION Plaintiff-Appellant/ Cross-Respondent, January 9, 2014
v. APPELLATE DIVISION
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,[1] EBY-BROWN COMPANY L.L.C., M & J WHOLESALE, INC., M. BERNSTEIN & SONS, MCLANE/MIDATLANTIC, INC., RAINBOW HEAVEN DISTRIBUTION, L.L.C., S & K IMPORTS, INC.,
1 After briefs had been filed on these appeals, respondent Cooper-Booth Wholesale Company filed a petition for bankruptcy in federal court, and we dismissed the appeal as to Cooper- Booth only. STARKMAN GENERAL PRODUCTS, SUN WHOLESALE, INC., and VIKISHA CORP.,
Defendants-Respondents,
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[2].
________________________________________
Argued September 23, 2013 – Decided January 9, 2014
Before Judges Yannotti, Ashrafi and Leone.
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).
2 The record on appeal does not show clearly whether these listed defendants were served with a notice of appeal and should be designated as respondents. Some defendants entered into settlements with plaintiff. Others may still be active parties.
2 A-2723-11T1 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
3 A-2723-11T1 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.
The opinion of the court was delivered by
ASHRAFI, J.A.D.
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.
4 A-2723-11T1 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.
I.
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
5 A-2723-11T1 are not formidable. There are about one hundred or more
wholesalers and subjobbers3 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
3 As we understand it, subjobbers buy cigarettes from licensed wholesalers and resell them to retailers, generally those with a lower volume of cigarette sales. See Eby-Brown Co. v. Wis. Dep't of Agric., 213 F. Supp. 2d 993, 997 (W.D. Wis. 2001), aff'd, 295 F.3d 749 (7th Cir. 2002). New Jersey imposes even fewer administrative barriers on subjobbers than on stamping wholesalers. Stamping indicates payment of cigarette taxes.
6 A-2723-11T1 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.4
In other words, the Director's price schedule begins with
the invoice price the wholesaler pays manufacturers for
4 N.J.S.A. 56:7-22(b) states:
[T]he "cost of doing business by the wholesaler" shall be presumed to be 5.25% of the "basic cost of cigarettes" to the wholesaler, plus cartage to the retail outlet, if performed or paid for by the wholesaler, which cartage cost, in the absence of the filing with the director of satisfactory proof of a lesser or higher cost, shall be deemed to be 3/4 of 1% of the "basic cost of cigarettes" to the wholesaler.
N.J.A.C. 18:6-1.1, lists the types of expenses that shall be considered in determining a wholesaler's cost of doing business but also states that the cost will be presumed to be the percentages as quoted above in the statute, "[i]n the absence of the filing with the Director of satisfactory proof of a lesser or higher cost of doing business."
7 A-2723-11T1 cigarettes, adds cigarette taxes, allows for certain adjust-
ments, 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
8 A-2723-11T1 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
9 A-2723-11T1 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, all defendants were
entitled to summary judgment.
II.
Urging affirmance of the trial court's decision, defendants
argue that the UCSA requires a private party such as plaintiff
to prove the following three elements in an enforcement action:
(1) that plaintiff has standing to seek relief under the Act,
specifically, that plaintiff was "injured" by the violations of
the Act it alleges; (2) that a defendant has priced its
10 A-2723-11T1 cigarettes below its own costs for those products, not just
below the Director's price schedule; and (3) that the defendant
had "predatory intent" in pricing its cigarettes below its
costs, or in granting rebates or other concessions to retailers.
As to the last of the three elements, defendants argue the
concept of predatory intent under the UCSA conforms to antitrust
law and means "a dangerous probability" or at least "a
reasonable prospect" that the defendant will recoup its losses
through later monopolistic high pricing of the cigarettes
("supracompetitive pricing"). See Brooke Group Ltd. v. Brown &
Williamson Tobacco Corp., 509 U.S. 209, 224, 113 S. Ct. 2578,
2588, 125 L. Ed. 2d 168, 187 (1993); see also Cargill, Inc. v.
Monfort of Colorado, Inc., 479 U.S. 104, 117, 107 S. Ct. 484,
493, 93 L. Ed. 2d 427, 440 (1986) ("Predatory pricing may be
defined as pricing below an appropriate measure of cost for the
purpose of eliminating competitors in the short run and reducing
competition in the long run."). Defendants focus most
prominently on the fact that the wholesale cigarette market in
New Jersey is not at risk of any person or entity gaining a
monopoly and injuring competitors by future supracompetitive
pricing, but overall, they also contend that plaintiff cannot
prove any of the three necessary elements of its cause of
action.
11 A-2723-11T1 Plaintiff, on the other hand, contends that the UCSA is not
antitrust legislation requiring a showing of predatory intent.
It contends the UCSA is legislation fixing floor prices for
cigarettes as a means of fostering fair competition. Plaintiff
argues that a private enforcement action requires only proof
that a defendant sold cigarettes at effective prices below those
authorized by the Director, or that a defendant granted rebates
or other concessions to its retailer accounts without the
Director's prior approval. According to plaintiff, the
Director, rather than each individual wholesaler, determines the
minimum prices that wholesalers must charge, and defendants are
bound by the Director's price schedule unless they have received
prior approval to charge lower prices, which no defendant has
obtained. Plaintiff contends that the statutory requirement
that a defendant have intended to injure competitors or to
destroy or lessen competition is presumed upon proof of
violations of the Director's price schedule or upon proof of a
defendant engaging in the other prohibited acts.
The dispute involves an issue of statutory interpretation.
Therefore, our standard of review is plenary. See McGovern v.
Rutgers, the State Univ. of N.J., 211 N.J. 94, 107-08 (2012);
Manalapan Realty, L.P. v. Twp. Comm. of Manalapan, 140 N.J. 366,
378 (1995).
12 A-2723-11T1 We commend all counsel for excellent briefing of the
disputed legal issues, but we adopt in its entirety neither
side's interpretation of the Act.
A.
We first address the issue of plaintiff's standing to bring
an enforcement action pursuant to the UCSA. Whether a party has
standing is a threshold inquiry. Spinnaker Condo. Corp. v.
Zoning Bd. of Sea Isle City, 357 N.J. Super. 105, 110 (App.
Div.), certif. denied, 176 N.J. 280 (2003). If defendants Allen
Bros. and Resnick are correct in their cross-appeal that
plaintiff lacks standing, the other issues are moot, and
plaintiff's amended complaint should be dismissed against all
defendants.
As a question of law, the issue of standing is subject to
plenary review on appeal. In re Project Authorization Under
N.J. Register of Historic Places Act, 408 N.J. Super. 540, 555
(App. Div. 2009), certif. denied, 201 N.J. 154 (2010).
The UCSA authorizes an enforcement action "to prevent,
restrain or enjoin a violation, or threatened violation, of any
of the provisions of this act." N.J.S.A. 56:7-32(a). Standing
to seek such injunctive relief is conferred as follows:
Such an action may be instituted by any person injured by any violation or threatened violation of this act or by the Attorney-General, upon the request of the
13 A-2723-11T1 director. . . . In such action it shall not be necessary that actual damages to the plaintiff be alleged or proved . . . .
[Ibid. (emphasis added).]
Additionally, subsection b of the same statute permits a private
action for money damages.
Thus, a private party may sue for money damages, or it may
seek only injunctive relief even if it suffered no actual
damages, provided it was "injured by any violation or threatened
violation" of the Act. Here, plaintiff sought both money
damages and injunctive relief, alleging that defendants' rebate
and pricing practices caused it to lose or become unable to
compete for business from defendants' retailer accounts,
resulting in a loss of market share and profits.
Allen Bros. and Resnick argue that plaintiff cannot prove
the requisite injury. They assert plaintiff has presented no
competent proof that it actually lost a single retailer account
as a consequence of defendants' business practices. They
contend that the UCSA should be interpreted similarly to the
private enforcement provision of the New Jersey Consumer Fraud
Act, N.J.S.A. 56:8-1 to -195, relying in particular on the
Supreme Court's restriction of that act's enforcement provision
in Weinberg v. Sprint Corp., 173 N.J. 233 (2002).
14 A-2723-11T1 The Consumer Fraud Act, however, restricts standing of a
private claimant to "any person who suffers an[] ascertainable
loss of moneys or property" from the unlawful conduct prohibited
by that law. N.J.S.A. 56:8-19 (emphasis added). It permits
only the Attorney General to maintain an action solely for
injunctive relief. Weinberg, supra, 173 N.J. at 250. The UCSA
is not the same. A private party may maintain an action for
injunctive relief without proof that it suffered a monetary
loss. N.J.S.A. 56:7-32(a).
The trial court rejected defendants' arguments on standing
because plaintiff had alleged actual damages, and it could not
be expected to substantiate its damages before discovery was
completed. The trial court also relied on the specific language
of the UCSA we have quoted and concluded that plaintiff had
alleged sufficient injury to pursue its claims regardless of
whether it had sustained any actual damages.
Our courts have adopted a liberal approach to standing.
Crescent Park Tenants Ass'n v. Realty Equities Corp., 58 N.J.
98, 101 (1971). Standing requires "a sufficient stake and real
adverseness with respect to the subject matter of the
litigation" and a "substantial likelihood of some harm visited
upon the plaintiff in the event of an unfavorable decision." In
re Adoption of Baby T., 160 N.J. 332, 340 (1999).
15 A-2723-11T1 The UCSA creates a factual presumption of intent to injure
competitors by the underpricing of cigarettes, or by granting
rebates or other concessions. See N.J.S.A. 56:7-20(d). Injury,
which is distinct from actual proven monetary damages, can occur
because the aggrieved wholesaler is compelled to compete for
sales with a competitor that underprices its cigarettes.
We conclude, as did the trial court, that plaintiff
demonstrated presumptively such an injury and therefore had
standing to bring an enforcement action for injunctive relief,
even if it could not prove actual monetary losses.
B.
With respect to proof of defendants' underpricing of their
cigarette products, plaintiff cites N.J.S.A. 56:7-22(b) and
N.J.A.C. 18:6-1.1 (quoted or summarized in footnote 4 of this
opinion) in support of its contention that only the Director may
approve wholesale prices below those set by the pricing
schedule. Defendants dispute that position and contend that
plaintiff must prove the prices a defendant charged were not
only below those set by the Director's pricing schedule but also
below the defendant's own costs for the cigarette products.
The UCSA provides:
It shall be unlawful and a violation of this act:
16 A-2723-11T1 a. For any . . . wholesaler . . . with intent to injure competitors or destroy or substantially lessen competition--
(1) to advertise, offer to sell, or sell, at . . . wholesale, cigarettes at less than cost to such . . . wholesaler, as the case may be,
(2) to offer a rebate in price, to give a rebate in price, to offer a concession of any kind, or to give a concession of any kind or nature whatsoever in connection with the sale of cigarettes . . . .
[N.J.S.A. 56:7-20(a).]
The statute prohibits sales below a wholesaler's own costs
under subsection (1), or rebates or similar price concessions
under subsection (2), both with the intent to injure competitors
or to destroy or substantially lessen competition. Ibid.
Plaintiff's argument that the statute is violated when a
defendant sells below the Director's floor prices, regardless of
the wholesaler's actual costs, is contradicted by the text of
the statute. The statute specifies that an offending sale is
one that is made at "less than cost to such . . . wholesaler."
N.J.S.A. 56:7-20(a)(1) (emphasis added). The UCSA separately
defines the term "cost to the wholesaler," N.J.S.A. 56:7-22(a),
according to which definition the Director calculates the price
schedule. But the violation provision refers to the cost to
"such" wholesaler. See also N.J.S.A. 56:7-20(d) (sale of
cigarettes by wholesaler "at less than cost to him" (emphasis
17 A-2723-11T1 added) establishes a prima facie case of intent under the
statute to injure competitors or to harm competition).
Nor do the implementing regulations suggest a different
interpretation. Compare N.J.A.C. 18:6-2.1(a)(1) (prohibiting
wholesaler from selling at "less than cost") with N.J.A.C. 18:6-
2.2(a)(3) (prohibiting retailer from requesting a price "less
than 'cost to wholesaler'" as specially defined in regulations).
We conclude that N.J.S.A. 56:7-20(a)(1) prohibits sales in the
wholesale market only to the extent that they fall below actual
costs of the individual wholesaler.
The Act creates a presumption of the individual whole-
saler's overhead costs, which is reflected in the Director's
price schedule by the use of a statutory and regulatory formula,
N.J.S.A. 56:7-22(b); N.J.A.C. 18:6-3.1(b). But the use of a
presumption as a legal device means that the Director's price
schedule is not irrefutable proof that a wholesaler charged
prices below its own actual costs. A wholesaler may present
evidence either to the Director or to "a court," N.J.S.A. 56:7-
28(a), that its actual costs are less than that set
presumptively by the price schedule. Such evidence of lower
actual costs may include "a cost survey, pursuant to recognized
statistical and cost accounting practices." N.J.S.A. 56:7-30.
Under the Act, a wholesaler may prove it actually has a lower
18 A-2723-11T1 cost of doing business than the presumptive costs reflected in
the Director's schedule.
The regulations also prohibit the sale of cigarettes at
prices below those in the Director's schedule, but only "in the
absence of proof of a lesser or higher cost of doing business."
N.J.A.C. 18:6-3.1(a). While subsection (d) of the same
regulation states: "The sale of cigarettes by any wholesaler
. . . below the price specified on such minimum price list is
deemed prima facie evidence of a violation of the [UCSA],"
subsection (a) permits a defense based on the wholesaler's
actual cost of doing business.
Therefore, contrary to plaintiff's position on appeal, we
hold it is not sufficient for plaintiff to prove that a
defendant sold cigarettes at effective prices below those set by
the Director's schedule. To prove a violation of N.J.S.A. 56:7-
20(a)(1), plaintiff must prove that a defendant sold cigarettes
at prices below its own costs for the cigarettes. Plaintiff may
rely on the statutory and regulatory presumptions, but
defendants have the opportunity to rebut plaintiff's prima facie
case by producing evidence of their actual costs.
Here, neither side presented evidence of the actual costs
to each defendant of the cigarettes it sold, but discovery was
not completed. Neither side was entitled to summary judgment
19 A-2723-11T1 regarding the issue of whether defendants' products were
underpriced under N.J.S.A. 56:7-20(a)(1).
Plaintiff's prima facie underpricing case in accordance
with the Act allowed it to withstand summary judgment as to the
pricing element of an enforcement case. Furthermore,
plaintiff's evidence that defendants offered rebates and
concessions constituted a prima facie case of violation of the
Act. Defendants then had the burden of producing evidence that
their actual costs were less than those set by the statutory and
regulatory formulae, or to produce evidence that their pricing
practices, and their rebates and credits, lacked the requisite
intent to injure competitors or to destroy or lessen
competition.
In response to plaintiff's motion for summary judgment,
Resnick relied in part on testimony that it provided rebates and
concessions to stay competitive with other wholesalers and
subjobbers who were doing the same. A genuine issue of fact
existed as to whether Resnick had the requisite anticompetitive
intent to be found in violation of the Act.
If defendants produce evidence of their actual costs that
are lower than those presumed by the Act, the ultimate burden of
persuasion on a violation of N.J.S.A. 56:7-20(a)(1) lies with
plaintiff to prove the prices defendants charged were in fact
20 A-2723-11T1 below their actual costs. Moreover, plaintiff must bear the
ultimate burden of persuasion on defendants' intent, under
either subsection (1) or (2) of the statute, to injure
competitors or to destroy or substantially lessen competition.
C.
The primary issue on appeal is what proofs the intent
element of the Act requires. Plaintiff contends that the Act
and implementing regulations set floor prices for the cigarette
wholesale market, and that a violation can be shown based on the
statutory provision in N.J.S.A. 56:7-20(d) that underpricing, or
rebates or concessions, constitute prima facie proof of the
anticompetitive intent required by the Act. The trial court
disagreed and concluded that plaintiff must prove "predatory
intent," as that concept is understood in federal and state
antitrust law. See, e.g., Brooke Group, supra, 509 U.S. at 221-
25, 113 S. Ct. at 2587-89, 125 L. Ed. 2d at 185-87; Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 584, 106
S. Ct. 1348, 1354-55, 89 L. Ed. 2d 538, 550-51 (1986); Ideal
Dairy Farms, Inc. v. Farmland Dairy Farms, Inc., 282 N.J. Super.
140, 197-98 (App. Div.), certif. denied, 141 N.J. 99 (1995).
In particular, the court concluded that plaintiff must
prove defendants intended and could reasonably expect to recoup
the losses they incurred in the underpricing of their cigarettes
21 A-2723-11T1 by raising their prices above competitive levels once they
eliminated or impaired their competition.5 See Matsushita,
supra, 475 U.S. at 589-91, 106 S. Ct. at 1357-58, 89 L. Ed. 2d
at 554-55. Plaintiff conceded that it could offer no evidence
to prove such predatory intent. Consequently, the court granted
summary judgment to defendants and dismissed plaintiff's claims.
On appeal, plaintiff contends the Act is not antitrust
legislation but a law that sets minimum prices for cigarettes to
protect both competition and competitors in the market.
Plaintiff argues that the UCSA's intent provision does not
5 In Brooke Group, supra, 509 U.S. at 224, 113 S. Ct. at 2588, 125 L. Ed. 2d at 187, the United States Supreme Court explained the concept of predatory intent in antitrust cases:
The second prerequisite to holding a competitor liable under the antitrust laws for charging low prices is a demonstration that the competitor had a reasonable prospect, or, under § 2 of the Sherman Act, a dangerous probability, of recouping its investment in below-cost prices. For the investment to be rational, the [predator] must have a reasonable expectation of recovering, in the form of later monopoly profits, more than the losses suffered. Recoupment is the ultimate object of an unlawful predatory pricing scheme; it is the means by which a predator profits from predation. Without it, predatory pricing produces lower aggregate prices in the market, and consumer welfare is enhanced.
[(Citations and internal quotation marks omitted. Alteration in original.)].
22 A-2723-11T1 require proof of predatory intent but only intent to sell
cigarettes below minimum prices fixed by the Director.
In response, defendants contend that the history of the
Act, and the interpretation of similar statutes in other
jurisdictions, lead to the conclusion that the UCSA is an
antitrust law that requires proof of predatory intent as
described. Here, argue defendants, the undisputed evidence is
that the wholesale cigarette market in New Jersey is very
competitive, easy to enter, and not concentrated, no wholesaler
having a large share of the market. Therefore, plaintiff cannot
show that any wholesaler will gain a monopoly in the market by
which it would recoup its losses.
As we have stated, our conclusions disagree with both
sides' interpretations of the Act. Regarding the intent element
of a violation, plaintiff's interpretation again cannot be
squared with the plain text of the statute, which explicitly
requires proof of an "intent to injure competitors or destroy or
substantially lessen competition," N.J.S.A. 56:7-20(a), that is,
proof of anticompetitive intent. At the same time, such intent
does not necessarily equate to the precise meaning of predatory
intent discussed in federal antitrust law.
The UCSA creates a presumption that sales below the
wholesaler's costs, or facilitated with rebates or concessions,
23 A-2723-11T1 are intended to injure competitors or to lessen competition, and
therefore, are a violation of the Act. N.J.S.A. 56:7-20(d)
provides in relevant part:
Evidence of advertisement, offering to sell or sale of cigarettes by any . . . wholesaler . . . at less than cost to him, or evidence of any offer of a rebate in price or the giving of a rebate in price or an offer of a concession or the giving of a concession of any kind or nature whatsoever in connection with the sale of cigarettes . . . shall be prima facie evidence of intent to injure competitors and to destroy or substantially lessen competition.
[(Emphasis added).]
The implementing regulations further specify that sales at
prices below those in the Director's schedule are "deemed prima
facie evidence of a violation" of the statute. N.J.A.C. 18:6-
3.1(d) (emphasis added). But if, as plaintiff insists, such
sales in themselves constitute adequate proof of violations, the
reference to "prima facie evidence" would be superfluous. A
prima facie case is not an irrefutable case. A wholesaler that
sells below the Director's price schedule or below its own costs
can rebut a charge of violating the Act by presenting evidence
that it did not have the intent to destroy, lessen, or injure
competition. Indeed, a statutory provision permits the
wholesaler to show it was compelled to sell below costs, or to
24 A-2723-11T1 offer rebates or concessions, in order to compete in the market
with other wholesalers' prices. N.J.S.A. 56:7-26.
Plaintiff's view of the Act is further contradicted by our
State Supreme Court's remarks in Lane Distributors, Inc. v.
Tilton, 7 N.J. 349, 366 (1951), where the Court held
unconstitutional on grounds that do not affect this appeal the
UCSA as originally enacted. The Court stated in Lane: "The
primary purpose of the Unfair Cigarette Sales Act is to prohibit
the sale of cigarettes by a wholesaler or retailer by unfair
practices below cost; it is not a price fixing statute . . . ."
Id. at 363 (emphasis added).
Analogous below-cost statutes in other jurisdictions nearly
uniformly require proof of anticompetitive intent or effect.
See Simonetti, Inc. v. State, 132 So. 2d 252, 262-63 (Ala.
1961); McLane Co. v. Weiss, 965 S.W.2d 109, 110 (Ark. 1998);
Twin City Candy & Tobacco Co. v. A. Weisman Co., 149 N.W.2d 698,
703-05 (Minn. 1967). But see May's Drug Stores, Inc. v. State
Tax Comm'n, 45 N.W.2d 245, 251-52 (Iowa 1950) (no anti-
competitive intent required). Proof of underpricing is not
sufficient to prove a violation of the Act, unless the defendant
presents nothing to rebut the prima facie case of anti-
competitive intent.
25 A-2723-11T1 We also reject, however, defendants' interpretation of the
statute. Defendants contend plaintiff must prove affirmatively
a predatory intent in underpricing of defendants' cigarette
products. They argue that plaintiff must prove, in conformity
with federal antitrust law, a dangerous probability or a
reasonable prospect that defendants can recoup their losses by
future supracompetitive prices.
In support of this interpretation, defendants argue that
the Director views the intent element as they do. In re-
adopting the implementing regulations, the Division of Taxation
commented that one danger of the practices forbidden by the Act
was "large dealers [driving] out small competitors by selling
below cost," and thereby "establish[ing] a monopoly, and
rais[ing] prices exorbitantly." Proposed Readoption: N.J.A.C.
18:6, 16 N.J.R. 228, 229 (Feb. 6, 1984). Defendants extrapolate
from these comments and from the case law of other jurisdictions
that the New Jersey UCSA should be read as an antitrust law
designed to prevent monopolization of the industry.
The Court in Lane noted that many state below-cost statutes
were inspired by federal antitrust legislation. Lane, supra, 7
N.J. at 364. Most of these statutes, including our own, were
enacted at about the same time as the Robinson-Patman Act, by
which Congress amended federal antitrust laws to prohibit
26 A-2723-11T1 pricing discrimination "where the effect of such discrimination
may be substantially to lessen competition or tend to create a
monopoly in any line of commerce, or to injure, destroy, or
prevent competition." 15 U.S.C.A. § 13(a); see also Baseline
Liquors v. Circle K Corp., 630 P.2d 38, 40 (Ariz. Ct. App.)
(unfair sales acts of several states were adopted in the wake of
the Robinson-Patman Act), cert. denied sub nom. Skaggs Drug
Ctrs., Inc. v. Baseline Liquors, 454 U.S. 969, 102 S. Ct. 515,
70 L. Ed. 2d 387 (1981).
Proof of a violation of the Robinson-Patman Act, 15
U.S.C.A. § 13(a), requires proof of at least a "reasonable
prospect" of recoupment through monopoly pricing, and proof of a
violation under the Sherman Antitrust Act, 15 U.S.C.A. § 2,
requires proof of "a dangerous probability, of recouping
[losses] in below-cost prices." Brooke Group, supra, 509 U.S.
at 224, 113 S. Ct. at 2588, 125 L. Ed. 2d at 187. Defendants
argue that the same reasonable prospect or dangerous probability
of recoupment must be proven by plaintiff in this case.
Most other jurisdictions that have interpreted their below-
cost statutes did so before the Brooke Group decision. Only one
state court has explicitly mentioned recoupment as a component
of the intent element, and then, only in passing. See McLane
Co., supra, 965 S.W.2d at 113-14. The state cases do not go so
27 A-2723-11T1 far as defendants argue in requiring that proof of anti-
competitive intent match antitrust laws.
Legal authority in our own jurisdiction is sparse bearing
on interpretation and application of the UCSA. The Law Division
has observed that the Act's purpose was to "prohibit the sale of
cigarettes at less than cost because the use of cigarettes as a
'loss-leader'6 is an unfair and deceptive practice." Coast
Cigarettes Sales, Inc. v. Mayor and City Council of Long Branch,
121 N.J. Super. 439, 447 (Law Div. 1972). Likewise, in Lane,
supra, 7 N.J. at 363-64, our Supreme Court mentioned the loss-
leader practice as a target of the UCSA.
Proof of loss-leader sales, however, is not generally
helpful in demonstrating the kind of monopolistic behavior
addressed by federal antitrust statutes. See, e.g., Hiland
Dairy, Inc. v. Kroger Co., 402 F.2d 968, 973-75 (8th Cir. 1968)
(sales of dairy products as loss-leaders gave no rise to
dangerous probability of monopoly in a highly-competitive dairy
market), cert. denied, 395 U.S. 961, 89 S. Ct. 2096, 23 L. Ed.
2d 748 (1969). At least one federal court has noted that such
sales "are distinguished from predatory pricing," where the
6 "Loss-leader" refers to "[t]he selling of selected goods at a loss in order to lure customers into the store." Safeway Stores, Inc. v. Oklahoma Retail Grocers Asso., 360 U.S. 334, 340, 79 S. Ct. 1196, 1201, 3 L. Ed. 2d 1280, 1285 (1959).
28 A-2723-11T1 "vendor's hope is to drive other competitors from the market and
use its consequent market power to recoup losses on underpriced
goods through supracompetitive prices" on those goods. Parish
Oil Co. v. Dillon Cos., 523 F.3d 1244, 1254 n.5 (10th Cir.
2008); see also Wal-Mart Stores v. Am. Drugs, 891 S.W.2d 30, 34
(Ark. 1995) (Loss-leader strategy "is markedly different from a
sustained effort to destroy competition in one article by
selling below cost over a prolonged period of time.").
As the United States Supreme Court has stated, however,
"federal antitrust laws . . . do not create a federal law of
unfair competition or 'purport to afford remedies for all torts
committed by or against persons engaged in interstate
commerce.'" Brooke Group, supra, 509 U.S. at 225, 113 S. Ct. at
2589, 125 L. Ed. 2d at 187 (quoting Hunt v. Crumboch, 325 U.S.
821, 826, 65 S. Ct. 1545, 1548, 89 L. Ed. 1954, 1957 (1945)).
A wholesaler in New Jersey might attempt to weaken
competitors by selling cigarettes at a loss, and to reap profits
through the sale of other products to the same retailer
accounts. If the wholesaler has not transgressed federal or
state antitrust laws because it has no ability to recoup its
cigarette losses by means of future supracompetitive prices on
cigarettes, it nonetheless may have intentionally injured
competitors and harmed competition in a manner contemplated by
29 A-2723-11T1 the UCSA. As one federal court stated with respect to a similar
statute of another state, the statutory price restrictions are
meant to enhance the likelihood that "a cigarette wholesaler
that wishes to increase its market share must do so by providing
higher quality service to its customers rather than by selling
below the Act's definition of cost." Eby-Brown Co. v. Wis.
Dep't of Agric., 213 F. Supp. 2d 993, 998 (W.D. Wis. 2001),
aff'd, 295 F.3d 749 (7th Cir. 2002). Whatever the precise
parameters of the anticompetitive intent element in our UCSA,
they must be broad enough to permit regulation of loss-leader
and other anticompetitive strategies.
In that connection, plaintiff alleged in its complaint that
it "has suffered and continues to suffer substantial damages in
the form of lost sales of cigarettes, as well as related goods
including other tobacco products, candy, groceries, health and
beauty aids, and toiletries; and lost market share." (Emphasis
added.) That claim is cognizable under the UCSA.
We have already noted that the UCSA explicitly provides
that below-cost pricing and the granting of rebates or
concessions constitute prima facie evidence of anticompetitive
intent. N.J.S.A. 56:7-20(d). In McLane Co., supra, 965 S.W.2d
at 113-14, the Arkansas court upheld against constitutional
challenge that state's statutory provision that evidence of
30 A-2723-11T1 below-cost pricing sufficed to raise a factual presumption of
the requisite intent. Other courts, without mention of
recoupment, have nearly uniformly upheld similar provisions.
People v. Pay Less Drug Store, 153 P.2d 9, 13 (Cal. 1944);
Dikeou v. Food Distributors Ass'n, 108 P.2d 529, 531-33 (Colo.
1941); Davey Bros., Inc. v. Stop & Shop, Inc., 217 N.E.2d 751,
753 (Mass. 1966); Rocky Mountain Wholesale Co. v. Ponca
Wholesale Mercantile Co., 360 P.2d 643, 647 (N.M.), appeal
dismissed, 368 U.S. 31, 82 S. Ct. 145, 7 L. Ed. 2d 90 (1961);
see also Twin City Candy, supra, 149 N.W.2d at 702, 705-06
(striking down Minnesota's cigarette below-cost statute, but
suggesting that creating a presumption of intent could
facilitate proof of a violation consistent with constitutional
safeguards). Contra Mott's Super Mkts., Inc. v. Frassinelli,
172 A.2d 381, 384-86 (Conn. 1961) (statutory presumption of
intent not sufficient to comply with due process requirements in
proving the defendant's violation).
Under our UCSA, prima facie proof of anticompetitive intent
arising from rebates and concessions permitted plaintiff to
withstand defendants' motions for summary judgment when no
contrary evidence was presented. Once defendants have
introduced sufficient evidence to rebut plaintiff's prima facie
case, plaintiff must discredit defendants' evidence or produce
31 A-2723-11T1 additional evidence of anticompetitive intent so that a rational
factfinder could conclude that defendants had the intent to
injure competitors or to destroy or lessen competition. The
intent element in the UCSA is not limited to the narrow meaning
of predatory intent in federal antitrust law.
Despite six years of discovery and litigation, neither side
presented affirmative evidence of intent in the summary judgment
record. Plaintiff relied on its interpretation of the Act,
which we have rejected in part, and defendants relied on the
highly competitive condition of the New Jersey wholesale market
to refute predatory intent, which we also reject as insufficient
by itself to rebut plaintiff's prima facie case. As the matter
stands before us, neither side was entitled to summary judgment
on the grounds upon which they relied.
The trial court's grant of summary judgment to defendants
will be reversed and the matter remanded for further proceedings
at which either side may present evidence of defendants' intent,
as well as defendants' actual costs as discussed previously.7
7 In this civil case, we are not addressing N.J.S.A. 56:7-20(c), which provides that a violation of the Act is a disorderly person offense as to which a fine of up to $1,000 may be imposed. We make no determination that a defendant would have any burden of proof in defending against a disorderly persons charge. See Twin City Candy, supra, 149 N.W.2d at 705-06.
32 A-2723-11T1 III.
Plaintiff also appeals from the trial court's dismissal of
its claims against defendants M. Bernstein & Sons ("Bernstein")
and Consolidated Service Distributors ("Consolidated") on
grounds that those claims were precluded by the entire
controversy doctrine.
The doctrine requires each party to an action to assert all
claims arising from the controversy at issue — that is, all
claims arising from the same "core set of related facts" — or be
estopped from raising them thereafter. Thomas v. Hargest, 363
N.J. Super. 589, 595 (App. Div. 2003). The doctrine is meant to
foster "efficient judicial administration and fairness to
litigants." Woodward-Clyde Consultants v. Chem. & Pollution
Sciences, Inc., 105 N.J. 464, 472 (1987). Its nature is
equitable and its application subject to the trial court's broad
discretion on evaluation of the particular circumstances of each
case. Oliver v. Ambrose, 152 N.J. 383, 395 (1998). Application
of the doctrine is warranted only where the party against whom
it is asserted "had a fair and reasonable opportunity" to
litigate the claim in the earlier action. Thomas, supra, 363
N.J. Super. at 596.
Bernstein, Consolidated, plaintiff, and a number of other
defendants in this litigation were parties in an earlier action
33 A-2723-11T1 filed in 1996, The Southland Corp. v. Plainfield Tobacco & Candy
Co. ("Southland litigation"), Monmouth County Docket No. L-1291-
96. The plaintiff in that litigation, Southland Corporation,
was a franchisor of 7-Eleven stores that received a percentage
of the profits of its franchisees, including profits from the
sale of cigarettes. It alleged that the defendants in that
litigation had participated in a fraudulent scheme of providing
unlawful cash rebates to the 7-Eleven franchisees, thereby
depriving the plaintiff of its full share of profits.
In 2001, the court in the Southland litigation decided a
series of motions addressing whether the alleged rebates
violated the UCSA. In its written decision, the court
determined that proof of predatory intent is necessary to
establish a violation of the Act, but it also concluded that
dismissal of the plaintiff's claims on that basis was
unwarranted at that stage of the litigation.8
Plaintiff L.J. Zucca filed cross-claims in the Southland
litigation, but its cross-claims did not allege that Bernstein
or Consolidated, or any other defendant, violated the UCSA.
Plaintiff's complaint in this action alleged violations by
8 Both sides on this appeal address the Southland trial court's written opinion in the context of the predatory intent issue. Because that opinion was unpublished, it does not constitute precedent and is not subject to formal citation. R. 1:36-3.
34 A-2723-11T1 Bernstein, Consolidated, and the other defendants from 1999 to
the present, thus overlapping with the time period addressed in
the Southland litigation.
The trial court in this case concluded that plaintiff's
claims arise from the same core of related facts as those in the
Southland litigation since both involved some of the same sales.
The court ruled that the entire controversy doctrine, Rule
4:30A, barred plaintiff's claims against Bernstein and
Consolidated because they could have been asserted as additional
cross-claims in the Southland litigation. Requiring plaintiff
to raise its claims in the earlier action would have promoted
judicial efficiency and fairness to defendants, who had meant to
settle all claims arising from their sales that were addressed
in the prior litigation.
In its initial merits brief on this appeal, plaintiff
challenged only the trial court's dismissal of those claims that
had not yet accrued by the time Bernstein and Consolidated had
each settled claims against them in the Southland litigation.
In its reply brief, however, plaintiff changed course and argued
that none of its current claims are barred by the entire
controversy doctrine. Because plaintiff did not raise the
latter argument in its initial merits brief, we deem it to have
been waived. See Drinker Biddle & Reath LLP v. N.J. Dep't of
35 A-2723-11T1 Law and Pub. Safety, 421 N.J. Super. 489, 496 n.5 (App. Div.
2011). An appellant may not raise new contentions for the first
time in a reply brief. Borough of Berlin v. Remington & Vernick
Engineers, 337 N.J. Super. 590, 596 (App. Div.), certif. denied,
168 N.J. 294 (2001).
Plaintiff, however, is correct as to its initial position
on appeal. Application of the entire controversy doctrine does
not preclude claims that had not yet accrued at the time of the
earlier litigation. K-Land Corp. No. 28 v. Landis Sewerage
Auth., 173 N.J. 59, 72 (2002). Plaintiff could not be expected
to assert unaccrued claims against Bernstein and Consolidated
during their participation in the Southland litigation. Any
claims against those defendants that were unaccrued at the time
of their dismissal from the Southland litigation must be
reinstated.9
Affirmed in part; reversed and remanded in part. We do not
retain jurisdiction.
9 Bernstein argues as an alternative ground for affirmance that plaintiff's claims should be dismissed for failure to comply with Rule 4:5-1. We find insufficient merit in the argument to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E).
36 A-2723-11T1