Legal Issues In Massachusetts Re: The Pricing Of Alcoholic Beverages
By John P. Connell, Esq.
Introduction
The comprehensive statutory program for the regulation of the alcoholic beverages industry in Massachusetts includes provisions for the control of pricing of alcoholic beverages in the wholesale sector. G.L.c. 138, §25B requires that price schedules be verified and filed for each brand of alcoholic beverage sold to Massachusetts wholesalers. G.L. c. 138, §25D further complements this filing requirement by directing that the price schedule, when filed, be accompanied by a sworn statement affirming that the prices reflected in the schedules are no higher than the lowest price at which the product is sold outside the Commonwealth.
In general, General Laws c. 138, §§ 25B and 25D explicitly forbid the sale of alcoholic beverages to Massachusetts wholesalers except at the stated schedule prices then in effect, unless the Massachusetts Alcoholic Beverages Control Commission (the “Commission”) grants written approval for sales at a different price.
A. Pricing Schedules and Affirmations
Section 25B(a) prohibits importation and sale of alcoholic beverages unless price schedules have been verified and filed by persons qualified to do so pursuant to §25B(c). Those qualified persons include: the (1) the brand owner; (2) a wholesaler selling the brand and designated by a brand owner as an agent authorized to file the schedules; or (3) an another wholesaler who is specifically permitted to do after requesting permission and authority from the Commission if the brand owner “is unable to file a schedule or designate an agent for such purpose.” G.L. c. 138, §25B(c)(1)-(3).
Separately, Section 25D(a) requires that a properly verified affirmation be filed with and deemed part of the price schedules required by Section 25B. Section 25D provides that the affirmation state that the price reflected in the schedule for the product sold in Massachusetts is no higher that the lowest price at which the beverage is to be sold during the calendar month covered by the schedule to any wholesaler anywhere in the country or to any State or State agency which owns and operates retail liquor stores. The affirmation may be signed by the “owner of the brand of alcoholic beverage, or by the wholesaler designated by the as agent for the purpose of filing [the pricing] schedule if the owner of the brand of alcoholic beverage is not licensed by the commission.” G.L. c. 138, §25D.
The issues has arisen whether a wholesaler can purchase particular brands of alcoholic beverages from a Certificate of Compliance holder that sells that brand, which they must pursuant to G.L. c. 138 §§ 18 & 18B, when that Certificate of Compliance holder is not the brand owner nor otherwise qualified by G.L. c. 138 §§ 25B or 25D to sign the pricing schedules and affirmations. It should be noted that Certificate of Compliance holders, the source from which wholesalers must purchase alcoholic beverages imported into Massachusetts, are often not the brand owners of particular brands but merely the agents or distributors for the brand owners, manufacturers and vintners pursuant to G.L. c. 138, §18B.
In M.H. Gordon & Son v. ABCC, 371 Mass. 584, 588 (1976), the Massachusetts Supreme Judicial Court (“SJC”) overruled the Commission’s findings that Certificate of Compliance holders for a particular brand must be one in the same as those parties qualified under G.L. c. 138 §§ 25B and 25D to sign the pricing schedules and affirmations. The SJC held that “[a]s long as Massachusetts wholesalers import alcoholic beverages, for which filed price schedules and affirmations are in effect, from § 18B certificate holders at the scheduled price, there are no provisions in the regulatory scheme created by c. 138 to prevent wholesalers from purchasing from a § 18B certificate holder who is not eligible to file price schedules or affirmations for the brands of alcoholic beverages involved.” Id. at 588.
The holding in M.H. Gordon therefore also strongly suggested that while Certificate of Compliance holders are properly designated agents of brand owners for selling alcoholic beverages to wholesalers in Massachusetts, that general agency does not extend to the signing the of pricing schedules and affirmations for those products sold pursuant to G.L. c. 138 §§ 25B or 25D. Whether that agency can or could be granted at all was not addressed in M.H. Gordon.
Moreover, it may be that the Commission’s reading of the statutes in M.H. Gordon, which were overruled by the SJC in 1976, are now accurate in light of a 2004 amendment to G.L. c. 138, § 18. Recall that when finding that wholesalers could purchase alcoholic beverages from Certificate of Compliance holders that were not one in the same parties as those authorized to sign the price schedules and affirmations, the SJC in M.H. Gordon, in a footnote, stated as follows:
The commission contends that the Legislature never envisioned the imposition of alcoholic beverages from any source other than persons who are authorized to file price schedules and affirmations in accordance with §§ 25B and 25D. We note, however, that a bill, proposed in the House of Representatives, which would have amended § 18 to require Massachusetts wholesalers to purchase alcoholic beverages solely from brand owners or their designated agents, was rejected by the House following an unfavorable committee report. 1976 House Doc. No. 1197.
M.H. Gordon & Son v. ABCC, 371 Mass. at note 6.
In 2004, however, G.L. c. 138, §18 was amended to provide that “[i]t shall be unlawful for any [wholesaler] under this section to purchase alcoholic beverages from any source other than the primary source American source of supply unless authorized by the primary American source of supply.” “Primary American source of supply” is defined by Section 18 to mean “the distiller, bottler, vintner, brand owner, or designated agent of the distiller, bottler, brewer, vintner, or brand owner.” Whether the pertinent holdings of M.H. Gordon are still good law after the promulgation of the “primary American source” rule in 2004 therefore may be an open question.[1]
B. Calculating The Price
In computing the “price” to be stated in the pricing schedules and the affirmations, the term “price” has been found to mean the “actual amount” paid to the supplier for the product sold to the wholesaler. See M.H. Gordon & Son v. ABCC, 371 Mass. 584, 591 (1976). In determining that “actual amount” price for purposes of also affirming that such “price” is the lowest price for which an alcoholic beverage is sold in other States, Section 25D(d), requires that appropriate reductions be made to reflect all “discounts . . . rebates, free goods, allowances and other inducements of any kind whatsoever offered or given to any such wholesaler.” (Emphasis added.) Differentials in price which make only due allowance for differences in state taxes and fees need not be factored when calculating “price.” Id.
When a supplier has added a “service charge” to the sale amount to a wholesaler for selling otherwise unavailable premium brands, that “service charge” over and above the prices stated in the pricing schedules was considered to be a violation of the unambiguous language of G.L. c. 138, §25B(d). M.H. Gordon & Son v. ABCC, 371 Mass. 584, 591-592 (1976). The same has been found to be true for valuable “terms of credit” extended to a wholesaler by a supplier (i.e. interest fee credit). See Miller Brewing Co. v. ABCC, 56 Mass. App. Ct. 801, 806 (2002) (a supplier’s provision of favorable credit terms to a ship chandler considered to be a “component of price.”) See also G.L. c. 138, § 25 “Lending or borrowing money or receipt of credit by licensees”).
C. Price Discrimination
G.L. c. 138, § 25A provides that a supplier or wholesaler shall not — “(a) Discriminate, directly or indirectly, in price, in discounts for time of payment or in discounts on quantity of merchandise sold, between one wholesaler and another wholesaler, or between one retailer and another retailer purchasing alcoholic beverages bearing the same brand or trade name and of like age and quality.” This section prohibits brand owners and wholesalers from discriminating in price or in discounts for their customers’ volume purchases or prompt payments. The statute provides that violations of Section 25A can lead to suspension of the violator’s license, G.L. c. 138, §23, or to imposition of criminal penalties, G.L. c. 138, § 2.
Whether a supplier has offered products for sale at different prices for different wholesalers (i.e. “price discrimination”) is a matter controlled at one level by G.L. c. 138, § 25A, but it is also intertwined with Federal antitrust provisions. See the Federal Trade Commission Act (15 U.S.C. § 45). The Federal Trade Commission (FTC) Act broadly prohibits “[u]nfair methods of competition . . . and unfair or deceptive acts or practices.” 15 U.S.C. § 45(a)(1). At the Federal level, the FTC has interpreted and applied § 5(a)(1) of the FTC Act to prohibit price discrimination if that discrimination is outlawed by § 2(a) of the Robinson-Patman Act, 15 U.S.C. § 13 (a). In turn, § 2(a) prohibits certain price discrimination by competing sellers, so-called discrimination at the primary line. See Craig v. Sun Oil Co., 515 F.2d 221, 224 (10th Cir. 1975).
In Van Munching v. ABCC, 41 Mass. App. Ct. 308 (1996), the Commission found that a supplier’s discount program was not authorized by G.L. c. 138 §25A wherein a supplier “provided rebates per case on the number of cases of beer which a wholesaler sold in a single delivery to Massachusetts retailers.” Id. at 308-309. By its very nature, a discount program offered to all wholesalers would mean that some wholesalers would ultimately pay less for product sold based upon the amount of inventory they could in turn sell to retailers, and the Commission argued that such a discount program was not authorized by Section 25A because that statute prohibited discrimination in prices by utilization of “discounts for time of payment or in discounts on quantity of merchandise sold.”
The Court in Van Munching found, however, that the “discount program” before it did not violation Section 25A (and was therefore by implication authorized by Section 25A) because the nature of the program was not discriminatory in nature, which was the “purpose” of the statute, and the supplier was not found in fact to have discriminated between wholesalers in offering its “discount program.” Id. at 310. The Court’s findings “reject[ed] the commission’s efforts to construe §25A out of context, ignoring its antidiscrimination purpose and viewing it as defining in a comprehensive manner all permissible (and by its omissions, all impermissible) discount programs.” Id. at 310. Section 25A neither explicitly nor implicitly proscribed the discount program at issue. If Section 25A “were interpreted in the manner urged by the commission, [it] would in effect be enlarged to include something which the Legislature, either by inadvertence or design, omitted therefrom.” Id. at 310-311.
D. Price Discrimination – Potential for Private Remedy
In general, G.L. c. 138 confers upon the Commission the express power to enforce its provisions through the assessment of criminal penalties in the form of fines and/or imprisonment. M.G.L. c. 138 §§2, 22 & 62. The statute does not confer upon private parties, either expressly or implicitly, any right to restrain a licensee’s activities even if they violate its provisions. See Wine & Spirits Wholesalers of Mass. v. Net Contents, 10 F. Supp.2d 84, 86 (Dist. Mass. 1998).
Notwithstanding the above, the Commission may act and rule upon a complaint filed by a private party alleging that wholesaler is in violation of some aspect of its license or acting not in conformity with G.L. c. 138. See Anheuser-Busch v. ABCC, 75 Mass. App. Ct. 203 (2009) (Commission canceled a wholesaler’s license based upon a private complaint filed by wholesaler’s trade association). Although neither Section 25B nor Section 25D specifically provides for notice and a hearing pertaining to prices set by brand owners or their designated agents, Section 25B(d) does provide wholesalers and other parties with the opportunity to challenge a scheduled price by requesting permission from the Commission to engage in transactions at a price other than that which has been filed and affirmed.
Also, violation of a specific statute that does not itself a permit private recovery may give rise to a private claim under G.L. c. 93A if the violation amounts to an unfair method of competition or an unfair or deceptive practice independently prohibited by G.L. c. 93A, §2, and if recovery under G.L. c. 93A is compatible with the objectives and enforcement mechanisms the underlying statute contains. See Whitehall Co. v. Merrimack, 56 Mass. App. Ct. 853, 858 (2002).
In short, although the Commission is empowered to find violations of G.L. c. 138, § 25A for alleged “price discrimination,” there is no private remedy by a wholesaler against a supplier for “price discrimination” wherein the only harm alleged is harm suffered by that wholesaler alone, as opposed to harm suffered by competition or the market place in general. Whitehall Co. v. Merrimack, 56 Mass. App. Ct. 853, 862-863 (2002); J. & J. Enterprises, Inc. v. Martignetti, 369 Mass. 535 (1976).
Authorities:
M.H. Gordon & Son v. ABCC, 371 Mass. 584 (1976)
J. & J. Enterprises, Inc. v. Martignetti, 369 Mass. 535 (1976).
Anheuser-Busch v. ABCC, 75 Mass. App. Ct. 203 (2009)
Whitehall Co. v. Merrimack, 56 Mass. App. Ct. 853 (2002)
Miller Brewing Co. v. ABCC, 56 Mass. App. Ct. 801 (2002)
Somerset Importers v. ABCC, 28 Mass. App. Ct. 381 (1990).
Van Munching v. ABCC, 41 Mass. App. Ct. 308 (1996)
Wine & Spirits Wholesalers of Mass. v. Net Contents, 10 F. Supp.2d 84, 86 (Dist. Mass. 1998)
Canterbury Liquors & Pantry v. Sullivan, 16 F. Supp.2d 41 (D. Mass. 1988)
Craig v. Sun Oil Co., 515 F.2d 221, 224 (10th Cir. 1975)
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