Antitrust Law Daily Wrap Up, ANTITRUST—N.J. Super. App. Div.: Cigarette supplier claims of anticompetitive underpricing by other wholesalers can proceed, (Jan 10, 2014)

By Linda O’Brien, J.D., LL.M.

Claims by a wholesale supplier of cigarettes against other wholesalers for engaging in anticompetitive conduct through the underpricing of cigarettes on the wholesale market could proceed, a New Jersey Appellate Division court has ruled (L.J. Zucca, Inc. v. Allen Bros. Wholesale Distributors, Inc., January 9, 2014, Per Curiam.). Thus, the district court decision to deny dismissal for lack of standing was affirmed and its grant of summary judgment dismissing the complaint was reversed.

L.J. Zucca, Inc. is a wholesale supplier of cigarettes and other retail convenience store products. Zucca filed suit against numerous wholesalers for engaging in underpricing of cigarettes on the wholesale market in violation of New Jersey’s Unfair Cigarette Sales Act (UCSA). The state director of taxation periodically issues a pricing schedule for all cigarette brands that sets minimum base prices under the UCSA that wholesalers must charge their retailer accounts. The formula used to set the base prices adds the invoice price paid by wholesalers to the cigarette manufacturers, the total face value of any state tax stamps required, and a presumed cost of doing business by the wholesalers. The supplier alleged that the defendants gave cash rebates and other credits to their retailer accounts which reduced the wholesalers’ prices below the prices on the state pricing schedule. The district court found that the supplier had standing to bring a private enforcement action but granted the wholesalers’ motion for summary judgment on the ground that the supplier failed to prove underpricing and predatory intent under the UCSA.

Standing. The UCSA authorizes an enforcement action by a private party for money damages or injunctive relief, even if no actual damages are suffered, provided there is an injury by any violation or threatened violation of the statute. In affirming the district court’s decision, the appellate court determined that injury, which was distinct from actual proven money damages, could occur since the supplier was compelled to compete for sales with competitors that underpriced its cigarettes. Although the supplier could not prove actual money losses, it demonstrated presumptively an injury under the UCSA and therefore had standing to bring a private enforcement action.

Underpricing. The court reversed the district court’s grant of summary judgment regarding the issue of whether the wholesalers’ cigarettes were underpriced under the UCSA. According to the court, it was insufficient for the supplier to show that the wholesalers sold cigarettes at prices below the state pricing schedule. The supplier also must show that the wholesalers sold the cigarettes below its own costs. However, the wholesalers could rebut the supplier’s prima facie case with evidence of their actual costs. Since discovery was not completed when the summary judgment was entered and no evidence was presented by either party of the wholesalers actual costs, the grant was improper.

Anticompetitive intent. The UCSA expressly provides that below-cost pricing and the granting of rebates or concessions constitute prima facie evidence of anticompetitive conduct. The supplier alleged that it suffered damages in the form of lost sales and lost market share as a result of the wholesalers underpricing of cigarettes. However, the supplier offered no evidence that the wholesalers expected to recoup the losses incurred in the underpricing of their cigarettes by raising prices once the competition was eliminated and the wholesalers had no opportunity to rebut the supplier’s case with contrary evidence. Because no evidence of affirmative intent was presented, the grant of summary of judgment was reversed.

The case is No. A-2723-11T1.

Attorneys: Daniel R. Chemers (Saul Ewing, L.L.P.) for L.J. Zucca, Inc.; Pepper Hamilton, L.L.P. for Allen Brothers Wholesale Distributors, Inc. Marvin J. Brauth (Wilentz, Goldman & Spitzer) for Plainfield Tobacco & Candy Co., Inc.

Companies: L.J. Zucca, Inc.; Allen Brothers Wholesale Distributors, Inc.; Plainfield Tobacco & Candy Co., Inc.

Cases: Antitrust NewJerseyNews