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Massachusetts Fine Wines & Spirits, LLC v. Alcoholic Beverages Control Commission

Superior Court of Massachusetts, Suffolk

July 24, 2017

Massachusetts Fine Wines & Spirits, LLC [1]
v.
Alcoholic Beverages Control Commission

          Filed July 25, 2017

          MEMORANDUM OF DECISION AND ORDER ON CROSS MOTIONS FOR JUDGMENT ON THE PLEADINGS

          Robert B. Gordon, Justice

         This is an action for judicial review, pursuant to G.L.c. 30A, § 14, of a decision of the Alcoholic Beverages Control Commission (" ABCC" or the " Commission") finding that the plaintiff, Massachusetts Fine Wines and Spirits, LLC d/b/a Total Wine & More (" Total Wine"), sold certain alcoholic beverage products at a retail price below their " invoiced cost" in violation of 204 Code Mass. Regs. § 2.04(1). The matter is before the Court on the parties' Cross Motions for Judgment on the Pleadings. For the reasons set forth below, the Commission's motion is DENIED and Total Wines' motion is ALLOWED .

         BACKGROUND

         The material facts revealed in the administrative record are largely undisputed, and are as follows.

         Total Wine is a national alcoholic beverage retailer, and the holder of a retail license for the sale of alcoholic beverages to be consumed off of the premises under G.L.c. 138, § 15. This case concerns two of Total Wine's Massachusetts stores, which are located in Natick and Everett.

         Total Wine purchases alcoholic beverage products for its Natick and Everett stores from wholesalers Horizon Beverage Company (" Horizon") and Martignetti Companies (" Martignetti"). Horizon and Martignetti offer merchant customers like Total Wine a 1% discount for prompt payment (the " prompt payment discount"), and additional discounts based on the total quantity of a particular product purchased during a specified period of time (commonly referred to as the " promotional period"). The latter is known in industry parlance as a cumulative quantity discount (" CQD"), and the nature of this discount and its impact on downstream retail pricing lie at the heart of the present dispute.

          When wholesalers like Horizon and Martignetti deliver alcoholic beverage products to retailers, Commission regulations require them to " carry an invoice or sales slip, stating the names and addresses of the purchaser and seller, the date and the amount of the purchase, and also itemizing the number of the various kinds of containers and the kinds quantities and brands of alcoholic beverages or alcohol." 204 Code Mass. Regs. § 2.05(3). Horizon's and Martignetti's delivery personnel typically present these invoices (hereinafter the " original invoice") to Total Wine at the time of product delivery. The wholesalers' original invoices state that a 1% prompt payment discount applies to the product order if the invoice is paid in full within 10 days. These original invoices are silent, however, as to the CQD. Total Wine's policy is to pay the total cost stated on the original invoice in full, less the 1% prompt payment discount, at the time of delivery.

         During the CQD promotional period for a product, participating retailers purchase all quantities of the product from wholesalers at its original price. At the end of a promotional period, however, wholesalers issue " credit invoices" that identify a dollar amount equivalent to the difference between the original price of the purchased product and the original price reduced by the amount of the CQD that the retailer earned during such period. This amount is then multiplied by the quantity of the product that the retailer purchased during the promotional period, and the resulting amount is reflected as a negative balance which is then credited back to the retailer.[2] The record reflects that Martignetti and Horizon ordinarily apply the negative balance identified on Total Wine's credit invoices to the retailer's succeeding wholesale purchase.[3]

         After it receives a wholesale delivery, Total Wine determines the retail price for which it will sell each product. Total Wine's first step in this process is to calculate the cost of the product by subtracting all of the discounts (of whatever nature) it has earned from the total price reflected on the original invoice. Because Total Wine always pays its wholesalers at the time of delivery, one of the discounts it offsets is the 1% prompt payment discount. If Total Wine has earned any CQDs on the product as of the time that it calculates its cost, Total Wine additionally subtracts the CQD amount from the original invoice. Total Wine then sets a retail price for the product that is higher than the product's true cost so computed.

         Although Martignetti and Horizon do not issue credit invoices to Total Wine until a promotional period has ended, Total Wine maintains records that track the quantity of the products it purchases during such periods. Total Wine likewise maintains regular email contact with Martignetti and Horizon representatives. These representatives apprise Total Wine of any CQDs they have already earned and the quantity of a promoted product Total Wine still needs to purchase to earn a corresponding CQD. The wholesaler representatives typically communicate this information to Total Wine while a promotional period is ongoing and before a credit invoice has issued.

         In late 2015, the Commission received multiple complaints that Total Wine's Natick store was selling alcoholic beverages at prices below the " invoiced cost, " in violation of 204 Code Mass. Regs. § 2.04(1). Section 2.04(1) provides, in relevant part, that alcoholic beverage retailers shall not:

[s]ell or offer to sell any alcoholic beverages at a price less than invoiced cost. Cost is defined as net cost appearing on the invoice for said alcoholic beverage. The use of any device, promotion or scheme which results in the sale of alcoholic beverages at less than invoiced cost is prohibited.

         In May and June of 2016, the Commission received additional complaints alleging that Total Wine's Natick and Everett stores were selling alcoholic beverages at prices below invoiced cost in violation of Section 2.04(1). As a result of these charges, the Commission initiated three separate investigations of Total Wine's pricing practices (two addressed to the allegations against the Natick store, and one concerning the allegations leveled against the Everett store). As part of these agency inquiries, investigator Rosemary Egan-Bailey (" Egan-Bailey") reviewed Total Wine's Horizon and Martignetti invoices, email correspondence between Total Wine, Horizon and Martignetti, and copies of Total Wine's product advertisements. Based on these documents, Egan-Bailey found that, in each instance reviewed, Total Wine had set its retail price based on a cost calculation that deducted CQDs from the total cost identified on the original product invoice--even though Total Wine had not yet received a documented credit invoice that reflected the CQD. Egan-Bailey concluded that this practice violated 294 Code Mass. Regs. § 2.04(1).

         Based on Egan-Bailey's preliminary determinations, the Commission held three evidentiary hearings (one for each investigation) on December 7, 2016. During the hearings, Total Wine's Vice President of Market Management and Supply Chain, Travis Smith (" Smith"), testified about Total Wine's method for determining retail prices. Smith was clear that Total Wine does not include CQDs in its cost calculations before it has purchased the required quantity of the given product within the applicable promotion period.

         The Commission issued decisions upholding Egan-Bailey's findings on January 18, 2017, ...


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