Mass. Fine Wines & Spirits, LLC v. Alcoholic Beverages Control Comm'n

• Decision Date: 24 July 2019
• Docket Number: SJC-12654
• Parties: MASSACHUSETTS FINE WINES & SPIRITS, LLC v. ALCOHOLIC BEVERAGES CONTROL COMMISSION.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

482 Mass. 683

126 N.E.3d 970

MASSACHUSETTS FINE WINES & SPIRITS, LLC¹

v.ALCOHOLIC BEVERAGES CONTROL COMMISSION.

SJC-12654

Supreme Judicial Court of Massachusetts, Suffolk..

Argued April 2, 2019

Decided July 24, 2019

Samuel M. Furgang, Assistant Attorney General, for the defendant.

Thomas R. Kiley (Meredith G. Fierro also present), Boston, for the plaintiff.

Damien C. Powell, Boston, for Massachusetts Package Store Association, Inc., amicus curiae, submitted a brief.

Present: Gants, C.J., Lenk, Gaziano, Lowy, Budd, Cypher, & Kafker, JJ.

GANTS, C.J.

Under 204 Code Mass. Regs. § 2.04(1) (1993), a regulation promulgated by the alcoholic beverages control commission (commission), a licensed retailer of alcoholic beverages shall not "sell or offer to sell any alcoholic beverages at a price less than invoiced cost," with "[c]ost ... defined as net cost appearing on the invoice for said alcoholic beverage."² Here, the licensed retailer at issue, Massachusetts Fine Wines & Spirits, LLC, doing business as Total Wine & More (Total Wine), sold bottles of liquor and wine at prices that were below the cost listed on the invoices for its purchase of those bottles from the wholesaler. For this reason, the commission found Total Wine in violation of § 2.04(1). Total Wine contends that it was not in violation of this regulation because, after accounting for the "cumulative quantity discounts" (CQDs) that it obtained from its bulk purchases of these brands of liquor and wine -- which were credited in subsequent invoices -- its ultimate net cost per bottle was below its sales price to consumers.

We conclude that the plain language of § 2.04(1) requires that the net cost of liquor or wine sold to a licensed retailer, including any credits applied to that sale from CQDs, be reflected in the invoice for that particular sale, and that it was reasonable for the commission to interpret the regulation in accordance with the regulation's plain language. We also conclude that the commission's interpretation of this regulation is reasonable in light of both its legislative mandate and the administrative demands of efficient and uniform enforcement. Where Total Wine sold liquor and wine purchased through the invoiced sales in the record at prices below the net price reflected in those invoices, the commission was justified in finding that Total Wine sold the liquor or wine "at a price less than invoiced cost," in violation of § 2.04(1). Accordingly, we reverse the Superior Court judgment allowing Total Wine's motion for judgment on the pleadings, and remand the case to the Superior Court with instructions to allow the commission's cross motion for judgment on the pleadings and to enter judgment in favor of the commission.³

Background. We summarize the facts as found by the commission, which we conclude are supported by substantial evidence. See Craft Beer Guild, LLC v. Alcoholic Beverages Control Comm'n, 481 Mass. 506, 509, 117 N.E.3d 676 (2019) ( Craft ), citing G. L. c. 30A, § 14 (7) (e ).

Total Wine is a retailer of alcoholic beverages licensed by the commission pursuant to G. L. c. 138, § 15, the statutory provision of the Liquor Control Act authorizing liquor stores to sell alcoholic beverages to be consumed off premises. Craft, supra at 509 n.4, 117 N.E.3d 676. In December 2015, the commission received numerous complaints that at least one Total Wine retail store was selling alcoholic beverages to consumers at prices below the invoiced cost to Total Wine, in violation of 204 Code Mass. Regs. § 2.04(1). The commission continued to receive complaints about Total Wine's pricing practices regarding at least two retail store locations in May and June of 2016. Pursuant to its authority to undertake "general supervision of the conduct of the business of ... selling alcoholic beverages," G. L. c. 10, § 71, and to "enforc[e] and prevent[ ] violation of" its own regulations, G. L. c. 138, § 24, the commission initiated investigations into Total Wine's pricing practices.

When the commission's investigators obtained invoices from the licensed wholesalers from whom Total Wine purchased its liquor, they discovered that, with respect to at least four brands of liquor and wine sold during November 2015, and at least eight brands of liquor sold during May and June 2016, Total Wine sold bottles to consumers at a price below its own invoiced per-bottle cost. For example, as to one brand of rum, Total Wine purchased cases from a wholesaler at an original cost of $19.99 per bottle. The invoice reflected a one percent "prompt payment" discount, because Total Wine paid for the rum upon delivery, which reduced the cost to $19.79 per bottle. Yet Total Wine sold this brand of rum in two stores at a retail price of $17.99 per bottle.

The wholesalers that sold these brands to Total Wine, however, offered CQDs under various promotional programs to retailers who purchased these brands in certain quantities during certain limited periods of time. For instance, with respect to the brand of rum in the example referenced supra, Total Wine earned a credit of two dollars per bottle once it purchased 225 cases of the rum, which it could apply to future purchases and which was later reflected in a new credit invoice. Although Total Wine paid the wholesaler $19.79 per bottle upon delivery, Total Wine knew that it would receive the two dollars per bottle credit from the CQD because of the amount it had purchased, and therefore factored this future credit in pricing the rum at $17.99 per bottle, which was twenty cents above what it considered to be its true "net cost" of $17.79. The CQDs were generally discussed between Total Wine and its wholesalers over electronic mail (e-mail) correspondence, and at least some CQDs were publicly advertised to retailers in the Massachusetts Beverage Journal.⁴ But the credits arising from CQDs were never reflected on the original invoices at the time that the liquor or wine was purchased; they were reflected only on subsequent credit invoices and applied to future purchases.

After evidentiary hearings, the commission issued written decisions on January 18, 2017, finding Total Wine in violation of 204 Code Mass. Regs. § 2.04(1) for selling alcoholic beverages at two Total Wine stores at retail prices that were below the net cost appearing on the invoices. The commission concluded that under the plain language of the regulation, which provides that "[c]ost is defined as net cost appearing on the invoice for said alcoholic beverage," it could not factor in the CQDs -- which appeared on separate invoices that were issued later in time -- to Total Wine's net cost. The commission did not dispute that, if the future credits from the CQDs were factored into the cost of the products, the over-all cost to Total Wine would fall below the prices that were being offered to consumers. But it nevertheless concluded that any such discounts must appear on the original invoice to be considered in the calculation of net cost under § 2.04(1). The commission thus ordered that Total Wine's license to sell alcoholic beverages at its Everett location be suspended for eight days, with two days to be served; that its license for its Natick location be suspended for eleven days, with three days to be served; and that the remaining balances be held in abeyance for two years conditioned on no further violations of G. L. c. 138 or commission regulations.

Total Wine sought judicial review of the commission's decision in the Superior Court pursuant to G. L. c. 30A, § 14. After the parties filed cross motions for judgment on the pleadings, the Superior Court judge granted Total Wine's motion and denied the commission's motion. The judge concluded that "the [c]ommission has interpreted the definition of ‘invoiced cost’ in a manner that is inconsistent with well-established principles of statutory construction." The judge declared that, by failing to account for the CQDs in calculating the actual cost of goods to Total Wine, the commission "disregard[ed] ... the substantive realities of transactions between alcoholic beverage wholesalers and their retail merchants." The judge also concluded that the commission's "inflexibl[e]" interpretation of § 2.04(1) bore "no rational connection to the purpose of its governing statutory scheme" -- which, the judge concluded, was "to prohibit unfair competitive tactics like predatory pricing." The judge therefore held that the commission's decision was "arbitrary and capricious," and vacated the commission's decision and penalties.

The commission appealed from the motion judge's ruling, and we transferred the appeal to this court on our own motion.

Discussion. "A final agency decision may be set aside or modified on judicial review under G. L. c. 30A, § 14, where, among other reasons, it ... is ‘[b]ased upon an error of law,’ under § 14 (7) (c ) ; or is ‘arbitrary or capricious, an abuse of discretion, or otherwise not in accordance with law,’ under § 14 (7) (g )." Craft, 481 Mass. at 511-512, 117 N.E.3d 676. Here, the issue essentially is whether the commission made an error of law in interpreting its own regulation -- § 2.04(1) -- to prohibit Total Wine from selling liquor or wine at a price less than the net cost per bottle that appeared on the original invoice, even where a subsequent credit invoice reflected a CQD that, if applied to the liquor or wine earlier purchased, would have reduced the net cost per bottle below the retail price.

Our review of questions of law is de novo. Craft, 481 Mass. at 512, 117 N.E.3d 676. "We interpret a regulation in the same manner as a statute, and according to traditional rules of construction." Warcewicz v. Department of Envtl. Protection, 410 Mass. 548, 550, 574 N.E.2d 364 (1991). Two relevant rules of construction apply to this case. First, we look to the text of the regulation, and will apply the clear meaning of unambiguous words unless doing so would lead to an absurd result. See Worcester v....