Whitehall Co. v. Merrimack Distributing

• Decision Date: 30 December 2002
• Docket Number: No. 99-P-1743.,99-P-1743.
• Citation: 780 N.E.2d 479,56 Mass. App. Ct. 853
• Court: Appeals Court of Massachusetts
• Parties: WHITEHALL COMPANY LIMITED v. MERRIMACK VALLEY DISTRIBUTING COMPANY, INC., & another.<SMALL><SUP>1</SUP></SMALL>

780 N.E.2d 479

56 Mass. App. Ct. 853

WHITEHALL COMPANY LIMITED v. MERRIMACK VALLEY DISTRIBUTING COMPANY, INC., & another.¹

No. 99-P-1743.

Appeals Court of Massachusetts, Norfolk.

Argued November 6, 2001.

Decided December 30, 2002.

Robert S. Frank, Jr., for the plaintiff.

Bruce W. Edmands, Boston, for Merrimack Valley Distributing Company, Inc.

William D. O'Brien, Boston, for Atlas Liquors, Inc.

Present: BROWN, GREENBERG, & McHUGH, JJ.

McHUGH, J.

Reduced to essentials, the question in this case is whether G.L. c. 93A, § 11, allows the plaintiff, a liquor wholesaler, to recover damages from a competing wholesaler who allegedly violated the price discrimination provisions of G.L. c. 138, § 25A, and from a retailer who allegedly sought and benefitted from the discrimination. A judge in the Superior Court said "no," and allowed the defendants' motion to dismiss. We agree that, in this case, the answer is "no," although we do so for reasons different from those upon which the motion judge relied. Consequently, we affirm the judgment dismissing the plaintiff's complaint.

Extracted from inconsequential diversions, the background is as follows. The plaintiff, Whitehall Company Limited, Inc., is a wholesaler of alcoholic beverages licensed under the provisions of G.L. c. 138, § 18. Merrimack Valley Distributing Company, Inc. (Merrimack), one of the two defendants, is a competing wholesaler, also licensed under G.L. c. 138, § 18. Atlas Liquors, Inc. (Atlas), the other defendant, is a licensed liquor retailer. See G.L. c. 138, § 15.

General Laws c. 138, § 25A, the statutory provision at the center of the present controversy,² is part of an extensive scheme under c. 138 for regulating distribution of alcoholic beverages. See generally Miller Brewing Co. v. Alcoholic Bevs. Control Commn., 56 Mass.App.Ct. 801, 780 N.E.2d 80 (2002). As part of that scheme, § 25A(a) prohibits brand owners and wholesalers from discriminating in price or in discounts for their customers' volume purchases or prompt payments.³ The statute provides that violations of § 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, 62.

In November, 1996, the plaintiff commenced the present action in Superior Court alleging that Merrimack had engaged in unfair competition and had committed an unfair or deceptive practice, all in violation of G.L. c. 93A, § 2, by failing to adhere to the § 25A antidiscrimination provisions.⁴ The complaint also alleged that Atlas had committed similar violations by soliciting and receiving discriminatory discounts. See G.L. c. 93A, § 11.⁵ The plaintiffs complaint sought declaratory and injunctive relief as well as damages, compensatory and punitive.

Merrimack and Atlas moved to dismiss the complaint under Mass.R.Civ.P. 12(b)(6), 365 Mass. 754 (1974).⁶ After initially denying the motion pending the outcome of related Federal litigation, see note

3, supra, the judge allowed it and judgment of dismissal entered.⁷

Our analysis begins with the familiar. A complaint cannot be dismissed pursuant to Mass.R.Civ.P. 12(b)(6) "unless it appears certain that the complaining party is not entitled to relief under any state of facts which could be proved in support of the claim." Harvard Law Sch. Coalition for Civil Rights v. President & Fellows of Harvard College, 413 Mass. 66, 68, 595 N.E.2d 316 (1992), quoting from Rae v. Air-Speed, Inc., 386 Mass. 187, 191, 435 N.E.2d 628 (1982). We apply that standard in an "exceedingly liberal manner." Brum v. Dartmouth, 44 Mass.App. Ct. 318, 321, 690 N.E.2d 844 (1998). Accord Coolidge Bank & Trust Co. v. First Ipswich Co., 9 Mass.App.Ct. 369, 370-371, 401 N.E.2d 165 (1980). Nevertheless, the complaint must put the adversary on notice of the essential elements of the claim the pleader intends to assert. It is not enough that a viable claim lurks somewhere in "conclusory descriptions of a `general scenario which could be dominated by unpleaded facts.'" Schaer v. Brandeis Univ., 432 Mass. 474, 478, 735 N.E.2d 373 (2000), quoting from Judge v. Lowell 160 F.3d 67, 77 (1st Cir.1998).

Here, the plaintiff alleges that it has been damaged by price discrimination, pure and simple. Although it claims that the damaging price discrimination is forbidden by G.L. c. 138, § 25A, it does not maintain that it has a right of action under that statute.⁸ Instead, it asserts that to engage in discrimination banned by § 25A is to engage in an unfair method of competition and to commit an unfair trade practice in violation of G.L. c. 93A, § 2, and that G.L. c. 93A, § 11, provides a right of action to recover resulting damages and more. Accordingly, the question for us is whether, without more, an allegation that a competing defendant has engaged in price discrimination forbidden by G.L. c. 138, § 25A, and that the plaintiff lost sales as a consequence, is enough to state a viable claim for relief under G.L. c. 93A, § 11.⁹

Violation of a specific statute that does not itself permit private recovery may give rise to a private claim under 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 c. 93A is compatible with the objectives and enforcement mechanisms the underlying statute contains. See Dodd v. Commercial Union Ins. Co., 373 Mass. 72, 76-78, 365 N.E.2d 802 (1977); Ciardi v. Hoffmann-La Roche, Ltd., 436 Mass. 53, 62-64, 762 N.E.2d 303 (2002). Compare Reiter Oldsmobile, Inc. v. General Motors Corp., 378 Mass. 707, 393 N.E.2d 376 (1979); Cabot Corp. v. Baddour, 394 Mass. 720, 477 N.E.2d 399 (1985); DePasquale v. Ogden Suffolk Downs, Inc., 29 Mass.App. Ct. 658, 662, 564 N.E.2d 584 (1990). Obviously, however, not every statutory violation amounts either to unfair competition or to an unfair practice. Therefore, before undertaking the often complex task of deciding whether maintenance of a private action under c. 93A is congruent with an underlying statute or statutes, one must determine whether the statutory violation also violates c. 93A, § 2. See Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747, 754, 610 N.E.2d 912 (1993).

In determining whether price discrimination of the type the plaintiff alleges here violates § 2, we are guided by two express directions contained in c. 93A itself. First, c. 93A, § 2(b), states that, in any action brought, inter alia, under § 11, we are to "be guided by the interpretations given by the Federal Trade Commission and the Federal Courts to section 5(a)(1) of the Federal Trade Commission Act (15 U.S.C. 45(a)(1)), as from time to time amended." The Federal Trade Commission (FTC) Act broadly prohibits "[u]nfair methods of competition ... and unfair or deceptive acts or practices."¹⁰ 15 U.S.C. § 45(a)(1). Second, c. 93A, § 11, provides that, in determining whether challenged conduct amounts to an "unfair method[] of compettion," we are to consider the provisions of G.L. c. 93, the Commonwealth's antitrust statute, in addition to FTC and judicial interpretations of the FTC Act.¹¹

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).¹² In turn, § 2(a) prohibits certain price discrimination by competing sellers, so-called discrimination at the primary line.¹³ See Federal Trade Commn. v. Anheuser-Busch, Inc., 363 U.S. 536, 542-543, 80 S.Ct. 1267, 4 L.Ed.2d 1385 (1960). That is the type of discrimination the plaintiff alleges here.

At the primary line, however, price discrimination is an unfair trade practice only if the discrimination has an adverse impact on competition itself, not simply an adverse impact on competitors.¹⁴ As one commentator has explained,

"Injury to competitors in the primary line may well be caused by competition which is `fair.' Unless the lower price is below marginal cost, or unless so many sellers are driven out of the business that, in view of the power and purpose of the seller, a continuation of the discrimination would be inconsistent with the healthy continuation of a competitive market, the practice does not possess the requisite degree of unfairness necessary to fall within the policy of section 5 [of the FTC Act]."

Reeves, Toward a Coherent Antitrust Policy: The Role of Section 5 of the Federal Trade Commission Act in Price Discrimination Regulation, 16 B.C. Indus. & Com. L.Rev. 151, 184 n. 161 (1975). See Anti-Monopoly, Inc. v. Hasbro, Inc., 958 F.Supp. 895, 905 (S.D.N.Y.1997).

Put another way, at the primary line, the essence of a viable claim for price discrimination under § 2(a) of the Robinson-Patman Act, and, thus, under § 5(a)(1) of the FTC Act, is that "[a] business rival has priced its products in an unfair manner with an object to eliminate or retard competition and thereby gain and exercise control over prices in the relevant market." Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993). The injury thereby created is similar to the injury produced by violating § 2 of the Sherman Act, 15 U.S.C. § 2, which prohibits monopolizing a market or attempting to do so. Accordingly, proof of prohibited discrimination at the primary line requires proof of two elements, i.e., that (a) the rival's prices are below an appropriate measure of the rival's cost, Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., supra, and (b) the rival has a reasonable prospect that its scheme will ultimately allow it to charge noncompetitively high, or supercompetitive, prices sufficient to recoup "the amounts expended on the predation, including the time value of the money invested in it." Id. at 225, 113 S.Ct. 2578. In the last analysis, "[r]ecoupment is the ultimate object of an unlawful predatory pricing scheme; it is the means by which a predator...