L.J. Zucca Inc. v. Allen Bros. Wholesale Distributors Inc., A-2723-11T1; Appellate Division; opinion by Ashrafi, J.A.D.; decided and approved for publication January 9, 2014. Before Judges Yannotti, Ashrafi and Leone. On appeal from the Law Division, Cumberland County, L-834-07. DDS No. 35-2-2478 [36 pp.]

Pursuant to the Unfair Cigarette Sales Act of 1952, N.J.S.A. 56:7-18 to -38, the director of the New Jersey Division of Taxation periodically sets minimum base prices that wholesalers must presumptively charge their retailer accounts for each brand of cigarettes. The price schedule begins with the invoice price the wholesaler pays manufacturers for cigarettes, adds cigarette taxes, allows for certain adjustments, and finally adds a presumptive percentage as the “cost of doing business.”

Plaintiff L.J. Zucca Inc., a wholesaler of cigarettes and other products, filed this action against 28 other wholesalers alleging that they violated the UCSA by giving cash rebates and other credits to their retailer accounts, effectively dropping their true prices below those fixed by the director, without having obtained the director’s approval to charge prices lower than those on the schedule or to give rebates or credits.

Plaintiff filed a “test” motion for partial summary judgment on liability against one defendant, Resnick Distributors. Resnick’s president had admitted in depositions that it had granted rebates and credits resulting in its actual prices being lower than those approved by the director, claiming that it had to do so to remain competitive with other wholesalers. Resnick denied that the effective prices were below its costs.

The trial court concluded that “predatory intent,” as defined in antitrust law—a dangerous probability or a reasonable prospect that defendants can recoup their losses by future supracompetitive prices—must be proved to show a violation of the UCSA, and because plaintiff could not prove such intent, all defendants were entitled to summary judgment.

Plaintiff appeals from the orders granting summary judgment and dismissing the claims against two defendants on entire-controversy grounds. Two defendants cross-appeal from orders that denied their motions for summary judgment on the ground that plaintiff lacks standing.

Held: Proof that a wholesaler priced its cigarettes lower than the schedule promulgated by the director of the Division of Taxation or offered retailers rebates or concessions is prima facie evidence of a violation of the UCSA. Plaintiff is not required to prove “predatory intent” as that phrase is used in federal antitrust law. A wholesaler may defend by presenting evidence that its actual costs are less than those used in the schedule and that it lacked the intent to injure competitors or destroy or lessen competition necessary.

The panel first addresses the issue of plaintiff’s standing. It says under N.J.S.A. 56:7-32(a), a private party may sue for money damages or injunctive relief even if it suffered no actual damages, provided it was injured by any violation or threatened violation of the act. The UCSA creates a factual presumption of intent to injure competitors by underpricing or granting rebates or other concessions. Injury, which is distinct from actual proven monetary damages, can occur because the aggrieved wholesaler is compelled to compete for sales with a competitor that underprices its cigarettes. Thus, the panel concludes that plaintiff demonstrated presumptively such an injury and therefore had standing to bring this action.

As to proof of defendants’ underpricing of their cigarette products, plaintiff contends that it is sufficient for it to prove that a defendant sold cigarettes at effective prices below those in the schedule. Defendants contend that plaintiff also must prove the prices were below their costs.

The panel says N.J.S.A. 56:7-20(a) prohibits sales below a wholesaler’s costs under subsection (1), or rebates or similar price concessions under subsection (2), both with the intent to injure competitors or to destroy or substantially lessen competition. Thus, plaintiff’s argument that the statute is violated when a defendant sells below the director’s floor prices, regardless of the wholesaler’s actual costs, is contradicted by the text of the statute.

The act creates a presumption of the wholesaler’s costs, which is reflected in the schedule. But the presumption means that the schedule is not irrefutable proof that a wholesaler charged prices below its costs. A wholesaler may present evidence that its actual costs are less.

Therefore, to prove a violation of 56:7-20(a)(1), plaintiff must prove that a defendant sold cigarettes at prices below its costs for the cigarettes. It may rely on the presumption, but defendants have the opportunity to rebut a prima facie case by producing evidence of their actual costs.

Here, since neither side presented evidence of the actual costs, neither was entitled to summary judgment regarding whether defendants’ products were underpriced.

As to whether Resnick had the requisite intent, the panel says the primary issue is what proofs the act requires. Plaintiff contends the act does not require proof of “predatory intent” but only intent to sell cigarettes below minimum prices fixed by the director. Defendants contend that the UCSA requires proof of predatory intent. The panel disagrees with both sides.

It says plaintiff’s interpretation cannot be squared with the plain text of the statute, which requires proof of an “intent to injure competitors or destroy or substantially lessen competition,” i.e., anticompetitive intent. However, such intent does not necessarily equate to “predatory intent” as discussed in federal antitrust law.

The panel says the UCSA creates a presumption that sales below the wholesaler’s costs or facilitated with rebates or concessions are intended to injure competitors or lessen competition and violate the act. But a wholesaler that sells below the schedule or below its costs can rebut a charge of violating the act by presenting evidence that it did not have the intent to destroy, lessen or injure competition. Mere proof of underpricing does not prove a violation unless the defendant presents nothing to rebut the prima facie case of anticompetitive intent.

However, a plaintiff need not prove “predatory intent.” The intent element in the UCSA is not limited to the narrow meaning of predatory intent in federal antitrust law. Rather, its parameters must be broad enough to permit regulation of loss-leader and other anticompetitive strategies regardless of the ability to recoup losses.

Prima facie proof of anticompetitive intent arising from rebates and concessions permitted plaintiff to withstand defendants’ motions for summary judgment when no contrary evidence was presented. Once defendants have introduced sufficient evidence to rebut the prima facie case, plaintiff must discredit that evidence or produce additional evidence of anticompetitive intent so that a rational fact finder could conclude that defendants intended to injure competitors or to destroy or lessen competition.

Since neither side has presented affirmative evidence of intent, neither was entitled to summary judgment. On remand, either side may present evidence of defendants’ intent and actual costs.

Finally, the panel says application of the entire-controversy doctrine does not preclude claims that had not yet accrued at the time of the earlier litigation. Any claims against the defendants that were unaccrued at the time of their dismissal from the prior litigation must be reinstated.

For appellant/cross-respondent L.J. Zucca Inc.—Daniel R. Chemers, of the D.C., Md. and Pa. bars, admitted pro hac vice (Saul Ewing; Chemers, Francis X. Riley III and Sarah F. Lacey, of the Md. bar, admitted pro hac vice, on the brief). For respondents/cross-appellants—Marvin J. Brauth (Wilentz, Goldman & Spitzer for Plainfield Tobacco & Candy Co. Inc., a/k/a Resnick Distributors Inc.; Pepper Hamilton for Allen Brothers Wholesale Distributors Inc.; Brauth, Karin K. Sage and Michael T. Pidgeon on the joint brief). For respondents: Consolidated Service Distributors Inc.—Julian Wilsey (Franzblau Dratch); Associated Wholesalers Inc.—Amanda J. Lavis and Robert J. Tribeck, of the Pa. bar, admitted pro hac vice (Rhoads & Sinon); Bee Gee Candy Co. Inc. and Starkman General Products—Cooper Levenson April Niedelman & Wagenheim (Katherine M. Morris on the brief); Continental Tobacco & Candy Inc., M. Bernstein & Sons, and Rainbow Heaven Distribution—Paul V. Lucas Jr. (Greenberg, Trager & Herbst) and Kalvin Kamien (Greenberg, Trager & Herbst), of the N.Y. bar, admitted pro hac vice; Cooper-Booth Wholesale Company—Blank Rome; Eby-Brown Company—Chance & McCann; McLane/MidAtlantic Inc.—Stradley Ronon Stevens & Young; S&K Imports Inc.—Lawrence Kalikhman (Kalikhman & Rayz) and Eric Rayz (Kalikhman & Rayz), of the Pa. bar, admitted pro hac vice; Vikisha Corp.—Miller, Myerson & Corbo (Stephen M. Orlofsky, Sheila E. Branyan, of the Pa. bar, admitted pro hac vice, Kevin P. McCann, Shanna McCann, Francis X. Manning, Rayz, and Gerald D. Miller on the joint brief); M&J Wholesale Inc.—Choi & Park (Chull S. Park on the brief); Sun Wholesale Inc.—David A. Avedissian.