Massachusetts Fine Wines & Spirits, LLC v. Alcoholic Beverages Control Commission (Lawyers Weekly No. 12-094-17)

                                      COMMONWEALTH OF MASSACHUSETTS


SUFFOLK, ss.                                                                            SUPERIOR COURT

                      CIVIL ACTION

  1. 2017–003120-C











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 Wine’s motion is ALLOWED.



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 against 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 204 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, concluding, in relevant part, as follows:

“[204 Code Mass. Regs. § 2.04(1)] does not speak to discounts earned or invoices relating back to original invoices.  Instead, the regulation focuses on the ‘invoiced cost’ and the ‘net cost appearing on the invoice.’


The Commission interprets ‘invoiced cost’ in the regulation to be the actual cost to the § 15 retailer of the alcoholic beverages as printed on the invoice issued by a supplier to the § 15 retailer at the time of purchase of the alcoholic beverages.  It follows that any offers that do not appear on the invoice issued for the alcoholic beverages being purchased cannot be used in calculating the invoiced cost.

. . .

For all of the subject products . . . [Total Wine] sold the bottles at prices less than the costs appearing on the original invoices before the suppliers issued subsequent invoices reflecting credit adjustments.”[4]


Based on these findings, the Commission suspended Total Wine’s alcohol license for a period of eleven days, eight of which days were suspended for a period of two years provided there were no further violations.[5]  Total Wine’s Chapter 30A appeal to this Court followed.



  1. Standard of Review

The party appealing an administrative decision bears the burden of demonstrating the decision’s invalidity.  Merisme v. Board of Appeals on Motor Vehicle Liab. Policies & Bonds, 27 Mass. App. Ct. 470, 474 (1989).  In this connection, the Court is required to “give due weight to the experience, technical competence, and specialized knowledge of the agency, as well as the discretionary authority conferred on it” by statute.  G. L. c. 30A, § 14(7).  The Court may not substitute its own judgment for that of the agency, nor may it disturb the agency’s findings of fact if they are supported by record evidence.  Guarino v. Director of Div. of Emp’t Sec., 393 Mass. 89, 92 (1984).  The Court’s sole function “is to determine whether the [agency] applied correct legal principles in reaching its decision.”  Id.  A reviewing court may, however, reverse, remand or modify an agency decision if the “substantial rights of any party may have been prejudiced because the agency decision is based on an error of law or unlawful procedure; is arbitrary and capricious or unwarranted by facts found by the agency; or is unsupported by substantial evidence.”  See G. L. c. 30A, § 14 (7).

  1. Analysis


Total Wine argues that the Commission’s decision must be reversed because it has rendered a result that is arbitrary and capricious.  See  G. L. c. 30A, § 14 (7).  A decision that is arbitrary and capricious is one that “lacks any rational explanation that reasonable persons might support.” Cambridge v. Civil Serv. Comm’n, 43 Mass. App. Ct. 300, 303 (1997).  “Although the Commission is entitled to all rational presumptions in favor of its interpretation of its own [regulation], there must be a rational relation between its decision and the purpose of the regulations it is charged with enforcing.”  Fafard v. Conservation Comm’n, 41 Mass. App. Ct. 565, 572 (1996).  The Court has reviewed the Commission’s decision in this case with the foregoing principles in mind, and concludes that ABCC’s construction of the term “invoiced cost” bears no relationship to the purpose of 204 Code Mass. Regs. § 2.04(1) and “lacks any rational explanation that reasonable persons might support.”  See Cambridge, 43 Mass. App. Ct. at 303.

The Commission’s authority to promulgate regulations enforcing the laws that govern the Commonwealth’s alcoholic beverage industry is set forth in the Massachusetts Liquor Control Act, G.L. c. 138, § 24.  See Commonwealth v. Mass. CRINC, 392 Mass. 79, 91 (1984).[6]  The Commission’s authority is statutorily limited, however, to the extent that such regulations cannot be inconsistent with the provisions of Chapter 138.  See G.L. c. 138, § 24.  The purpose of 204 Code Mass. Regs. § 2.04(1) must, therefore, be consistent with the provisions of G.L. c. 138 which pertain to the pricing of alcoholic beverage products.


With respect to the minimum price of alcoholic beverage products sold at the retail level,  the case law is clear that the Legislature has consistently sought to block predatory practices such as “price cutting and ‘loss-leader selling’” in the industry.  See Johnson v. Martignetti, 374 Mass. 784, 792 (1978) (alcohol regulation “aims at controlling the tendency toward concentration of power in the liquor industry; preventing monopolies; [and] avoiding practices such as indiscriminate price cutting”); T.J. Hartnett Beverage Co. v. Alcoholic Beverage Control Comm’n, 350 Mass. 619, 621 (1966) (similar); Bond Liquor Store, Inc. v. Alcoholic Beverage Control Comm’n, 336 Mass. 70, 71‑72 (1957) (the Commission’s power over prices under G.L. c. 138, § 25C “is an effective assurance against unfair competition and loss-leader selling . . . and in operation must put a full stop to price cutting as a competitive manoeuver”) (quotation omitted).[7]  This is, unmistakably, the animating purpose of Section 2.04(1), and the interpretation and enforcement of the regulation must be examined through this prism.[8]


The Commission’s starchy construction of Section 2.04(1), which limits “invoiced cost” to the total reflected on a wholesaler’s original invoice, bears no rational relationship to the legislative policy of prohibiting anti-competitive pricing practices.  There was clearly no predatory pricing carried out in this case – only a salutary effort by a retailer to pass along savings derived from volume purchasing at the wholesale level to its customers.  This is something the law should promote rather than punish.  Low prices “benefit consumers regardless of how those prices are set, and so long as they are above predatory levels, they do not threaten competition.”  State Oil v. Khan, 522 U.S. 3, 15 (1997); Whitehall Co. v. Merrimack Valley Distributing Co., 56 Mass. App. Ct. 853, 861 (2002) (lower aggregate prices enhance consumer welfare).  Indeed, “cutting prices in order to increase business often is the very essence of competition.” IdAccord Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 549 U.S. 312, 319 (2007) (“[T]he costs of erroneous findings of predatory -pricing liability were quite high . . . [and] chill the very conduct the antitrust laws are designed to protect.”) (citation omitted); A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396, 1400 (7th Cir. 1989) (“A price ‘too low’ for an inefficient rival may be just right from consumers’ perspective, showing only that the defendant’s costs of production are lower than those of the plaintiff–for which it should receive a reward in the market rather than a penalty in the courthouse.”).[9]


Although the Commission did not take exception to plaintiff’s deducting prompt payment discounts from the total cost identified on the original invoice, its decision requires retailers to disregard other pricing information that is no less integral to a calculation of the true net cost of an alcoholic beverage product – a cost which might be higher or lower depending on factors such as applicable CQDs (as was the case with Total Wine) and/or whether the retailer was assessed additional fees for late payment.  In doing so, the Commission failed to conduct a fair and accurate analysis of whether a retailer is, in actual fact, selling alcoholic beverage products below cost.[10]  The Commission’s disregard of the substantive realities of transactions between alcoholic beverage wholesalers and their retail merchants renders its decision in this case arbitrary and capricious.  See Hercules Chem. Co. v. Department of Envtl. Protection, 76 Mass. App. Ct. 639, 643 (2010) (quoting Long v. Commissioner of Public Safety, 26 Mass. App. Ct. 61, 65 (1988)) (“Arbitrary and capricious action is that which is taken ‘without consideration and in disregard of facts and circumstances.’”).


Total Wine additionally argues that the Commission’s construction of 204 Code Mass. Regs. § 2.04(1) reflects an error of law.  The Court agrees.  “A properly promulgated regulation is to be construed in the same manner as a statute.”  The Harvard Crimson, Inc. v. President & Fellows of Harvard College, 445 Mass. 745, 749 (2006) (quoting Hanlon v. Rollins, 286 Mass. 444, 447 (1934)).  “Courts must ascertain the intent of a statute from all its parts and from the subject matter to which it relates, and must interpret the statute so as to render the legislation effective, consonant with reason and common sense.”  Cote-Whitacre v. Department of Public Health, 446 Mass. 350, 358 (2006).  Commission regulations must, therefore, “be construed, where capable, so as to constitute a harmonious whole consistent with the legislative purpose” of G.L. c. 138.  See id. (citation omitted).   In the present case, the Commission has not only interpreted Section 2.04(1) so inflexibly as to produce a result with no rational connection to the purpose of its governing statutory scheme; it has given a meaning to “invoiced cost” that is troublingly inconsistent with the Legislature’s use of that term in another section of the Massachusetts Liquor Control Act.  See People for the Ethical Treatment of Animals v. Department of Agricultural Resources, 477 Mass. 280, 286 (2017) (“Our primary duty is to interpret a statute in accordance with the intent of the Legislature.”) (quotation omitted).


General Laws c. 138, § 23 permits the Commission to accept “an offer in compromise” from alcohol licensees, viz., a fine, “in lieu of suspension of any license.”  Section 23 requires the fine to be calculated as half of a licensee’s daily “gross profits” for each day that their license would otherwise be suspended.  Section 23 further requires “gross profits” to be determined by the licensee’s total sales less the “invoiced cost” of the products sold each day.  Applying the Commission’s construction of “invoiced cost” to Section 23, however, would impermissibly leave the calculation of a retailer’s gross profits to the caprice of their wholesalers.  In particular, the gross profits of a retailer whose wholesaler decides to include the CQDs the retailer has earned on its original invoices will be calculated differently than the gross profits of a retailer whose wholesaler does not identify earned CQDs on its original invoices, and has not issued a credit invoice at the time gross profits are calculated.  While the actual net cost of the particular products might be exactly the same for both retailers, their gross profits (and, for this reason, the total fine assessed under Section 23) would differ.  Such inequitable treatment would present constitutional problems that the Court must presume the Legislature was aware of when it passed St. 1973, c. 1009, and inserted the “fine in lieu of suspension” provision into G.L. c. 138, § 23.  Cf. Harvey Payne, Inc. v. Slate Co., 345 Mass. 488, 493 (1963).  General Laws c. 138, § 23 thus anticipates an interpretation of the term that takes factors extraneous to the original invoice into account.  For this reason, the Commission’s cramped construction of “invoiced cost” is inconsistent with the meaning of that term as it is used elsewhere in the regulation’s governing statutory scheme.


The Commission’s attempt to justify its gloss on Section 2.04(1) by citing its authority to regulate minimum prices under G.L. c. 138, § 25C is unavailing.  Section 25C prohibits the sale of alcoholic beverages until after the Commission has approved “minimum prices . . . as not being excessive, inadequate or unfairly discriminatory.”  However, nothing in the Commission’s decision in this case suggests that Total Wine’s prices were below minimum prices approved under G.L. c. 138, § 25C.  Rather, the Commission found that Total Wine’s prices were impermissibly low because they were based on a cost calculation that factored in CQDs before Total Wine had received corresponding credit invoices from its wholesaler(s).  During Total Wine’s December 7, 2016 hearings before the Commission, and again during oral argument on the present motion, counsel for the Commission conceded that had the CQDs appeared on Total Wine’s original invoices, the prices at issue would not have violated Section 2.04(1).  The Commission’s finding that Total Wine’s prices were impermissibly low (despite the fact that such prices did not fall below the products’ actual net cost or any minimum price established under § 25C), therefore, bears no rational relationship to the reason the Legislature granted the Commission authority to regulate minimum prices – namely, to prohibit unfair competitive tactics like predatory pricing.  The putative problem under Section 2.04(1) identified by ABCC in this case was simply the sequencing of the invoice paperwork, and not the substance of the product pricing itself.  See Van Munching Co. v. Alcoholic Beverages Control Comm’n, 41 Mass. App. Ct. 308, 310 (1996) (examining Commission’s authority in light of purpose of Legislature in granting such authority).[11]


The Commission’s semantic contention that CQDs do not reduce the “invoiced cost” of a product because they are “credits” and not discounts is likewise unpersuasive, in light of the Commission’s contrary historical view of the CQD.  In 1998, the U.S. District Court for the District of Massachusetts invalidated a portion of G.L. c. 138, § 25A that required wholesalers to adhere to posted prices for a specific period of time, based on its finding that the requirement was an unlawful restraint of trade.  See Canterbury Liquors & Pantry v. Sullivan, 16 F. Supp.2d 41, 46 (D. Mass. 1998).  At the same time, the Court invalidated all regulations promulgated under § 25A, which were codified at 204 Code Mass. Regs. §§ 6.00 et seq.  In addition to prohibiting wholesalers from changing posted prices within the same calendar month, portions of the invalidated regulations governed discounting.  See G.L. c. 138, § 25A(a); 204 Code Mass. Regs. § 6.04.  One of the “discounts” identified in the invalidated regulations was the CQD.  See 204 Code Mass. Regs. § 6.04(5)(a) (“[A] wholesaler may allow a retailer to accumulate his total purchases of items for purposes of obtaining a maximum quantity discount, provided that the wholesaler shall keep accurate records of all transactions resulting in the cumulative discount.”).  The invalidation of the regulation concerning discounts, which was inextricably intertwined with requirements related to the unlawful price maintenance scheme struck down by the federal court, did not invalidate the approved practice of volume-based discounting in and of itself.  See Van Munching Co., 41 Mass. App. Ct. at 310 (finding nothing in G.L. c. 138 prohibiting a discount program pursuant to which alcoholic beverage suppliers “provided increasing rebates” to wholesalers based on the number of cases sold in a single delivery to retailers).  The Commission’s current effort to re-characterize CQDs as “credits,” therefore, represents an abrupt departure from its long-standing regulatory treatment of the CQD as a “discount,” and cannot be accepted.[12]  “An agency should strive to act on bases that are uniform and predictable.”  Hercules Chem. Co. v. Department of Envtl. Protection, 76 Mass. App. Ct. 639, 643 (2010) (citation omitted).  “If the agency has acted for reasons that are . . . related . . . to an ad hoc agenda, then that agency has acted arbitrarily because the basis for action is not uniform and, it follows, is not predictable.”  Fafard, 41 Mass. App. Ct. at 568.  Such appears to be the case here.[13]


Although the Commission is entitled to all rational presumptions in favor of its interpretation of its own regulation, “there must be a rational relation between its decision and the purpose of the regulations it is charged with enforcing.”  Fafard, 41 Mass. App. Ct. at 572.  “The applicable principles are of judicial deference and restraint, not abdication.”  Id. (citation omitted).  In construing Section 2.04(1) as it now does, the Court is deferring to the Commission’s prerogative to establish regulations that serve a salutary policy under the Massachusetts Liquor Control Act ‑‑ viz., the prevention of anti‑competitive, predatory pricing that ultimately harms consumers.  See Whitehall Co., 56 Mass. App. Ct. at 861 (recognizing that unsustainably low prices “spawned by predation” are a “social harm”). The Court is likewise deferring to the agency’s insistence that the definition of “cost,” for purposes of the prohibition against below‑cost selling at the retail level, be construed to require that the retailer’s cost of product be reflected in documentary invoices that correspond to the product purchased.  What the Court cannot accept, however, is the additional, and arbitrary, requirement that each creditable cost be reflected in a single, original invoice that accompanies delivery of the product in real time.  Such a requirement does nothing to further the statutory policy underlying Section 2.04(1), and in fact disadvantages the very small retailers this feature of the law aims to protect.  See footnote 10, ante.[14]  

Based on the foregoing, the Court finds that the Commission has interpreted the definition of “invoiced cost” in a manner that is inconsistent with well-established principles of statutory construction, and has failed to articulate a rational connection between its construction of Section 2.04(1) and the underlying legislative purpose of the regulation.[15]  For these reasons, the Court concludes that the Commission’s decision was arbitrary and capricious, and may not stand.  See G.L. c. 30A, _ 14(7).


In accordance with the foregoing, Total Wine’s Motion for Judgment on the Pleadings is ALLOWED and the Commission’s Motion for Judgment on the Pleadings is DENIED.



Robert B. Gordon

Justice of the Superior Court





Dated: July 24, 2017


[1]d/b/a Total Wine & More

[2]Martignetti’s credit invoices specifically identify the quantity of promotional products the retailer purchased during the promotional period, but Horizon’s credit invoices do not.

[3]The record is ambiguous as to whether retailers may opt to receive a cash payment in lieu of the future purchase credit.

[4]Although the Commission issued three separate decisions, the cited passage appears in each one.

[5]The Commission has been enjoined by an order of preliminary injunction (Wilkins, J.) from enforcing the terms of this suspension pending the outcome of the present litigation.

[6]Chapter 138 encompasses the statutory provisions that govern the Commonwealth’s alcoholic beverage industry.

[7]In 1957, the Supreme Judicial Court held that G.L. c. § 23A, which sought to apply the Commonwealth’s Unfair Sales Act to the alcoholic beverage industry, had been impliedly repealed by the enactment of G.L. c. 138, § 25C.  See Bond Liquor Store, Inc., 336 Mass. at 74.   The SJC reasoned that “the application of § 23A to sales to which § 25C also in terms applies would be so arbitrary and unreasonable . . . as to show inconsistency and repugnancy in their respective positions,” and thus held that “the intention to occupy the entire field of price control in the liquor industry is reasonably manifested by § 25C.”  Id. at 74, 77.  For this reason, Total Wine’s insistence that the Unfair Sales Act, G.L. c. 93, § 14F, completely preempts 204 Code Mass. Regs. § 2.04(1) is unavailing.

[8]The Court does not credit the Commission’s contention that Section 2.04(1) is to any meaningful degree designed to ensure that alcohol not be made overly available (through lower prices) to consumers.

[9]Low retail prices for alcoholic beverage products are also essential to suppressing the criminal activity associated with illicit alcohol sales.  See Report Made to His Excellency the Governor by a Special Commission Appointed by Him, 1933 MA H.B. 1300 at 11 (March 16, 1933) (“When the law provides . . . for an abundant supply of good and pure beverages at reasonable prices, there can be no legitimate demand for a supply through illicit dealers.”).  See also Special Commission Established to Study the Laws and Regulations Governing the Alcoholic Beverage Industry in the Commonwealth of Massachusetts, Report to Governor Edward J. King at 1 (June 15, 1980) (“The consuming public deserves–not only the lowest possible price–but the widest possible choice among products, the most wholesome products available, and pricing which is fair and competative [sic].”).

[10]To mitigate this result, the Commission has taken the position that CQDs may be factored into the “invoiced cost” of a product after a documentary credit invoice is issued to the retailer.  Rather than prevent unfair competitive practices, however, this interpretation of Section 2.04(1) creates an opportunity for larger alcoholic beverage retailers to employ trade practices that will place smaller competitors at a market disadvantage.  For example, a national retailer could predictably purchase a large up-front quantity of a particular product to qualify for a CQD, and then wait until it receives a corresponding credit invoice before placing the item on shelves for sale.  In this way, the retailer would be able to entice potential customers by offering the product at the lowest possible price.  By contrast, smaller retailers may not have the financial resources to purchase a large volume of products that will not immediately be placed in stores for sale.  As a consequence, those retailers would be obliged to offer the product at a higher price than larger competitors that are able to afford to keep promoted products off of their shelves until they receive a credit invoice.  Such an outcome – viz., enabling large retailers to exploit their superior resources to drive smaller competitors out of the market – is the very antithesis of the level playing field Section 2.04(1) seeks to foster. See Johnson, 374 Mass. at 792 (Massachusetts alcohol regulation “aims at . . . preserving the right of small, independent liquor dealers to do business”).


[11]It also bears noting that 204 Code Mass. Regs. § 2.04 does not cite G.L. c. 138, § 25C as the source of its regulatory authority.  It cites, rather, to G.L. c. 138, § 12, which concerns entities that hold a license to serve beverages to be consumed on premises, and § 24, which speaks only to the Commission’s authority to establish maximum prices.

[12]Assuming, arguendo, that a CQD is more properly categorized as a “credit” than a “discount,” the Commission’s position is unclear as to whether the application of such “credit” to a future original invoice may properly be considered when calculating that order’s “invoiced cost.”

[13]The Court recognizes that the Commission’s construction of Section 2.04(1) may have arisen out of the practical challenges it faces in enforcing a minimum price scheme.  In other words, the burden on the Commission to investigate the “invoiced cost” of an alcoholic beverage product is arguably eased by limiting the “invoiced cost” to the total cost identified on the single originally invoiced document.  Presently, Commission regulations prohibit retailers from accepting any invoices that “contain any statement which falsely indicates prices, discounts, or terms of sale; nor . . . any statement which makes the invoice a false record, wholly or in part, of the transaction represented therein; nor . . . any statements which properly should be included therein, so that in the absence of such statements the invoice does not truly reflect the transaction involved.”  204 Code Mass. Regs. § 2.02(2).  The record, however, suggests that wholesalers’ original invoices in fact meet the requirements of this regulation with respect to CQDs by simply incorporating by reference the terms of the promotional pricing published in the Massachusetts Beverage Journal.  In all events, the Commission is empowered to modify or add to its regulations – with prospective effect only –  if a retailer’s incorporation of CQDs by reference inadequately apprises the agency of the discounts applicable to a determination of “invoiced cost.”  See G.L. c. 138, § 24.  This would be far more consistent with regulatory fairness than the novel construction of “invoiced cost” ABCC has imposed on Total Wine post hoc in the case at bar.

[14]To be sure, Total Wine is not the paradigmatic small retailer of which the Court speaks.  But it is part of a regulated industry that has a right to expect that the statute which governs its business conduct will be construed by the enforcement agency in a manner that is predictable, fair, and consistent with the purposes of the law.  That expectation has been frustrated in the present case.

[15]Total Wine additionally argues that the Commission’s construction of 204 Code Mass. Regs. § 2.04(1) renders the regulation an unreasonable restraint on trade, in violation of the Sherman Antitrust Act, 15 U.S.C. § 1 et seq.  However, inasmuch as the Court has found that the Commission’s construction and application of its regulation were impermissibly arbitrary and capricious, there is no need to engage in an analysis of whether such actions offend federal antitrust law.

Full-text Opinions