Opinion ID: 592174
Heading Depth: 2
Heading Rank: 1

Heading: exclusionn

Text: 11 The petition for review questions the validity of an agency's interpretation of a statute that Congress charged the agency with administering; the case therefore calls for the familiar two-step analysis under Chevron. See Chevron U.S.A. Inc. v. National Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984); see also Natural Resources Defense Council, Inc. v. Reilly, 976 F.2d 36, 40 (D.C.Cir.1992) (applying the Chevron analysis). In the first step, a court uses traditional tools of statutory construction to try to determine what Congress meant by the specific phrase or term under scrutiny. If the court is successful in its search for a single, clear meaning, that is the end of the matter. To the extent that Congress' intent is not found clear, however, the second part of the Chevron analysis instructs courts to defer to the agency's interpretation of the phrase or term so long as the interpretation represents a reasonable construction of the statute. See Page v. Pension Benefit Guaranty Corp., 968 F.2d 1310, 1315 (D.C.Cir.1992). 12 Applying the first part of the Chevron analysis, we hold that whatever else Congress meant by including an exclusion requirement, Congress could not have meant to prohibit an inducement merely because it ultimately leads a retailer to purchase less of a rival product than the retailer otherwise would have. Both the statutory text and the relevant legislative history signal that Congress intended the exclusion criterion to direct the regulator to determine something more. Congress, we are satisfied, used exclusion to indicate placement of retailer independence at risk by means of a tie or link between the wholesaler and the retailer or by any other means of wholesaler control. 13 Looking first to the face of the statute, the court finds persuasive Fedway's appeal to the plain meaning of the term exclusion: to exclude a rival product connotes taking some direct action that pushes the rival out of the market, i.e., that bars the rival; to exclude a rival does not usually mean taking some action that merely leads someone else--here, a retailer--to make a free economic choice not to purchase the rival. See THE NEW WEBSTER ENCYCLOPEDIC DICTIONARY OF THE ENGLISH LANGUAGE 306 (1971) (defining exclusion as [t]he act of excluding, shutting out, debarring, expelling, excepting, or rejecting). Perhaps most persuasive are the very titles of the provisions at issue: tied house  and commercial bribery. These terms hardly suggest that Congress meant to prohibit inducements in gross, without any showing of jeopardy to retailer independence. We are also mindful of the title of a companion provision in section 205 of the FAAA, exclusive outlets. See 27 U.S.C. § 205(a) (prohibiting exclusivity agreements between wholesalers and retailers) (emphasis added). This usage shows legislative awareness of the commonplace anti-competitive connotations of the term exclusion and its derivatives. 5 14 [298 U.S.App.D.C. 117] The relevant legislative history strongly supports our reading of the plain meaning of the text. In National Distributing, this court exhaustively examined the legislative history, see 626 F.2d at 1004-12, and concluded that the essence of the 'tied house evil' was vertical integration. Id. at 1009. 6 The court in National Distributing, we acknowledge, did not have as its immediate assignment review of the administrator's definition of the term exclusion; rather, the court's task was to determine whether below-cost price cuts count as one of the specified activities covered by the tied house and commercial bribery provisions. 7 The National Distributing court's statements regarding Congress' purposes, however, appear to us fully applicable in the present context. Without retreading ground well covered in the National Distributing opinion, we point up a Senate Report observation typical of the many statements in the legislative record: the practices prohibited by section 205 are those which tended to produce monopolistic control of retail outlets--the brand of control that facilitated the serious social and political evils which were in large measure responsible for bringing on [P]rohibition. S.REP. NO. 1215, 74th Cong., 1st Sess. 6-7 (1935). 15 BATF does not resist the assertion that, in passing the tied house and commercial bribery provisions, Congress' ultimate objective was to prevent wholesaler control of retailers. Rather, the Bureau focuses on occasional references in the legislative history to the need--in face of the unique threat of corruption in the newly-legal alcohol industry--to nip any tendency towards wholesaler control in its incipiency; BATF also trains attention on references to the need for drastic enforcement measures. H.R.REP. NO. 1542, 74th Cong., 1st Sess. 6, 12 (1935). The Bureau relies on these references to argue that Congress meant to arm BATF with authority to sanction any inducement that the Bureau genuinely believes is dangerous--capable, eventually, of breeding too cozy an association between wholesaler and retailer. Finally, BATF counters the suggestion that its reading of the legislative history turns the phrase to the exclusion [of rival products] into mere surplusage. Brief for Petitioners at 12. The Bureau explains that the phrase means that the inducement in question must be successful, i.e., it must in fact cause retailers to buy comparatively less from competitors--a minimal requirement, to be sure, but not a meaningless one. 16 While Congress no doubt anticipated agency vigilance, we cannot agree that the legislature meant to allow enforcement actions on the basis of the Bureau's unsubstantiated beliefs; if the Bureau suspects that a particular inducement places retailer independence at risk and thus that the inducement is proscribed by the FAAA, it must provide substantial support backing up its suspicion--at least where, as here, the anticompetitive nature of the inducement is nowhere apparent on its face. In this regard, our view accords with that of the Seventh Circuit in Foremost: [A] mandate to address real threats in their incipiency is not an instruction to disregard the distinction between friend and foe; it is not a mandate to control weeds by scorching the earth. 860 F.2d at 239. 17 Indeed, the legislative history reveals that preventing wholesaler control (and other similarly undesirable effects) was not Congress' sole objective in passing the FAAA; Congress also intended that the Act would positively promote a competitive alcohol market. See National Distributing, 626 F.2d at 1008 (reviewing the relevant legislative history). The underlying [298 U.S.App.D.C. 118] premise is that a genuinely competitive market leads to low prices, and low prices remove any incentive for the creation of a corrupt black market--one of the prime evils of Prohibition. See id. ([I]n both Houses of Congress there appeared to be total unanimity on the conclusion that lower [alcohol] prices were desirable.). Allowing the Bureau to sanction successful inducements that BATF merely believes have the potential to lead to wholesaler control, without having to make any factual showing supporting the Bureau's intuition, risks outlawing inducements that work to foster a competitive alcohol market. 18 Fedway's 1986 promotion seems to have been just this kind of inducement. Facing the Bureau's failure to make any findings to the contrary, we see no reason to resist viewing the promotion as a pro-competitive quantity discount, albeit one paid in electronic goods instead of by direct price breaks. Simply by lowering the effective price of the promoted product, such discounts operate to make the rival product more expensive relative to the promoted product. Retailers who buy less of the rival product in this situation are making a free and rational economic choice to do so; that choice is not one BATF has been charged to inhibit. 19 Judicial precedent, while not heavily weighted in the Chevron inquiry into congressional intent, is consistent with our holding that BATF's construction of exclusion is not what the legislature meant. Specifically, the principal cases holding a wholesaler inducement unlawful under the tied house and commercial bribery provisions involved practices plainly threatening to retailer independence. See Distilled Brands, Inc. v. Dunigan, 222 F.2d 867 (2d Cir.1955) (wholesaler engaged in tying arrangements); Black v. Magnolia Liquor Co., 355 U.S. 24, 78 S.Ct. 106, 2 L.Ed.2d 5 (1957) (same); Stein Distributing Co. v. Dep't of Treasury, Bureau of Alcohol, Tobacco and Firearms, 779 F.2d 1407 (9th Cir.1986) (wholesaler's sales representatives physically moved competitors' products to less visible locations on retailers' shelves). See also Foremost, 860 F.2d at 238 (These cases do not hold that every occurrence of a practice specified in the tied house and commercial bribery provisions, no matter how innocuous its motivation and how slight its effect, represents an inducement to a purchaser that will result in the 'exclusion' of a competing supplier's goods.). 8 Particularly revealing here is a passage from the BATF Director's own decision in the Stein case: 20 Despite Stein's characterization of the facts, the concern under the FAA Act is not that displaying products in a particular manner affects sales or that poor selling wines were eliminated from retail stores. The concern is that these buying ... decisions were being made by the wholesaler, or by a retailer so strongly influenced by a wholesaler that no independent decision is being made. That this was the situation [here] ... is exemplified by the testimony of other wholesalers that they were directed by managers of retail chains ... to contact a Stein employee to get one of their products on the shelf at the store. 21 Order of the Director, Bureau of Alcohol, Tobacco and Firearms, No. 309 Western Region (Nov. 2, 1984), reprinted in Brief for Distilled Spirits Council et al., Amici Curiae at A-32 (emphasis added). 22 In sum, under the first part of the Chevron analysis, we hold that Congress has plainly marked out what exclusion is not; it is not what occurs merely by virtue of a retailer purchasing less of a rival liquor [298 U.S.App.D.C. 119] product. Because this is the only datum on which the Bureau relied in the present case, the Bureau erred in declaring Fedway's promotion unlawful. Exclusion requires that the Bureau show something more. 23 While we have demanded a factual showing that retailer independence is potentially threatened, we have not further specified what the something more is. Beyond the bare requirement we have identified, Congress' intent is no longer clear: neither the plain meaning nor the legislative history dictates precisely how strict a showing of threat is required. The second part of the Chevron analysis commands that in such circumstances courts leave further definition to the administering agency--so long as the definition reasonably construes the statutory provisions at issue. 24 We emphasize in this regard that our decision does not instruct BATF to limit sanctions to conduct verging on an antitrust violation. But cf. Black, 355 U.S. at 25, 78 S.Ct. at 108 (One aim of Congress ... was to prohibit practices that were 'analogous to those prohibited by the antitrust laws.' ) (citation to House Report omitted). We stress, too, by way of example, that the very promotion in this case might be cast in more ominous light under the FAAA if the VCRs and TVs were given directly to the retailers' employees without the retailers' knowledge. Cf. American Distilling Co. v. Wisconsin Liquor Co., 104 F.2d 582 (7th Cir.1939) (The vice of conduct labeled 'commercial bribery,' as related to unfair trade practices, is the advantage which one competitor secures over his fellow competitors by his secret and corrupt dealing with employees or agents of prospective purchasers.) (emphasis added). 25 We order here only that the agency take reasonable account of both policy interests underlying the tied house and commercial bribery provisions. The agency properly places substantial weight on the statute's recognition that the alcohol industry is unique. Both its historic association with corruption and the general belief that cheap and plentiful alcohol is not an unmitigated social good (as opposed, say, to cheap and plentiful home heating oil or shoes) suggest that the alcohol industry requires special oversight and regulation. 9 Yet definition of the exclusion criterion must also recognize adequately--as the agency's current definition does not--the value of pro-competitive wholesale promotions. This value derives not only from the traditional benefits of competition in terms of lower prices and improved quality, but also--as mentioned above--from the fact that a competitive alcohol market helps deter the formation of a corrupt black market. 26 Finally, in arriving at a reasonable interpretation of exclusion (and of the tied house and commercial bribery provisions more generally), the Bureau must take care to distinguish rationally between those promotions it decides are lawful and those it decides are not. The Director, thus far, has not taken such care. Specifically, at the same time that BATF sanctions Fedway's promotion, it allows quantity discounts paid in the form of alcohol products (similar or dissimilar to the purchased products). See ATF Rev.Rul. 83-3, 1983 ATF C.B. 34. What difference does it make that a retailer who buys ten cases of Finlandia vodka earns a color television rather than a case of wine? At oral argument, counsel for the Bureau suggested that, in the latter case, there is a greater likelihood that the discount will ultimately inure to the benefit of the consumer (i.e., work in a pro-competitive way). The suggestion, so far as we can tell, however, rests on speculation when what is needed is a fact-informed determination. On brief, the Bureau noted that even if the Fedway promotion operated like a traditional quantity discount, the promotion would still be unacceptable because Fedway had failed to register and [298 U.S.App.D.C. 120] invoice the TVs and VCRs properly. See Brief for Respondent at 7 n. 6, 38 n. 33. We doubt the Bureau's attachment to this distinction: Is BATF really suggesting that Fedway's promotion would have been lawful had it only been properly registered and invoiced? 27 For the above reasons, then, we would have ranked BATF's definition of exclusion in this case unreasonable under the second part of the Chevron analysis even had this court not come earlier to a confident conclusion regarding Congress' intent under the first part of the Chevron analysis.