2007-920, HAIR EXCITEMENT, INC. v. L'OREAL U.S.A., INC.

The plaintiff, Hair Excitement, Inc. (Hair Excitement),

Ruoff on the brief, and Mr. O’Connell orally), for the defendant. Nixon Peabody, LLP, of Manchester (W. Scott O’Connell and David W.

Laurie A. Lacoste on the brief, and Mr. Shaines orally), for the plaintiff. to press. Errors may be reported by E-mail at the following address: Shaines & McEachern, P.A., of Portsmouth (Robert A. Shaines and

page is: http://www.courts.state.nh.us/supreme. v.

editorial errors in order that corrections may be made before the opinion goes No. 2007-920 Hampshire, One Charles Doe Drive, Concord, New Hampshire 03301, of any Strafford Readers are requested to notify the Reporter, Supreme Court of New ___________________________

THE SUPREME COURT OF NEW HAMPSHIRE

a.m. on the morning of their release. The direct address of the court's home reporter@courts.state.nh.us. Opinions are available on the Internet by 9:00

well as formal revision before publication in the New Hampshire Reports. NOTICE: This opinion is subject to motions for rehearing under Rule 22 as other party.” as someone other than a consumer purchasing for the consumer’s

p. 2 cause, by giving sixty (60) days prior written notice of such termination to the tests involve the manufacturer sending in an investigator to pose “[e]ither party may terminate this Agreement at any time, with or without “use such products only in [its] salons.” The agreement also provided that

known at L’Oreal as “loyalty tests.” Buying programs or loyalty track the product’s distribution routes, and buying programs, Professional Use Only,” the agreement provides that Hair Excitement would battle diversion are tips from informants, coding of product to

other than consumers for their own use.” As for products labeled “For only products. Among the few tools available to manufacturers to

[would] not sell, offer for sale or otherwise transfer such products to anyone which is likely to cause confusion concerning the quality of salonsolely from Chain Account’s salons to consumers for their own use, and that it salon-only products outside of a professional salon setting, and account agreement provided that Hair Excitement would “sell the products . . . impression that the manufacturer permits or endorses the sale of

As the trial court’s order explains: thereby sell goods at prices lower than those envisioned by the manufacturer. unethical methods are used to avoid a manufacturer’s distribution chain and

called “gray market.” The “gray market” is a market in which legal but perhaps

products that Hair Excitement could only sell to consumers for their own use problem, which harms the business reputations of both the Redken products.” The products to be sold under the account were either beauty industry. Manufacturers are constantly battling this appointed “as an authorized, non-exclusive Redken Chain Account for the and marketed for salon-only sales, is a very large problem in the

serve as protection against the sale of products outside of salons in the so-

subsidiary of L’Oreal. Pursuant to this agreement, Hair Excitement was The diversion of product, and in particular product designed

“immediately upon notice.”

These provisions restricting the sale of L’Oreal’s products are intended to

Agreement (chain account agreement) with Redken Laboratories, Inc., a

clients for home maintenance use.” Either party could terminate the contracts redistribute Matrix retail products to anyone other than [its] legitimate salon for its salons. The contracts provided that Hair Excitement would “not resell or

In 1997, Hair Excitement entered into a Redken Products Chain Account

distributor for the purchase of Matrix products, a line now owned by L’Oreal, In 1993, Hair Excitement entered into purchase contracts with a Matrix p. 3 Excitement could supply whatever additional products he needed. products at fifty percent of their retail value. Cosentino was told that Hair salon and purchased 150 bottles of consumer-use only Redken and Matrix

the manufacturer.” The following day, Cosentino arrived at the Rochester

Hair Excitement, Inc. [was] a franchise” and it “could run into problems with requested products but told Cosentino that he needed to “be careful because Matrix products outside of the United States. Sharon agreed to sell the

consumers harmed Redken’s business reputation with both salon owners and

telephone with Sharon and confided that he planned to sell the Redken and

because its distribution of Redken products outside of the salon-only sales to

Cosentino intended to resell the products. The next day Cosentino spoke by

Excitement. counterclaim alleging that Hair Excitement violated RSA chapter 358-A resulting in its termination as an approved franchise. L’Oreal brought a parties in violation of its purchase contracts and chain account agreement,

manager, Ed Sharon, to discuss the proposed sale. Langlois knew that Langlois, the owner of Hair Excitement, and was directed to contact purchasing care products for resale. That same day he received a return call from John 3

further sales of any of its product brands, including Matrix products, to Hair

intent with the purpose to deceive and induce it to sell the products to third

Excitement’s salon in Rochester seeking to purchase Redken and Matrix hair

longer sell it any Redken products. L’Oreal also barred its distributors from

misrepresented the identity of its agent and also misrepresented the agent’s RSA chapter 358-A. It contended that L’Oreal willfully and knowingly Hair Excitement brought suit against L’Oreal alleging that it had violated

January 2002, Cosentino, posing as Paul Kostanza, telephoned Hair II Excitement would make an unauthorized sale of L’Oreal’s products. In early a “collector” in order to conduct a “loyalty test” to determine whether Hair

investigation, it was terminating the chain account agreement and would no due to its alleged product diversion and based upon other independent By letter dated February 8, 2002, L’Oreal informed Hair Excitement that

part of its subsequent investigation, L’Oreal retained Paul Cosentino to pose as

by those involved in the industry. manufacturers to combat it are well known and well understood in fact doing so. Both the problem and the tools used by

least two sources that Hair Excitement was engaged in product diversion. As Domroe, L’Oreal’s director of corporate security, that it had learned from at In December 2001, a distributor in Rhode Island informed Charles

whether a salon reported to be reselling in violation of contracts is own use, and are generally used by a manufacturer to confirm assume without deciding that RSA chapter 358-A applies. p. 4 the issues raised by L’Oreal’s cross-appeal. For purposes of this appeal, we

L’Oreal on Hair Excitement’s consumer protection claim, we need not address

counterclaim. Accordingly, because we affirm the trial court’s ruling in favor of think it necessary to alter it. ruling in favor of Hair Excitement on L’Oreal’s RSA chapter 358-A not bar Hair Excitement’s claims. L’Oreal does not appeal the trial court’s

on such a claim,” the court declined to exercise such discretion. seas and in cases relating to mariners’ wages, the legislature shall procedure shall be held sacred, unless, in cases arising on the high limited by the terms of the contract; and (4) the doctrine of unclean hands does involved, the parties have a right to a trial by jury. This method of

RSA 358-A:10.” Noting that it “has the discretion to seek the advice of a jury

barred by the economic loss doctrine; (3) Hair Excitement’s claims may not be controversy does not exceed $1,500 and no title to real estate is

a constitutional nor statutory right to a jury trial on a claim brought under

provision in the contract was inapplicable; (2) Hair Excitement’s claims are not has been customary and except those in which the value in including whether the trial court erred in ruling that: (1) the choice of law two or more persons except those in which another practice is and L’Oreal did not engage in price fixing. L’Oreal’s cross-appeal raises four issues, In all controversies concerning property, and in all suits between

Part I, Article 20 of the New Hampshire Constitution provides:

counterclaim. This appeal followed. Hair Excitement’s claim and in favor of Hair Excitement on L’Oreal’s demand. The trial court granted the motion on the basis that “there is neither Following a four-and-a-half-day trial, the trial court found in favor of L’Oreal on Prior to trial, L’Oreal moved to strike Hair Excitement’s jury trial

contained in the distributor contracts is a legitimate business practice; and (4)

Hair Excitement’s objection, the case was tried to the court and not to a jury.

likely to cause confusion concerning the quality of Redken products. deceptive acts under RSA chapter 358-A; (3) L’Oreal’s anti-diversion policy was not entitled to a jury trial; (2) L’Oreal did not engage in unfair and Hair Excitement argues that the trial court erred in finding that: (1) it

The parties agreed to bifurcate the trial of liability and damages. Over

the sale of Redken products outside of a professional salon setting, and was consumers, created a mistaken impression that L’Oreal permits or endorses as

p. 5 chapter 358-A.

for damages and for such equitable relief, including an injunction,

knowing violation of this chapter,

constitution does not confer the right to a jury trial for a claim under RSA $1,000, whichever is greater. If

use various methods of unfair competition and deceptive business practices.” practice declared unlawful under this chapter may bring an action

provides for a right to a jury trial. The statute states that:

method of competition or the act or practice was a willful or to include what had not before been within its benefits.” the court finds that the use of the 1784 when this state adopted its constitution. Because of this, our plaintiff, recovery shall be in the amount of actual damages or the court deems necessary and proper. If the court finds for the 1784.”

protection by making it unlawful for persons engaged in trade or commerce to Any person injured by another’s use of any method, act or

Moreover, nothing in the language of RSA chapter 358-A specifically

See Morrill, 123 N.H. at 713. framework to determine whether the jury trial right extends to the action.” infringement, or undue trammel by legislative action, but not extending it so as rights, we further consider the comprehensive nature of the statutory

guaranteeing it as it then stood and was practiced, guarding it against repeal, new statutory rights which did not exist in New Hampshire common law in [to a jury trial] not before existing. It was a recognition of an existing right, Chase v. Dorais, 122 N.H. 600, 601 (1982). Thus, RSA chapter 358-A creates and ascertain whether the customary practice included a trial by jury before action, we generally look to both the nature of the case and the relief sought, comprehensive statute designed to regulate business practices for consumer Hughes v. DiSalvo, 143 N.H. 576, 578 (1999). RSA chapter 358-A is “a equitable relationship between consumers and persons engaged in business.” The legislature enacted RSA chapter 358-A in 1970 to “ensure an

and citation omitted). “When a plaintiff seeks relief for breach of codified Franklin Lodge of Elks v. Marcoux, 149 N.H. 581, 591 (2003) (quotation of its use at common law). Part I, Article 20 “did not create or establish a right

“To resolve whether a party has a right to trial by jury in a particular existed when the constitution was adopted in 1784.” N.H. 634, 636 (2004). summary proceedings unknown to the common law.” In re Sandra H., 150 231, 235 (1882). “The right does not extend . . . to special, statutory or

guaranty of trial by jury in civil matters determined generally by historical test 707, 712 (1983); see Hallahan v. Riley, 94 N.H. 338, 339 (1947) (constitutional

without limitation; it extends only to those cases for which the jury trial right The right to a jury trial under the New Hampshire Constitution “is not world of commerce.”

p. 6 would raise an eyebrow of someone inured to the rough and tumble of the

plaintiff reasonably to rely to his detriment.” 6 or belief were true, for the purpose of causing, and which does cause, the plaintiff, which the defendant knew to be false or which he had no knowledge

whether a right to a jury trial existed was never raised or addressed in those

commerce, and that the defendant’s conduct rose to “a level of rascality that 358-A.

costs.

prove that the defendant intentionally made material false statements to the

chapter 358-A claims have been tried before juries, we note that the issue of entitled to a trial by jury. Although Hair Excitement argues that many RSA of competition or a deceptive act or practice, that the act occurred in trade or We affirm the trial court’s ruling that RSA chapter 358-A claims are not court is vested with the authority to decide claims brought under RSA chapter 358-A is analogous to common law fraud or deceit. different standard of proof. Accordingly, we decline to hold that RSA chapter 358-A require proof of significantly different elements and satisfaction of a See RSA 358-A:10, I. Thus, actions brought pursuant to RSA chapter than a common law fraud action, allowing treble damages, attorney’s fees and see RSA 358-A:2. In addition, RSA chapter 358-A provides broader damages common law fraud or deceit claim. “In order to prove deceit, the plaintiff must ACAS Acquisitions v. Hobert, 155 N.H. 381, 402 (2007);

prove that the defendant is a person, that the defendant used an unfair method on any issue of fact”). Accordingly, under the plain language of the statute, the Id. In contrast, to prove a violation of RSA chapter 358-A, a plaintiff must N.H. 116, 124 (1983). Fraud must be proved by clear and convincing evidence. done so. Caledonia, Inc. v. Trainor, 123

Nonetheless, Hair Excitement argues that its claim is similar to a

based upon unlawful discrimination “either party is entitled to a trial by jury chapter without bond, subject to the discretion of

See, e.g., RSA 354-A:21-a, I (Supp. 2008) (in action for damages

Had the legislature intended to provide for a jury trial, it could have expressly reasonable attorney’s fees, as determined by In its ordinary meaning, the word “court” refers to a judge rather than a jury. the legislature might have said, or add words not included in the statute. Id. legislative history unless the statutory language is ambiguous, consider what ordinary meaning of the words used in the statute and will not examine Town of New Ipswich, 157 N.H. 344, 346 (2008). We look to the plain and statute as expressed by the words of the statute itself. Green Crow Corp. v. RSA 358-A:10, I (emphases added). We are the final arbiter of the meaning of a

Injunctive relief shall be available to private individuals under this

prevailing plaintiff shall be awarded the costs of the suit and times, but not less than 2 times, such amount. In addition, a its rights under the Hair Excitement agreements. Hair Excitement

p. 7 ruled that:

instead, in the context of a rough and tumble business, exercising

tumble of the world of commerce.” if [it] would sell a quantity of Redken and Matrix product.” The trial court case: It charged an investigator with approaching Hair Excitement to find out did what is well understood in the industry and what made sense to do in this the rough and tumble of the world of commerce. L’Oreal was level of rascality that would raise an eyebrow of someone inured to proscribed by the Consumer Protection Act, and did not attain a

rascality that would raise an eyebrow of someone inured to the rough and

As the trial court noted, “Given this state of the beauty supply industry, L’Oreal

by other established concepts of unfairness, was not the type

358-A, a plaintiff must show that the defendant’s acts attained “a level of commerce falls within the scope of the statute. To recover under RSA chapter with . . . another.” RSA 358-A:2, III. Not all conduct in the course of trade or those misrepresentations did not constitute a violation of RSA chapter 358-A.

unscrupulous, did not offend public policy as established by law or

lacking in evidential support or tainted by error of law.”

of confusion or of misunderstanding as to affiliation, connection or association his identification and intent in approaching Hair Excitement, it also found that

L’Oreal’s conduct was not immoral, unethical, oppressive, or damages under the Consumer Protection Act.”

court’s decision, we will “sustain [its] findings and rulings . . . unless they are constitute error and are contrary to the evidence. When reviewing a trial support such a finding and that some of its requests denied by the court competition or unfair or deceptive acts or practices include “[c]ausing likelihood Although the trial court found that Mr. Cosentino misrepresented both

390 (1996) (quotation omitted).

bargaining and business dealings will not be enough to justify a claim for findings.” Hobert, 155 N.H. at 402. “[S]elfish

asserting that many of its requests for findings of fact granted by the court conduct of any trade or commerce within this state.” Unfair methods of unfair method of competition or any unfair or deceptive act or practice in the RSA 358-A:2 states that it “shall be unlawful for any person to use any

Id.

exercise of discretion, we will not overturn its ruling or set aside its factual Letendre & Letendre, 149 N.H. 31, 34 (2002). “Absent an unsustainable

L’Oreal did not engage in unfair and deceptive acts under RSA chapter 358-A, Hair Excitement next argues that the trial court erred in finding that

Restaurant Co. v. Devereaux, 149 N.H. 454 (2003). cases. See, e.g., Becksted v. Nadeau, 155 N.H. 615 (2007); Transmedia acts under RSA chapter 358-A is not an unsustainable exercise of discretion.

p. 8 agreement permitted unilateral termination without cause with sixty-day notice

that the trial court’s ruling that L’Oreal did not engage in unfair and deceptive

pretext to terminate its contracts with Hair Excitement. The chain account

. . . an owner of that item.” the gray market, and efforts by the industry to police and curtail it. We hold “After the first sale of a copyrighted item . . . , any subsequent purchaser . . . is engage in diversion. Hair Excitement was aware of the practices of diversion, policy for diversion, and cancels contracts with salons and distributors that

them at discount prices. As the trial court found, L’Oreal did not need a preventing Hair Excitement from purchasing L’Oreal’s products and selling the chain account agreement supports that L’Oreal engaged in “price fixing” by

of a copyright the exclusive right to distribute copies of a copyrighted work.

publicizes the fact that it polices salons and distributors, has a zero-tolerance

evidence “in toto” shows that L’Oreal’s conduct surrounding its termination of

106(3) of the Copyright Act of 1976, 17 U.S.C. § 106(3) (2000), gives the owner 8 cannot control distribution of a trademarked item beyond its first sale. Section chain accounts, or salons that are caught engaging in diversion. L’Oreal the policy violates the “first sale” doctrine under which a trademark owner diversion policies by terminating its contractual relationships with distributors, seminars and trade publications. The beauty supply industry enforces its anti-

L’Oreal did not engage in price fixing. Hair Excitement argues that the

application to this Consumer Protection Act claim.

contracts is a legitimate business practice. Hair Excitement’s position is that

Anti-diversion campaigns are prominently advertised in trade shows, training

Finally, Hair Excitement argues that the trial court erred in finding that

358-A. We reject its “first sale” argument and hold that the doctrine has no action was limited to a single theory of recovery: a violation of RSA chapter in finding that L’Oreal’s anti-diversion policy contained in its distributor an infringement action under federal copyright law. Hair Excitement’s cause of sell that item.” Id. (quotation omitted). The “first sale” doctrine is a defense to Redken and Matrix. Such contractual terms are common in the industry. law, “such an owner is entitled, without the authority of the copyright owner, to name, and other intellectual property rights for its salon-only products such as Int’l, Inc., 523 U.S. 135, 145 (1998) (quotations omitted). Pursuant to federal into by the parties are included by L’Oreal to protect its brand name, trade Quality King Distributors, Inc. v. L’anza Research

The third issue raised by Hair Excitement is whether the trial court erred

anti-diversion provisions in the contracts and chain account agreement entered

Protection Act.

There is sufficient evidence in the record to support these findings. The

an unfair or deceptive act or practice in violation of the Consumer has fallen far short of its burden of proving that L’Oreal engaged in p. 9 9

selling product with an underlying purpose of illegal price control. “reasonably support” a conclusion that L’Oreal deceived Hair Excitement into terminate them. We affirm the trial court’s ruling that the evidence does not

“other than consumers for their own use,” thereby giving L’Oreal cause to

home maintenance use” and against reselling Redken products to anyone reselling Matrix products to anyone “other than [its] legitimate salon clients for cause, Hair Excitement in fact breached the express prohibitions against DALIANIS, DUGGAN and HICKS, JJ., concurred.

or notice. Notwithstanding that the contracts could be terminated without and the purchase contracts could be terminated by either party without cause