(CN) - L'Oreal did not violate the Consumer Protection Act when it sent an undercover investigator to catch a chain of beauty salons in the act of selling salon-only products in violation of their agreement, the New Hampshire Supreme Court ruled.
Hair Excitement, which owns salons in New Hampshire, Maine, and Massachusetts, filed the suit after L'Oreal terminated its agreement to sell Matrix and Redken hair products.
The diversion of salon products to the so-called "gray market" is a recurring problem in the beauty industry. L'Oreal sent Paul Cosentino to conduct a "loyalty test."
Posing as Paul Kostanza, he contracted Hair Excitement's purchasing manager, Ed Sharon, and made it clear that he wanted to buy Redken and Matrix products for resale outside the United States.
Sharon agreed but warned Kostanza to be careful, because Hair Excitement "could run into problems with the manufacturer.
And that's exactly what happened. L'Oreal cut off Hair Excitement from its supply chain, prompting a lawsuit. The trial court ruled that the beauty industry conditions justified Cosentino's behavior, as he was instructed by L'Oreal. Chief Justice Broderick agreed.
"L'Oreal publicizes the fact that it polices salons and distributors, has a zero-tolerance policy for diversion, and cancels contracts with salons and distributors that engage in diversion," Broderick wrote. "L'Oreal did not engage in unfair and deceptive acts."
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.