By Gregory Kane, J.D., M.B.A.
The appellate court upheld a district court’s dismissal of a national wine retailers challenge that Connecticut state liquor laws were preempted by the Sherman Act because they created an anticompetitive restraint on trade.
The U.S. Court of Appeals in New York City upheld a district court’s dismissal of a challenge to Connecticut’s state liquor laws which restrict liquor pricing. A national wine retailer whose business model requires competing on liquor pricing challenged Connecticut’s rules on post-and-hold, minimum retail pricing, and prohibitions on price discriminations and volume discounts claiming that they were restraints on trade that were preempted by the Sherman Act. The New Haven, Connecticut, district court found that the provisions did not constitute per se violations of the Act and were therefore not preempted and that unilateral restraints on trade were outside the scope of the Act (Connecticut Fine Wine and Spirits, LLC v. Seagull, February 20, 2019, Engelmayer, P.).
Background. Connecticut Fine Wine & Spirits, LLC d/b/a Total Wine & More is the largest independent retailer of fine wine and spirits in the United States and operates in 21 states including Connecticut. Connecticut law includes three provisions that Total Wine challenged. The post-and-hold provisions require state-licensed manufacturers and wholesalers to post a bottle price and a case price each month with the state which could then be matched by competitors and would be held at that price for a month. The minimum-retail-price provisions require retailers to sell to customers at or above a statutorily defined costs which is essentially governed by the posted bottle price. Lastly, Connecticut bans volume discounts and other forms of price discriminations so that wholesalers must sell a given product to all retailers at the same price regardless of the volume of product purchased. Together these provisions have been justified as a means of preventing escalating price wars among alcohol retailers that might lead to excessive consumption.
In August 2016, Total Wine brought suit against the Connecticut Department of Consumer Protection and Division of Liquor Control seeking injunctive and declaratory relief that the three provisions of Connecticut liquor laws in question were per se violations of and therefore preempted by the Sherman Act. Total Wine claimed that these provisions inhibit meaningful price competition at the retail level. Defendants moved to dismiss in October 2016 and the district court granted the motion in June 2017 from which Total Wine appealed to the Second Circuit. The district court held that the post and hold restraint is not a unilateral restraint, but a hybrid restraint subject to the rule of reason and therefore not preempted by the Sherman Act. Similarly, the minimum resale price restraint is also a hybrid restraint and a vertical restraint that is subject to the rule of reason and not preempted. Finally, the district court held that the price discrimination provisions amounted to a unilateral restraint on trade imposed solely by the state and not preempted.
Preemption. The Sherman Act can only be violated by collective action between separate entities. A restraint on trade imposed by a government that enforces private pricing decisions is a hybrid restraint that fulfills the Sherman Act’s requirement for concerted action between entities.
The challenge to the district courts ruling on the post-and-hold provisions would require overturning Battipaglia, 745 F.2d 166, which rejected a claim that the Sherman Act preempted a New York liquor-pricing statute. The case addressed and rejected two of the plaintiff’s arguments. Battipaglia remains in force and is the controlling law here as the post-and-hold provisions in the two states are substantially identical. Total Wine was unable to identify any later precedent of the Second Circuit or Supreme Court that brought its ruling into question.
The minimum-retail-ricing provisions compel vertical pricing arrangements among private actors. Under existing case law, vertical pricing arrangements must be analyzed under the rule of reason, which requires an examination of the circumstances underlying a particular economic practice, belying a conclusion that a statute is facially inconsistent with the federal antitrust laws. This means that they are not preempted as per se unlawful, according to the court.
The price discrimination provisions impose a unilateral restraint, limiting a wholesalers range of motion but failing to grant any private actor regulatory control over the competition. Unilateral action does not implicate concerted activity between entities in violation of the Sherman Act. In addition, price restraints as here are purely vertical in operation and would, if necessary, be analyzed under the rule of reason and would not be per se unlawful. The district court’s ruling was affirmed.
This case is No. 17-2003.
Attorneys: Adam Abelson (Zuckerman Spaeder LLP) and Edward Lefebvre (Pullman & Comley, LLC) for Connecticut Fine Wine and Spirits, LLC d/b/a Total Wine & More. Robert Deichert, Connecticut Office of the Attorney General, for Michelle H. Seagull.
Companies: Connecticut Fine Wine and Spirits, LLC d/b/a Total Wine & More
MainStory: TopStory Antitrust ConnecticutNews NewYorkNews VermontNews
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