324 Liquor Corp. v. McLaughlin

• Citation: 478 N.Y.S.2d 615,102 A.D.2d 607
• Parties: , 1984-2 Trade Cases P 66,168 In the Matter of the Application of 324 LIQUOR CORP. d/b/a Yorkshire Wine & Spirits, Petitioner-Appellant, for a Review Pursuant to Article 78 of the Civil Practice Law and Rules, v. Edward J. McLAUGHLIN, Hugh B. Marius, Robert Doyle, Terrence R. Flynn and Frederick Pannozzo, Respondents-Respondents.
• Decision Date: 12 July 1984
• Court: New York Supreme Court Appellate Division

Page 615

478 N.Y.S.2d 615

102 A.D.2d 607, 1984-2 Trade Cases P 66,168

In the Matter of the Application of 324 LIQUOR CORP. d/b/a

Yorkshire Wine & Spirits, Petitioner-Appellant,

for a Review Pursuant to Article 78 of the Civil Practice

Law and Rules, v. Edward J. McLAUGHLIN, Hugh B. Marius, Robert Doyle, Terrence

R. Flynn and Frederick Pannozzo, Respondents-Respondents.

Supreme Court, Appellate Division,

First Department.

July 12, 1984.

Seymour Howard, Jericho, for petitioner-appellant.

Robert S. Hammer, Asst. Atty. Gen., of counsel (Richard G. Liskov, Asst. Atty. Gen., with him on the brief, Robert Abrams, Atty. Gen.), for respondents-respondents.

Before SULLIVAN, J.P., and CARRO, MILONAS and ALEXANDER, JJ.

MILONAS, Justice.

This Article 78 proceeding was commenced by petitioner, a retail liquor and wine dealer, to review and annul a determination of the State Liquor Authority, dated November 12, 1982, which held it in violation of section 101-bb of the Alcoholic Beverage Control Law (ABC Law) and imposed a penalty of a ten day suspension of its license plus a $1,000 bond forfeiture. At the administrative hearing in connection with the instant matter, counsel for both parties stipulated that on June 24, 1981, a State Liquor Authority investigator purchased a 1.75 litre bottle of Chatham Gin, 92 proof, for $9.45 plus sales tax and a 1.75 litre bottle of Smirnoff Vodka, 80 proof, for $11.59, plus sales tax. Both of these brands were advertised by petitioner at the same prices. The Authority then produced as its only witness the principal clerk in charge of the price scheduling section, who testified as to the price schedules filed by petitioner's suppliers for the month of June 1981. These schedules, which were introduced into evidence, indicated that the minimum consumer retail price for Chatham Gin was $9.65 plus tax and $11.89 plus tax for Smirnoff's Vodka.

While the foregoing facts are not in dispute, petitioner does challenge the validity of the statutory scheme and the regulations involved herein. In that regard, petitioner contends that the state's pricing machinery requires wholesalers to establish minimum retail prices for brands of liquors, eliminates price competition between retailers and is, therefore, invalid as a violation of the federal Sherman Anti-Trust Act. Petitioner also asserts that by promulgating Rule 16, as set forth in Bulletin No. 471, the State Liquor Authority exceeded its lawful authority. Respondents, however, argue that the statutory provisions in question do not establish a mechanism for price maintenance but, rather, is merely a price-posting law of the sort found to be valid by the Court of Appeals in Matter of Admiral Wine & Liquor Co. v. State Liquor Authority, 61 N.Y.2d 858, 473 N.Y.S.2d 969, 462 N.E.2d 146. In addition, respondents claim that Rule 16 constitutes a reasonable exercise by the State Liquor Authority of its authority under the ABC Law. In dismissing the Article 78 proceeding, Special Term considered respondents' position to be persuasive.

Sections 101-b(3)(a) and (3)(d) of the ABC Law mandate manufacturers and distillers to file monthly schedules with the State Liquor Authority, listing their prices to wholesalers, along with an affirmation that the prices are no higher than the lowest prices charged to wholesalers in any other state. This requirement does not affect the minimum retail price which the retailer may charge the consumer. Section 101-b(3)(b) requires wholesalers to file schedules of their prices to retailers which shall state "the number of bottles contained in each case, the bottle and case price to retailers ..., the discounts for quantity, if any...." Consequently, when a wholesaler first obtains a brand of liquor for resale to retailers, it alone fixes its "legal price" for that brand. No statute or rule dictates the initial price which a wholesaler may set; there is no review procedure in existence, nor does the Agency maintain any standards or prohibitions. The only restriction on pricing is that a wholesaler may not thereafter increase its price without the agency's approval.

When a wholesaler has fixed the "legal case price" on a brand of liquor, Rule 16 then comes into operation. According to Rule 16(e):

For each item of liquor listed in the schedule of liquor prices to retailers there shall be posted a bottle and a case price. The bottle price multiplied by number of containers in the case must exceed the case price by approximately $1.92 for any case of 48 or fewer containers. The figure is to be reached by adding $1.92 to the case price, dividing by the number of containers in the case, and rounding to the nearest cent. Where more than 48 containers are packed in a case, bottle price shall be computed by dividing the case price by the number of containers in the case, rounding to the nearest cent, and adding one cent....

Thus, if the "legal case price" of a brand of liquor is determined by the wholesaler to be $60.00 per case, and the case contains six bottles, the legal price becomes $60 plus $1.92 divided by six, or $10.32 per bottle. After having filed the first schedule, the wholesaler may at its own discretion reduce or "post-off" the "legal case price" of any brand of liquor without restriction. The wholesaler is free even to sell a brand below cost. Pursuant to Bulletin No. 471, which was issued in June of 1973, the wholesaler was given even greater latitude in setting the minimum retail price of a brand of liquor. The Authority now notified wholesalers that they would be allowed to decide unilaterally whether a "post-off" on the case price of a brand should be accompanied by a similar reduction in the bottle price. In that regard, the wholesaler could follow one of three alternatives: (1) elect not to reduce the bottle price, (2) reduce the bottle price to conform with the "post-off" case price, or (3) adopt a bottle price anywhere between the extremes permitted under options "1" and "2".

Section 101-bb(2) of ABC Law provides that the bottle price fixed by a wholesaler in its monthly schedule plus 12 percent of that price totals the minimum authorized retail price for that brand. Except for this statutorily mandated 12 percent mark-up on the wholesaler's bottle price, the state does not review, supervise, control or participate in the wholesaler's largely unlimited price-fixing role. For instance, if the wholesaler, in accordance with Bulletin No. 471, reduces or "posts-off" the case price of a brand of liquor from $60 to $55 a case but retains the legal bottle price of $10.32, any retailer purchasing a case of that brand is then prohibited from selling below the $10.32 legal bottle price plus 12 percent of that price, or $11.56 per bottle. Based on the $55 cost, the return to the retailer is not a mark-up of 12 percent but of 26 percent. Indeed, wholesalers are permitted to set the bottle and case prices in such a manner as to afford the retailers huge mark-ups, while ensuring that there is no competition at the retail level and that, consequently, the profits available to the wholesalers and the retailers are not passed along to the consumers.

It is a principle of law that the construction generally given to statutes and regulations by the agency responsible for their administration will, if not irrational or unreasonable, be upheld. (Matter of Johnson v. Joy, 48 N.Y.2d 689, 422 N.Y.S.2d 56, 397 N.E.2d 746; Matter of Howard v. Wyman, 28 N.Y.2d 434, 322 N.Y.S.2d 683, 271 N.E.2d 528). However, in Kurcsics v. Merchants Mutual Insurance Company, 49 N.Y.2d 451, 426 N.Y.S.2d 454, 403 N.E.2d 159, the Court of Appeals declared that where "the question is one of pure statutory reading and analysis, dependent only on accurate apprehension of legislative intent, there is little basis to rely on any special competence or expertise of the administrative agency and its interpretive regulations are therefore to be accorded much less weight. And, of course, if the regulation runs counter to the clear wording of a statutory provision, it should not be accorded any weight." (at 459, 426 N.Y.S.2d 454, 403 N.E.2d 159)

The leading case in the subject matter before us is California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233. After examining California's plan for wine pricing, the United States Supreme Court found that that state's system, by illegally restraining trade, constituted price maintenance in violation of the Sherman Act. The Court, after referring to the power of the wine producer to prevent price competition by dictating the prices charged by wholesalers, stated that "such vertical control destroys horizontal competition as effectively as if wholesalers 'formed a combination and endeavored to establish the same restrictions ... by agreement with each other'." (at 103, 100 S.Ct. at 942). The Court then proceeded to consider whether the state's involvement in the price-setting program was sufficient to establish antitrust immunity under Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315. Based upon its interpretation of a series of its...