Joseph E. Seagram & Sons, Inc. v. Hostetter

Decision Date09 July 1965
Citation209 N.E.2d 701,262 N.Y.S.2d 75,16 N.Y.2d 47
CourtNew York Court of Appeals Court of Appeals
Parties, 209 N.E.2d 701 JOSEPH E. SEAGRAM & SONS, INC., et al., Appellants, v. Donald S. HOSTETTER et al., Constituting the State Liquor Authority, et al., Respondents.

Thomas F. Daly, Herbert Brownell, Gerard A. Navagh and Gene R. McHam, New York City, for appellants.

Louis J. Lefkowitz, Atty. Gen. (Ruth Kessler Toch, Paxton Blair and Robert L. Harrison, Albany, of counsel), for respondents.

Harold E. Blodgett, Albany, for Service Liquor Distributors, Inc., and another, amici curiae.

BERGAN, Judge.

In 1963 in response to malfunctions in the administration of the State's liquor law and public dissatisfaction with controls on the sale of alcoholic beverages, the Governor appointed a Moreland Commission directed to make a 'study and reappraisal' of the law.

In appointing the commission the Governor noted that since the enactment of the Alcoholic Beverage Control Law in 1934, Consol.Laws, c. 3-B, soon after the end of prohibition, there had been 'no major reappraisal or revision of the law in the light of experience and current social problems and economic conditions'.

The commission addressed itself, among other things, to the price of liquor in New York and the effect of price on temperance in the use of liquor. One of the basic assumptions of the statute then in effect was that, if the price of liquor were cheap, its consumption would increase and the policy effected by the statute was to sustain the price.

Former section 101-c of the Alcoholic Beverage Control Law had authorized a manufacturer who was a 'brand' owner to fix the minimum retail prices for that brand, for the violation of which the retailer was subject to discipline by the State Liquor Authority (subd. 7). The statute (§ 101-b, subd. 3) had for over 20 years also provided for filing price schedules by brand owners and wholesalers.

The commission's studies led it to believe that the assumed favorable relation of high-priced liquor to temperance was chimerical. The prices of liquor in New York were high, but consumption had steadily risen and this did not indicate high prices increased temperance. It found 'a greater than average' increase in per capita consumption in New York (Moreland Comm. Report No. 1, p. 3).

The principal benefit from the minimum price requirement for liquor in New York went to the liquor interests. This served 'merely', said the commission, 'to insure profit margins of the various segments of the industry' (Report No. 3, p. 19, offered as Exhibit E by plaintiffs at Special Term) and 'The argument that high prices promote temperance in that they keep liquor out of the hands of those who should not have it' is 'unfounded' (id., p. 17).

Its studies showed no correlation between consumption and prices, looking at the experience in States in which prices were high compared with those in which they were low.

It found in effect gross price discrimination against the New York consumer by the industry. It developed that the retail price for a fifth of a well-known brand of liquor was lower in Washington, D. C., than the wholesale price in New York. One brand, for example, cost $2.85 retail in Washington and $3.45 wholesale in New York, another $3.39 and $4.15 respectively (see Report No. 3, pp. 5, 6).

This report adds: 'For almost every fifth of whiskey that he buys, the New York consumer pays 50 cents to $1.50 more than the price at which it is available in at least seven freer price markets' (p. 3).

On the basis of these reports the Governor made recommendations to the Legislature (Message, Feb. 10, 1964). He observed that the administration of the State's liquor law had been marked by 'periodic instances of corruption and favoritism'. He noted the favored position of the liquor industry in an area which was the subject of public regulation and that the Moreland Commission had reported 'it is contrary to the public interest to have the regulated industry in such a dominant role'. He added that the commission had sought means of 'Bringing justice to the consumer by putting to an end the artifical devices whereby the liquor industry has received uniquely beneficial treatment at the consumer's expense.'

The Governor also noted that as a result of the distiller-fixed consumer prices under the statute a 'surcharge' had been 'foisted on New Yorkers' of $150 million a year over what would have been paid in a free market.

The result of the commission study and the Governor's recommendations was the enactment of a statute by the Legislature (L.1964, ch. 531) which, among other things, vitally changed the direction of liquor price policy in New York and sought to reduce consumer prices.

This suit is maintained by 62 distillers and wholesalers of alcoholic beverages and some importers against the State Liquor Authority and the Attorney-General to declare the provisions of the 1964 statute invalid. The main attack is directed to section 9 of the statute; the other is directed to certain parts of section 7. The court at Special Term in a comprehensive opinion granted judgment for defendants; the Appellate Division affirmed.

In changing the direction of its policy which had been to prevent prices from going too low by establishing effective devices pursuant to which the liquor industry could in effect fix minimum retail prices on brand liquors, the Legislature by section 9 of the 1964 statute set up means which sought to keep down the prices of brand liquors to the consumer. The mechanism is a simple one and it lies technically in the control of the liquor industry. But it is a mechanism to which plaintiffs take vigorous exception on a diversified number of grounds.

The provision is this: On filing the schedules of brand owners' prices to wholesalers, which for 20 years had to be filed monthly under the former provisions of section 101-b, the brand owner or his designee must file an affirmatiom 'that the bottle and case price' to wholesalers in New York 'is no higher than the lowest price at which such item of liquor' was sold the previous month to any wholesaler elsewhere in the country or any State or State agency operating a public liquor enterprise (§ 9).

Thus it was sought to end the discrimination by the liquor industry against the New York consumer which, as the commission had found, cost the New York consumer $150 million a year above that which a free market would have offered.

This change from a favored and protected profit position to a possibly sparse profit situation may make it economically difficult for the liquor industry. If it does it is within the competence of the New York Legislature to make it that way. Even without article XXI of the Amendments to the United States Constitution, New York could end the liquor traffic within its borders entirely. The State of Mississippi, for example, prevents the plaintiffs or anyone else from selling liquor there and no one doubts its power to do so. But the Twenty-first Amendment spells out an additional specific and federally protected right of each State to eliminate as well as regulate the liquor traffic within its borders (Mahoney v. Joseph Triner Corp., 304 U.S. 401, 58 S.Ct. 952, 82 L.Ed. 1424).

A long history of regulation, control, price fixing, place of time and sale setting, and outright extinction lies behind the liquor business in this country since Colonial times, and it is too late today to suggest that the rights of those who choose to engage in it are on a constitutional or legal parity with the rights of people who trade in bicycles, or cosmetics, or furniture.

If the conditions set down by the Legislature are economically impossible for the liquor industry to meet, it will have to accept this impossibility. But we are of opinion they are not economically impossible and that the effect of the 1964 statute will be to reduce liquor profits and pass the benefit of some of them on to New York consumers.

In effect the dependence of the New York price on the maximum price of the distiller for his brand elsewhere is to tie the price in this State in to a national price. There is nothing unreasonable about that. It is not an interference with interstate commerce. The effect is on what the distiller charges here and is an effect closely associated with the sale and distribution of liquor within the State.

That it reflects and depends on events outside the State does not condemn it. It could as well have been tied into the national average price of liquor or the national cost of living index. It is a device to end a demonstrated discrimination against the New York consumer and it is a device within the power of the State to employ in this regulated activity.

There is in the record proof offered at Special Term by plaintiffs in an exhibit (Exhibit C attached to the affidavit of Thomas F. Daly) consisting of excerpts of the testimony before a legislative committee of Judge Lawrence E. Walsh, the Moreland Commissioner, who personally opposed the kind of regulation prescribed by section 9, in which the statement is made that in the liquor industry 'the whole sum total of that relationship averages out to a price that is average across the country.'

He cited Pennsylvania, a monopoly State, 'the largest purchaser of liquor in the world * * * $400,000,000 worth of liquor a year one customer' as being an example of a customer who insists 'on the lowest price that the distiller offers anywhere in the country'.

In the light of this kind of national marketing situation, the actual difficulty of the distiller in seeing to it that the New York buyer pays no more than 'the lowest price' elsewhere seems greatly overstressed.

Under section 9 the distillers themselves control the base price since they fix the lowest price elsewhere. If its effect on New York is too low a price they have it within their power to raise the lowest price elsewhere. The industry must absorb any...

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