324 Liquor Corp v. Duffy

• Decision Date: 13 January 1987
• Docket Number: No. 84-2022,84-2022
• Citation: 479 U.S. 335,93 L.Ed.2d 667,107 S.Ct. 720
• Parties: 324 LIQUOR CORP., dba Yorkshire Wine & Spirits, Appellant v. Thomas DUFFY et al
• Court: U.S. Supreme Court

479 U.S. 335

107 S.Ct. 720

93 L.Ed.2d 667

324 LIQUOR CORP., dba Yorkshire Wine & Spirits, Appellant

v Thomas DUFFY et al.

No. 84-2022.

Argued Nov. 3, 1986.

Decided Jan. 13, 1987.

Syllabus

Under § 101-bb of New York's Alcoholic Beverage Control Law and implementing regulations of the State Liquor Authority (SLA), liquor retailers must charge at least 112 percent of the wholesaler's "posted" bottle price in effect at the time the retailer sells or offers to sell the item. Wholesalers must file monthly "posted" bottle prices and case prices for an item with the SLA, and may reduce the posted case price for an item without reducing its bottle price. Since retailers generally purchase liquor by the case, wholesalers thus can compel retailers to charge more than 112 percent of the actual wholesale cost to the retailer. As a result of appellant retailer's selling certain bottles of liquor for less than 112 percent of the posted bottle price, its license was suspended for 10 days and it forfeited a bond. Appellant sought relief from the penalties on the ground that § 101-bb violated § 1 of the Sherman Act. A New York Supreme Court denied relief, but the Appellate Division reversed. The New York Court of Appeals upheld the validity of § 101-bb and reinstated the penalties. It held that § 101-bb was not immune under the state-action exemption from the antitrust laws set forth in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). The Court of Appeals nevertheless concluded that the statute was a proper exercise of powers reserved to the State by the Twenty-first Amendment.

Held:

1. Section 101-bb is inconsistent with § 1 of the Sherman Act. Resale price maintenance has long been regarded as a per se antitrust violation. The New York statute, which applies to all liquor wholesalers and retailers, allows "vertical control" by wholesalers of retail prices. Such industrywide resale price fixing is virtually certain to reduce both interbrand and intrabrand competition, because it prevents wholesalers from allowing or requiring retail price competition. Cf. California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980). Pp. 341-343.

2. New York's pricing system is not valid under the state-action exemption from the antitrust laws. The State's system does meet the first requirement of the two-part test for determining immunity under Parker v. Brown, supra, that the challenged restraint be "one clearly articulated and affirmatively expressed as state policy." However New York's liquor pricing system does not meet the second requirement that the State's policy be "actively supervised" by the State itself. New York simply authorizes price setting and enforces the prices established by private parties. The State has displaced competition among liquor retailers without substituting an adequate system of regulation. Cf. California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., supra. Pp. 343-345.

3. New York's pricing system is not valid under the Twenty-first Amendment. Although § 2 of the Amendment qualifies the federal commerce power, the Amendment does not operate to "repeal" the Commerce Clause wherever state regulation of intoxicating liquors is concerned. The question in each case is whether the interests implicated by a state regulation are so closely related to the powers preserved by the Twenty-first Amendment that the regulation may prevail, notwithstanding that its requirements directly conflict with express federal policies. Pp. 346-352.

(a) The State's asserted interest in protecting small retailers does not suffice to afford immunity from the Sherman Act. Although the New York Court of Appeals correctly concluded that the purpose of the 12 percent minimum markup was to protect those retailers, the court made no findings that the purpose of the "bottle price" definition of cost was to protect small retailers, and cited no legislative or other findings that either the markup or the "bottle price" definition of cost has been effective in preserving the retailers. The State's resale price maintenance system directly conflicts with the "familiar and substantial" federal interest in enforcing the antitrust laws. Pp. 348-351.

(b) It is not necessary to consider whether New York's pricing system can be upheld as an exercise of the State's power to promote temperance. The Court of Appeals did not find that the statute was intended to promote temperance, or that it does so. This Court accords great weight to the views of the State's highest court on state-law matters, and customarily accepts the factual findings of state courts in the absence of exceptional circumstances. No such exceptional circumstances appear in this case. Pp. 351-352.

64 N.Y.2d 504, 490 N.Y.S.2d 143, 479 N.E.2d 779 (1985), reversed and remanded.

POWELL, J., delivered the opinion of the Court, in which BRENNAN, WHITE, MARSHALL, BLACKMUN, STEVENS, and SCALIA, JJ., joined. O'CONNOR, J., filed a dissenting opinion, in which REHNQUIST, C.J., joined, post, p. 352.

Bertram M. Kantor, for the appellant.

W. Stephen Cannon, Washington, D.C. for U.S., as amicus curiae, by special leave of Court, for appellant.

Christopher Keith Hall, New York City, for appellees.

Justice POWELL delivered the opinion of the Court.

The State of New York requires retailers to charge at least 112 percent of the "posted" wholesale price for liquor, but permits wholesalers to sell to retailers at less than the "posted" price. The question presented is whether this pricing system is valid under either the state-action exemption from the antitrust laws or the Twenty-first Amendment.

I

A.

Wholesalers of liquor in the State of New York must file, or "post," monthly price schedules with the State Liquor Authority (SLA). N.Y.Alco.Bev.Cont. Law (ABC Law) § 101-b (McKinney 1970 and Supp.1986).¹ The schedules must report, "with respect to each item," "the bottle and case price to retailers." § 101-b(3)(b). The ABC Law itself does not require that the posted case price of an item bear any relation to its posted bottle price. The SLA, however, has promulgated a rule stating that for cases containing 48 or fewer bottles, the posted bottle price multiplied by the number of bottles in a case must exceed the posted case price by a "breakage" surcharge of $1.92. SLA Rule 16.4(e), 9 NYCRR § 65.4(e) (1980).²

Retailers of liquor may not sell below "cost." ABC Law, § 101-bb(2).³ The statute defines "cost" as "the price of such item of liquor to the retailer plus twelve percentum of such price." § 101-bb(2)(b). "Price," in turn, is defined as the posted bottle price in effect at the time the retailer sells or offers to sell the item. Ibid. Although the statute defines retail cost in terms of the wholesaler's posted bottle price, retailers generally purchase liquor by the case. The SLA expressly has authorized wholesalers to reduce, or "post off," the case price of an item without reducing the posted bottle price of the item. SLA Bulletin 471 (June 29, 1973).⁴ By reducing the case price without reducing the bottle price wholesalers can compel retailers to charge more than 112 percent of the actual wholesale cost. Similarly, because § 101-bb(2)(b) defines "cost" in terms of the posted bottle price in effect when the retailer sells or offers to sell the item, wholesalers can sell retailers large quantities in a month when prices are low and then require the retailers to sell at an abnormally high markup by raising the bottle price in succeeding months. The New York retail pricing system thus permits wholesalers to set retail prices, and retail markups, without regard to actual retail costs. New York wholesalers advertise in trade publications that their "post offs" will guarantee retailers large markups, sometimes in excess of 30 percent. App. 32-35. Wholesalers also advertise that buying large quantities while wholesale prices are low will result in extra retail profits after wholesale prices are raised. App. to Juris.Statement 101A. The effect of this complex of statutory provisions and regulations is to permit wholesalers to maintain retail prices at artificially high levels.

B

Appellant 324 Liquor Corporation sold two bottles of liquor to SLA investigators in June 1981 for less than 112 percent of the posted bottle price. Because the wholesalers had "posted off" their June 1981 case prices without reducing the posted bottle prices, appellant's retail prices represented an 18 percent markup over its actual wholesale cost. As a result of this violation, appellant's license was suspended for 10 days and it forfeited a $1,000 bond. Appellant sought relief from the penalties on the ground that § 101-bb violates § 1 of the Sherman Act, 15 U.S.C. § 1. A New York Supreme Court denied the petition. 324 Liquor Corp. v. McLaughlin, 119 Misc.2d 746, 464 N.Y.S.2d 355 (1983). The Appellate Division reversed. 324 Liquor Corp. v. McLaughlin, 102 App.Div.2d 607, 478 N.Y.S.2d 615 (1984). The New York Court of Appeals upheld the validity of § 101-bb and reinstated the penalties. J.A.J. Liquor Store, Inc. v. New York State Liquor Authority, 64 N.Y.2d 504, 490 N.Y.S.2d 143, 479 N.E.2d 779 (1985). The Court of Appeals held that § 101-bb is not immune under the state-action doctrine of Parker v. Brown, 317 U.S. 341, 87 L.Ed. 315 (1943), because the State does not actively supervise the resale price maintenance system. The court nevertheless concluded that the statute is a proper exercise of powers reserved to the State by the Twenty-first Amendment, because "the State interest in protecting retailers which underlies [the statute] is of sufficient magnitude to override the Federal policy expressed in the antitrust laws." J.A.J. Liquor Store, Inc. v. New York State Liquor Authority, supra, 64 N.Y.2d, at 522, 490 N.Y.S.2d at 153, 479 N.E.2d, at 789. We noted probable jurisdiction, 475 U.S. 1080, 106 S.Ct. 1456, 89 L.Ed.2d 714 (1986), and...