Serlin Wine & Spirit Merchants, Inc. v. Healy

• Decision Date: 15 April 1981
• Docket Number: B-80-280.,Civ. No. B-80-297
• Court: U.S. District Court — District of Connecticut
• Parties: SERLIN WINE AND SPIRIT MERCHANTS, INC. (Derby), Michael Kisner, Permittee; Serlin Wine and Spirit Merchants, Inc. (State Street, Bridgeport), Miguel Torres, Permittee; Wine Merchants Ltd. (Orange), Peter Kish, Permittee; Wine Merchants Ltd. (Broad Street, Bridgeport), Alan Rapkin, Permittee; Serlin Corporation (Fairfield), Kenneth Anton, Permittee; Serlin Corporation (Guilford), Charles Weber, Permittee; A & P Package Store, David O'Brien, Sr., Permittee; Mountain Top Liquors, Inc., Clifford Atkin, Permittee; Old Mystic Wine Cellar, Charles P. Hamm, Permittee; Plaintiffs, v. John F. HEALY, Louis A. Sidoli, David L. Snyder, Charles Kasmer, in their capacity as members or employees of the State of Connecticut and the Division of Liquor Control, Department of Business Regulation, Defendants. John T. MORGAN, Stuart J. Filler, Charles A. Heckman, and David S. King, Plaintiffs, v. DIVISION OF LIQUOR CONTROL, DEPARTMENT OF BUSINESS REGULATION, STATE OF CONNECTICUT, Defendants.

512 F. Supp. 936

SERLIN WINE AND SPIRIT MERCHANTS, INC. (Derby), Michael Kisner, Permittee; Serlin Wine and Spirit Merchants, Inc. (State Street, Bridgeport), Miguel Torres, Permittee; Wine Merchants Ltd. (Orange), Peter Kish, Permittee; Wine Merchants Ltd. (Broad Street, Bridgeport), Alan Rapkin, Permittee; Serlin Corporation (Fairfield), Kenneth Anton, Permittee; Serlin Corporation (Guilford), Charles Weber, Permittee; A & P Package Store, David O'Brien, Sr., Permittee; Mountain Top Liquors, Inc., Clifford Atkin, Permittee; Old Mystic Wine Cellar, Charles P. Hamm, Permittee; Plaintiffs, v. John F. HEALY, Louis A. Sidoli, David L. Snyder, Charles Kasmer, in their capacity as members or employees of the State of Connecticut and the Division of Liquor Control, Department of Business Regulation, Defendants.

John T. MORGAN, Stuart J. Filler, Charles A. Heckman, and David S. King, Plaintiffs, v. DIVISION OF LIQUOR CONTROL, DEPARTMENT OF BUSINESS REGULATION, STATE OF CONNECTICUT, Defendants.

Civ. Nos. B-80-297, B-80-280.

United States District Court, D. Connecticut.

April 15, 1981.

Alan Neigher, Leslie Byelas, Byelas & Neigher, Westport, Conn., Steven G. Mednick, New Haven, Conn., for plaintiffs.

Carl R. Ajello, Atty. Gen., Richard M. Sheridan, Robert F. Vacchelli, Robert M. Langer, John R. Lacey, Asst. Attys. Gen., Hartford, Conn., for defendants.

James A. Trowbridge, Bridgeport, Conn., for John Morgan.

Ralph J. Savarese, Ray A. Jacobsen, Jr., John C. Peirce, Howrey & Simon, Washington, D. C., J. Daniel Sagarin, Harrigan, Hurwitz, Sagarin & Rutkin, P. C., Milford, Conn., for amicus curiae Distilled Spirits Council of the United States, Inc., John McCarren, Washington, D. C., of counsel.

James M. Mannion, Bethel, Conn., for Conn. Beer Wholesalers.

Daniel E. Brennan, Sr., James J. A. Daly, Bridgeport, Conn., for Wine & Spirits Wholesalers of Conn., Inc.

Richard Goodman, Trowbridge, Goodman & Rosenthal, Hartford, Conn., for Conn. Pkg. Store.

DALY, District Judge.

RULING ON CROSS MOTIONS FOR SUMMARY JUDGMENT

In these consolidated cases¹ plaintiffs seek to have Connecticut's Liquor Control Act, Conn.Gen.Stat.Ann. § 30-1 et seq., as amended, declared unconstitutional, claiming it to be in violation of the Sherman Act, 15 U.S.C. § 1 et seq.² Specifically, plaintiffs claim that Connecticut's statutorily mandated pricing scheme constitutes illegal price-fixing and resale price maintenance in violation of section 1.

Connecticut has what may be characterized as a tripartite pricing mechanism establishing the method by which liquor prices are set by the manufacturer, or out of state shipper, the wholesaler and the retailer. The manufacturer, or out of state shipper, files with the Division of Liquor Control the list of prices at which it will sell its products to Connecticut wholesalers during the next month.³ In the sale of spirits and cordials, the prices listed must conform to the requirement of Connecticut's Affirmation Statute⁴ and all sales of alcoholic liquors must conform to the statutory prohibition against below cost selling.⁵ Subject to these statutory provisions this is the method by which liquor is initially placed into the Connecticut marketplace.

The second tier of the pricing system involves the wholesaler who files with the Division a list of prices at which it will sell its product to retailers during the following month.⁶ The wholesaler's price to the retailer cannot be lower than the wholesaler's "cost" as that term is statutorily defined.⁷ On spirits and cordials, "cost" must include a minimum mark-up of 11% on the total of all other statutorily enumerated items of "cost." On beer, "cost" must include a minimum mark-up of 20% "of the sales price to the retailer." On wine bottled in the State of Connecticut, "cost" must include a minimum mark-up of not less than 36%. On wine not bottled in Connecticut, "cost" must include a minimum mark-up of 20% on the "sales price to the retailer."

The third and final tier in the pricing scheme addresses retail sales. Like the wholesaler the retailer is prohibited from selling any alcoholic beverage below "cost" which on spirits means the wholesaler's bottle price plus a minimum of 21 and ½% of the retailer's selling price; on cordials, the bottle price plus a minimum of 28% of the retailer's selling price; on wine, the bottle price plus a minimum of 33 and 1/3 % of the retailer's selling price. While the manufacturer, or out of state shipper, is required to file with the Division of Liquor Control a list of suggested consumer resale prices⁸ the retailer is specifically permitted to sell below the suggested resale price⁹ as long as he does not sell below "cost", which includes the statutorily mandated minimum markup.¹⁰ Plaintiffs claim that because the Connecticut Liquor Control Act permits the manufacturer, or out of state shipper, to unilaterally establish the initial price at which liquor will be sold in the State of Connecticut the Act constitutes resale price maintenance in illegal restraint of trade.

In support of their position plaintiffs rely on the Supreme Court's recent decision in Cal. Liquor Dealers Ass'n v. Midcal Alum., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980). Midcal involved a challenge to California's wine pricing scheme requiring wine producers to enter into trade contracts with wholesalers, or establish binding resale price schedules for wholesalers. A licensed wholesaler found to be selling below the price established by the manufacturer was subject to fines and/or other penalties. The California Supreme Court, in striking down a parallel restriction in the sale of distilled liquors, stated that

In the price maintenance program before us, the state plays no role whatever in setting the retail prices. The prices are established by the producers according to their own economic interests, without regard to any actual or potential anticompetitive effect; the state's role is restricted to enforcing the prices specified by the producers. There is no control or `pointed re-examination,' by the state to insure that the policies of the Sherman Act are not `unnecessarily subordinated' to state policy.

Midcal, supra, at 100-101, 100 S.Ct. at 941, quoting, Rice v. Alcoholic Beverage Control Appeals Bd., 21 Cal.3d 431, 445, 146 Cal. Rptr. 585, 595, 579 P.2d 476, 486 (1978). The Supreme Court had little trouble in finding the California Court's characterization of the distilled liquor regulations in Rice equally applicable to California's wine pricing scheme. Midcal held that

California's system for wine pricing plainly constitutes resale price maintenance in violation of the Sherman Act. Citations omitted. The wine producer holds the power to prevent price competition by dictating the prices charged by wholesalers. As Mr. Justice Hughes pointed out in Dr. Miles, Medical Co. v. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376 55 L.Ed. 502 (1911) 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.' Citation omitted.

Midcal, supra, 445 U.S. at 103, 100 S.Ct. at 942. It is the ability of a private party, by contract, combination, or conspiracy to control the price at which another private party can sell a product which the Sherman Act prohibits. Albrecht v. Herald Company, 390 U.S. 145, 88 S.Ct. 869, 19 L.Ed.2d 998 (1968); United States v. Parke, Davis & Co., 362 U.S. 29, 80 S.Ct. 503, 4 L.Ed.2d 505 (1960); Yentsch v. Texaco, Inc., 630 F.2d 46, 51-55 (2d Cir. 1980). There was no dispute in Midcal that the California wine pricing scheme fell within the purview of the Sherman Act. The defendant, however, relied on the State of California's involvement in the price-setting program to provide it with an exemption from antitrust liability under Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). As Parker and Midcal make clear, however, the applicability of any exemption, or immunity to the antitrust laws is only to be considered after first having found that a violation of the Sherman Act exists.

Connecticut's liquor pricing scheme is facially valid. The Liquor Control Act neither permits nor sanctions private parties engaging in resale price maintenance in violation of the Sherman Act. The only price not controlled by the State of Connecticut is the initial offering price established by manufacturers, or out of state shippers, subject to Connecticut's Affirmation statute.¹¹ The manufacturer, or out of state shipper, does not control the price charged by wholesalers to retailers, or by retailers to consumers. The mere fact that the manufacturer's price constitutes part of the wholesaler's and retailer's statutorily defined "cost" does not constitute any contract, combination, or conspiracy which the Sherman Act was intended to address. If one were to accept plaintiffs' argument nothing short of a complete monopolization of the industry by the State could escape Sherman Act liability. E. g., Midcal, supra, 445 U.S. at 106 n.9, 100 S.Ct. at 943 n.9.

Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), held that the federal antitrust laws do not prohibit a State "as sovereign" from imposing certain anti-competitive restraints "as an act of government." Id., at 352, 63 S.Ct. at 314. It is clear that Connecticut's liquor pricing scheme does impose certain anti-competitive restraints on wholesalers and retailers. It is equally clear, however, that the most liberal application of the Sherman Act to "State related" conduct itself, see City of Lafayette, La. v. La. Power & Light Co., 435 U.S. 389, 98 S.Ct. 1123, 55 L.Ed.2d 364 (1978); see also Star Lines, Ltd. v. Puerto Rico Maritime Ship. Auth., 451 F.Supp. 157, 163 n.31 (S.D.N.Y.1978), does not apply to Connecticut's pervasively state controlled liquor pricing law. No matter how one wishes to characterize the effect of the private...