Conn. Fine Wine & Spirits, LLC v. Seagull

• Decision Date: 06 September 2019
• Docket Number: No. 17-2003,17-2003
• Citation: 936 F.3d 119 (Mem)
• Parties: CONNECTICUT FINE WINE AND SPIRITS, LLC, d/b/a, Total Wine & More, Plaintiff-Appellant, v. COMMISSIONER MICHELLE H. SEAGULL, Department of Consumer Protection, John Suchy, Director, Division of Liquor Control, Defendants-Appellees, Wine & Spirits Wholesalers of Connecticut, Inc., Connecticut Beer Wholesalers Association, Inc., Connecticut Restaurant Association, Connecticut Package Stores Association, Inc., Brescome Barton, Inc., Intervenors-Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

936 F.3d 119 (Mem)

CONNECTICUT FINE WINE AND SPIRITS, LLC, d/b/a, Total Wine & More, Plaintiff-Appellant,

v.COMMISSIONER MICHELLE H. SEAGULL, Department of Consumer Protection, John Suchy, Director, Division of Liquor Control, Defendants-Appellees,Wine & Spirits Wholesalers of Connecticut, Inc., Connecticut Beer Wholesalers Association, Inc., Connecticut Restaurant Association, Connecticut Package Stores Association, Inc., Brescome Barton, Inc., Intervenors-Defendants-Appellees.

No. 17-2003

United States Court of Appeals, Second Circuit.

September 6, 2019

For Plaintiff-Appellant: William J. Murphy, John J. Connolly, Adam B. Abelson, Zuckerman Spaeder LLP, Baltimore, MD. James T. Shearin, Edward B. Lefebvre, Pullman & Comley LLC, Bridgeport, CT.

For Defendants-Appellees: Clare E. Kindall, Solicitor General, Robert J. Deichert, Assistant Attorney General, for William Tong, Attorney General, Hartford, CT.

For Intervenors-Defendants-David S. Hardy, Damian K. Appellees: Gunningsmith, Carmody Torrance Sandak & Hennessey LLP, New Haven, CT. Michael J. Spagnola, Siegel, O'Connor, O'Donnell & Beck, P.C., Hartford, CT. Patrick A. Klingman, Klingman Law, LLC, Hartford, CT. Robert M. Langer, Benjamin H. Diessel, Wiggin and Dana LLP, Hartford, CT. Deborah Skakel, Craig M. Flanders, Blank Rome LLP, New York, NY. John F. Droney, Jr., Jeffrey J. Mirman, Hinckley Allen & Snyder, LLP, Hartford, CT.

Present: ROBERT A. KATZMANN, Chief Judge, JOSÉ A. CABRANES, ROSEMARY S. POOLER, PETER W. HALL, DEBRA ANN LIVINGSTON, DENNY CHIN, RAYMOND J. LOHIER, JR., SUSAN L. CARNEY, RICHARD J. SULLIVAN, JOSEPH F. BIANCO, MICHAEL H. PARK, Circuit Judges.

Richard J. Sullivan, Circuit Judge, joined by José A. Cabranes, Debra Ann Livingston, and Michael H. Park, Circuit Judges, dissenting from the denial of rehearing en banc:

Today our Court declines to reconsider en banc the panel's holding that Connecticut's "post-and-hold" alcohol pricing statute is consistent with Section 1 of the Sherman Act. Although that holding was clearly compelled by our prior decision in Battipaglia v. New York State Liquor Authority , 745 F.2d 166 (2d Cir. 1984), I believe we should have taken this opportunity to join federal courts across the country in rejecting Battipaglia 's majority opinion in favor of Judge Winter's forceful dissent in that case. As a result of this refusal to grant rehearing, we perpetuate a longstanding circuit split and continue to allow de facto state-sanctioned cartels of alcohol wholesalers to impose artificially high prices on consumers and retailers across all three states in our Circuit. That strikes me as an unfortunate consequence, particularly when the correct legal analysis has been staring us in the face for more than thirty-five years. Accordingly, I respectfully dissent from the denial of rehearing en banc .

I.

Connecticut's post-and-hold scheme contains three main components. First, alcohol wholesalers must share their prices with market participants on a monthly basis (the "post"). Conn. Gen. Stat. § 30-63(c). Second, wholesalers have four days to adjust their posted prices, except that they cannot go below the lowest posted price. Id. Third, at the end of the price-adjustment period, wholesalers must adhere to their adjusted prices for one month (the "hold"). Id.

A divided panel of our Court upheld New York's nearly identical post-and-hold scheme in Battipaglia . Writing for the majority, Judge Friendly concluded that such a scheme did not mandate or authorize conduct that would be per se illegal had it been the subject of a private agreement. 745 F.2d at 173–75 (citing Rice v. Norman Williams Co. , 458 U.S. 654, 659–61, 102 S.Ct. 3294, 73 L.Ed.2d 1042 (1982) ). In so concluding, Judge Friendly focused mainly on the post, observing that "[t]he Supreme Court has never held that the exchange of price information ... ‘necessarily constitutes a violation of the antitrust laws in all cases.’ " Id. at 174 (quoting Rice , 458 U.S. at 661, 102 S.Ct. 3294 ).

That reasoning, however, failed to account for the per se illegality of the hold. As Judge Winter explained in dissent, a "requirement of adherence to announced prices has been uniformly held illegal without regard to its reasonableness." Id. at 179 (Winter, J., dissenting) (citing Sugar Inst. v. United States , 297 U.S. 553, 601, 56 S.Ct. 629, 80 L.Ed. 859 (1936) (explaining that "steps ... to secure adherence, without deviation, to prices and terms ... announced" are illegal)); see also Catalano, Inc. v. Target Sales, Inc. , 446 U.S. 643, 649–50, 100 S.Ct. 1925, 64 L.Ed.2d 580 (1980) (per curiam) (recognizing the "plain distinction between the lawful right to publish prices ... on the one hand, and an agreement among competitors limiting action with respect to the published prices, on the other").

In the years following our decision in Battipaglia , courts outside our Circuit have – without exception – rejected Judge Friendly's position and instead followed Judge Winter's dissent in striking down similar post-and-hold laws. See Costco Wholesale Corp. v. Maleng , 522 F.3d 874, 893 n.15, 894–96 (9th Cir. 2008) (noting that "Judge Friendly's antitrust analysis strangely failed to account for the New York requirement that posted prices be adhered to by wholesalers," and agreeing with Judge Winter's "pointed[ ] observ[ation] in dissent" that a post-and-hold requirement was per se unlawful); TFWS, Inc. v. Schaefer , 242 F.3d 198, 209–10 (4th Cir. 2001) (noting that " Battipaglia has not been followed elsewhere" and concluding that it was "obvious" that "agreements to adhere to previously announced prices are unlawful per se "); Canterbury Liquors & Pantry v. Sullivan , 16 F. Supp. 2d 41, 47 (D. Mass. 1998) ("I am persuaded by the reasoning and statements of the Supreme Court to concur with ... Judge Winter in this case."); see also Miller v. Hedlund , 813 F.2d 1344, 1348–51 (9th Cir. 1987) (holding Oregon's post-and-hold law preempted by the Sherman Act); Beer & Pop Warehouse v. Jones , 41 F. Supp. 2d 552, 560–62 (M.D. Pa. 1999) (similar). A leading antitrust treatise has also endorsed Judge Winter's position. See Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 217b2 (4th ed. 2013) ("Given the great danger that agreements to post and adhere will facilitate horizontal collusion, the dissent's position [in Battipaglia ] is more consistent with [Supreme Court precedent].").

Despite this consensus, the panel opinion doubles down on Battipaglia , concluding that, "[i]f anything, its reasoning has been fortified by intervening decisions like Fisher [v. City of Berkeley , 475 U.S. 260, 106 S.Ct. 1045, 89 L.Ed.2d 206 (1986) ] and [ Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ]." Conn. Fine Wine & Spirits, LLC v. Seagull , 932 F.3d 22, 39 (2d Cir. 2019) as amended (July 29, 2019). According to the panel, Fisher permits state post-and-hold laws unless they mandate or authorize actual "concerted action" among alcohol wholesalers. Id. at 38. Similarly, the panel likens alcohol wholesalers to the telecommunications carriers held to be engaging in lawful parallel conduct in Twombly . Id. at 38–39.

The panel's reasoning stretches Fisher and Twombly too far. In Fisher , the Supreme Court upheld a Berkeley ordinance that – unlike a post-and-hold law – unilaterally imposed rent ceilings upon landlords "to the exclusion of private control." 475 U.S. at 266, 106 S.Ct. 1045. In doing so, the Court distinguished such "unilateral" restraints, which are not subject to antitrust preemption, from "hybrid" restraints, which grant private actors "a degree of private regulatory power." Id. at 267–68, 106 S.Ct. 1045.

Although the panel opinion "do[es] not take issue" with the district court's classification of Connecticut's post-and-hold law as a hybrid restraint, it cites Fisher for the proposition that preemption is not warranted unless the statute in question authorizes or compels actual "concerted action" among private parties. Conn. Fine Wine & Spirits, LLC , 932 F.3d at 38. But again, Fisher requires no such thing. As the Supreme Court clarified only a year later in 324 Liquor Corp. v. Duffy , a hybrid restraint may be attacked under Fisher even when "there is no ‘contract, combination ..., or conspiracy, in restraint of trade.’ " 479 U.S. 335, 345 n.8, 107 S.Ct. 720, 93 L.Ed.2d 667 (1987) (quoting 15 U.S.C. § 1 ); see also Freedom Holdings, Inc. v. Spitzer , 357 F.3d 205, 223 n.17 (2d Cir. 2004) ("[S]ince our decision in Battipaglia , the Supreme Court has made it clear that an actual ‘contract, combination or conspiracy’ need not be shown for a state statute to be preempted by the Sherman Act." (quoting 324 Liquor Corp. , 479 U.S. at 345 n.8, 107 S.Ct. 720 )). Likewise, Twombly did not involve a hybrid restraint (or any state-imposed restraint for that matter), and I am aware of no case, other than the panel opinion in this case, extending Twombly 's antitrust holding to the special context of hybrid restraints.

Moreover, the panel opinion's overriding focus on concerted action overlooks the economic realities of a post-and-hold pricing scheme. The problem with Connecticut's law is not that it affirmatively compels wholesalers to collude in order to fix prices, but rather that it provides no incentive – or ability – for wholesalers to compete on price. See Costco Wholesale Corp. , 522 F.3d at 896 (citing George Stigler, A Theory of Oligopoly , 72 J. Pol. Econ. 44 (1964)); Miller , 813 F.2d at 1349 ("Simply ending the analysis because of the lack of concerted activity among the wholesalers fails to take into account the presence and effect of the state's involvement in the matter."). Connecticut has imposed a scheme whereby wholesalers are encouraged to pick inflated prices for alcohol, knowing that they will always be able to match the price of a competitor. By contrast, a market entrant hoping to gain market share by lowering prices will inevitably be frustrated by...