Anheuser-Busch, Inc. v. Abrams
| Citation | 512 N.Y.S.2d 802,126 A.D.2d 197 |
| Decision Date | 05 March 1987 |
| Docket Number | ANHEUSER-BUSC,INC |
| Parties | , 55 USLW 2534, 1987-1 Trade Cases P 67,469 , Petitioner-Appellant, v. Robert ABRAMS, as Attorney General of the State of New York, Respondent- Respondent. In the Matter of Subpoenas Duces Tecum served by the Attorney General of the State of New York upon the NEW YORK STATE BEER WHOLESALERS ASSOCIATION, INC., and individual beer wholesalers. New York State Beer Wholesalers Association and certain individual beer wholesalers, Petitioner-Appellant, Attorney General of the State of New York, Respondent-Respondent. In the Matter of the Application of G. HEILEMAN BREWING COMPANY, INC., Petitioner-Appellant, For an Order pursuant to CPLR 2304 quashing a subpoena issued by the Attorney General v. Robert ABRAMS, Attorney General of the State of New York, Respondent- Respondent. In the Matter of the Application of MILLER BREWING COMPANY, Petitioner- Appellant, For an Order pursuant to CPLR Section 2304 quashing a subpoena issued by the Attorney General v. Robert ABRAMS, Attorney General of the State of New York, Respondent- Respondent. In the Matter of the Application of The STROH BREWERY COMPANY, Petitioner- Appellant, For an Order pursuant to CPLR 3204 quashing a subpoena issued by the Attorney General, v. Robert ABRAMS, Attorney General of the State of New York, Respondent- Respondent. In the Matter of the Application of FORBEE BROS. CORPORATION, Beehive Beer Distributing Corporation and Staten Island Beverages, Ltd., Petitioners- Appellants, v. Robert ABRAMS, Attorney General of the State of New York, Respondent- Respondent, To Vacate, Quash and Set Aside Certain Subpoenas Issued by the Respondent. |
| Court | New York Supreme Court Appellate Division |
Terrence C. Sheehy, Washington, D.C., of counsel (Roxann E. Henry, Washington, D.C., Richard J. Garcia, Stephen M. Axinn, William C. Pelster and David L. Elkind, New York City, with him, on brief; Howrey & Simon and Skadden, Arps, Slate, Meagher & Flom, New York City, attorneys), for petitioner Anheuser-Busch, Inc.
Matthew Feigenbaum, New York City, of counsel (Stein, Davidoff & Malito, New York City, attorneys), for petitioner New York State Beer Wholesalers Ass'n and certain individual beer wholesalers.
Gary Hoppe, New York City, of counsel (David E. Beckwith and Michael Fischer, Milwaukee, Wis., with him, on brief; Foley & Lardner and Olwine, Connelly, Chase, O'Donnell & Weyher, New York City, attorneys), for petitioner G. Heileman Brewing Co., Inc.
Thomas H. Milch, Washington, D.C., of counsel (Jerome I. Chapman and Jocelyn F. Samuels and David Rees Davies and Adeeb Fadil, New York City, with him, on brief; Arnold & Porter and Hunton & Williams, attorneys), Washington, D.C., for petitioner Miller Brewing Co.
Hugh Latimer, Washington, D.C. of counsel (Robert A. Skitol, Washington, D.C. and Richard B. Nash, Jr. and Henry B. Gutman and J. Douglas Richards, New York City, with him, on brief; Wald, Harkrader & Ross, Washington, D.C. and O'Sullivan Graev & Karabell, New York City, attorneys), for petitioner The Stroh Brewery Co.
Eugene T. D'Ablemont, New York City (Robert S. Getman, New York City, with him, on brief; Kelley Drye & Warren, New York City, attorneys), for petitioner Forbee Bros. Corp., Beehive Beer Distributing Corp. and Staten Island Beverages.
Alan Pfeffer, New York City, of counsel (Katherine Frank and Elizabeth O'Neill, New York City, with him, on brief); Robert Abrams as Atty. Gen., New York City, of State of New York.
Before MURPHY, P.J., and ROSENBERGER, ELLERIN and WALLACH, JJ.
The main issue on this appeal concerns the authority of the Attorney General to investigate vertically imposed exclusive distributorships under the State's antitrust law, the Donnelly Act (General Business Law, article 22). The context is provided by six separate applications to quash subpoenas that were served by the Attorney General in connection with an investigation into marketing practices prevalent in the beer industry. One application was brought by each of the four brewers served with a subpoena. According to the Attorney General, these are the four largest brewers in the country, their aggregate market share being 76.6%, with that of the two largest being 54.7%. The fifth application was brought on behalf of three of the more than 100 beer wholesalers served with subpoenas and the sixth, by an association of wholesalers. The subpoenas served on the brewers are different from those served on the wholesalers and the association, and those served on the latter are different from each other. However, the variations in the subpoenas are not the subject of vigorous argument, all sides proceeding instead on the understanding that the primary, though not exclusive, purpose of all of the subpoenas is to obtain information pertinent to a rule of reason analysis of exclusive territorial distributorships in the beer industry.
It appears that in recent years it has become a virtually industry-wide practice to market beer to retail outlets through wholesalers with exclusive territorial rights secured through so-called franchise agreements. Although a sample franchise agreement is not included in any of the six records under review, it is described by the Attorney General as prohibiting the brewer from selling inside of the franchised territory to persons other than the franchised wholesaler, and as prohibiting the franchised wholesaler from selling to persons outside of the franchised territory or to persons inside of the franchised territory who would resell, or "tranship", to persons outside of the franchised territory. The effect of such restrictions is to eliminate intrabrand competition within each area designated as a territory.
The Attorney General argues that the restraints on trade imposed by these exclusive distributorship agreements may be unreasonable. He believes that they could be resulting in higher prices to the consumer, and that they tend to encourage other more blatently anti-competitive practices, in particular, tie-ins. Indeed, the Attorney General states that he has received complaints from retailers that the sale of beer is being tied by wholesalers to the purchase of other services and products offered by them, including the recycling of used bottles and unpopular brands of beer. He also argues that the degree of concentration in the beer industry is so high that, under guidelines established by the United States Department of Justice, "further inquiry" into this "tightly knit oligopoly" would be warranted under the federal Sherman Act. All sides agree that a restraint of the type at issue herein is subject to rule of reason analysis under the Sherman Act (Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568). Yet, while arguing that the Donnelly Act should be construed like the Sherman Act when it comes to vertical restraints on distribution, the Attorney General acknowledges that federal interpretation of the Sherman Act is not controlling of the interpretation of the Donnelly Act (People v. Roth, 52 N.Y.2d 440, 438 N.Y.S.2d 737, 420 N.E.2d 929), and is to be given no weight at all should there be state law precedent with respect to the point in controversy to the contrary (Marsich v. Eastman Kodak Co., 244 App.Div. 295, 296-297, 279 N.Y.S. 140 affd. 269 N.Y. 621, 200 N.E. 27).
According to the Attorney General, "vertical" restraints are "agreements between non-competitors at different levels of distribution such as between manufacturers and distributors". While not necessarily illegal, most such restraints are subject to "rule of reason analysis", which is to say that they may be found illegal "if, on balance, their anti-competitive effects outweigh their pro-competitive benefits." To be contrasted are "horizontal" restraints, defined by the Attorney General as "agreements among competitors", most of which, he states, are "unreasonable per se", i.e., illegal as a matter of law without regard to their effect on competition as ascertained through rule of reason analysis. While the Attorney General states that his subpoenas seek information pertinent to certain claimed horizontal practices among wholesalers, including market division, their main purpose, he asserts, is to facilitate a rule of reason analysis of purely vertical restraints on the wholesale distribution of beer.
Petitioners dispute that vertical restraints are generally subject to rule of reason analysis under the Donnelly Act. Some go so far as to say that all vertical restraints are "legal per se", i.e., not within the purview of the Donnelly Act regardless of their effect on competition. Others of the petitioners do not go that far, but all contend that exclusive territorial distributorships are legal per se if vertically allocated. And, petitioners argue, such exclusive distributorships being legal per se, the Attorney General is without authority under the Donnelly Act to investigate them (citing, Matter of Levin v. Murawski, 59 N.Y.2d 35, 462 N.Y.S.2d 836, 449 N.E.2d 730; Myerson v. Lentini Brothers Moving & Storage Co., Inc., 33 N.Y.2d 250, 351 N.Y.S.2d 687, 306 N.E.2d 804; Matter of A'Hearn v. Committee on Unlawful Practice of Law of N.Y. County Lawyers' Assn., 23 N.Y.2d 916, 298 N.Y.S.2d 315, 246 N.E.2d 166; Kates v. Lefkowitz, 28 Misc.2d 210,...
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