Anheuser-Busch, Inc. v. Abrams

• Decision Date: 11 February 1988
• Docket Number: INC,ATTORNEY-GENERAL,ANHEUSER-BUSC
• Parties: , 520 N.E.2d 535, 1988-1 Trade Cases P 67,890 , Respondent, v. Robert ABRAMS, as Attorney-General of the State of New York, Appellant. In the Matter of Subpoenas Duces Tecum Served by theOF the STATE OF NEW YORK, Upon the New York State Beer Wholesalers Association, Inc., et al., Respondents; Attorney-General of the State of New York, Appellant. In the Matter of G. HEILEMAN BREWING COMPANY, INC., Respondent, v. Robert ABRAMS, as Attorney-General of the State of New York, Appellant. In the Matter of MILLER BREWING COMPANY, Respondent, v. Robert ABRAMS, as Attorney-General of the State of New York, Appellant. In the Matter of STROH BREWERY COMPANY, Respondent, v. Robert ABRAMS, as Attorney-General of the State of New York, Appellant. In the Matter of FORBEE BROS. CORPORATION, et al., Respondents, v. Robert ABRAMS, as Attorney-General of the State of New York, Appellant.
• Court: New York Court of Appeals Court of Appeals

Page 816

525 N.Y.S.2d 816

71 N.Y.2d 327, 520 N.E.2d 535, 1988-1

Trade Cases P 67,890

ANHEUSER-BUSCH, INC., Respondent, v. Robert ABRAMS, as Attorney-General of the State of New York,

Appellant.

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., et al., Respondents;

Attorney-General of the State of New York, Appellant.

In the Matter of G. HEILEMAN BREWING COMPANY, INC., Respondent, v. Robert ABRAMS, as Attorney-General of the State of New York,

Appellant.

In the Matter of MILLER BREWING COMPANY, Respondent, v. Robert ABRAMS, as Attorney-General of the State of New York,

Appellant.

In the Matter of STROH BREWERY COMPANY, Respondent, v. Robert ABRAMS, as Attorney-General of the State of New York,

Appellant.

In the Matter of FORBEE BROS. CORPORATION, et al., Respondents, v. Robert ABRAMS, as Attorney-General of the State of New York,

Appellant.

Court of Appeals of New York.

Feb. 11, 1988.

Robert Abrams, Atty. Gen. (Alan Pfeffer, O. Peter Sherwood, Lloyd Constantine, Katherine L. Frank, Elizabeth M. O'Neill, Richard M. Weinberg and Alice McInerney, New York City, of counsel), for appellant.

Thomas H. Milch, Jerome I. Chapman, Wayne C. Holcombe, Washington, D.C., David Rees Davies, Adeeb Fadil, New York City, Terrence Sheehy, Peter Moll, Roxann Henry, Washington, D.C., William Pelster, David Elkind, New York City, David Beckwith, Michael Fischer, Washington, D.C., Gary Hoppe, Eugene D'Ablemont, Robert Getman, Robert Crotty, New York City, Ernest Gellhorn, Adrian Wager-Zito, Hugh Latimer, Robert Skitol, Washington, D.C., Richard Nash, Henry B. Gutman, Douglas Richards, Richard C. Stein and Matthew Feigenbaum, New York City, for respondents.

OPINION OF THE COURT

WACHTLER, Chief Judge.

The petitioners--four brewers, several beer wholesalers and a beer wholesalers' trade association--brought these proceedings to quash subpoenas duces tecum and interrogatories served upon them by the Attorney-General pursuant to an investigation into marketing practices in the beer industry which the Attorney-General alleges may violate the State's antitrust laws. The central issue posed by this appeal, here by leave of the Appellate Division, 126 A.D.2d 197, 512 N.Y.S.2d 802, ¹ is whether that court properly granted the applications on the ground that the focus of the investigation is an activity which is per se legal under State law and therefore beyond the scope of the Attorney-General's investigatory powers.

We hold that General Business Law § 343 authorizes the Attorney-General to investigate the practice in question and that it was error, therefore, to quash the subpoenas and interrogatories.

I.

The subpoenas and interrogatories now challenged were issued to the petitioners beginning in May 1985 as part of an investigation by the Attorney-General into the pervasive use in the beer industry of exclusive territorial distributorships. The Attorney-General alleges--and petitioners do not dispute for purposes of these proceedings--that since 1982 brewers and wholesaler distributors have entered into agreements establishing exclusive territorial rights to sell each brewer's products to retail outlets. According to the Attorney-General, under this scheme, the brewer agrees to sell its products to only one designated wholesaler in a given territory and that wholesaler, in turn, agrees not to sell the brewer's products outside that territory or to anyone inside the territory who would resell the products elsewhere. The aim of these agreements, allegedly, is to eliminate intrabrand competition by "transshippers", independent wholesalers who, prior to the advent of these agreements, could buy beer from a franchised wholesaler in one territory and sell it in another territory, in competition with another franchised wholesaler.

The parties agree that, to the extent that this arrangement results in a restraint of trade, it is a "vertical" restraint--that is, one imposed by an agreement between noncompetitors who occupy different levels in the distribution chain--as opposed to a "horizontal" restraint, which results from an agreement among competitors at the same level of distribution. The Attorney-General contends that, although such vertical restraints are not per se illegal under New York's antitrust law (the Donnelly Act; General Business Law § 340 et seq.), they may be found to be illegal if, under all the circumstances, they impose an unreasonable restraint on competition. Petitioners concede that the "rule of reason" analysis urged by the Attorney-General would be employed to determine if the practice violates Federal antitrust law ( see, e.g., Continental T.V. v. GTE Sylvania, 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568), but they argue that the courts of this State have ruled that such vertical restraints are per se legal under the Donnelly Act. Accordingly, they conclude, the Attorney-General lacks authority to conduct an investigation designed to facilitate a rule of reason analysis of the brewing industry practice.

II.

An application to quash a subpoena should be granted "[o]nly where the futility of the process to uncover anything legitimate is inevitable or obvious" ( Matter of Edge Ho Holding Corp., 256 N.Y. 374, 382, 176 N.E. 537) or where the information sought is " 'utterly irrelevant to any proper inquiry' " ( Matter of La Belle Creole Intl., S.A. v. Attorney-General of State of N.Y., 10 N.Y.2d 192, 196, 219 N.Y.S.2d 1, 176 N.E.2d 705, quoting Matter of Dairymen's League Coop. Assn., 274 App.Div. 591, 595, 84 N.Y.S.2d 749, affd. 299 N.Y. 634, 86 N.E.2d 509). In defending his inquiry, the Attorney-General enjoys a presumption that he is acting in good faith (Matter of Ryan v. Lefkowitz, 26 A.D.2d 604, 271 N.Y.S.2d 353, affd. 18 N.Y.2d 977, 278 N.Y.S.2d 214, 224 N.E.2d 721) and must show only that the materials sought bear "a reasonable relation to the subject matter under investigation and to the public purpose to be achieved" ( Carlisle v. Bennett, 268 N.Y. 212, 217, 197 N.E. 220; see also, Virag v. Hynes, 54 N.Y.2d 437, 442, 446 N.Y.S.2d 196, 430 N.E.2d 1249; Matter of Goldin v. Greenberg, 49 N.Y.2d 566, 572, 427 N.Y.S.2d 599, 404 N.E.2d 722; Matter of La Belle Creole Intl., S.A. v. Attorney-General of State of N.Y., supra, at 196, 219 N.Y.S.2d 1, 176 N.E.2d 705).

Thus, the precise question presented by these proceedings is brought into focus. The question is not whether all vertical restraints of this type should, in the context of these proceedings, be declared legal per se or, on the other hand, subject to a rule of reason analysis. Instead, the question is whether the Attorney-General has authority under the Donnelly Act to issue the subpoenas and interrogatories challenged here, a question which must be answered in the affirmative unless the legality of the brewers' marketing practice is so well established, either by the plain language of the statute or by existing judicial interpretation, as to be free from doubt. If the legality of the brewing industry's vertical restraints is arguable, then the subpoenas issued pursuant to the Attorney-General's broad powers to investigate possible violations of the Donnelly Act (see, General Business Law § 343) ² must be sustained ( see, Matter of Nicholson v. State Commn. on Judicial Conduct, 50 N.Y.2d 597, 610-611, 431 N.Y.S.2d 340, 409 N.E.2d 818).

Petitioners effectively concede as much, because the focus of their argument is not that we should announce a rule of per se legality, but rather that such a rule has already been established by "seven decades of unanimous precedent" and that the Legislature has acquiesced in such an interpretation of the Donnelly Act by failing to amend the statute to overrule those decisions. We conclude, however, that the cases cited by petitioners do not conclusively establish, either singly or in combination, a rule of per se legality for vertical territorial arrangements. Nor does the statutory language foreclose the Attorney-General's position that such arrangements, if shown to result in an unreasonable restraint of trade under the circumstances, are prohibited.

III.

The Donnelly Act declares, among other things, that "[e]very contract, agreement, arrangement or combination whereby * * * [c]ompetition or the free exercise of any activity in the conduct of any business, trade or commerce or in the furnishing of any service in this state is or may be restrained [is] against public policy, illegal and void" (General Business Law § 340[1] ). This language is clearly broad enough, on its face, to encompass the vertical restraints in issue. There is no dispute for present purposes that the target of the Attorney-General's investigation--exclusive territorial distributorships--restricts intrabrand competition in the beer industry.

We recognize that neither the Donnelly Act nor the Sherman Act, after which it was modeled, has been interpreted as prohibiting every agreement that has the effect of restraining trade, no matter how minimal. Instead, as construed by State and Federal courts, the antitrust laws prohibit only "unreasonable" restraints on trade ( see, Northern Pac. Ry. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 518, 2 L.Ed.2d 545; Atkin v. Union Processing Corp., 90 A.D.2d 332, 457 N.Y.S.2d 152, affd. 59 N.Y.2d 919, 466 N.Y.S.2d 293, 453 N.E.2d 522, cert. denied 465 U.S. 1038, 104 S.Ct. 1316, 79 L.Ed.2d 712). Even in light of this general judicial gloss, however, the statutory language easily accommodates the Attorney-General's position that petitioners' practice may be prohibited if it can be shown to be unreasonable. ³ Petitioners' efforts to extract a rule of per se legality from the case law dealing with vertical territorial arrangements are unavailing for several reasons. First, the issue of per se legality of all vertical territorial arrangements was not presented in the cases cited by petitioners. In Dawn...