California Retail Liquor Dealers Association v. Midcal Aluminum, Inc, No. 79-97

• Court: United States Supreme Court
• Writing for the Court: POWELL
• Citation: 100 S.Ct. 937,445 U.S. 97,63 L.Ed.2d 233
• Decision Date: 03 March 1980
• Docket Number: No. 79-97
• Parties: CALIFORNIA RETAIL LIQUOR DEALERS ASSOCIATION, Petitioner, v. MIDCAL ALUMINUM, INC., et al

63 L.Ed.2d 233 100 S.Ct. 937 445 U.S. 97 CALIFORNIA RETAIL LIQUOR DEALERS ASSOCIATION, Petitioner,

v.

MIDCAL ALUMINUM, INC., et al.

No. 79-97. Argued Jan. 16, 1980. Decided March 3, 1980. Syllabus

A California statute requires all wine producers and wholesalers to file fair trade contracts or price schedules with the State. If a producer has not set prices through a fair trade contract, wholesalers must post a resale price schedule and are prohibited from selling wine to a retailer at other than the price set in a price schedule or fair trade contract. A wholesaler selling below the established prices faces fines or license suspension or revocation. After being charged with selling wine for less than the prices set by price schedules and also for selling wines for which no fair trade contract or schedule had been filed, respondent wholesaler filed suit in the California Court of Appeal asking for an injunction against the State's wine-pricing scheme. The Court of Appeal ruled that the scheme restrains trade in violation of the Sherman Act, and granted injunctive relief, rejecting claims that the scheme was immune from liability under that Act under the "state action" doctrine of Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315, and was also protected by § 2 of the Twenty-first Amendment, which prohibits the transportation or importation of intoxicating liquors into any State for delivery or use therein in violation of the State's laws.

Held:

1. California's wine-pricing system constitutes resale price maintenance in violation of the Sherman Act, since the wine producer holds the power to prevent price competition by dictating the prices charged by wholesalers. And the State's involvement in the system is insufficient to establish antitrust immunity under Parker v. Brown, supra. While the system satisfies the first requirement for such immunity that the challenged restraint be "one clearly articulated and affirmatively expressed as state policy," it does not meet the other requirement that the policy be "actively supervised" by the State itself. Under the system the State simply authorizes price setting and enforces the prices established by private parties, and it does not establish prices, review the reasonableness of price schedules, regulate the terms of fair trade contracts, monitor market conditions, or engage in any "pointed reexamination"

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of the program. The national policy in favor of competition cannot be thwarted by casting such a gauzy cloak of state involvement over what is essentially a private price-fixing arrangement. Pp. 102-106.

2. The Twenty-first Amendment does not bar application of the Sherman Act to California's wine-pricing system. Pp. 106-114.

(a) Although under that Amendment States retain substantial discretion to establish liquor regulations over and above those governing the importation or sale of liquor and the structure of the liquor distribution system, those controls may be subject to the federal commerce power in appropriate situations. Pp. 106-110.

(b) There is no basis for disagreeing with the view of the California courts that the asserted state interests behind the resale price maintenance system of promoting temperance and protecting small retailers are less substantial than the national policy in favor of competition. Such view is reasonable and is supported by the evidence, there being nothing to indicate that the wine-pricing system helps sustain small retailers or inhibits the consumption of alcohol by Californians. Pp. 110-114.

90 Cal.App.3d 979, 153 Cal.Rptr. 757, affirmed.

William T. Chidlaw, Sacramento, Cal., for petitioner.

Jack B. Owens, San Francisco, Cal., for respondents.

George J. Roth, Sacramento, Cal., for the State of California, as amicus curiae, by special leave of Court.

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Mr. Justice POWELL delivered the opinion of the Court.

In a state-court action, respondent Midcal Aluminum, Inc., a wine distributor, presented a successful antitrust challenge to California's resale price maintenance and price posting statutes for the wholesale wine trade. The issue in this case is whether those state laws are shielded from the Sherman Act by either the "state action" doctrine of Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), or § 2 of the Twenty-first Amendment.

I

Under § 24866(b) of the California Business and Professions Code, all wine producers, wholesalers, and rectifiers must file fair trade contracts or price schedules with the State.¹ If a wine producer has not set prices through a fair trade contract, wholesalers must post a resale price schedule for that producer's brands. § 24866(a). No state-licensed wine merchant may sell wine to a retailer at other than the price set "either in an effective price schedule or in an effective fair trade contract . . . ." § 24862 (West Supp.1980).

The State is divided into three trading areas for administration of the wine pricing program. A single fair trade contract or schedule for each brand sets the terms for all wholesale transactions in that brand within a given trading area. §§ 24862, 24864, 24865 (West Supp.1980). Similarly, state

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regulations provide that the wine prices posted by a single wholesaler within a trading area bind all wholesalers in that area. Midcal Aluminum, Inc. v. Rice, 90 Cal.App.3d 979, 983-984, 153 Cal.Rptr. 757, 760 (1979). A licensee selling below the established prices faces fines, license suspension, or outright license revocation. Cal.Bus. & Prof.Code Ann. § 24880 (West Supp.1980).² The State has no direct control over wine prices, and it does not review the reasonableness of the prices set by wine dealers.

Midcal Aluminum, Inc., is a wholesale distributor of wine in southern California. In July 1978, the Department of Alcoholic Beverage Control charged Midcal with selling 27 cases of wine for less than the prices set by the effective price schedule of the E. & J. Gallo Winery. The Department also alleged that Midcal sold wines for which no fair trade contract or schedule had been filed. Midcal stipulated that the allegations were true and that the State could fine it or suspend its license for those transgressions. App. 19-20. Midcal then filed a writ of mandate in the California Court of Appeal for the Third Appellate District asking for an injunction against the State's wine pricing system.

The Court of Appeal ruled that the wine pricing scheme restrains trade in violation of the Sherman Act, 15 U.S.C. § 1 et seq. The court relied entirely on the reasoning in Rice v. Alcoholic Beverage Control Appeals Bd., 21 Cal.3d 431, 146 Cal.Rptr. 585, 579 P.2d 476 (1978), where the California Supreme Court struck down parallel restrictions on the sale of distilled liquors. In that case, the court held that because the State played only a passive part in liquor pricing, there was no Parker v. Brown immunity for the program.

"In the price maintenance program before us, the state plays no role whatever in setting the retail prices. The

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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." 21 Cal.3d, at 445, 146 Cal.Rptr., at 595, 579 P.2d, at 486.

Rice also rejected the claim that California's liquor pricing policies were protected by § 2 of the Twenty-first Amendment, which insulates state regulation of intoxicating liquors from many federal restrictions. The court determined that the national policy in favor of competition should prevail over the state interests in liquor price maintenance—the promotion of temperance and the preservation of small retail establishments. The court emphasized that the California system not only permitted vertical control of prices by producers, but also frequently resulted in horizontal price fixing. Under the program, many comparable brands of liquor were marketed at identical prices.³ Referring to congressional and state legislative studies, the court observed that resale price maintenance has little positive impact on either temperance or small retail stores. See infra, at 112-113.

In the instant case, the State Court of Appeal found the analysis in Rice squarely controlling. 90 Cal.App.3d, at 984, 153 Cal.Rptr., at 760. The court ordered the Department of Alcoholic Beverage Control not to enforce the resale price maintenance and price posting statutes for the wine trade. The Department, which in Rice had not sought certiorari from

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this Court, did not appeal the ruling in this case.⁴ An appeal was brought by the California Retail Liquor Dealers Association, an intervenor.⁵ The California Supreme Court declined to hear the case, and the Dealers Association sought certiorari from this Court. We granted the writ, 444 U.S. 824, 100 S.Ct. 45, 62 L.Ed.2d 31 (1979), and now affirm the decision of the state court.

II

The threshold question is whether California's plan for wine pricing violates the Sherman Act. This Court has ruled consistently that resale price maintenance illegally restrains trade. In Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 407, 31 S.Ct. 376, 384, 55 L.Ed. 502 (1911), the Court observed that such arrangements are "designed to maintain prices . . ., and to prevent competition among those who trade in [competing goods]." See Albrecht v. Herald Co., 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); United States v. A. Schrader's Son, Inc., 252 U.S. 85, 40 S.Ct. 251, 64 L.Ed. 471 (1920). For many years, however, the Miller-Tydings Act of 1937 permitted the States to authorize...