Canterbury Liquors & Pantry v. Sullivan

• Decision Date: 03 February 1998
• Docket Number: C.A. No. 94-11701-MLW.
• Court: U.S. District Court — District of Massachusetts
• Parties: CANTERBURY LIQUORS & PANTRY, Plaintiff, and Whitehall Co., Ltd., Plaintiff/Intervenor, v. Walter J. SULLIVAN, Jr., et al., Defendants, and Massachusetts Wholesalers Of Malt Beverages, Inc., Defendant/Intervenor.

16 F.Supp.2d 41

CANTERBURY LIQUORS & PANTRY, Plaintiff, and Whitehall Co., Ltd., Plaintiff/Intervenor, v. Walter J. SULLIVAN, Jr., et al., Defendants, and Massachusetts Wholesalers Of Malt Beverages, Inc., Defendant/Intervenor.

C.A. No. 94-11701-MLW.

United States District Court, D. Massachusetts.

February 3, 1998.

Alan L. Kovacs, Gerald J. Caruso, Ferriter, Scobbo, Sikora, Caruso & Rodophele, Boston, MA, for Canterbury Liquors & Pantry.

Robert M. Buchanan, Jr., Robert S. Frank, Jr., Joshua Engel, Choate, Hall & Stewart, Boston, MA, for Whitehall, Co., Ltd.

Jane L. Willoughby, Attorney General's Office, Boston, MA, for Stuart P. Krusell, Pamela M. Nourse and Massachusetts Alcoholic Beverages Control Commission.

Thomas Fenerty, Eileen M. Fava, H. Glenn Alberich, LeBoeuf, Lamb, Greene & McRae, Boston, MA, for Massachusetts Wholesalers of Malt Beverages.

ORDER

WOLF, District Judge.

The following analysis is based upon the transcript of the decision rendered orally on January 27, 1998, granting plaintiffs' motions for summary judgment (Docket Nos. 158 & 166) and denying defendants' motions for summary judgment (Docket Nos. 162 & 169). This memorandum adds citations, revises and amplifies some of the discussion, and deletes certain non-essential matters.

The transcripts of the hearings on January 26 and 27, 1998, are being prepared and may be acquired from the court reporter.

* * * * * *

The present plaintiffs in this case are Sea Shore Corporation, which does business as Canterbury Liquors and Pantry a licensed retailer of alcoholic beverages,¹ and an intervenor as plaintiff, Whitehall Company Limited, a licensed wholesaler of alcoholic beverages² (collectively, the "plaintiffs"). The defendants are the Chairman and Commissioners of the Massachusetts Alcoholic Beverages and Control Commission ("the Commission"), sued in their official capacities,³ and a defendant-intervenor, Massachusetts Wholesalers of Malt Beverages, Inc. ("MWMBI"), a trade association whose members are engaged primarily in the wholesale sale of beer⁴ (collectively, the "defendants").

The plaintiffs brought this action seeking declaratory and injunctive relief. Count I seeks a declaration that M.G.L. c. 138, § 25A, which relates to the pricing of wholesale liquor, violates § 1 of the Sherman Act both on its face and as applied, and that it is not shielded from invalidation by the immunity doctrine enunciated in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943). Count I also seeks an order permanently enjoining the Commission from enforcing the state statute. See Verified Complaint at 7-9, ¶¶ 25-30.

Count II seeks the same declaratory and injunctive relief with respect to the regulations promulgated by the Commission to implement § 25A. 204 C.M.R. §§ 6.00-6.07. See Verified Complaint at 9-11, ¶¶ 31-36.

The plaintiffs' fundamental contention is that the Massachusetts regulatory scheme concerning the pricing of wholesale liquor violates § 1 of the Sherman Act. Section 1 states, in pertinent part, that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States ... is illegal." 15 U.S.C. § 1. The Supreme Court has explained that:

The Sherman Act was designed to be a comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade. It rests on the premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality, and the greatest material progress ... [T]he policy unequivocally laid down by the Act is competition.

Northern Pacific Ry. Co. v. United States, 356 U.S. 1, 4, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958).

The Supreme Court has held that some conduct constitutes a per se violation of § 1. Id. at 5. All other conduct is subject to a rule of reason test. Broadcast Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 8, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979).

With regard to the procedural history of this matter, which began in 1994, the parties engaged in the limited discovery relevant to the alleged per se violation of § 1. The parties filed cross-motions for summary judgment on this issue. The parties agreed at the hearing on January 26, 1998, that this issue can be decided on the cross-motions for summary judgment.

More specifically, the defendants assert that there are no material facts in dispute. The plaintiffs contend that the question of whether the state actually monitors its regulatory scheme is not undisputed, but that this factual question is not material. As I will describe later, I agree that this issue is not material. Thus, the issues relating to the alleged per se violation can and should be decided on the cross-motions for summary judgment.

At the inception of this case I referred it to the Magistrate Judge. The Magistrate Judge heard argument on the cross-motions for summary judgment in December, 1996. He issued a Report and Recommendation on June 27, 1997 (the "Report"). He recommended that summary judgment be entered for the defendants. The plaintiffs filed objections to the Report. The defendants responded. I held a hearing on January 26 1998, on the issues relating to the alleged per se violation of § 1. If the plaintiffs do not prevail on their claims of a per se violation, discovery and further litigation will be necessary with regard to their rule of reason claim.

The Magistrate Judge's Report and Recommendation is instructive. However, as a matter of law, this court is required to decide de novo the portions of the Report placed in dispute by the objections. 28 U.S.C. § 636(b)(1)(C). See also Fed.R.Civ.P. 72(b); Local Rule 3(b) of the Rules for United States Magistrates in the United States District Court for the District of Massachusetts.

As these are motions for summary judgment, I am, with regard to each motion, required to look at the record in the light most favorable to the opposing party, Woods v. Friction Materials, Inc., 30 F.3d 255, 259 (1st Cir.1994), and to decide if any material fact is genuinely placed in dispute by the admissible evidence. Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). I agree with the parties that the evidence does not place any material fact genuinely in dispute. Thus, as I said, it is necessary and appropriate to decide now who is entitled to prevail as a matter of law.

I have decided that the plaintiffs are entitled to prevail on their motion for summary judgment. I reach this conclusion essentially for the reasons stated by the Ninth Circuit in addressing a similar regulatory scheme in Miller v. Hedlund, 813 F.2d 1344 (9th Cir. 1987), cert. denied, 484 U.S. 1061, 108 S.Ct. 1018, 98 L.Ed.2d 983 (1988). Comparable analysis was done by Judge Ralph Winter in his dissent concerning the virtually identical regulatory scheme involved in Battipaglia v. New York State Liquor Auth., 745 F.2d 166, 179 (2d Cir.1984)(Winter, J., dissenting), cert. denied, 470 U.S. 1027, 105 S.Ct. 1393, 84 L.Ed.2d 782 (1985). The Ninth Circuit and Judge Winter essentially implement the analysis previously done by Professor Phillip Areeda and his colleagues in their treatise on antitrust law; the reasoning of the Ninth Circuit and Judge Winter has been endorsed in the most recent edition of that treatise. 1 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 217, at 310-12 (1997).⁵

The statute now at issue, M.G.L. c. 138, § 25A, provides in pertinent part that:

No licensee authorized under this chapter to sell alcoholic beverages to wholesalers or retailers shall —

(a) Discriminate, directly or indirectly, in price, ... between one wholesaler and another wholesaler, or between one retailer and another retailer purchasing alcoholic beverages bearing the same brand or trade name and of like age and quality.

And then, in a further paragraph, it states:

All price lists or price quotations made to a licensee by a wholesaler shall remain in effect for at least thirty days after the establishment of such price list or quotation. Any sale by a wholesaler of any alcoholic beverages at prices lower than the price reflected in such price list or quotation within such thirty day period shall constitute price discrimination under this section.

The plaintiffs do not challenge the broad prohibition against price discrimination contained in the first quoted paragraph, subsection (a). Rather, they challenge only the provisions of the second quoted paragraph.

The related, relevant regulations require each wholesaler by the fifth day of each month to post the prices that it will charge during the next following month for each item that the wholesaler sells. 204 C.M.R. § 6.03(3). The regulations permit the wholesaler by the fifteenth day of the month to amend its posted prices, but only to meet a specific lower price or a specific greater discount for an individual item filed by a competitor. 204 C.M.R. § 6.05(1). In other words, a wholesaler may not increase its previously posted price or decrease its price to any price other than the exact lower price for the same product that was posted by a rival wholesaler. The prices, as amended, become effective on the first day of the following month and they must remain unchanged throughout that calender month. 204 C.M.R. § 6.03(3). Plaintiffs challenge the validity of these regulations.

In the federal system of government established by our Constitution, the laws of the United States are the "supreme Law of the Land," U.S. Const. Art. VI, and thus preempt and invalidate inconsistent state laws in certain circumstances. See, e.g., Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 210-11, 6 L.Ed. 23 (1824). The standard for determining whether the statute and regulations now at issue are preempted by § 1 of the Sherman Act is set forth in the Supreme Court's decision in Rice...