Distilled Brands v. Dunigan

• Decision Date: 25 May 1955
• Docket Number: No. 236,Docket 23146.,236
• Citation: 222 F.2d 867
• Parties: DISTILLED BRANDS, Inc., Petitioner, v. W. E. DUNIGAN, Assistant Regional Commissioner, Respondent.
• Court: U.S. Court of Appeals — Second Circuit

222 F.2d 867 (1955)

DISTILLED BRANDS, Inc., Petitioner, v. W. E. DUNIGAN, Assistant Regional Commissioner, Respondent.

No. 236, Docket 23146.

United States Court of Appeals Second Circuit.

Argued April 14, 1955.

Decided May 25, 1955.

Menahem Stim, New York City (Curran, Mahoney, Cohn & Stim and John M. Foley, New York City, on the brief), for petitioner.

John Bodner, Jr., Atty., Dept. of Justice, Washington, D. C. (Stanley N. Barnes, Asst. Atty. Gen., Daniel M. Friedman, Sp. Asst. to Atty. Gen., and Charles R. W. Smith, Atty., Alcohol and Tobacco Tax Legal Division, Office of the Chief Counsel, Internal Revenue Service, Washington, D. C., on the brief), for respondent.

Before CLARK, Chief Judge, and FRANK and STALEY, Circuit Judges.

CLARK, Chief Judge.

This appeal concerns the legality of tie-in sales of alcoholic beverages by a wholesaler to a group of independent retailers. In the early part of 1951, petitioner, a wholesaler and distributor, was able to procure from its importer a package deal involving scotch whiskey, then much in demand, and rum, which was more plentiful and hence less salable. Determined to sell this liquor in the same way as it had received it, petitioner made the whiskey available to retailers only as they took proportionate amounts of rum off its hands. The retailers who participated in the 280 tie-in sales which occurred in February and March, 1951, were in no way affiliated with the petitioner, and none of them ever bought any kind or brand of liquor exclusively from the petitioner. On this evidence the Alcohol and Tobacco Tax Division of the Internal Revenue Service concluded after full hearings that petitioner had violated the so-called "exclusive outlet" and "tied-house" provisions of the Federal Alcohol Administration Act, 27 U.S.C. §§ 205(a) and 205 (b). From this decision and from the consequent suspension of petitioner's license as wholesaler for 20 days, petitioner appeals. See 27 U.S.C. § 204 (h).

Since no serious question has been raised that the tie-in sales did not occur in the manner alleged by the Division, our main concern is whether these sales violated the Act. The pertinent parts of § 5 read as follows: "It shall be unlawful for any person engaged in business as a * * * wholesaler, of distilled spirits, wine, or malt beverages, * * * directly or indirectly or through an affiliate: (a) Exclusive outlet. To require, by agreement or otherwise, that any retailer engaged in the sale of distilled spirits, wine, or malt beverages, purchase any such products from such person to the exclusion in whole or in part of distilled spirits, wine, or malt beverages sold or offered for sale by other persons in interstate or foreign commerce, if such requirement is made in the course of interstate or foreign commerce, or if such person engages in such practice to such an extent as substantially to restrain or prevent transactions in interstate or foreign commerce in any such products, or if the direct effect of such requirement is to prevent, deter, hinder, or restrict other persons from selling or offering for sale any such products to such retailer in interstate or foreign commerce; or (b) `Tied house'. To induce through any of the following means, any retailer, engaged in the sale of distilled spirits, wine, or malt beverages, to purchase any such products from such person to the exclusion in whole or in part of distilled spirits, wine, or malt beverages sold or offered for sale by other persons in interstate or foreign commerce, if such inducement is made in the course of interstate or foreign commerce, or if such person engages in the practice of using such means, or any of them, to such an extent as substantially to restrain or prevent transactions in interstate or foreign commerce in any such products, or if the direct effect of such inducement is to prevent, deter, hinder, or restrict other persons from selling or offering for sale any such products to such retailer in interstate or foreign commerce: * * * (7) by requiring the retailer to take and dispose of a certain quota of any of such products; * * *." The two major issues under the statute are whether the sales resulted in purchases to the exclusion in whole or in part of other sellers and whether they sufficiently affected interstate commerce.

We agree with the position of the Division that tie-in sales do constitute a sufficient interference with competition to require prohibition within the regulatory scheme of the Federal Alcohol Administration Act, and that § 5, 27 U.S.C. § 205, actually covers such transactions. The Supreme Court has repeatedly characterized tie-in sales as monopolistic in purpose and effect. International...