Distillers Corporation v. New York State Liquor Authority

Decision Date03 June 1986
Docket NumberNo. 84-2030,BROWN-FORMAN,84-2030
PartiesDISTILLERS CORPORATION, Appellant v. NEW YORK STATE LIQUOR AUTHORITY
CourtU.S. Supreme Court
Syllabus

New York's Alcoholic Beverage Control Law (ABC Law) provides that a distiller, licensed to do business in the State, may not sell its products to wholesalers within the State except in accordance with a monthly price schedule previously filed with appellee State Liquor Authority, and requires that the distiller include with the schedule an affirmation that the prices in the schedule are no higher than the lowest prices that the distiller will charge wholesalers anywhere else in the United States during the month. Appellee determined that the ABC Law prohibited appellant distiller, which sells its liquor in New York and in other States, from offering certain promotional allowances (based on past purchases and projections of future purchases) to wholesalers in the State, and that the payment of the allowances to wholesalers in other States lowered the "effective price" of appellant's products to those wholesalers, thus violating the affirmation provision of the ABC Law. After license revocation proceedings were instituted against appellant, it sought review of appellee's ruling in the Appellate Division of the New York Supreme Court, which held, inter alia, that the affirmation provision did not on its face directly regulate interstate commerce in violation of the Commerce Clause of the Federal Constitution. The New York Court of Appeals affirmed.

Held:

1. The affirmation provision of New York's ABC Law, on its face, violates the Commerce Clause. Pp. 578-585.

(a) In analyzing state economic regulation under the Commerce Clause, the critical consideration is the overall effect of the state law on both local and interstate activity. Pp. 578-579.

(b) While a State, as here, may seek lower prices for its consumers, it may not insist that producers or consumers in other States surrender whatever competitive advantages they may possess. Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 55 S.Ct. 497, 79 L.Ed. 1032. Economic protectionism is not limited to attempts to convey advantages on local merchants; it may include attempts to give local consumers an advantage over consumers in other States. The mere fact that the effects of New York's ABC Law are triggered only by sales of liquor within New York therefore does not val- idate the law if it regulates the out-of-state transactions of distillers who sell in New York. Pp. 579-580.

(c) A "prospective" statute such as the affirmation provision of the ABC Law—requiring that prices in the State in the current month not be higher than those that will be charged in any other State during the same (as opposed to the previous ) month—directly regulates out-of-state transactions in violation of the Commerce Clause. Once a distiller's posted price is in effect in New York, it must seek appellee's approval before it may lower its prices for the same item in other States. By defining the "effective price" of liquor (in view of appellant's promotional allowance program) differently from other States, New York can effectively force appellant to abandon its allowance program in States in which that program is legal, or force those other States to alter their own regulatory schemes in order to permit appellant to lower its New York prices without violating the affirmation laws of those States. Pp. 582-584.

2. The Twenty-first Amendment does not save the ABC Law's affirmative provision from invalidation under the Commerce Clause. That Amendment gives New York only the authority to control sales of liquor in New York, and confers no authority to control sales in other States. The Commerce Clause operates with full force whenever one State attempts to regulate the sale of alcoholic beverages in another State. Moreover, New York's affirmation provision may interfere with the ability of other States to exercise their own authority under the Twenty-first Amendment. Pp. 584-585.

64 N.Y.2d 479, 490 N.Y.S.2d 128, 479 N.E.2d 764 (1985), reversed.

MARSHALL, J., delivered the opinion of the Court, in which BURGER, C.J., and POWELL and O'CONNOR, JJ., joined, and in all but n. 6 of which BLACKMUN, J., joined. BLACKMUN, J., filed a concurring opinion, post, p. 586. STEVENS, J., filed a dissenting opinion, in which WHITE and REHNQUIST, JJ., joined, post, p. 586. BRENNAN, J., took no part in the consideration or decision of the case.

Macdonald Flinn, New York City, for appellant.

Lloyd Edward Constantine, New York City, for appellee.

Justice MARSHALL delivered the opinion of the Court.

The State of New York requires every liquor distiller or producer that sells liquor to wholesalers within the State to sell at a price that is no higher than the lowest price the distiller charges wholesalers anywhere else in the United States. The issue in this case is whether that requirement violates the Commerce Clause of the Constitution.

I

New York extensively regulates the sale and distribution of alcoholic beverages within its borders. The State's Alcoholic Beverage Control Law (ABC Law) prohibits the manufacture and sale of alcoholic beverages within the State without the appropriate licenses, ABC Law § 100(1) (McKinney 1970), and regulates the terms of all sales, §§ 101-a to 101-bbb (McKinney 1970 and Supp.1986). Distillers and their agents may not sell to wholesalers in New York except in accordance with a price schedule filed with the State Liquor Authority. § 101-b(3)(a). The distiller or agent must file the price schedule before the 25th day of each month, and the prices therein become effective on the first day of the second following month. The schedule must contain a precise description of each item the distiller intends to sell, and a per-bottle and per-case price. All sales to any wholesaler in New York during the month for which the schedule is in effect must be at those prices.

This litigation concerns § 101-b(3)(d) of the ABC Law, which requires any distiller or agent that files a schedule of prices to include an affirmation that "the bottle and case price of liquor to wholesalers set forth in such schedule is no higher than the lowest price at which such item of liquor will be sold by such [distiller] to any wholesaler anywhere in any other state of the United States or in the District of Columbia, or to any state (or state agency) which owns and operates retail liquor stores" during the month covered by the schedule. Violation of the statute may lead to revocation of a distiller's license and the forfeiture of bond posted by the distiller in connection with the license, § 101-b(6). Twenty other States have similar affirmation laws.1

Appellant Brown-Forman Distillers Corp. (Brown-Forman) is a distiller that owns several brands of liquor that it sells in New York and in other States. Beginning in 1978, appellant has offered its wholesalers cash payments, or "promotional allowances," which are credited against any amounts due appellant.2 Appellant intends for wholesalers to use these allowances for advertising; however, the amount of the allowance a wholesaler receives is not tied to the quantity either of the wholesaler's advertising or of its purchases of appellant's products. The amount of a particular wholesaler's allowance does depend on its past purchases and projections of future purchases, but accepting the allowance does not constitute an agreement to purchase any particular quantity of Brown-Forman products. The allowances, therefore, are unconditional, lump-sum payments to all wholesalers, in every State except New York, that purchase Brown-Forman brands.

Appellant offered the promotional allowance to its New York wholesalers, but the Liquor Authority determined that the ABC Law prohibited such payments.3 The Authority also determined, however, that the payment of promotional allowances to wholesalers in other States lowered the effective price of Brown-Forman brands to those wholesalers, and thus violated § 101-b(3)(d) of the ABC Law.4 The Liquor Authority accordingly instituted license revocation proceedings against appellant.

Appellant sought review of the Liquor Authority's ruling in the state courts, asserting that it was both arbitrary and unconstitutional. Appellant contended that it could not possibly file a schedule of prices that reflected precisely the "effective price" charged to wholesalers in other States, because there was no one "effective price." Each participating wholesaler could pay a different effective price in a given month depending on the amount of Brown-Forman product it had purchased during that month. Moreover, appellant argued, other States did not treat the promotional allowances as discounts. Were New York to force appellant to reduce its prices in that State, appellant would be charging a lower price to New York wholesalers than the price recognized by other States, thereby forcing appellant to violate the affirmation laws of those States. Appellant contended that the only way to avoid this dilemma was to stop offering promotional allowances, unless other States chose to alter their affirmation laws. By effectively forcing appellant to discontinue a promotional program in other States where that program was legal, appellant argued, New York's regulation violated the Commerce Clause. Appellant also argued that the affirmation law on its face directly regulated interstate commerce in violation of the Commerce Clause.

The Appellate Division of the New York Supreme Court rejected these arguments, 100 App.Div.2d 55, 473 N.Y.S.2d 420 (1984), as did the New York Court of Appeals, 64 N.Y.2d 479, 490 N.Y.S.2d 128, 479 N.E.2d 764 (1985). The Court of Appeals concluded, first, that the Liquor Authority's decision to consider the promotional allowances as a discount was supported by substantial evidence. Second, the court held that the ABC Law as applied...

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