Fisher Foods, Inc. v. Ohio Dept. of Liquor Control

• Decision Date: 28 December 1982
• Docket Number: No. C80-2381.,C80-2381.
• Citation: 555 F. Supp. 641
• Parties: FISHER FOODS, INC., Plaintiff, v. The OHIO DEPARTMENT OF LIQUOR CONTROL and The Ohio Liquor Control Commission, Defendants.
• Court: U.S. District Court — Northern District of Ohio

555 F. Supp. 641

FISHER FOODS, INC., Plaintiff, v. The OHIO DEPARTMENT OF LIQUOR CONTROL and The Ohio Liquor Control Commission, Defendants.

No. C80-2381.

United States District Court, N.D. Ohio, E.D.

December 28, 1982.

COPYRIGHT MATERIAL OMITTED

Walter Bates, Arter & Hadden, Thomas Chema, Anthony Damelio, Jr., Cleveland, Ohio, for plaintiff.

William Brown, Ohio Atty. Gen., Chief Fed. Litigation Section, Gene Holliker, Columbus, Ohio, for applicants to intervene.

Bernard Goldfarb, Karen Moellenberg, Goldfarb & Reznick, Cleveland, Ohio, for defendants.

MEMORANDUM AND ORDER

WHITE, District Judge.

The plaintiff, Fisher Foods, Inc., is engaged in the business of operating a chain of retail grocery stores. As part of its business the plaintiff purchases and sells alcoholic beverages, specifically beer and wine. The defendant Ohio Liquor Control Commission is an agency of the State of Ohio and is authorized to and has promulgated rules and regulations to carry out provisions of Ohio's Liquor Control laws. The plaintiff alleges that certain regulations enacted by the Liquor Control Commission pertaining to the sale of beer and wine constitute a combination or agreement in restraint of Trade or Commerce in violation of the Sherman Anti-Trust Act, 15 U.S.C. § 1 et seq. This matter is before the Court upon the parties cross motions for summary judgment.

The State of Ohio has established rules and regulations setting forth mandatory mark-ups for wine and beer sold in Ohio. Ohio Revised Code § 4301.041 authorizes the Liquor Control Commission to determine and fix by regulating the minimum percentage mark-up for sales at retail of beer, lager beer, ale, stout, porter, or malt liquor, whether in case lot or less. To determine the retail price of beer, the minimum percentage mark-up may be applied to the wholesale price of the manufacturers or wholesale distributors charge to the retail permit holder. Such prices shall apply to sales made at retail for off premises consumption only.

Regulation 4301:1-1-72 was promulgated pursuant to Ohio Revised Code § 4301.041. Subdivision C of regulation 4301:1-1-72 sets the price for retail sale of beer at not less than a minimum mark-up of 25 percent (25%) above cost. The definition of cost depends on the type of permit holder involved. Cost to an A-1 permit holder (beer manufacturer) is the wholesale invoice price for the same brand to Class C and D permit holders. (Reg. 4301:1-1-72(C)(1)) Cost to a B-1 permit holder (beer wholesaler) shall be the wholesale invoice price for sales by B-1 permit holders to Class C and D permit holders for the same brand, (Reg. 4301:1-1-72(C)(2)), and the cost for C and D permit holders (retailers) is the wholesale cost to them as shown by the invoice. (Reg. 4301:1-1-72(C)(3)). Deposit charges for the carton or case, bottles or containers are not included as part of the cost or included in any computation for determining the minimum retail selling price. (Reg. 4301:1-1-72(C)(4)).

Ohio Revised Code 4301.13 authorizes the Liquor Control Commission to regulate the manner of dealing in and distributing and selling bottled wine within the State. Pursuant to this statute, regulation 4301:1-1-03 was enacted providing what may be characterized as a two tier pricing system. The first tier is the commission-fixed minimum prices below which no sale may be made in the State. According to division (G)(1) of Regulation 4301:1-1-03 the Commission is to take into consideration and be guided by the current selling price of wine in bulk in California, the current selling prices for California wines in bulk in the principal markets of the United States, transportation charges to Ohio, all taxes and assessments and levies on wine, and the costs of labels, containers, crowns, caps, and seals. The determination of this cost is termed the prevailing cost. To the prevailing cost is added a bottling cost mark-up of 18 percent (18%) and the price is now termed the minimum base cost. Then a wine wholesaler's mark-up of thirty-three and one third percent (33 1/3 %) of the minimum base cost is added, which price is deemed the minimum wholesale price to retail permit holders. This mark-up is to cover the cost of doing business by a distributor at wholesale for such items as labor, salaries of executives and officers, rent, depreciation, and maintenance of equipment and property and the like.

The second tier of the pricing system is found in Regulation 4301:1-1-03(G)(2)-(5). This requires all out of state sellers, distributors and Ohio wine producers and wholesalers to file a quarterly statement or price schedule with the Department of Liquor Control. This schedule must contain the name of every brand to be sold, and the kind, type, and class of wine, size of container, and the alcoholic content. It must also include the invoice price of the wine without any discount to holders of B-5 permits (wholesale wine dealers). (Reg. 4301:1-1-03(G)(3)(c)). The minimum wholesale price, which constitutes the price of which wine may be sold to retailers, is then determined. This minimum wholesale price is computed by taking a minimum mark-up of not less than thirty-three and one third (33 1/3 %) percent of the invoice price of the wine without discount (Reg. 4301:1-1-03(G)(3)(d)), and cannot be lower than the Commission-fixed minimum. The price schedule must contain prices for all brands of wine to be sold to retail permit holders. The single bottle retail price must be fifty (50%) percent over and above the minimum wholesale price posted for each particular wine. The minimum retail price of units of one case of the same size, type, class, and kind of wine shall be forty (40%) percent over and above the minimum wholesale price posted for that particular wine. (Reg. 4301:1-1-03(G)(3)(f)). The wholesale price plus the mark-up is the minimum price at which a retailer may sell the wine.

The plaintiff claims that Ohio Revised Code § 4301.041 and 4301.13 and the regulations promulgated thereunder permit producers to establish prices at which wholesalers and retailers may sell the producers's product in the State of Ohio thus constituting resale price maintenance in illegal restraint of trade.

The preliminary question to be decided is whether Ohio's Statutes and Regulations for pricing of beer and wine violate the Sherman Act. The Sherman Act has been held to apply to circumstances where a producer sets prices at which wholesalers and retailers may sell the producer's product. Arrangements such as this are designed to maintain prices and prevent competition. Dr. Miles Medical Company v. John D. Parks & Sons Company, 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911). Until 1975, the Miller Tydings Act allowed states to authorize resale price maintenance. Since the repeal of the Miller Tydings Act, the Sherman Act applies to fair trade contracts unless there is special anti-trust immunity.

The U.S. Supreme Court in California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233 (1980), struck down a California wine pricing scheme requiring wine producers and wholesalers to file fair trade contracts or price schedules with the State. If a producer failed to set prices through a fair trade contract the wholesaler had to post a resale price schedule and could not sell wine to a retailer at a price different than that set in a price schedule or a fair trade contract. Any wholesaler selling below the established prices would be subject to a fine or license suspension or revocation. In finding that California's wine pricing system constituted resale price maintenance in violation of the Sherman Act, the Court determined that the wine producer held the power to prevent price competition by dictating the prices charged by wholesalers. "As Mr. Justice Hughes pointed out in Dr. Miles such vertical control destroys horizontal competition as effectively as if wholesalers formed a combination and endeavored to establish the same restrictions ... by agreement with each other." Midcal, supra 445 U.S. at 103, 100 S.Ct. at 942. In California the State played no role in setting retail prices. Producers set prices according to their own economic interest, without regard to any anti-competitive effect. The State was restricted to enforcing the prices set by producers. California Retail Liquor Dealers Association v. Midcal, supra citing Rice v. Alcoholic Beverage Control Appeals Boards, 21 Cal.3rd 431, 146 Cal.Rptr. 585, 579 P.2d 476 (1978).

A District Court in Connecticut was presented with an action to strike down the Connecticut liquor pricing scheme as constituting resale price maintenance in violation of the Sherman Act wherein the plaintiff relied on California Liquor Dealers Association v. Midcal Aluminum, supra, Serlin Wine and Spirit Merchants, Inc., v. Healy, 512 F.Supp. 936 (D.Conn.1981), affirmed sub nom. Morgan v. Board of Liquor Control, 664 F.2d 353 (2nd Cir.1981). The Court held Connecticut's wine pricing system which consisted of a three tier pricing scheme by which prices were set by manufacturers, or out of state shippers, wholesalers and retailers to be valid. The manufacturer or out of state shipper files with the Division of Liquor Control a list of prices at which it will sell its products in Connecticut during the next month. The wholesaler files a list of prices at which it will sell to retailers. The wholesalers' price to the retailer cannot be lower than the wholesalers' cost as that term is statutorily defined, which cost must include a minimum eleven (11%) percent mark-up. On beer there must be a twenty (20%) percent mark-up; wine bottled in Connecticut requires a mark-up of thirty-six (36%) percent. The retailer must add twenty-one and one half (21½%) percent mark-up on spirits, twenty-eight (28%) on cordials, and thirty-three and one-third (33 1/3 %) percent on wine.

The 2nd Circuit Court of Appeals in affirming the Serlin case...