J.A.J. Liquor Store, Inc. v. New York State Liquor Authority

• Decision Date: 11 June 1984
• Parties: , 1984-2 Trade Cases P 66,070 In the Matter of J.A.J. LIQUOR STORE, INC., Petitioner, v. NEW YORK STATE LIQUOR AUTHORITY, Respondent.
• Court: New York Supreme Court — Appellate Division

Page 318

478 N.Y.S.2d 318

102 A.D.2d 240, 1984-2 Trade Cases P 66,070

In the Matter of J.A.J. LIQUOR STORE, INC., Petitioner, v. NEW YORK STATE LIQUOR AUTHORITY, Respondent.

Supreme Court, Appellate Division Second Department.

June 11, 1984.

Seymour Howard, Jericho, for petitioner.

Gloria M. Dabiri, New York City (Stephen D. Kalinsky, New York City, of counsel), for respondent.

Before LAZER, J.P., and THOMPSON, BRACKEN and RUBIN, JJ.

BRACKEN, Justice.

This is a proceeding pursuant to CPLR article 78 to review a determination of respondent State Liquor Authority which, after a hearing, found that petitioner, a retail liquor store licensee, had violated subdivision 4 of section 63 and subdivision 2 of section 101-bb of the Alcoholic Beverage Control Law. By order of the Supreme Court, Nassau County, entered July 27, 1981, the proceeding was transferred to this court (CPLR 7804, subd. ). We must decide whether respondent's determination is supported by substantial evidence (CPLR 7803, subd. ). However, the initial issue for resolution is whether this State's statute prohibiting the retail sale of liquor for off-premises consumption at less than cost (Alcoholic Beverage Control Law, § 101-bb) violates the Sherman Antitrust Act (U.S.Code, tit. 15, § 1 et seq.), which declares combinations in restraint of trade to be illegal.

The evidence adduced at the hearing established that on January 25, 1980, respondent's investigators purchased a bottle of Johnny Walker Red Label Scotch Whiskey at petitioner's premises for $9.50, together with a bottle of Bacardi Rum for $6.09. At the time of the sale, the minimum resale price for those products was $9.99 and $6.36, respectively. On the basis of this evidence, respondent determined that petitioner had sold liquor at less than the minimum resale price in violation of subdivision 2 of section 101-bb of the Alcoholic Beverage Control Law. Although the factual evidence substantially supports this portion of respondent's determination, we are nevertheless constrained to annul the determination upon the ground that the statute alleged to have been violated is invalid.

Subdivision 2 of section 101-bb of the Alcoholic Beverage Control Law prohibits the retail sale of liquor for off-premises consumption at a price which is less than cost. The statute defines "cost" as the "price" of an item of liquor to the retailer plus 12%, which is declared to be the legislatively determined average minimum overhead necessarily incurred by the retailer in the sale of such an item (Alcoholic Beverage Control Law, § 101-bb, subd. 2, par. ). The term "price" is defined as the bottle price to the retailer contained in a monthly schedule filed with the State Liquor Authority by the manufacturer or wholesaler from whom the retailer purchases liquor and which schedule is in effect at the time the retailer sells such item (Alcoholic Beverage Control Law, § 101-bb, subd. 2, par. ). The "price" is established by the manufacturer or wholesaler in its monthly schedule, without any review as to its reasonableness or other control by the State (Alcoholic Beverage Control Law, §§ 101-bb, subd. 2, par. ). Thus, although the State requires the retailer to sell liquor at not less than 12% above the wholesale price (Alcoholic Beverage Control Law, § 101-bb, subd. 2, par. ), the price is fixed in the first instance by the manufacturer or wholesaler, who thereby effectively controls the price charged by all retailers purchasing from such manufacturer or wholesaler. As such, the State's statutory scheme merely authorizes price setting by private parties and, in essence, enforces the prices so set.

We previously have held that subdivision 2 of section 101-bb fell within the intended scope of the Twenty-First Amendment to the United States Constitution and constituted State action which did not conflict with the Sherman Antitrust Act (Matter of Polon, Inc. v. State Liq. Auth., 59 A.D.2d 946, 399 N.Y.S.2d 469; see, also, Matter of Ritter Wines & Liqs. v. State Liq. Auth., 70 A.D.2d 643, 416 N.Y.S.2d 661). Moreover, we reached the same conclusion with respect to the parallel provision of the statute governing minimum consumer resale prices of wine, and our determination was affirmed by the Court of Appeals (Alcoholic Beverage Control Law, § 101-bbb; see Matter of Mezzetti Assoc. v. State Liq. Auth., 66 A.D.2d 800, 410 N.Y.S.2d 893, affd. 49 N.Y.2d 753, 426 N.Y.S.2d 479, 403 N.E.2d 184). However, the Court of Appeals subsequently granted reargument in Matter of Mezzetti Assoc. v. State Liq. Auth., 49 N.Y.2d 981, 428 N.Y.S.2d 950, 406 N.E.2d 950 and thereafter reversed this determination of statutory validity (51 N.Y.2d 761, 432 N.Y.S.2d 372, 411 N.E.2d 791) on the basis of California Retail Liq. Dealers v. Midcal Aluminum (445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233).

In Midcal (supra), the Supreme Court of the United States considered a challenge to California's system of resale price maintenance for wine. Under the California statutes, wine producers, wholesalers and rectifiers were required to file fair trade contracts or price schedules with the State, and no State-licensed wine merchant was permitted to sell wine to a retailer at a price other than the price stated in the contract or schedule (Cal.Bus. & Prof.Code Ann., §§ 24862; 24866). As is the case in New York, the State of California exercised no control over the wine prices set by the producers, wholesalers or rectifiers ( California Retail Liq. Dealers v. Midcal Aluminum, supra, pp. 99-100, 100 S.Ct. p. 940).

California's wine pricing system was held to constitute resale price maintenance in violation of the Sherman Antitrust Act, in that the producer was given the power to prevent price competition by "dictating" the prices charged by wholesalers (California Retail Liq. Dealers v. Midcal Aluminum, supra, p. 103, 100 S.Ct. p. 942).

Having determined that the Sherman Antitrust Act was implicated, the court then considered whether California's involvement in the price-setting program was sufficient to establish antitrust immunity under Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315), i.e., whether the challenged restraint was clearly articulated and affirmatively expressed as State policy, and whether that policy was actively supervised by the State itself ( California Retail Liq. Dealers v. Midcal Aluminum, supra, pp. 103, 105, 100 S.Ct. pp. 942, 943). The court found that the California resale price maintenance scheme satisfied the first prong of the test for antitrust immunity, in that the legislative policy of permitting resale price maintenance was clearly reflected in the statutes. However, California's program did not satisfy the second prong of the Parker test, since the State merely authorized price setting and enforced prices set by private parties, without exercising any control, monitoring or review over the prices set ( California Retail Liq. Dealers v. Midcal Aluminum, supra, pp. 105-106, 100 S.Ct. p. 943). Thus, the court concluded that the State of California was not cloaked with antitrust immunity in this instance.

Finally, the court rejected the argument that application of the Sherman Antitrust Act against the State was barred by section 2 of the Twenty-First Amendment to the United States Constitution, which provides:

"The transportation or importation into any State, Territory or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited".

The court noted that the California courts had identified that State's interests protected by the resale price maintenance system as: (1) promoting temperance; and (2) promoting orderly market conditions by protecting small licensees from bargain sales and price-cutting policies of the larger retailers (California Retail Liq. Dealers v. Midcal Aluminum, supra, pp. 111-112, 100 S.Ct. p. 946, citing Midcal Aluminum v. Rice, 90 Cal.App.3d 979, 983, 153 Cal.Rptr. 757 and Rice v. Alcoholic Beverage Control Appeals Bd., 21 Cal.3d 431, 451, 456, 146 Cal.Rptr. 585). The court accepted the determination of the California courts that there was little correlation between price maintenance and temperance, or between price maintenance and the survival of small retailers, and concluded that the asserted State interests were outweighed by the national policy favoring competition, as reflected in the Sherman Antitrust Act. Accordingly, the Twenty-First Amendment did not permit the State to regulate wine prices in a manner violative of the Sherman Antitrust Act (California Retail Liq. Dealers v. Midcal Aluminum, supra, pp. 113-114, 100 S.Ct. p. 947).

A comparison of this State's retail price maintenance system for liquor (Alcoholic Beverage Control Law, § 101-bb) and those resale price maintenance systems for wine which have been declared to have impermissibly restrained trade (California Retail Liq. Dealers v. Midcal Aluminum, 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233, supra; Matter of Mezzetti Assoc. v. State Liq. Auth., 51 N.Y.2d 761, 432 N.Y.S.2d 372, 411 N.E.2d 791, supra), reveals no substantive differences. Under the California statutes invalidated in Midcal (supra), no State-licensed wine merchant was permitted to sell wine to a retailer at a price other than that established by the producer, wholesaler or rectifier in a fair trade contract or price schedule filed with the State ( California Retail Liq. Dealers v. Midcal Aluminum, supra, pp. 99-100, 100 S.Ct. p. 940). Under the New York statute invalidated in Mezzetti (supra) on the authority of Midcal (supra) (see Matter of Mezzetti Assoc. v. State Liq. Auth., 51 N.Y.2d 761, 762, 432 N.Y.S.2d 372, 411 N.E.2d 791, supra), licensees authorized to sell wine at retail for off-premises consumption were prohibited from selling at less than the minimum consumer retail price established by the manufacturer or wholesaler in price schedules filed annually with...