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

• Decision Date: 02 April 1985
• Citation: 479 N.E.2d 779,64 N.Y.2d 504,490 N.Y.S.2d 143
• Parties: , 479 N.E.2d 779, 1985-2 Trade Cases P 66,677 In the Matter of J.A.J. LIQUOR STORE, INC., Respondent, v. NEW YORK STATE LIQUOR AUTHORITY, Appellant. In the Matter of 324 LIQUOR CORP., Doing Business as Yorkshire Wine & Spirits, Respondent, v. Edward J. McLAUGHLIN, et al., Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 143

490 N.Y.S.2d 143

64 N.Y.2d 504, 479 N.E.2d 779, 1985-2

Trade Cases P 66,677

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

In the Matter of 324 LIQUOR CORP., Doing Business as

Yorkshire Wine & Spirits, Respondent, v. Edward J. McLAUGHLIN, et al., Appellants.

Court of Appeals of New York.

April 2, 1985.

Robert Abrams, Atty. Gen., New York City (August L. Fietkau, Robert Hermann,

Peter H. Schiff, Frederick K. Mehlman and Richard G. Liskov, New York City, of counsel), for appellant State Liquor Authority

Seymour Howard, New York City, for respondent J.A.J. Liquor Store Inc.

Victor Feingold, New York City, for Wine, Liquor & Distillery Workers Union Local 1, AFL-CIO and others, amici curiae.

Martin P. Mehler, New York City, for Metropolitan Package Store Ass'n, Inc., and others, amici curiae.

Lawrence Kill, Steven M. Pesner, Daniel N. Sang, New York City, Scott B. Schreiber, Lee H. Karlin, Washington, D.C., Michael Whiteman, Albany, and Anthony A. Dean, New York City, for Peerless Importers, Inc., and others, amici curiae.

Robert Abrams, Atty. Gen., New York City (August L. Fietkau, Robert Hermann, Peter H. Schiff, Richard G. Liskov and Robert S. Hammer, New York City, of counsel), for appellants E. McLaughlin, et al.

Seymour Howard, New York City, for respondent 324 Liquor Corp.

OPINION OF THE COURT

SIMONS, Justice.

Section 101-bb of the Alcoholic Beverage Control Law prohibits the retail sale of liquor for off-premises consumption at less than "cost"--the price per bottle offered by a wholesaler to a retailer plus a 12% mark-up on that price. Petitioners, retail liquor store licensees, concede that they have sold liquor below this statutory "cost", but contend that section 101-bb sanctions retail price maintenance in violation of the Sherman Antitrust Act (15 U.S.C. § 1 et seq.). They contend, therefore, that respondent's charges and findings of guilt based on these sales should be annulled as unlawful. The Appellate Divisions reviewing these proceedings agreed and, in each case, rejected respondent's contentions that the statute was protected by the State action exception to antitrust enforcement under Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315, or by application of the 21st Amendment. Subsidiary issues are also involved. In J.A.J. Liq. Store, the court construed the scope of the prohibition on engaging in another business on licensed premises set forth in Alcoholic Beverage Control Law § 63(4) and found no substantial evidence petitioner had violated it and in 324 Liq. Corp., the court reviewed the validity and potential anticompetitive effect of Bulletin 471 and invalidated it. We hold that section 101-bb is a proper exercise of the State's power under the 21st Amendment which does not conflict with the Sherman Act and that in J.A.J. Liq. Store there was no substantial evidence of a violation of section 63(4) and we therefore modify the judgment of the Appellate Division, Second Department. 102 A.D.2d 240, 478 N.Y.S.2d 318. We reverse the order of the Appellate Division, First Department, in 324 Liq. Corp. 102 A.D.2d 607, 478 N.Y.S.2d 615.

I J.A.J. LIQUOR STORE

Petitioner J.A.J. Liquor, Inc., is a licensed retailer of liquor for off-premises consumption in Hicksville, New York. On February 20, 1980 respondent State Liquor Authority, the agency responsible for administering the Alcoholic Beverage Control Law, instituted a proceeding to cancel or revoke petitioner's license based on the following two charges: first, that petitioner violated Alcoholic Beverage Control Law § 63(4) by engaging in another business on the licensed premises and second, that on January 25, 1980 petitioner violated Alcoholic Beverage Control Law § 101-bb(2) by selling alcoholic beverages below cost to a State Liquor Authority investigator. Petitioner pleaded not guilty and a statutory hearing was held before a hearing officer designated by respondent.

The evidence adduced at the hearing indicated that respondent's investigators went to petitioner's premises on the date alleged and purchased a bottle of Johnny Walker Red Label Scotch Whiskey 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 established pursuant to section 101-bb was $9.99 and $6.36, respectively. The evidence supporting the charged violation of Alcoholic Beverage Control Law § 63(4) was that petitioner sold a stuffed animal to the investigators with a bottle of Black and White Scotch for $18. Petitioner's president testified that he sold the liquor and stuffed animal as a gift package; that he purchased the stuffed animals for $8 each; that the retail price of the liquor was $8.99; and, that he paid an additional sum for wrapping paper and bow which accompanied the gift package. He further testified that he had never sold any of the animals separately and would never do so.

Respondent adopted the findings of the hearing officer, sustained the charges and assessed a penalty of a $2,000 fine and 20 days deferred suspension. Petitioner then instituted an article 78 proceeding contending that respondent's determination concerning the sales of liquor below cost was unlawful because Alcoholic Beverage Control Law § 101-bb violates the Sherman Antitrust Act and that the determination that it had unlawfully engaged in another business was not supported by substantial evidence. The Appellate Division, Second Department, granted the petition, annulled respondent's determination and dismissed the charges. It found that the statutory minimum pricing scheme for liquor embodied in Alcoholic Beverage Control Law § 101-bb was virtually indistinguishable from the parallel retail price maintenance sections for wine invalidated in California Liq. Dealers v. Midcal Aluminum, 445 U.S. 97, 102, 100 S.Ct. 937, 941, 63 L.Ed.2d 233 and Matter of Mezzetti Assoc. v. State Liq. Auth., 51 N.Y.2d 761, 432 N.Y.S.2d 372, 411 N.E.2d 791. Following the Midcal reasoning, the court concluded that the regulation of liquor sales under section 101-bb is not immune from antitrust legislation under Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315, supra and that the 21st Amendment does not shield the State from the antitrust laws. The court also ruled that respondent's determination that petitioner violated Alcoholic Beverage Control Law § 63(4) by engaging in another business on the licensed premises was not supported by substantial evidence.

324 LIQUOR CORP.

Petitioner 324 Liquor Corp. was also charged by respondent with violating Alcoholic Beverage Control Law § 101-bb arising from the sale of liquor for off-premises consumption at a price less than cost. A statutory hearing was convened at which the parties stipulated that a Liquor Authority investigator purchased two bottles of liquor at petitioner's premises, a 1.75 liter bottle of Chatham Gin for $9.45 and a 1.75 liter bottle of Smirnoff's Vodka, 80 proof, for $11.59, at a time when the minimum consumer retail price was $9.65 for Chatham Gin and $11.89 for Smirnoff's Vodka. Respondent sustained the charge and imposed a penalty of 10 days suspension plus a $1,000 bond forfeiture. Petitioner then commenced an article 78 proceeding to review and annul respondent's determination on the ground that the minimum retail pricing scheme for liquor violates the antitrust laws. Petitioner also contended that respondent acted ultra vires in promulgating its rule 16 (9 NYCRR 65.4), which requires that the price per bottle must exceed the price per case in which it is contained by $1.92 divided by the number of bottles in the case, because it lacks the statutory authority to compel wholesalers to add any amount to their prices. Further, petitioner maintains that respondent exceeded its statutory powers by issuing Bulletin 471. That Bulletin permits wholesalers to "post-off" or reduce the legal case price in any month without fully passing through the "post-off" to the consumer on the bottle price. Thus, petitioner alleges that Bulletin 471 allows wholesalers to offer quantity discounts for the benefit of the retailer in excess of those permitted by Alcoholic Beverage Control Law § 101-b. Special Term rejected each of petitioner's claims and dismissed the petition. The Appellate Division, First Department, reversed and annulled respondent's determination, ruling that section 101-bb was a price maintenance scheme which violated the Sherman Antitrust Act. It further held that Bulletin 471 improperly granted wholesalers the authority to determine if price reductions made during "post-off" periods should be passed through on single bottle prices and thereby encouraged private price maintenance. The court did not reach the issue of whether respondent acted ultra vires in promulgating rule 16.

On these appeals, respondent State Liquor Authority contends that Alcoholic Beverage Control Law § 101-bb does not violate the Sherman Act because the antitrust law condemns concerted action in the nature of "contract[s], combination[s] * * * or conspirac[ies]" which unreasonably restrain trade (15 U.S.C. § 1), not minimum mark-up price provisions of State law which do not compel anticompetitive activity. Alternatively, respondent maintains that this issue is not determinative because section 101-bb is exempt from challenge under the "State action" immunity doctrine enunciated in Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315, supra, and that it is otherwise protected under the 21st Amendment.

II

The statutory provision in issue on this appeal was originally enacted in 1964 as part of a sweeping revision of our liquor laws based upon recommendations made by a specially appointed Moreland Commission. These statutes attempt to balance price protection for consumers on the one hand and to prevent retail licensees from obtaining unfair advantage over their competitors on the other. The...