Lewis-Westco & Co. v. Alcoholic Bev. etc. Appeals Bd.

• Decision Date: 22 October 1982
• Docket Number: LEWIS-WESTCO
• Citation: 186 Cal.Rptr. 552,136 Cal.App.3d 829
• Court: California Court of Appeals Court of Appeals
• Parties: , 1982-83 Trade Cases P 65,027 & CO., Petitioner, v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD, Respondent. Baxter RICE as Director of the Department of Alcoholic Beverage Control, Real Party In Interest. Civ. 54605.

Page 552

186 Cal.Rptr. 552

136 Cal.App.3d 829, 1982-83 Trade Cases P 65,027

LEWIS-WESTCO & CO., Petitioner, v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD, Respondent Baxter RICE as Director of the Department of Alcoholic Beverage Control, Real Party In Interest.

Civ. 54605.

Court of Appeal, First District, Division 1, California.

Oct. 22, 1982.

As Modified on Denial of Rehearing Nov. 18, 1982.

Hearing denied February 3, 1983.

Daniel B. Leraul, Leland, Parachini, Steinberg, Flinn, Matzger & Melnick, San Francisco, for petitioner.

George Deukmejian, Atty. Gen., Matthew P. Boyle, Deputy Atty. Gen., San Francisco, for respondent and for real party in interest.

RACANELLI, Presiding Justice.

Section 24756 of the Business and Professions Code (to which all section references apply unless otherwise noted) requires every manufacturer, rectifier and wholesaler of distilled spirits to file and maintain with the Department of Alcoholic Beverage Control (Department) a written price list reflecting sales prices to retailers and to sell to retailers in compliance with the posted price list. ¹

In this extraordinary writ proceeding under section 23090, we consider the validity of the price posting statute and the promulgated implementing regulations (Cal.Admin. Code, tit. 4, § 100) in light of Rice v. Alcoholic Bev. etc. Appeals Bd. (1978) 21 Cal.3d 431, 146 Cal.Rptr. 585, 579 P.2d 476, which struck down companion retail price maintenance provisions and regulations determined to be in fatal conflict with the provisions of Sherman Antitrust Act, 15 U.S.C. section 1 et seq. For the reasons which we explain, we will conclude that the price posting provisions contained in section 24756, and implementing rule, are likewise invalid. ²

The facts are undisputed. On or about July 26, 1979, petitioner, a licensed rectifier of distilled spirits, sold its products to five separate retailers at prices or quantity discounts other than as contained in price or quantity discount schedules on file with the Department in violation of section 24756 and Rule 100. The Department suspended petitioner's license for 10 days as to each count, stayed upon stated conditions. On appeal to the Alcoholic Beverage Control Appeals Board (Board), petitioner challenged the Department's order contending that Rule 100 is invalid under Rice, the Sherman Act, the Robinson-Patman Act (15 U.S.C.A. § 13 et seq.) and the equal protection clause. In its written opinion affirming the decision of the Department, the Board concluded that although the price posting statute and Department rule constituted an invalid price fixing scheme under the rationale of Rice v. Alcoholic Bev. etc. Appeals Bd., supra, 21 Cal.3d 431, 146 Cal.Rptr. 585, 579 P.2d 476, and Midcal Aluminum, Inc. v. Rice (1979) 90 Cal.App.3d 979, 153 Cal.Rptr. 757, affirmed sub nom. California Liquor Dealers v. Midcal Aluminum (1980) 445 U.S. 97, 100 S.Ct. 937, 63 L.Ed.2d 233, it was nevertheless prohibited from declaring the statute unconstitutional under the provisions of California Constitution, article III, section 3.5, ³ and consequently refrained from determining the validity of the derivative rule as an "idle act."

Petitioner now renews its challenges below seeking to annul the order of the Board. ⁴

Preliminary to our discussion of the merits, we review the recent line of decisions which have considered California's price maintenance legislation for alcoholic beverages. In its benchmark decision, the California Supreme Court held that the price maintenance provisions embodied in former section 24755 (repealed by Stats.1980, ch. 1368, § 3) which required distilled liquors wholesalers to set minimum retail prices constituted a violation of the Sherman Act neither shielded by the "state action" exception nor saved by application of the Twenty-First Amendment of the United States Constitution. (Rice v. Alcoholic Bev. etc. Appeals Bd., supra, 21 Cal.3d 431, 444-459, 146 Cal.Rptr. 585, 579 P.2d 476.) Thereafter, in reliance on the Rice analysis, state courts uniformly have invalidated related price maintenance and regulatory provisions. (See Capiscean Corp. v. Alcoholic Bev. etc. Appeals Bd. (1979) 87 Cal.App.3d 996, 151 Cal.Rptr. 492 [price fixing in retail sale of wine]; Midcal Aluminum, Inc. v. Rice, supra, 90 Cal.App.3d 979, 153 Cal.Rptr. 757⁵ [price maintenance provisions for wholesale and retail sale of wine]; Norman Williams Co. v. Rice (1980) 108 Cal.App.3d 348, 166 Cal.Rptr. 563 [designation statute] reversed and remanded in Rice v. Norman Williams Co. (1982) 458 U.S. 654, 102 S.Ct. 3294, 73 L.Ed.2d 1042.) Petitioner argues that Rice v. Alcoholic Bev. etc. Appeals Bd., supra, squarely controls the issue herein; that since section 24756 sanctions horizontal price fixing among liquor wholesalers, it likewise must fall as an inseparable part of the price maintenance structure considered in Rice. Respondents counter that neither Rice nor its progeny apply herein since those decisions construed legislation dealing with vertical and horizontal price fixing as distinguished from "price posting" by licensed wholesalers. Accordingly, we consider the reasoning in Rice and related precedents in order to determine whether the challenged statute violates the Sherman Act and, if so, whether antitrust immunity is afforded either under the "state action" exception announced in Parker v. Brown (1943) 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315, or by reason of the application of the Twenty-First Amendment. (See Rice v. Alcoholic Bev. etc. Appeals Bd., supra, 21 Cal.3d 432 at pp. 439-451; see also Rice v. Norman Williams Co., supra, --- U.S. ----, 102 S.Ct. 3294, 73 L.Ed.2d 1042; ⁶ California Liquor Dealers v. Midcal Aluminum, supra, 445 U.S. 97, 102-110, 100 S.Ct. 937, 941-45, 63 L.Ed.2d 233.)

It is well established that price fixing alone is illegal per se because it eliminates one form of competition. (United States v. Univis Lens Co. (1942) 316 U.S. 241, 252, 62 S.Ct. 1088, 1094, 86 L.Ed. 1408; United States v. Trenton Potteries (1927) 273 U.S. 392, 397, 47 S.Ct. 377, 379, 71 L.Ed. 700.) It is equally settled that "any combination which tampers with the price structure is unlawful. Although the participants of a price fixing scheme may be in no position to control the market, to the extent that they raise, lower or stabilize prices they violate the act, and this is so even if the prices fixed are reasonable. [Citations.]" (Rice v. Alcoholic Bev. etc. Appeals Bd., supra, 21 Cal.3d at p. 453-454, 146 Cal.Rptr. 585, 579 P.2d 476; emphasis added.) But in determining that the imposition of retail prices by producers constituted a clear violation of federal law (Rice v. Alcoholic Bev. etc. Appeals Bd., supra, 21 Cal.3d 431, 454-456, 146 Cal.Rptr. 585, 579 P.2d 476), the court focused its inquiry upon the effect of the statutory pricing scheme rather than its form reasoning that former section 24755 "has the effect not only of allowing illegal vertical restraints on competition--i.e., resale prices specified by producers and imposed upon retailers--but horizontal restraints as well." (Id., at p. 454, 146 Cal.Rptr. 585, 579 P.2d 476.) In view of the statistical evidence there presented reflecting a gradual and marked reduction in price differentials among liquors of the same type, the court determined that the statute clearly violated Sherman Act policy reasoning in part: "However, that there may be some interbrand competition does not detract from the circumstance that among leading brands there is a uniformity of price which persuasively demonstrates the absence of 'free and unfettered competition' in the California liquor industry. Indeed, the posting system facilitates price fixing among producers. While it may be a per se violation of the Sherman Act for competitors to exchange price information on a regular basis (United States v. Container Corp. (1969) 393 U.S. 333, 336-337, 89 S.Ct. 510, 512, 21 L.Ed.2d 526, 529-530), producers may readily determine the prices charged by their competitors by referring to the prices filed with the department or to industry publications listing the posted prices. (Cal.Admin. Code, tit. 4, § 99.2, subd. (b)(2).)" (Rice v. Alcoholic Bev. etc. Appeals Bd., supra, 21 Cal.3d at pp. 455-456, 146 Cal.Rptr. 585, 579 P.2d 476.)

Thus, contrary to respondents' assertion that the Rice analysis is limited to vertical price fixing arrangements alone, the court underscored the anti-competitive effect resulting from the posting system's facilitation of price fixing among producers as an impermissible restraint of trade in violation of Sherman Act policy. ⁷

Under the challenged statute, licensed wholesalers are required to announce their prices in advance by posting them with the Department and, under sanction of penalty, are prevented from making sales to retailers at different prices. Although in form a price posting regulation, it is not immune from antitrust analysis under Rice in order to determine whether an illegal price fixing restraint is otherwise manifested. Here, as in Rice, petitioner introduced statistical evidence demonstrating a progressive elimination of price variations between wholesalers selling the same brand and competing brands. ⁸ Moreover, as the Board concluded, subdivision (f) of the implementing rule literally "invites periodic examination of the price lists on file" thus assuring other competitors that the filing licensee will not sell its products to anyone at a lower price. In plain effect, the mandated price posting, coupled with the regulatory compliance condition, openly sanctions and promotes an exchange of price information among competitors calculated to produce a uniform price structure vividly demonstrating the absence of free and unfettered competition in the wholesale liquor industry. (See Rice v. Alcoholic Bev. etc. Appeals Bd., supra, 21 Cal.3d at pp. 455-456, 146 Cal.Rptr. 585, 579 P.2d 476.) The pernicious effect of the statutory...