MA Food Assoc. v. MA Alcoholic Beverages Control, 99-1277

• Decision Date: 03 November 1999
• Docket Number: No. 99-1277,N,99-1277
• Citation: 197 F.3d 560
• Parties: (1st Cir. 1999) MASSACHUSETTS FOOD ASSOCIATION, ET AL., Plaintiffs, Appellants, v. MASSACHUSETTS ALCOHOLIC BEVERAGES CONTROL COMMISSION, ET AL., Defendants, Appellees. MASSACHUSETTS FOOD ASSOCIATION, ET AL., Plaintiffs, Appellees, v. MASSACHUSETTS ALCOHOLIC BEVERAGES CONTROL COMMISSION, ET AL., Defendants, Appellees, and WINE & SPIRIT WHOLESALERS OF MASSACHUSETTS, INC., ET AL., Appellants. o. 99-1280. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 560

197 F.3d 560 (1st Cir. 1999)

MASSACHUSETTS FOOD ASSOCIATION, ET AL., Plaintiffs, Appellants, v. MASSACHUSETTS ALCOHOLIC BEVERAGES CONTROL COMMISSION, ET AL., Defendants, Appellees.

MASSACHUSETTS FOOD ASSOCIATION, ET AL., Plaintiffs, Appellees, v. MASSACHUSETTS ALCOHOLIC BEVERAGES CONTROL COMMISSION, ET AL., Defendants, Appellees and WINE & SPIRIT WHOLESALERS OF MASSACHUSETTS, INC., ET AL., Appellants.

No. 99-1277, No. 99-1280.

United States Court of Appeals, for the First Circuit.

Heard Nov. 3, 1999.

Decided December 2, 1999.

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, Hon. Douglas P. Woodlock, U.S. District Judge. [Copyrighted Material Omitted] J. Mark Gidley with whom Robert D. Paul, J. Christian Word, White & Case LLP, Alan L. Kovacs, Howard J. Wayne, Eugene R. Richard and Wayne, Richard, Hurwitz & McAloon were on brief for plaintiffs.

Jane L. Willoughby, Assistant Attorney General, with whom Thomas F. Reilly, Attorney General, and Thomas A. Barnico, Assistant Attorney General, were on brief for defendants.

Bruce A. Singal with whom William C. Athanas, Donoghue, Barrett & Singal, P.C., Louis A. Cassis, Cassis, Arena & Cayer and Ernest Gellhorn were on brief for intervenor, appellants Wine & Spirit Wholesalers of Massachusetts, Inc., et al.

Bruce A. Singal, William C. Athanas, Donoghue, Barrett & Singal, P.C., Louis A. Cassis, Cassis, Arena & Cayer and Ernest Gellhorn on brief for Massachusetts Package Stores Association, Inc., Wine & Spirits Wholesalers of Massachusetts, and Massachusetts Wholesalers of Malt Beverages, Inc., Amici Curiae.

Before Boudin, Circuit Judge, Bownes, Senior Circuit Judge, and Lipez, Circuit Judge.

BOUDIN, Circuit Judge.

Massachusetts, like many other states, extensively regulates the sale of alcoholic beverages. Among other restrictions, retail outlets must be licensed, each license embraces only a single location, and no firm or person is allowed "more than three such licenses in the commonwealth . . . ." Mass. Gen. Laws ch. 138, § 15 (1998). Thus, no one can own more than three retail liquor stores in the Commonwealth. Although some state regulations also impinge on retail prices, e.g., Mass. Gen. Laws ch. 138, § 25C, they are not at issue here.

The plaintiffs in this case--who include several supermarket chains--brought this action in the district court to enjoin enforcement of the three-store limit. The complaint charged that this statutory restriction conflicted with the Sherman Act, 15 U.S.C. § 1, et seq., because it would be a per se violation of the Sherman Act for private competitors to agree with each other to impose such a limitation. The complaint further alleged that the defendants, the members of the Massachusetts Alcoholic Beverages Control Commission, lacked power to supervise, and did not in fact supervise, the anticompetitive consequences of this limitation (i.e., less competition and higher prices).¹

Several organizations moved to intervene to defend the statute. One of them, the Massachusetts Package Stores Association ("MPSA"), is a trade association primarily representing retail liquor stores. The other two organizations--The Wine & Spirits Wholesalers of Massachusetts and the Massachusetts Wholesalers of Malt Beverages--are trade associations for alcoholic beverage wholesalers in Massachusetts. All three entities sought to intervene as of right or, in the alternative, as permissive intervenors. Fed. R. Civ. P. 24(a)(2), (b)(2). The Commission and its members moved to dismiss the complaint for failure to state a claim. Fed. R. Civ. P. 12(b)(6). After briefing and argument, the district court, on January 6, 1999, denied intervention to the trade associations but granted the defendants' motion to dismiss. Massachusetts Food Ass'n v. Sullivan, 184 F.R.D. 217, 228 (D. Mass 1999).

The plaintiffs in the district court now appeal from the dismissal of their complaint. The trade associations that sought to intervene appeal from the denial of intervention (but in an amicus brief support the dismissal of the complaint). Our review of the judgment of dismissal is de novo. Rogan v. Menino, 175 F.3d 75, 77 (1st Cir. 1999), cert. denied, ___ U.S.___, 120 S.Ct. 616, ___L.Ed.2d___ (1999). Since we affirm the judgment of dismissal, the intervention issue is largely (although not entirely) academic, and we return to it only after addressing the merits.

At first blush, one might think this a strange complaint. The state statute limiting retail liquor outlets looks like a garden-variety act of local legislation limiting the number of licenses that the state will grant, and the statute neither authorizes nor directs private parties to engage in anticompetitive agreements among themselves. Putting aside the special status of state liquor regulation under the Twenty-First Amendment, U.S. Const. amend. XXI, §2, one of the best settled rules in antitrust law is that the Sherman Act was not intended to "apply" to the states so as to foreclose otherwise valid state regulation. Parker v. Brown, 317 U.S. 341, 350-52 (1943); see also Neo Gen Screening, Inc. v. New England Newborn Screening Program, 187 F.3d 24, 28 (1st Cir. 1999),cert denied,___ U.S.___,120 S.Ct. 615,___ L.Ed.2d___, (1999); Tri-State Rubbish, Inc. v. Waste Management, Inc., 998 F.2d 1073, 1076 (1st Cir. 1993). But, as we shall see, there are qualifications on this general rule, and the case law is not entirely coherent. See generally I Areeda & Hovenkamp, Antitrust Law ¶ 221 (1997). With some ingenuity, the plaintiffs in this case have sought to make the most of the resulting ambiguities.

Almost from the outset, the immunity from the Sherman Act afforded to "state action" has been hedged by a concern with state laws deemed merely to authorize or direct conduct by private parties that--absent such state legislation--would violate the antitrust laws. Cf. Parker, 317 U.S. at 351-52. It is one thing to say that a state may itself regulate in an "anticompetitive" fashion; it is quite another to say that the state can effectively exempt private parties from obeying the antitrust laws. Thus, a state cannot shield private parties from the federal antitrust laws by enacting a statute saying no more than that competing grocery stores may agree to fix prices; through the Supremacy Clause, the Sherman Act would preempt such a law.

This qualification is itself qualified. Under certain conditions, the states have been allowed to authorize or direct private conduct otherwise inconsistent with the Sherman Act. The main conditions are that the state do so as part of a deliberate policy to displace competition and that the state provide an alternative regime that provides "active supervision" of the conduct, Patrick v. Burget, 486 U.S. 94, 100 (1988); an example would be a specific authorization for joint ratemaking by intrastate carriers coupled with state agency authority to require that the resulting rates be just and reasonable. Southern Motor Carriers Rate Conference, Inc. v. United States, 471 U.S. 48 (1985); see I Areeda, supra, ¶ 226.

What state entities can adopt such a policy (state executives? local municipalities?), how clearly the policy must be articulated, and (above all) what kind of supervision will suffice are among the issues that have provoked endless litigation. See I Areeda, supra, ¶ 226. For example, supervision may be a proxy for competition, designed to protect consumers (e.g., utility regulation); but supervision is not clearly limited to cases of this character. See, e.g., Patrick, 486 U.S. at 100-01 (suggesting that state supervision reinforces requirement that anticompetitive behavior at issue be consistent with the state's deliberate policy).

But our facts do not require an examination of clear articulation, active supervision or other conditions for immunity. It is only where state legislation "would otherwise" be preempted by the Sherman Act that these further inquiries are required. Fisher v. City of Berkeley, California, 475 U.S. 260, 265 (1986). In this case, the state has not ordered or authorized private parties to engage in conduct that, absent immunity, would even arguably violate the antitrust laws; there is no private agreement or arrangement between retailers as to the number of retail outlets and therefore no violation to be shielded. The state simply insists upon licensing retail liquor stores--as it does for many businesses or professions--and limits the number of licenses to three per owner.

Despite disclaimers, the plaintiffs' case rests in the end on the implicit proposition that the Massachusetts statute is preempted because it produces an effect that could not be produced by agreement of private parties without violating the antitrust laws. Admittedly, private parties could not agree that each of them would operate only three such outlets. United States v. Topco Associates, Inc., 405 U.S. 596 (1972); Addamax Corp. v. Open Software Found., Inc., 152 F.3d 48, 51 (1st Cir. 1998).² This resemblance in effects is the gist of the plaintiffs' position, although it is narrowed by the suggestion that preemption may be confined to statutes that produce the same effect as a per se violation (rather than a non-per se one); and, of course, plaintiffs concede that even a per se violation would be all right if the requisite state policy and active supervision existed.

The difficulty with this "similar effects" argument is that much direct government regulation prohibiting one form of economic activity or requiring another involves directives that private parties could not themselves implement without violating the antitrust laws. For example, competing shoe stores could not agree on closing hours or holidays without committing per se violations of the antitrust laws; nor could competing taxi companies agree on the number of taxicabs to be operated; nor could cable companies agree that only one or two of them should serve a locality....