Schnapps Shop, Inc. v. HW Wright & Co., Ltd.

• Decision Date: 28 December 1973
• Docket Number: Civ. No. 20686-K,70-223-K.
• Citation: 377 F. Supp. 570
• Parties: SCHNAPPS SHOP, INC. v. H. W. WRIGHT & CO., LTD. SCHNAPPS SHOP, INC. v. UNIVERSAL LIQUORS, INCORPORATED.
• Court: U.S. District Court — District of Maryland

377 F. Supp. 570

SCHNAPPS SHOP, INC. v. H. W. WRIGHT & CO., LTD.

SCHNAPPS SHOP, INC. v. UNIVERSAL LIQUORS, INCORPORATED.

Civ. Nos. 20686-K, 70-223-K.

United States District Court, D. Maryland.

December 28, 1973.

COPYRIGHT MATERIAL OMITTED

Clarence W. Sharp and Gilbert Rosenthal, Baltimore, Md., for plaintiff.

Michael J. Schwarz, Baltimore, for defendant Universal Liquors, Inc.

Norman R. Lilly and Merrill & Lilly, P. A., Annapolis, Md., for defendant H. W. Wright & Co. Ltd.

FRANK A. KAUFMAN, District Judge.

In these two cases¹ the Schnapps Shop, Inc. (Schnapps), a Maryland corporation engaged in the retail liquor business, has instituted private antitrust actions against H. W. Wright & Co., Ltd. (Wright) and Universal Liquors, Inc. (Universal), also Maryland corporations, both wholesale distributors of alcoholic beverages to Maryland retail liquor outlets. Schnapps, seeking relief under Sherman § 1² and Clayton § 4,³ claims each defendant separately conspired with other Maryland retailers, or alternatively with plaintiff, to fix retail liquor prices; and that when Schnapps refused to abide by defendants' respective price policies, Wright and Universal thereafter refused to deal with Schnapps.⁴ Under the facts in each of these two cases Schnapps is entitled to recover if the defendant entered into a conspiracy with regard to prices and thereafter pursuant to that conspiracy refused to deal with Schnapps.

Jurisdiction

At the outset both defendants contest this Court's jurisdiction, contending that the alleged violations by defendants of the federal antitrust laws did not constitute restraint of interstate commerce. At the time Schnapps opened its retail outlet on May 27, 1967, Schnapps was one of at least 4000 Maryland liquor retailers. From May, 1967 to November, 1969, Schnapps purchased $25,152.67 of alcoholic beverages from Universal. Between May 22, 1967 and October, 1968, Schnapps purchased $21,721.43 of alcohol from Wright. In 1969 Universal sold 168,943.04 gallons of alcohol, of which 714 were sold to Schnapps. Wright sold 1,077.89 gallons to Schnapps between May, 1967 and October, 1968.

Universal is the sole Maryland distributor for Publicker Industries, Dennis and Huppert and Double Springs Distillery, and handles some 100 brands of whiskeys and wines, including Charter Oak, Inver House, Howar's, Philadelphia, Embassy Club and Haller's. In 1969 Universal's sales represented 2.21% of all liquor sold by Maryland distributors. Wright is the sole Maryland distributor for Hiram Walker, W. A. Taylor, Widmer Wines and some brands of Paterno Imports, including, among others, Canadian Club, Walker's Canadian, Imperial, John Jameson, Meadowbrook, Thorne's, Old Smuggler, Sandeman, Walker's Deluxe, Ten High, Private Cellar, Hiram Walker's Vodka, House of Lords Gin, Booth's Gin, Maraca Rum, Courvoisier, Drambuie, Tia Maria, and Cherry Heering. In 1969 Wright's share of the Maryland market amounted to approximately 8.09%. Both defendants purchase all of the spirits they wholesale to Maryland retailers from distillers and producers located outside Maryland, and sell them within Maryland. Schnapps is but one small liquor retailer among many. Thus, any refusal of either defendant to deal with plaintiff affected only a negligible portion of the total liquor moving into Maryland and affected only a small portion of the liquor being handled by defendants. Further, plaintiff's purchases of Charter Oak—the brand giving rise to Universal's alleged refusal to deal—amounted to less than one percent of all Charter Oak Bourbon marketed in Maryland that year. But even so, there is in these cases no lack of sufficient effect upon interstate commerce.

In assessing that effect, it must first be determined whether the activities complained of were either "in commerce" or "intrastate but substantially affected interstate commerce". Las Vegas Merchant Plumbers Ass'n v. United States, 210 F.2d 732, 739 n.3 (9th Cir.), cert. denied, 348 U.S. 817, 75 S.Ct. 29, 99 L.Ed. 645 (1954). If the activities fell within either class, then a qualitative test—whether the activities are of the kind restricting interstate commerce—is applicable. The amount of interstate commerce so affected need not be shown. United States v. Yellow Cab Co., 332 U.S. 218, 225-226, 67 S.Ct. 1560, 91 L.Ed. 2010 (1946); Las Vegas Merchant Plumbers Ass'n v. United States, supra.

In Burke v. Ford, 389 U.S. 320, 88 S. Ct. 443, 19 L.Ed.2d 554 (1967), the Court, faced with market factors substantially similar to those present in this case, held that even if defendants were in intrastate commerce, their activities affected interstate commerce. Wright's and Universal's wholesaling activities are within the flow of interstate commerce, even though interstate movement terminates when defendants have purchased the products they distribute. Since defendants are exclusive Maryland distributors for the products they handle, they are each essential conduits for the flow of those goods from outside of Maryland to the Maryland retail market. Further, even if defendants' sales are deemed wholly local, nevertheless they affect interstate commerce since the exclusive distribution feature means that each and every local sale which defendants do not make to a retailer such as Schnapps reduces—on a one-to-one basis—the volume moving into Maryland.

In Burke v. Ford, the Court rejected the lower court's holding that proof of market division was not—in and of itself—enough to show commerce affected. The within cases involve price-fixing rather than market division, but price-fixing is of course also an activity of the kind that restrains interstate commerce. United States v. General Motors, 384 U.S. 127, 146-148, 86 S.Ct. 1321, 16 L.Ed.2d 415 (1966); United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 221, 60 S.Ct. 811, 84 L.Ed. 1129 (1940).⁵

Reliability and Credibility

The evidence in both of these cases is conflicting and rife with problems of credibility and reliability. In both cases, the testimony of Douglas, the chief executive and owner of Schnapps, must be judged in the light of his assertions throughout discovery of the unavailability of various documents, followed by subsequent appearances of individual documents, and also in the light of his changes or elaborations of earlier factual statements, both during pre-trial and trial. The testimony of certain of the other witnesses, such as the wife of Douglas and the two top officials of Wright and Universal who testified, that is, Wareheim and Feldman, also raises substantial problems of credibility and reliability. It is in that context that the presence or absence of conspiracy and refusal to deal must be factually determined.

Conspiracy

A. Wright

Wright published in the Maryland Beverage Journal monthly suggested resale prices for all of its alcoholic beverages marketed to Maryland retailers. Wright discouraged retailers from advertising any products handled by Wright below those recommended prices, throughout the period at issue until the middle of 1970. Whenever a retailer advertised a Wright product below the suggested price, between three and ten competing retailers complained to Wright. Someone from Wright then called or visited the retailer to try to dissuade him from continuing such advertisements.⁶ Wareheim, defendant's executive vice-president, testified that on those occasions Wright only requested adherence to its policy, that it never threatened, coerced, or mentioned any possibility of ceasing dealings, and that Wright's efforts to persuade probably included mention of the willingness of other retailers to honor Wright's policy.

Those tactics of Wright have apparently been successful. Of the approximately four thousand retailers serviced by Wright, only five or ten advertised below suggested resale prices in 1968. Visits to the few dissidents were more often fruitful than not; Wareheim estimates that a majority—somewhere between fifty-one and seventy-five percent —of the offending retailers agreed to abide by Wright's advertising policy.

B. Universal

Although Douglas testified to the contrary, Universal published suggested retail prices in the Maryland Beverage Journal. For the purpose of determining what he called "the cut-raters", Feldman, Universal's sales manager, regularly checked liquor advertisements in the Baltimore newspapers for advertised retail prices of Universal's products. In addition, whenever Feldman visited a retail outlet, he looked at the various prices posted within the store. He denied, however, ever receiving any phone call from any retailer complaining of advertising by competitors below suggested resale prices. Feldman and another Universal official who testified at trial also denied ever calling any retailer other than Schnapps—on their own or at the instigation of any other customers —to complain of an advertised price. Plaintiff offered no testimony that Universal's policy was other than as Universal's officials stated. Nor was there any testimony that any of Universal's products were advertised below cost by any retailer other than Schnapps. Further, there was no evidence that retailers with whom Universal dealt generally maintained a uniform price advertising policy and that if there were violations, other retail customers contacted Universal and Universal then contacted the violators. Thus, there are substantial differences between the testimony in the Wright case and in the Universal case.

With respect to Schnapps itself, Feldman of Universal stated he once saw a Schnapps advertisement for "4 yr. old Bourbon, $1.99", which Feldman believes was Haller's Deluxe, a brand handled by Universal, but that he (Feldman) did nothing since it was a "blind" ad. Douglas of Schnapps testified that Schnapps had once advertised Inver House Scotch, handled by Wright, below suggested resale price, and as a result received a call from Feldman requesting that Schnapps stop the...