Tfws, Inc. v. Franchot

• Decision Date: 15 July 2009
• Docket Number: No. 07-2108.,07-2108.
• Citation: 572 F.3d 186
• Parties: TFWS, INCORPORATED, d/b/a Beltway Fine Wine and Spirits, Plaintiff-Appellee, v. Peter FRANCHOT, Comptroller of the State of Maryland; Thaddeus S. Russell, Director of the Motor Fuel, Alcohol and Tobacco Tax Regulatory Division, Defendants-Appellants, and William Donald Schaefer, in his Official Capacity as Comptroller of the Treasury of the State of Maryland; Larry W. Tollier, Director, Regulatory and Enforcement Division, Office of the Comptroller of the State of Maryland; Charles W. Ehart, in his Official Capacity as Administrator of the Alcohol and Tobacco Tax Unit of the Comptroller of the State of Maryland, Defendants. Licensed Beverage Distributors of Maryland, Incorporated; American Beverage Licensees; Maryland State Licensed Beverage Association; National Beer Wholesalers Association; Wine and Spirits Wholesalers of America, Incorporated, Amici Supporting Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

572 F.3d 186

TFWS, INCORPORATED, d/b/a Beltway Fine Wine and Spirits, Plaintiff-Appellee, v. Peter FRANCHOT, Comptroller of the State of Maryland; Thaddeus S. Russell, Director of the Motor Fuel, Alcohol and Tobacco Tax Regulatory Division, Defendants-Appellants, and William Donald Schaefer, in his Official Capacity as Comptroller of the Treasury of the State of Maryland; Larry W. Tollier, Director, Regulatory and Enforcement Division, Office of the Comptroller of the State of Maryland; Charles W. Ehart, in his Official Capacity as Administrator of the Alcohol and Tobacco Tax Unit of the Comptroller of the State of Maryland, Defendants Licensed Beverage Distributors of Maryland, Incorporated; American Beverage Licensees; Maryland State Licensed Beverage Association; National Beer Wholesalers Association; Wine and Spirits Wholesalers of America, Incorporated, Amici Supporting Appellants.

No. 07-2108.

United States Court of Appeals, Fourth Circuit.

Argued: May 13, 2009.

Decided: July 15, 2009.

ARGUED: William F. Brockman, Office of the Attorney General of Maryland, Baltimore, Maryland, for Appellants. William James Murphy, Murphy & Shaffer, LLC, Baltimore, Maryland, for Appellee. ON BRIEF: Douglas F. Gansler, Attorney General of Maryland, Steven M. Sullivan, Solicitor General, Office of the Attorney General of Maryland, Baltimore, Maryland, for Appellants. John J. Connolly, Murphy & Shaffer, LLC, Baltimore, Maryland, for Appellee. Howard Graff, Deborah A. Skakel, Dickstein Shapiro, LLP, New York, New York; Robert C. Douglas, Glen K. Allen, DLA Piper U.S. LLP, Baltimore, Maryland, for Licensed Beverage Distributors of Maryland, Incorporated, Amicus Supporting Appellants. Anthony S. Kogut, John A. Yeager, Willingham & Cote, P.C., East Lansing, Michigan, for American Beverage Licensees and Maryland State Licensed Beverage Association, Amici Supporting Appellants. Stephen M. Diamond, Coral Gables, Florida; Michael D. Madigan, Katherine E. Becker, Jon R. Steckler, Madigan, Dahl & Harlan, P.A., Minneapolis, Minnesota, for National Beer Wholesalers Association and Wine and Spirits Wholesalers of America, Incorporated, Amici Supporting Appellants.

Before DUNCAN, Circuit Judge, HAMILTON, Senior Circuit Judge, and MALCOLM J. HOWARD, Senior United States District Judge for the Eastern District of North Carolina, sitting by designation.

Affirmed by published opinion. Judge DUNCAN wrote the opinion, in which Senior Judge HAMILTON and Senior Judge HOWARD joined. Senior Judge HOWARD wrote a separate concurring opinion.

OPINION

DUNCAN, Circuit Judge:

This long-running antitrust suit is on appeal for the fourth time. Maryland now asks us to revisit and reverse our earlier holding that the state's liquor and wine (collectively, "liquor") regulatory scheme is a form of horizontal price fixing in per se violation of the Sherman Act. We decline to do so because the Supreme Court's intervening decision in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 127 S.Ct. 2705, 168 L.Ed.2d 623 (2007), on which Maryland primarily relies, concerned vertical, rather than horizontal, price fixing, and Maryland's other arguments are unavailing. Moreover, as to the only issue not controlled by the law of the case, we affirm the district court's holding that the state's regulatory scheme is preempted by the Sherman Act.

I.

In 1999, TFWS, Inc., a large liquor retailer in Maryland, sought declaratory and injunctive relief in federal district court alleging that the state's liquor and wine regulations violate, and are preempted by, Section 1 of the Sherman Act, 15 U.S.C. § 1. In particular, TFWS challenged Maryland's "post-and-hold" pricing system and its "volume discount ban." See Md Code Ann., Art. 2B, § 12-102 & 103. The post-and-hold pricing system prescribes how and when liquor wholesalers may change their prices. Specifically, wholesalers must post a schedule of prices with the Comptroller by a fixed date every month. That schedule is made available to other wholesalers and the prices are locked in for the following month. Under the volume discount ban, a wholesaler must offer every retailer the same price for a given product, thus preventing wholesalers from cutting prices to large retailers.

Maryland moved to dismiss the suit on two grounds: (1) the suit was barred by 11th Amendment state immunity and (2) Section 1 of the Sherman Act did not apply to a state official's enforcement of state law (so-called "state actor antitrust immunity"). On September 1, 1999, the district court issued its opinion. Responding to Maryland's motion, the court held that (1) the suit was not barred by the 11th Amendment and (2) Maryland did not enjoy state actor antitrust immunity. Responding to TFWS's complaint, the court held that Maryland's "post-and-hold" pricing system and its "volume discount ban" are hybrid restraints on trade¹ and per se violations² of the Sherman Act.

Nevertheless, the district court dismissed the suit on 21st Amendment grounds.³ The court held that, notwithstanding the anticompetitive effects of the challenged regulatory scheme, it was a valid exercise of Maryland's 21st Amendment powers⁴ and that the state's interest in promoting temperance trumped the federal interest in promoting competition under the Sherman Act. Consequently, the court concluded, the scheme was not preempted. TFWS appealed the district court's ruling on the 21st Amendment issue. Maryland cross-appealed on the other issues. A lengthy process of litigation ensued, which we summarize here as background to the current appeal.

In TFWS, Inc. v. Schaefer ("TFWS I"), 242 F.3d 198 (4th Cir.2001), in the portion of our holding relevant to the current appeal, we affirmed the district court's Sherman Act holding and vacated its dismissal of the action. We held that the "post-and-hold" pricing system and the "volume discount ban" (a) are part of a single regulatory scheme; (b) both constitute hybrid restraints on trade; and (c) both are per se violations of the Sherman Act. We reasoned that

[t]he post-and-hold system is a classic hybrid restraint: the State requires wholesalers to set prices and stick to them, but it does not review those privately set prices for reasonableness; the wholesalers are thus granted a significant degree of private regulatory power. The volume discount ban is a part of the hybrid restraint because it reinforces the post-and-hold system by making it even more inflexible.

TFWS I, 242 F.3d at 208-09. We further held that these hybrid restraints mandated activity that was "essentially a form of horizontal price fixing," id. at 209, making them per se violations of § 1 of the Sherman Act.⁵ See N.C.A.A. v. Bd. of Regents of the Univ. of Okla., 468 U.S. 85, 100, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984) (labeling horizontal price fixing "the paradigm of an unreasonable restraint of trade"); see also Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 649-50, 100 S.Ct. 1925, 64 L.Ed.2d 580 (1980) (per curiam).

In vacating the district court's ruling on the 21st Amendment issue, we remanded to the district court to give the parties the opportunity to argue the issue and develop the record. See TFWS I, 242 F.3d at 211-13. Subsequent district court decisions in 2002, 2004 and 2007⁶ as well as this court's decisions in 2003 and 2005⁷ dealt solely with the 21 st Amendment and related issues. Following our vacatur in TFWS I, Maryland moved the district court for summary judgment based on a 21st Amendment defense. The district court granted Maryland's motion, holding that Maryland's interests in promoting temperance under the 21 st Amendment prevailed over the federal interest under the Sherman Act.

On appeal from that decision, we again vacated the district court's grant of summary judgment, holding that there was a disputed question of fact as to whether (and to what extent) Maryland's regulations were effective in serving their claimed purpose of promoting temperance. TFWS, Inc. v. Schaefer ("TFWS II"), 325 F.3d 234, 242 (4th Cir.2003). Without determining the effectiveness of the regulatory scheme, the district court could not properly weigh the competing state and federal interests. See id. at 242-43.

On remand from TFWS II, the district court heard testimony and took evidence from the parties on the effect of the regulations on liquor price, and consequently on liquor consumption and temperance. The parties compared Maryland's liquor and wine prices with those in Delaware, where TFWS also had retail operations. The district court found that Maryland's regulatory scheme was ineffective in furthering the state's purported interest in temperance and that the balance weighed in favor of the federal interest in promoting competition. Consequently, the district court concluded that the statutes and associated regulations at issue were preempted by the Sherman Act. Maryland appealed.

Once again, we vacated the district court's ruling, finding that it was clearly erroneous because it failed to take into account (or explain why it was not necessary to take into account) the effect of excise taxes on the price of liquor and wine. TFWS, Inc. v. Schaefer ("TFWS III"), 147 Fed.Appx. 330, 334-36 (4th Cir. 2005) (unpublished). On remand from TFWS III, the district court took evidence on the effect of the excise tax on liquor prices (comparing Maryland and Delaware). The district court again found that Maryland's regulatory scheme was ineffective in furthering its purported interest in temperance and was therefore preempted by the Sherman Act.

In the matter now before us, Maryland timely appealed. Maryland primarily argues that we erred in holding in TFWS I that its scheme is a per se violation of the Sherman Act. Maryland further contends that the district court erred in finding that its regulatory scheme is ineffective and preempted by the Sherman Act. We examine these issues in turn.

II.

Maryland argues that we should reverse our 2...