US Brewers Ass'n v. Healy

• Decision Date: 11 September 1987
• Docket Number: No. Civ. H-84-816 (PCD).,Civ. H-84-816 (PCD).
• Citation: 669 F. Supp. 543
• Parties: UNITED STATES BREWERS ASSOCIATION, et al. v. John T. HEALY, et al.
• Court: U.S. District Court — District of Connecticut

669 F. Supp. 543

UNITED STATES BREWERS ASSOCIATION, et al. v. John T. HEALY, et al.

No. Civ. H-84-816 (PCD).

United States District Court, D. Connecticut.

September 11, 1987.

J. Charles Mokriski, Day, Berry & Howard, Hartford, Conn., Jeffrey Glekel, Skadden, Arps, Slate, Meagher & Flom, New York City, William H. Allen, Covington & Burling, Gary Nateman, U.S. Brewers Ass'n, Inc., Washington, D.C., for plaintiffs.

Richard M. Sheridan, Robert F. Vacchelli, Asst. Attys. Gen., Newington, Conn., for defendant Commissioners and Secretary.

Alfred F. Wechsler, William A. Wechsler, Kevin D. O'Leary, Hartford, Conn., for Wine and Spirits Wholesalers.

RULING ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

DORSEY, District Judge.

Plaintiffs are the United States Brewers Association ("USBA")—an industry association of thirty-nine domestic brewers and twenty-three importers of beer—and those of its member companies who sell beer in Connecticut and in the bordering states of Massachusetts, New York and Rhode Island.

Defendants are the Commissioners and Secretary of the Connecticut Department of Liquor Control.

Intervening defendant Wine & Spirits Wholesalers of Connecticut is a trade association of seven companies which sell alcoholic beverages, including beer, at wholesale within Connecticut.

Plaintiffs' complaint seeks a declaratory judgment that the beer price affirmation provisions of Conn.Pub.Act 84-332,¹ 84-432² and § 30-63a(b) of the Connecticut Liquor Control Act³ violate the commerce clause⁴ and the supremacy clause⁵ of the United States Constitution. Plaintiffs also seek a permanent injunction to restrain defendants from enforcing these statutes.

Currently pending are cross-motions for summary judgment, which have been exhaustively and intelligently briefed and rebriefed by the USBA, the intervening defendants and the State Attorney General's Office. For the reasons that follow, USBA's motion is denied, and the motion of defendants and intervening defendants is granted.

I. Background

A. The Beer Industry⁶

The beer industry in Connecticut is divided into three marketing levels: (1) brewers and importers; (2) wholesalers; and (3) retailers. Each market participant must hold a valid Connecticut license to sell, in Connecticut, alcoholic beverages to the tier below and, ultimately, to consumers.

The brewers and importers market national brands such as Budweiser or Miller High Life, and regional or local brands such as Genesee Cream Ale or Piels. There are no breweries in Connecticut. All beer—national or regional—is shipped into Connecticut by brewers and importers designated as "out-of-state shippers" under Connecticut law.

Plaintiffs contend that prices charged and package configurations offered to wholesalers in Connecticut and the bordering states vary in the several markets within the four state area. (Market areas do not always coincide with state borders.) In certain markets, regional brewers or importers price their beers to allow sales to consumers at the lowest prices possible in those markets. Other brewers or importers competing in these areas must consider this competitive pricing in pricing their own product. It is agreed by all parties that the New York City market is the most competitive and prices there are the lowest in the four-state region. Other factors which have an impact on pricing and marketing decisions, such as consumer tastes, packaging, costs and freight, vary from area to area even within these states. Thus, according to plaintiffs, a variable pricing and marketing structure has emerged in Connecticut and the bordering states which results in substantial interstate competition in retail beer sales.

In Connecticut, typically more than one wholesaler sells an out-of-state shipper's products. Each wholesaler generally handles products of more than one out-of-state shipper but is restricted by law from selling to retailers outside its assigned geographical territory.

The primary retail outlets for off-premise consumption of beer in Connecticut are package and grocery stores. Retailers, particularly near the borders, face substantial competition from retail beer outlets in the bordering states. Although prices charged to Connecticut wholesalers are neither the highest nor the lowest in the four-state region, retail prices historically have been higher in Connecticut. Accordingly, many Connecticut residents have purchased beer at lower retail prices in New York, Massachusetts or Rhode Island.

B. Price Affirmation

In 1981, Connecticut amended its Liquor Control Act by adding beer price affirmation provisions. The Act required out-of-state shippers to post, each month, the bottle, can and case price for the brands of beer each sells in Connecticut. The amendment required shippers to execute written affirmations under oath certifying that the posted prices "will be no higher than the lowest price at which each such item of beer is or will be sold ... to any wholesaler in any state bordering this state, at any time during the calendar month covered by such posting." Liquor Control Act § 30-63b(b), as originally amended by Section 12 of Conn.Pub.Act 81-294 (emphasis added). No brewer or importer could sell beer to a wholesaler in Connecticut at a price higher than the lowest price then charged any wholesaler in any state bordering Connecticut. Liquor Control Act § 30-63a(b), as originally amended by Section 11 of Conn. Pub.Act 81-294. Once posted, the affirmed price became the controlling or fixed price for the ensuing month for the out-of-state shipper's products in Connecticut. Rebates, discounts, special promotions and other inducements which lowered the price of beer in the border states required the price to be lowered in Connecticut, but differentials in price were permitted for different state taxes and delivery costs. No allowance was made for different package configurations (e.g., a case of six-packs versus a case of loose cans or bottles), yet for any brand a brewer offered for sale in Connecticut, it had to offer Connecticut wholesalers all the units of that brand offered to wholesalers in the border states.

Thus brewers and importers in the four-state area had the following alternatives: (1) lower their Connecticut prices to equal the lowest price in any bordering state; (2) raise prices in border states to the Connecticut levels; (3) withdraw from Connecticut the brands of beer sold at lower prices in the border states; or (4) withdraw from the border states the brands of beer sold at lower prices than the Connecticut price.

The 1981 amendments were upheld by the district court, United States Brewers Ass'n v. Healy, 532 F.Supp. 1312 (D.Conn. 1982), but declared unconstitutional by the Second Circuit, United States Brewers Ass'n v. Healy, 692 F.2d 275 (2d Cir.1982) (hereinafter "Healy I"), aff'd without opinion, 464 U.S. 909, 104 S.Ct. 265, 78 L.Ed.2d 248 (1983). The Court of Appeals held that the price affirmation provisions impermissibly burdened interstate commerce and that the twenty-first amendment⁷ did not authorize Connecticut to set minimum prices of beer in any other state.

Thereafter, Connecticut enacted the different version of beer price affirmation set out in notes 1-2, supra. Instead of requiring out-of-state brewers and importers to certify that their prices "will be" no lower in any of the border states during the month following the posting of prices in Connecticut, the new statute requires only that at the moment of affirmation the prices charged to Connecticut wholesalers are no higher than the lowest price then being charged in any border state.

C. The Present Controversy

In their complaint, plaintiffs originally alleged that:

the interaction of the posting and affirmation provisions of Pub.Act 84-332 with Section 30-63a(b) of the Liquor Control Act not only limits the price at which out-of-state shippers may sell to Connecticut wholesalers, but also sets the lowest price which an out-of-state shipper may charge anywhere in the Border States during the succeeding month. Thus, as under the original price affirmation scheme, an out-of-state shipper is not free to lower any Border State price below the previously affirmed Connecticut price.

Complaint at 14. They argue that the new provisions violate the supremacy clause by requiring out-of-state shippers to establish and maintain minimum prices for each item of beer in the four-state area and by precluding them from dealing with any of their customers except on the same or more favorable terms as they dealt with other of their customers, viz, Connecticut was forcing them to engage in conduct prohibited by federal antitrust laws.

Defendants conceded that, "standing alone," Conn.Gen.Stat. § 30-63a(b), which was not amended following Healy I, appeared to prohibit the lowering of out-of-state prices of products sold in Connecticut during the entire month following the posting of Connecticut prices for that product. Defendants' Brief on Motion for Summary Judgment at 8. However, defendants contend that such an interpretation flies in the face of Conn.Pub.Act 84-332 which explicitly recognizes the right of out-of-state shippers to raise or lower their prices outside Connecticut at any time during the month following posting. In further support of their position, defendants filed a declaration and ruling by the Connecticut Liquor Control Commission.⁸ The ruling made clear that, whatever the import of § 30-63a(b), out-of-state shippers need only affirm that at the time of posting in Connecticut (and only at the time of posting), their prices to Connecticut wholesalers are no higher than in the border states.⁹

After the Commission's ruling,¹⁰ plaintiffs withdrew their claim based on the supremacy clause and conceded that the affirmation laws, as interpreted by the Commission, would not directly control prices in the border states. Plaintiffs' Memorandum in Support of Their Cross-Motion for Partial Summary...