The Second Circuit Court of Appeals recently upheld a decision by the lower court dismissing Total Wine’s challenge that three of Connecticut’s price-posting provisions violate federal antitrust law. At issue were three regulations under Connecticut law that bear on the price at which alcoholic beverages may be lawfully sold. The three provisions were: (1) Connecticut’s “post-and-hold” provision; (2) Connecticut’s minimum retail pricing provisions; and (3) Connecticut’s provision prohibiting price discrimination and volume discounts.
Total Wine argued the Sherman Act preempted Connecticut’s regulatory scheme because it eliminated incentives for alcoholic beverage wholesalers to compete on the basis of price and invited wholesalers to maintain prices substantially above what fair and ordinary market forces would dictate. Total argued that this inhibited meaningful price competition at the retail level.
Connecticut’s “post-and hold” provisions require wholesalers to post a bottle price and a case price every month for each alcoholic product it intends to sell. Once the posted prices are made available to the industry, wholesalers have four days to match competitors’ lower prices. Wholesalers must then hold those final prices for the remainder of the month. Importantly, Connecticut’s price posting requirements are nearly identical to New York.
Under Connecticut’s minimum retail pricing provisions, retailers are required to sell customers at or above a statutorily defined cost. Cost, however, is determined by adding the wholesaler’s posted bottle price, plus a markup for shipping and delivery.
The last provision challenged by Total Wine was Connecticut’s law prohibiting price discrimination and volume discounts. Essentially, this provision bars wholesalers from offering discounts to retailers, like Total Wine, who buy a high-volume of product.
The Second Circuit upheld all three provisions, finding that they did not violate the Sherman Act. In upholding the post-and-hold provision, the Second Circuit relied heavily on Battipaglia v. New York State Liquor Authority (1984) which was a case where the court upheld New York’s price-posting provision that was nearly identical to the Connecticut statute at issue. The New York law in Battipaglia contained post-and-hold provisions that obliged wholesalers to file monthly price schedules with the state liquor authority by the fifth day of the preceding months, and authorized wholesalers to amend their filed schedules to meet lower competing prices and discounts “provided such amended prices and discounts are not lower and discounts are not greater than those to be met.”
The Second Circuit Court of Appeals covers the Eastern, Northern, Southern and Western Districts of New York. So all relevant courts are bound by this decision unless it is overturned by the Supreme Court of the United States. Therefore, many see this case not only as a victory for Connecticut but New York as well. For New York, the victory was twofold. First, if the Second Circuit overturn Connecticut’s price posting law, a changed to New York’s similar statute would be imminent and thus threaten the laws aim to create a more level paying field within the industry. Second, while many states have primary source laws which protect the consumer from counterfeit products or products that have been tampered with, New York’s primary source laws are imbedded in its price posting laws. As a consequence, there was a genuine fear that if the price posting laws were struck down the primary source laws would go as well.
Total Wine is one of the largest retail chains in the country and continues to challenge the nation’s alcohol laws. Lawsuits brought by Total Wine were the basis for overturning a restriction on the number of liquor store licenses issued to a single person or entity in South Carolina as well as overturning a ban on volume discounts in Maryland. Most notably, Total’s challenge to a Tennessee residency requirement in Tennessee Wine & Spirits Retailers Association v. Zackary Blair, made its way to the Supreme Court and the parties now wait (along with the entire industry) for the Court’s decision this spring. Arguments in this case went well beyond the Tennessee residency requirement encompassing the existential question: how powerful is the 21st Amendment? Thus, while many in the industry can breathe a sigh of relief today, as the Second Circuit protects foundational elements of beverage alcohol law, we are reminded that regulatory shakeups continue may be just around the corner.