Connecticut Fine Wine and Spirits LLC v. Seagull ( 2019 )

17-2003
Connecticut Fine Wine and Spirits LLC v. Seagull
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2017
(Argued: February 1, 2018 Decided: February 20, 2019)
Docket No. 17-2003-cv
CONNECTICUT FINE WINE AND SPIRITS, LLC, d/b/a, TOTAL WINE & MORE,
Plaintiff-Appellant,
— v. —
COMMISSIONER MICHELLE H. SEAGULL, DEPARTMENT OF CONSUMER
PROTECTION, JOHN SUCHY, DIRECTOR, DIVISION OF LIQUOR CONTROL,
Defendants-Appellees,
WINE & SPIRITS WHOLESALERS OF CONNECTICUT, INC., CONNECTICUT
BEER WHOLESALERS ASSOCIATION, INC., CONNECTICUT RESTAURANT
ASSOCIATION, CONNECTICUT PACKAGE STORES ASSOCIATION, INC.,
BRESCOME BARTON, INC.,
Intervenors-Defendants-
Appellees.*
*
The Clerk of Court is respectfully directed to amend the official caption in this
case as set forth above.
1
B e f o r e:
POOLER, SACK, Circuit Judges, and ENGELMAYER,** District Judge.
Connecticut Fine Wine and Spirits, d/b/a Total Wine & More (“Total
Wine”), challenged certain provisions of Connecticut’s Liquor Control Act and
related regulations. Total Wine alleged that these provisions were preempted by
the Sherman Act, 15 U.S.C. § 1. The United States District Court for the District
of Connecticut, Janet Hall, J., granted the defendants’ motion to dismiss the
complaint, holding, inter alia, that the post-and-hold provisions and the
minimum-retail-price provisions of the Connecticut Liquor Control Act were
hybrid restraints on trade, but that Total Wine failed to plead facts that plausibly
support the conclusion that those provisions constitute per se violations of, and
therefore were preempted by, the Sherman Act. The District Court also held that
Total Wine did not plausibly allege that the price discrimination provision was a
hybrid restraint on trade; therefore, that provision imposes a unilateral restraint
**
Judge Paul A. Engelmayer, of the United States District Court for the Southern
District of New York, sitting by designation.
2
on trade that falls outside the scope of the Sherman Act. We agree with the
District Court that the post-and-hold, minimum-retail-price, and price-
discrimination provisions are not preempted by the Sherman Act. We therefore
AFFIRM.
WILLIAM J. MURPHY (John J. Connolly, Adam B. Abelson, on the brief)
Zuckerman Spaeder LLP, Baltimore, Maryland; James T. Shearin,
Edward B. Lefebvre, Pullman & Comley, LLC, New York, New
York, for Plaintiff-Appellant Connecticut Fine Wine & Spirits,
LLC.
GARY M. BECKER, ASSISTANT ATTORNEY GENERAL (Robert Deichert,
Assistant Attorney General, on the brief), George Jepsen, Attorney
General for the State of Connecticut for Defendants-Appellees
Michelle H. Seagull, Commissioner, Department of Consumer
Protection; John Suchy, Director, Division of Labor, Hartford,
Connecticut.
DEBORAH SKAKEL (Craig M. Flanders, on the brief) Blank Rome LLP,
New York, New York; David S. Hardy, Damian K.
Gunningsmith, Carmody Torrance Sandak & Hennessey LLP,
New Haven, Connecticut; Robert M. Langer, Benjamin H.
Diessel, Wiggin and Dana LLP, Hartford, Connecticut; Meredith
G. Diette, Siegel, O’Connor, O’Donnell & Beck P.C., Hartford,
Connecticut; Patrick A. Klingman, Klingman Law, LLC,
Hartford, Connecticut, for Intervenors-Defendants-Appellees
Wine & Spirits Wholesalers of Connecticut, Inc.; Connecticut
Beer Wholesalers Association, Inc.; Connecticut Restaurant
Association, Connecticut Package Stores Association, Inc.
3
Jeffrey J. Mirman, John F. Droney, Hinckley, Allen & Snyder, LLP,
Hartford, Connecticut, for Intervenor-Defendant-Appellee
Brescome Barton, Inc.
PAUL A. ENGELMAYER, District Judge:
Connecticut Fine Wine and Spirits, d/b/a Total Wine & More (“Total
Wine”) appeals from a judgment of the United States District Court for the
District of Connecticut (Janet C. Hall, District Judge) dismissing its complaint
against the Connecticut Department of Consumer Protection (“DCP”) and the
Director of the Connecticut Division of Liquor Control (“DLC”). Total Wine
claimed that certain statutory and regulatory provisions that govern the
distribution and sale of alcoholic beverages in Connecticut, and which often
result in common retail-level pricing across the state for particular such
beverages, are preempted by federal antitrust law. For the reasons that follow,
we hold that these laws are not preempted. We therefore affirm.
BACKGROUND
A. Connecticut’s Laws Regarding Alcohol Distribution and Sale
Like many other states, Connecticut heavily regulates the distribution and
sale of alcoholic beverages within its borders. The state’s Liquor Control Act
4
prohibits the sale of alcoholic beverages in a manner that fails to comply with
that statute. See Conn. Gen. Stat. § 30-74(a).
At issue here are three sets of provisions under Connecticut statutes and
regulations that bear on the price at which alcoholic beverages may lawfully be
sold: “post-and-hold” provisions; minimum retail pricing provisions; and
provisions prohibiting price discrimination and volume discounts.1 These, in
tandem, establish the method by which alcoholic beverage prices are set by the
manufacturer, the wholesaler, and the retailer.
The three sets of provisions at issue are as follows:
Post-and-hold provisions: Connecticut’s “post and hold” provisions
require state-licensed manufacturers, wholesalers, and “out-of-state permittees”
(together, “wholesalers”) to post a “bottle price” and a “case price” each month
with the DCP for each alcoholic product that the wholesaler intends to sell
during the following month. (For beer, the wholesaler must post a “can price.”)
1
Total Wine challenges the following provisions: (1) section 30-63 of the
Connecticut General Statutes and section 30-6-B12 of the Regulations of
Connecticut State Agencies (referred to here as the “post-and-hold” provisions);
(2) sections 30-68m(a)(1) and 30-68m(b) of the Connecticut General Statutes (the
“minimum retail price” provisions); and (3) sections 30-63(b), 30-68(k), and 30-
94(b) of the Connecticut General Statutes and section 30-6-A29(a) of the
Regulation of Connecticut State Agencies (the “price discrimination prohibition”
provisions). In the ensuing discussion, the Court reproduces the central
provisions.
5
Posted prices are then made available to industry participants. During the four
days after the posting of the prices, wholesalers may “amend” their posted prices
to “match” competitors’ lower prices—specifically, “to meet a lower price posted
by another wholesaler with respect to alcoholic liquor bearing the same brand or
trade name.” Those amended prices, however, may not be “lower than those
[prices] being met.” Wholesalers are obligated to “hold” their prices at the
posted price (amended or not) for a month. These post-and-hold
provisions—variations of which are found in many states—are the heart of the
Connecticut regulatory regime that Total Wine challenges.2
2
Section 30-63(c) of the Connecticut General Statutes provides:
For alcoholic liquor other than beer, each manufacturer, wholesaler and
out-of-state shipper permittee shall post with the department, on a
monthly basis, the bottle, can and case price of any brand of goods
offered for sale in Connecticut, which price when so posted shall be the
controlling price for such manufacturer, wholesaler or out-of-state
permittee for the month following such posting. On and after July 1,
2005, for beer, each manufacturer, wholesaler and out-of-state shipper
permittee shall post with the department, on a monthly basis, the
bottle, can and case price, and the price per keg or barrel or fractional
unit thereof for any brand of goods offered for sale in Connecticut
which price when so posted shall be the controlling price for such
brand of goods offered for sale in this state for the month following
such posting. Such manufacturer, wholesaler and out-of-state shipper
permittee may also post additional prices for such bottle, can, case, keg
or barrel or fractional unit thereof for a specified portion of the
following month which prices when so posted shall be the controlling
prices for such bottle, can, case, keg or barrel or fractional unit thereof
6
Minimum-retail-price provisions: Connecticut’s minimum-retail-price
provisions require that retailers sell to customers at or above a statutorily defined
“[c]ost.” “Cost,” however, is not defined as the retailer’s actual cost. Instead,
generally, a retailer’s “[c]ost” for a given alcoholic beverage, is determined by
adding the posted bottle price—as set by the wholesaler—and a markup for
for such specified portion of the following month. Notice of all
manufacturer, wholesaler and out-of-state shipper permittee prices
shall be given to permittee purchasers by direct mail, Internet web site
or advertising in a trade publication having circulation among the retail
permittees except a wholesaler permittee may give such notice by hand
delivery. Price postings with the department setting forth wholesale
prices to retailers shall be available for inspection during regular
business hours at the offices of the department by manufacturers and
wholesalers until three o'clock p.m. of the first business day after the
last day for posting prices. A manufacturer or wholesaler may amend
such manufacturer's or wholesaler's posted price for any month to meet
a lower price posted by another manufacturer or wholesaler with
respect to alcoholic liquor bearing the same brand or trade name and
of like age, vintage, quality and unit container size; provided that any
such amended price posting shall be filed before three o'clock p.m. of
the fourth business day after the last day for posting prices; and
provided further such amended posting shall not set forth prices lower
than those being met. Any manufacturer or wholesaler posting an
amended price shall, at the time of posting, identify in writing the
specific posting being met. On and after July 1, 2005, all wholesaler
postings, other than for beer, for the following month shall be provided
to retail permittees not later than the twenty-seventh day of the month
prior to such posting. All wholesaler postings for beer shall be
provided to retail permittees not later than the twentieth day of the
month prior to such posting.
7
shipping and delivery. The post-and-hold provision, because it supplies the
central component of the “[c]ost” at which the retailer may sell its product, thus
largely dictates the price at which Connecticut retailers must sell their alcoholic
products.3
3
Section 30-68m of the Connecticut General Statutes provides, in pertinent part:
(a) For the purposes of this section:
(1) “Cost” for a retail permittee means (A) for alcoholic liquor other
than beer, the posted bottle price from the wholesaler plus any charge
for shipping or delivery to the retail permittee's place of business paid
by the retail permittee in addition to the posted price, and (B) for beer,
the lowest posted price during the month in which the retail permittee
is selling plus any charge for shipping or delivery to the retail
permittee’s place of business paid by the retail permittee in addition to
the price originally paid by the retail permittee;
(b) No retail permittee shall sell alcoholic liquor at a price below his or
her cost.
Relatedly, Section 30-68m(a)(C) defines “bottle price” as:
[the] price per unit of the contents of any case of alcoholic liquor, other
than beer [which] shall be arrived at by dividing the case price by the
number of units or bottles making up such case price and adding to the
quotient an amount that is not less than the following: A unit or bottle
one-half pint or two hundred milliliters or less, two cents; a unit or
bottle more than one-half pint or two hundred milliliters but not more
than one pint or five hundred milliliters, four cents; and a unit or bottle
greater than one pint or five hundred milliliters, eight cents.
8
Plaintiffs allege that wholesalers will occasionally lower their posted case
prices for a given month, without lowering posted bottle prices, during what are
called “off-post” months. Although retailers buy almost exclusively by the case,
their prices remain fixed by the minimum-retail-price provisions, which are
keyed to bottle prices.
Price discrimination/volume discounts: Finally, Connecticut bans volume
discounts and other forms of price discrimination. Wholesalers must sell a given
product to all retailers at the same price. Wholesalers may not offer discounts to
retailers who are high-volume purchasers.4
4
Section 30-68k of the Connecticut General Statutes provides:
No holder of any wholesaler's permit shall ship, transport or deliver
within this state or any territory therein or sell or offer for sale, to a
purchaser holding a permit for the sale of alcoholic liquor for on or off
premises consumption, any brand of alcoholic liquor, including
cordials, as defined in section 30-1, at a bottle, can or case price higher
than the lowest price at which such item is then being sold or offered
for sale or shipped, transported or delivered by such wholesaler to any
other such purchaser to which the wholesaler sells, offers for sale,
ships, transports or delivers that brand of alcoholic liquor within this
state.
Similarly, Section 30-63(b) of the Connecticut General Statutes provides:
No manufacturer, wholesaler or out-of-state shipper permittee shall
discriminate in any manner in price discounts between one permittee
and another on sales or purchases of alcoholic liquors bearing the same
brand or trade name and of like age, size and quality, nor shall such
9
While multiple policy interests have been asserted in support of these
provisions, they (particularly the post-and-hold and minimum-retail-price
provisions) commonly have been justified as means of guarding against
escalating price wars among alcohol retailers that may lead to excessive
consumption. See Slimp v. Dep’t of Liquor Control, 687 A.2d 123, 129 (Conn. 1996)
(noting “legislature’s concern that artificial inducements to purchase liquor will
result in increased consumption”); Eder Bros. v. Wine Merchants of Conn., Inc., 800
A.2d 138, 147 (Conn. 2005) (noting that “price wars among retail dealers” for
liquor “may induce persons to purchase, and therefore consume, more liquor
than they would if higher prices were maintained”); Eder Bros., 800 A.2d at
147–48 (noting that “the cutthroat competition” characteristic of price wars “is
apt to induce the retailers to commit such infractions of the law as selling to
minors and keeping open after hours in order to withstand the economic
pressure”). These provisions (particularly the price-discrimination provision)
have also been justified as guarding against favoritism within the liquor industry
manufacturer, wholesaler or out-of-state shipper permittee allow in any
form any discount, rebate, free goods, allowance or other inducement
for the purpose of making sales or purchases. Nothing in this
subsection shall be construed to prohibit beer manufacturers, beer
wholesalers or beer out-of-state shipper permittees from differentiating
in the manner in which their products are packaged on the basis of on-
site or off-site consumption.
10
and protecting smaller retailers. See Slimp, 687 A.2d at 129. Unsurprisingly,
countervailing arguments have also been made, including ones noting the anti-
competitive nature of these price restraints.
B. Total Wine’s Complaint
Total Wine is the largest retailer of wine and spirits in the United States.
Headquartered in Bethesda, Maryland, Total Wine, with its affiliates, owns and
operates wine and liquor stores in 21 states.
In December 2012, Total Wine opened a retail beverage store in Norwalk,
Connecticut, its first such store in the state. Since then, Total Wine has opened
additional stores, in Milford, Manchester, and West Hartford, Connecticut.
On August 23, 2016, Total Wine filed suit against Jonathan Harris, the
Commissioner of the DCP, and John Suchy, Director of the DLC, in their official
capacities.5 Seeking injunctive and declaratory relief, it brought a facial challenge
to the three sets of statutory and regulatory provisions reviewed above
governing the distribution and sale of alcoholic beverages in Connecticut: (1) the
post-and-hold provisions, (2) the minimum-retail-price provisions, and (3) the
price-discrimination and volume-discount-prohibition provisions. Total Wine
5
Michelle H. Seagull replaced Jonathan Harris as Commissioner of the DCP on May 1,
2017.
11
alleged that these provisions bring about per se violations of § 1 of the Sherman
Antitrust Act, 15 U.S.C. § 1, and so are preempted by that statute.
Total Wine’s claim was that the Connecticut regulatory scheme eliminates
incentives for alcoholic beverage wholesalers to compete on the basis of price and
invites wholesalers to maintain prices “substantially above what fair and
ordinary market forces would dictate.” App. at 19, Compl. ¶ 16. Total Wine
further claimed that Connecticut’s regulations inhibit meaningful price
competition at the retail level.
Specifically, Total Wine claimed, the regulations, in two ways, bring about
prices that exceed those that a competitive market would produce.
First, it argued, the post-and-hold provisions—and the opportunity they
give wholesalers to match a lower price during the forthcoming month for a
given product with no risk of sparking a price war—reduce any wholesaler’s
incentive to be the first to reduce price. The post-and-hold provisions, Total
Wine argued, effectively bring about horizontal price fixing. As it put the point
on appeal: “If a wholesaler were to drop its price on a particular product, its
competitors would know immediately (from having seen the posted price), and
would have four days to match the posted price.” Appellant Br. at 8–9. Even if
the wholesaler who had been the first to reduce its price still wished to set a price
12
beneath its competitors, Total Wine noted, it would then be required to “hold the
lower price for an entire month—during which it would have no competitive
advantage because its competitors would be charging the same price.”6 Id. at 9.
Second, Total Wine argued, Connecticut’s system precludes retailers from
competing on the basis of cost. Fundamentally, Total Wine noted, the minimum-
retail-price provision is keyed to a definition of “[c]ost” that turns not on the
retailer’s actual cost but on the price charged to the retailer by the wholesaler.
This, Total Wine argued, prevents a high-volume, lower-average-cost retailer
such as itself from attracting customers by offering discounts enabled by its
lower-cost structure. This result is exacerbated, Total Wine alleged, by a practice
in which wholesalers often engage: They set high minimum bottle prices, and
then lower the case prices for the product without making corresponding
reductions to the bottle price. While retailers (who buy almost exclusively by the
case) take advantage of the reduced case price and buy larger quantities during
months where the case price is lower, this, Total Wine alleged, does not benefit
the consumer because retailers are required to sell the product at a margin fixed
6
Total Wine’s claim that the Connecticut regulations promote horizontal price
fixing was substantially developed in its briefs on the motion to dismiss and
further refined on appeal. Its Complaint overwhelmingly focused instead on its
claims as to vertical price fixing. We conclude, however, that the Complaint
satisfactorily pled both theories.
13
by the higher minimum bottle price, which has effectively been set by the
wholesaler. In this manner, Total Wine alleged, “wholesalers effectively control
both retail price and retailers’ profit margins,” and retailers like Total Wine that
wish to use their business efficiencies to reduce the prices offered to consumers
are blocked from doing so. App. at 20, Compl. ¶ 17.
The end result, Total Wine alleged, is a market without meaningful price
competition: “Competing wholesalers for the same brands routinely set the same
bottle and case prices down to the penny, month after month, with each
wholesaler exactly tracking its competitors’ . . . case prices.” Id., Compl. ¶ 19. In
other words, Total Wine argued, the regulatory scheme promotes vertical price
fixing. Total Wine’s complaint attached data tables reflecting that, over long
periods, leading wholesalers often have charged the same amount for each
alcoholic beverage product—e.g., Bombay Sapphire, Grey Goose, Jose Cuervo
Gold—and have adjusted prices in lockstep. These prices, Total Wine claimed,
exceed those which a competitive market would produce: Citing a study, Total
Wine alleged that Connecticut’s regulatory scheme “result[s] in retail prices for
wine and spirits in Connecticut that are as much as 24% higher than prices
offered for identical products in the surrounding states.” Id., Compl. ¶ 18.
14
Finally, Total Wine alleged, the Connecticut regulatory scheme does not
entail active supervision by any state agency or instrumentality. Wholesalers
post and retailers charge the prices they see fit, it alleged, without any review or
intervention by regulators, save where a lawsuit has been brought claiming
noncompliance with the state’s regulations.
C. The Motion to Dismiss
On October 14, 2016, the defendants moved to dismiss. They were
supported in this motion by five intervenors, four of which were trade
associations and the fifth of which was a liquor distributor.7
On June 6, 2017, the district court, following argument, granted the motion
to dismiss. See Conn. Fine Wine & Spirits v. Harris, LLC, 255 F. Supp. 3d 355 (D.
Conn 2017). Analyzing the challenged provisions separately,8 the district court
7
These were: the Wine & Spirit Wholesalers of Connecticut (“WSWC”), the
Connecticut Beer Wholesalers Association (“CBWA”), the Connecticut
Restaurant Association (“CRA”) and the Connecticut Package Stores Association
(“CPSA”) (collectively, “the trade associations”), as well as Brescome Barton, Inc.
(“Brescome” and, with the trade associations, “intervenors”).
8
The district court stated that separate consideration of each challenged
provision was required (1) under principles of federalism, (2) because each
provision presented distinct analytic issues under principles of antitrust
preemption, and (3) because Connecticut’s general rule of statutory construction
provides that the invalidity of some sections of a statute should not invalidate the
statute as a whole. See Conn. Fine Wine & Spirits, 255 F. Supp. 3d at 366–67; Conn.
Gen. Stat. § 1-3.
15
applied as to each the first step in the two-step framework used to assess claims
of preemption by § 1 of the Sherman Act in this Circuit.9 As a threshold matter,
the court inquired whether the restraints are unilateral (“imposed by the
government . . . to the exclusion of private control”) and hence immune from
preemption by § 1, or hybrid (imposed by both the government and by granting
“private actors a degree of regulatory control over competition” and hence
capable of preemption. Id. at 364. Then, the court inquired whether the
challenged provision brought about facially, or per se, unlawful restraints on
trade, in which case they are preempted, or restraints that are subject to rule of
reason scrutiny, in which case they are not. Id.
As to the post and hold restraint, the district court held that it is a hybrid
restraint, but that the conduct it brings about is not per se unlawful, and so is
subject to rule of reason analysis. Id. at 371. Therefore, it is not preempted. Id.
The district court relied on Battipaglia v. New York State Liquor Authority, 745 F.2d
166 (2d Cir. 1984), in which we upheld New York State’s post-and-hold provision
as similarly not preempted.
9
The district court dismissed Total Wine’s claims at the first step of the
preemption analysis and neither the defendants nor any of the intervenors have
argued that Total Wine’s claims should be dismissed at the second step.
16
As to the minimum resale price restraint, the district court held that it too
was hybrid, but that it also implicated only the rule of reason, not condemnation
per se. Id. at 373. The district court held that this provision imposed a vertical
restraint. And, it noted, recent Supreme Court cases, in particular Leegin Creative
Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877 (2007), have held that courts are to
apply rule of reason, not per se, analysis to vertical restraints, meaning that this
provision is not facially preempted. Id. at 378.
Finally, the district court held that Connecticut’s provisions forbidding
price discrimination amounted to a unilateral restraint on trade, imposed solely
by the state and not involving private conduct. Id. That was because these
provisions “simply prohibit[] liquor wholesalers from charging different prices to
different retailers,” and do not “grant[] private actors a degree of regulatory
authority over competition.” Id. at 379. Thus, it held that these provisions, too,
are not preempted. Id. at 380.
Accordingly, the district court upheld all challenged aspects of
Connecticut’s alcoholic beverage regulatory regime.
On June 26, 2017, Connecticut Fine Wine appealed.
17
DISCUSSION
This case presents questions of preemption: Does § 1 of the Sherman
Antitrust Act, 15 U.S.C. § 1, which makes illegal “[e]very contract, combination
. . . or conspiracy, in restraint of trade or commerce,” preempt the challenged
provisions of Connecticut’s Liquor Control Act?
We begin by reviewing the two key precedents that frame the § 1
preemption inquiry: Rice v. Norman Williams Co., 458 U.S. 654 (1982), and Fisher v.
City of Berkeley, California, 475 U.S. 260 (1986). Then, because the analysis differs
by provision, we review serially the three sets of challenged provisions. We first
address the minimum-resale-price restraint and then the prohibition on price
discrimination. We last address the post-and-hold provisions, which are the
primary focus of plaintiffs’ challenge. None of the provisions, we hold, are
preempted.10
A. Principles of Preemption Under § 1: Rice and Fisher
The Supreme Court’s decisions in Rice and Fisher frame the § 1 preemption
inquiry.
10
While we address the three areas separately here, we have also considered
them in tandem. The outcome is the same: considered separately or as a whole,
the provisions are not preempted. We therefore do not reach the question of
which analysis would have been the right one had the difference been
determinative.
18
1. Rice: The Requirement That the State Law “Mandate or
Authorize,” or “Place Irresistible Pressure” on Private Parties to
Bring About, a Per Se Violation of § 1
In Rice, the Court held that the preemption inquiry under § 1 requires
courts to
apply principles similar to those which we employ in considering
whether any state statute is pre-empted by a federal statute pursuant
to the Supremacy Clause. As in the typical pre-emption case, the
inquiry is whether there exists an irreconcilable conflict between the
federal and state regulatory schemes. The existence of hypothetical
or potential conflict is insufficient to warrant the pre-emption of the
state statute. A state regulatory scheme is not pre-empted by the
federal antitrust laws simply because in a hypothetical situation a
private party’s compliance with the statute might cause him to
violate the antitrust laws. A state statute is not preempted by the
federal antitrust laws simply because the state scheme might have an
anticompetitive effect.
458 U.S. at 659 (citations omitted). Rather, the Court held, “[a] party may
successfully enjoin the enforcement of a state statute only if the statute on its face
irreconcilably conflicts with federal antitrust policy.” Id. In other words, for a
state statute to be preempted by § 1, the statute must bring about conduct that
would require per se condemnation under § 1:
Our decisions in this area instruct us, therefore, that a state statute,
when considered in the abstract, may be condemned under the
antitrust laws only if it mandates or authorizes conduct that
necessarily constitutes a violation of the antitrust laws in all cases, or
if it places irresistible pressure on a private party to violate the
antitrust laws in order to comply with the statute. Such
19
condemnation will follow under § 1 of the Sherman Act when the
conduct contemplated by the statute is in all cases a per se violation.
If the activity addressed by the statute does not fall into that
category, and therefore must be analyzed under the rule of reason,
the statute cannot be condemned in the abstract. Analysis under the
rule of reason requires an examination of the circumstances
underlying a particular economic practice, and therefore does not
lend itself to a conclusion that a statute is facially inconsistent with
federal antitrust laws.
Id. at 661.
Applying these principles, the Rice Court upheld the codes at issue:
California Alcoholic Beverage Control provisions which prohibited a licensed
importer from importing any brand of distilled spirits for which it was not a
designated importer. These, the Court explained, would not give rise in all
instances to per se illegal conduct. Id. at 661–62.
2. Fisher: The Requirement of Concerted Action
In Fisher, the Court identified a related hurdle that a claim of preemption by
§ 1 must clear. At issue was a rent stabilization law enacted by the City of
Berkeley, California, that placed strict controls on certain classes of real property
rented for residential use. The ordinance required landlords to adhere to the
prescribed rent ceilings; violators were subject to civil and criminal penalties. 475
U.S. at 262–63. A group of landlords sued the city, arguing that the ordinance
was a traditional—and per se invalid—form of fixing prices.
20
The Supreme Court rejected that argument. Sherman Act § 1, it noted, can
be violated only by collective action: “unreasonable restraints of trade effected by
a ‘contract, combination . . ., or conspiracy’ between separate entities.” Id. at 266
(quoting Copperweld Corp. v. Indep. Tube Corp., 467 U.S. 752, 768 (1984)). But, the
Court held, Berkeley’s unilateral imposition of rent control did not amount to
agreement or “concerted action.” Id. The Court acknowledged that, had the
Berkeley landlords banded together to fix rental prices in the absence of an
ordinance, their action would have been a per se violation of the Sherman Act. Id.
But the fact that the price-fixing ordinance resulted from the city acting
unilaterally, not the landlords acting concertedly, saved it from preemption:
A restraint imposed unilaterally by government does not become
concerted-action within the meaning of the [Sherman Act] simply
because it has a coercive effect upon parties who must obey the law.
The ordinary relationship between the government and those who
must obey its regulatory commands whether they wish to or not is
not enough to establish a conspiracy. Similarly, the mere fact that all
competing property owners must comply with the same provisions
of the Ordinance is not enough to establish a conspiracy among
landlords. Under Berkeley’s Ordinance, control over the maximum
rent levels of every affected residential unit has been unilaterally
removed from the owners of these properties and given to the Rent
Stabilization Board.
Id. at 267. In sum, the challenged rent control laws could exist, alongside § 1,
because “the rent ceilings imposed by the Ordinance and maintained by the Rent
21
Stabilization Board have been unilaterally imposed by government upon
landlords to the exclusion of private control.” Id. at 266. As the Court put the
point: “There is no meeting of the minds here.” Id. at 267.
The Supreme Court in Fisher was careful to limit its holding to unilateral
action by a government entity. It recognized that a governmentally imposed
restraint on trade that enforces private pricing decisions would be a “hybrid
restraint” that fulfills the Sherman Act’s “concerted action” requirement. The
Court explained:
Not all restraints imposed upon private actors by government units
necessarily constitute unilateral action outside the purview of § 1.
Certain restraints may be characterized as ‘hybrid,’ in that
nonmarket mechanisms merely enforce private marketing decisions.
See Rice, 458 U.S. at 665 (Stevens, J., concurring in the judgment).
Where private actors are thus granted “a degree of private
regulatory power,” id. at 66 n.1, the regulatory scheme may be
attacked under § 1.”
Id. at 267–68.
We have previously read Rice and Fisher to constitute the first step in a
two-step inquiry to decide whether a statute is preempted by § 1. See, e.g.,
Freedom Holdings Inc. v. Spitzer, 357 F.3d 205, 223 (2d Cir. 2004).11
11
In cases in which alcoholic-beverage laws are claimed to be preempted by § 1,
states have sometimes additionally defended by asserting state action immunity,
which is the second step in our Circuit’s two-step preemption inquiry, and
immunity derived from the Twenty First Amendment to the U.S. Constitution.
22
B. Connecticut’s Minimum-Retail-Price Provisions
The Court applies these principles, first, to the minimum-retail-price
provisions. As noted, these provisions (e.g., Conn. Gen. Stat. § 30-68m) dictate
the relationship between the liquor prices set by wholesalers and those set by
retailers.
In 324 Liquor v. Duffy Corp., 479 U.S. 335 (1987), the Supreme Court
considered a similar New York statute, which “impose[d] a regime of resale price
maintenance on all New York liquor retailers” and required them to charge at
least 112% of the wholesaler’s posted bottle price. Id. at 337, 341. The Supreme
Court classified the New York statute, under Fisher, as a hybrid restraint. Id. at
345 n.8 (describing provisions as having granted “’private actors . . . a degree of
private regulatory power’”) (quoting Fisher, 475 U.S. at 268). Then, applying the
Rice framework, the Court found the statute was “inconsistent with § 1” because
it authorized per se violations of § 1 under precedents that, “‘since the early years
of national antitrust enforcement,’” had so treated resale price maintenance
agreements. Id. at 341 (quoting Monsanto Co. v. Spray-Rite Service Corp., 465 U.S.
752, 761 (1984)). Hence, the New York statute was preempted. Id. at 343.
Connecticut has not raised such defenses in connection with this appeal.
23
The Supreme Court’s classification in 324 Liquor of the minimum-retail-
price restraints as hybrid, and hence capable of preemption by § 1, binds the
Court here. The New York statute there is substantively identical to the
Connecticut statute here. And the hybrid classification in 324 Liquor remains
good law. See Freedom Holdings, 357 F.3d at 223–24 (noting that 324 Liquor found
a hybrid arrangement based on limited private acts: “the individual
determinations of each wholesaler as to what bottle price to post”).
The same, however, cannot be said for the Supreme Court’s application of
Rice in 324 Liquor. The Court’s premise, that the New York statute mandated per
se violations of § 1, has been overtaken by a change in antitrust law. In 2007, the
Supreme Court, culminating a line of decisions, held that rule of reason—and not
per se—analysis applies to all vertical restraints. See Leegin, 551 U.S. at 882.
Leegin overruled Dr. Miles Medical. Co. v. John D. Park & Sons Co., 220 U.S. 373
(1911), the precedent cited by 324 Liquor as the fount of the doctrine that vertical
price fixing arrangements are per se illegal. See 324 Liquor, 479 U.S. at 341.
Henceforth, the Supreme Court stated, “vertical price restraints are to be judged
by the rule of reason.” Leegin, 551 U.S. at 882. Justifying the doctrinal change, the
Court explained that “it cannot be stated with any degree of confidence that
resale price maintenance ‘always or almost always tend[s] to restrict competition
24
and decrease output,’” id. at 894 (quoting Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485
U.S. 717, 723 (1988)), noting that Leegin capped a gradual doctrinal move “away
from Dr. Miles’ strict approach,” id. at 900.
In light of Leegin, 324 Liquor’s holding that minimum-retail-price provisions
constitute a per se violation of antitrust laws in all cases, 479 U.S. at 343, is,
necessarily, no longer good law. The need to analyze vertical pricing
arrangements under the rule of reason means that § 1 cannot preempt as per se
unlawful even a statute that overtly mandates such arrangements. See Rice, 458
U.S. at 658 (“If the activity addressed by the statute . . . must be analyzed under
the rule of reason, the statute cannot be condemned in the abstract. Analysis
under the rule of reason requires an examination of the circumstances underlying
a particular economic practice, and therefore does not lend itself to a conclusion
that a statute is facially inconsistent with the federal antitrust laws.”).
We therefore hold that Connecticut’s minimum-retail-price provisions,
compelling as they do only vertical pricing arrangements among private actors,
are not preempted under § 1.12
12
Total Wine alternatively attempts to characterize minimum-retail-price
provisions such as Connecticut’s as impelling horizontal price-fixing. For the
reasons given by the district court, this characterization is wrong. Conn. Fine
Wine & Spirits, 255 F. Supp. 3d at 375.
25
C. Connecticut’s Provisions Prohibiting Price Discrimination
The Court next considers Connecticut’s provisions prohibiting price
discrimination. These provisions, as noted, require that wholesalers sell a given
alcoholic product to all retailers at the same price.
For two reasons, we hold that these provisions are not preempted.
First, as the district court recognized, these provisions impose a unilateral
restraint. They leave each wholesaler at liberty to choose the price it will charge
all retailers for a product while prohibiting each from charging different prices to
different retailers. Although limiting a wholesaler’s range of motion, this
provision does not grant any private actor “a degree of regulatory control over
competition.” Freedom Holdings Inc. v. Cuomo, 624 F.3d 38, 50 (2d Cir. 2010).
Rather, like the rent cap set by the Berkeley municipality in Fisher, it is a restraint
“imposed by government . . . to the exclusion of private control.” Id. (citing
Fisher, 475 U.S. at 266). Such a restraint does not implicate the concerns of
concerted activity animating § 1.
Second, the price restraint worked by § 30-68k is purely vertical in
operation. It limits the ability of a wholesaler that has already charged one
retailer a given price to charge another retailer a different price. Therefore, even
if this provision could be viewed as a hybrid, rather than a unilateral, price-fixing
26
provision, after Leegin, it would no longer implicate a category of conduct that
remains per se unlawful. While its impact may be to harmonize prices at a retail
level of beverages sold by a common wholesaler, the provision does not
mandate—or even incent—collaboration among horizontal competitors. For this
separate reason, under Rice, it is not preempted by § 1.
D. Connecticut’s Post-and-Hold Provisions
The Court finally considers the post-and-hold provisions, described above.
On the question whether § 1 preempts these provisions, the parties primarily
dispute whether, as the district court held, Battipaglia, 745 F.2d 166, which
rejected a claim that § 1 preempted a New York liquor-pricing statute, is
controlling here.
1. Review of Battipaglia
In Battipaglia, decided after Rice and before Fisher, a divided panel of this
Court, per Judge Friendly, upheld a New York statute whose price restraint
components governing the sale of liquor were strikingly similar to those at issue
here. The New York law 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 month, Id. at 168 (citing N.Y. Alco. Bev. Cont. § 101-
b(3)(b)), and authorized wholesalers to amend their filed schedules “to meet
27
lower competing prices and discounts ‘provided such amended prices and
discounts are not lower and discounts are not greater than those to be met,’” id.
(quoting N.Y. Alco. Bev. Cont. Law § 101-b(4)). The New York law also
contained price-discrimination and minimum-retail-price provisions that
constrained sales prices at the retail level. See id. (citing N.Y. Alco. Bev. Cont. §
101-b(2)).
In the relevant portion of its analysis,13 Battipaglia held that the challenged
post-and-hold provisions were not preempted because they “do not compel any
agreement” among wholesalers, but only individual action. Id. at 170. The
Court stated: “The schedules required to be filed by the wholesalers are their
individual acts.” Id. And the Battipaglia plaintiffs (a liquor store owner and a
wholesaler) had not alleged that “any agreement among the wholesalers” arose
as a result of these laws. Id.
Battipaglia addressed and rejected two arguments the plaintiffs had made
for preemption.
13
Battipaglia addressed two other issues not presented here. It discussed—but
did not resolve—whether, if the New York law were in conflict with § 1, it was
nonetheless insulated from attack by the “state action” doctrine of Parker v.
Brown, 317 U.S. 341 (1943). See Battipaglia, 745 F.2d at 176–77. And it addressed
whether, if the New York law were in conflict with § 1, the state’s important
policy interests warranted deference under § 2 of the Twenty-First Amendment.
Id. at 177–79 (holding that, on the case record, such deference was warranted).
28
First, the Court distinguished California Retail Liquor Dealers Ass’n v. Midcal
Aluminum, 445 U.S. 97 (1980), which, like 324 Liquor, had held preempted a state
statute that “created a resale price maintenance system for wine.” Battipaglia, 745
F.2d at 170; see also id. at 171 (describing California statute as having forced “all
persons at various levels of the chain of distribution . . . to establish identical
prices fixed by the brand owner for each brand of wine” and stating that this
type of “vertical control” was impermissible under § 1). In contrast, the Court
stated, New York’s post-and-hold provisions “plainly are not a resale price
maintenance scheme.” Id. at 172. And, the Court again noted, the New York law
did not constrain wholesalers, each of which “is completely free to file whatever
price schedule he desires.” Id. As Judge Friendly put the point: “Midcal simply
did not deal with a statute like New York’s which merely requires wholesalers to
post and adhere to their own unilaterally determined prices and nothing more.”
Id.
Second, the Court addressed the argument that the post-and-hold law gave
rise to a per se violation of § 1 because (1) it “forces each wholesaler to inform
other wholesaler[s] of its prices and then to adhere for a month to them (or a
lowered price meeting that of a competitor filed within three days)” and (2) “if
this had been done pursuant to an agreement [among wholesalers], the
29
agreement would have constituted a violation of § 1.” Id. Rejecting this
argument, the Court reiterated that § 1 “is directed only at joint action and does
not prohibit independent business actions and decisions.” Id. (internal citations
omitted).
The Court then paused on the conceptual issue of whether, to be
preempted by § 1, a state law must compel an actual agreement among
competitors. The Court described as “appealing” the reasoning that:
Section 1 requires an agreement, state compulsion of individual
action is the very antithesis of an agreement, and the argument that
an agreement could have been inferred if the wholesalers had
voluntarily done what they been compelled to do is simply too ‘iffy.’
Id. at 173.14 At the same time, the Court acknowledged “some force” to the
counterargument: that “a statute compelling conduct which, in its absence,
would permit the inference of an agreement unlawful under § 1 is inconsistent
with that section.” Id. In the end, the Court stated, there was no need to resolve
this conceptual issue. That was because the New York law did not meet the Rice
standard for preemption. Id.
14
As support for this view, the Court cited a district court decision finding
against preemption and rejecting the argument that “simply because the statute
compelled individual actions which, if taken pursuant to an agreement, might
have constituted a violation,” the statute was preempted. Id. at 173 (quoting U.S.
Brewers Ass’n, Inc. v. Healy, 532 F. Supp. 1312, 1329–30 (D. Conn.), rev’d on other
grounds, 692 F.2d 275 (2d Cir. 1982), aff’d, 464 U.S. 909 (1983)).
30
Rice, the Court emphasized, had held that “[a] state regulatory scheme is
not pre-empted by the federal antitrust laws simply because in a hypothetical
situation a private party’s compliance with the statute might cause him to violate
the antitrust laws.” Id. at 174 (quoting Rice, 458 U.S. at 659). Rather, under Rice, a
state law could be “condemned under the antitrust laws only if it mandates or
authorizes conduct that necessarily constitutes a violation of the antitrust laws in
all cases, or if it places irresistible pressure on a private party to violate the
antitrust laws in order to comply with the statute.” Id. (quoting Rice, 458 U.S. at
661). New York’s statute did not do that, the Court stated, because the only
conduct that it compelled—“the exchange of price information” among
competitors—does not “constitute a violation of the antitrust laws in all cases.”
Id. at 174. Such an exchange might or might not signify an agreement among
them. See id. at 175 (“[T]he dissemination of price information is not a per se
violation of the Sherman Act.” (quoting United States v. Citizens & S. Nat’l Bank,
422 U.S. 86, 113 (1975) (internal citations omitted)). That the post-and-hold law
might result in common wholesaler pricing did not support inferring an
agreement either, the Court stated. Absent “plus factors” signifying an
agreement, “conscious parallelism” among competitors did not equate to an
agreement. Id. (citations omitted).
31
The Battipaglia Court concluded:
Section 101-b thus does not mandate or authorize conduct that
necessarily constitutes a violation of the antitrust laws in all cases.
New York wholesalers can fulfill their obligations under the statute
without either conspiring to fix prices or engaging in consciously
parallel pricing. So, even more clearly, the New York law does not
place irresistible pressure on a private party to violate the antitrust
laws in order to comply with it. It requires only that, having
announced a price independently chosen by him, the wholesaler
shall stay with it for a month.
Id. (internal quotation marks omitted).
In dissent, Judge Winter faulted Judge Friendly’s majority opinion for
dwelling on the “post” component of New York’s law and paying too little heed
to the law’s “hold” component. Were competitors to enter into an agreement to
hold their prices in place for 30 days, he observed, such a private agreement
would be horizontal price fixing and per se illegal. See 745 F.2d at 179–80 (Winter,
J., dissenting). The Fourth and Ninth Circuits, the only two circuit courts to
address similar laws, have sided with Judge Winter. Each has emphasized that
the statutory requirement of adherence to posted prices, were it adopted by
private agreement, would be per se illegal price fixing. See Costco Wholesale Corp.
v. Maleng, 522 F.3d 874 (9th Cir. 2008) (holding Washington provisions
preempted by § 1); Miller v. Hedlund, 813 F.2d 1344 (9th Cir. 1987) (holding
Oregon provisions not exempt from § 1 and remanding the case to the district
32
court for a determination whether the Twenty First Amendment shielded the
challenged regulations); TFWS, Inc. v. Schaefer, 242 F.3d 198, 210 (4th Cir. 2001)
(holding Maryland provisions preempted by § 1, while reserving on whether,
under the Twenty First Amendment, Maryland’s regulatory interests with
respect to alcohol trumped federal interest under the Sherman Act); see also 1
Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 217, at 388–89 &
nn.45–53 (4th ed. 2013) (reviewing reported decisions, including lower court
decisions in each direction).
2. Battipaglia Controls Here
We find Battipaglia controlling authority here.
Connecticut’s post-and-hold provisions are substantially identical to the
New York post-and-hold provisions upheld in that case. Total Wine does not
contend otherwise. Both sets of provisions required the wholesaler to set and
publicly file a price that it is going to charge the retailer; both provided a brief
time window in which wholesalers may match a lower price set by a competitor;
and both required the wholesaler to hold that price for one month.
Further, as the above discussion reflects, the Court in Battipaglia considered
at length the § 1 preemption question in the face of similar arguments to those
Total Wine makes here. The Court applied the controlling standards, from Rice,
33
to these provisions. The Court held that the post-and-hold provisions did not
“mandate or authorize conduct ‘that necessarily constitutes a violation of the
antitrust laws in all cases’” or “place[ ] irresistible pressure on a private party to
violate the antitrust laws in order to comply” with it. Id. at 175 (quoting Rice, 458
U.S. at 661). Those are the questions presented here.
Finally, Total Wine has not identified any later precedent of the Supreme
Court or this Court that fairly calls Battipaglia’s vitality into question.
Total Wine argues that 324 Liquor and our decision in Freedom Holdings, 357
F.3d at 223 (Winter, J.) are such precedent. A footnote in 324 Liquor suggested
that a statute need not bring about an actual agreement between private parties
to be preempted by § 1. See 324 Liquor, 479 U.S. at 345–46 n.8 (rejecting New
York’s defense that provisions at issue had not yielded a “contract, combination,
or conspiracy in restraint of trade”). Freedom Holdings picked up on that footnote
to suggest, in a footnote of its own, that “an actual ‘contract, combination, or
conspiracy’ need not be shown for a state statute to be preempted by the
Sherman Act.” See 357 F.3d at 223 n.17 (Winter, J.) (citing 324 Liquor, 479 U.S. at
345–46 n.8). Total Wine argues, on account of these statements, that these
decisions vitiate Battipaglia.
For three reasons, they do not.
34
First, Freedom Holdings itself distinguished Battipaglia and treated it as good
law. Freedom Holdings recognized that, although the Battipaglia majority had
discussed whether a state law must give rise to an actual agreement for § 1 to
preempt it, Battipaglia ultimately did not resolve nor rule on the basis of that
conceptual issue. Rather, Battipaglia had relied on its application of the Rice
standard to New York’s post-and-hold provision. See id. (recognizing that
Battipaglia “did not reach the question” whether “a private contract, combination,
or conspiracy” must be shown for Sherman Act preemption to occur (internal
citation omitted)).
Second, to the extent that Freedom Holdings and 324 Liquor opine on
whether the state law at issue must give rise to an actual private agreement for
there to be preemption, these cases are readily distinguished factually because
they involved express or readily implied agreements. Freedom Holdings involved
an express contract among horizontal competitors—a “Master Settlement
Agreement” among major tobacco manufacturers pursuant to which the
challenged New York legislation had been enacted. Freedom Holdings, 357 F.3d at
208. Its discussion of whether the state law must give rise to such an agreement
was, therefore, dicta. See id. at 224 (“Even if a ‘contract’ among private parties is
required in the first step of preemption analysis, therefore, it exists in the present
35
matter.”). As for 324 Liquor, it addressed vertical restraints affecting a
wholesaler-retailer relationship. In that context, the wholesaler and each of its
retailers were in privity and necessarily had an agreement to buy from and/or
sell to each another. They entered into these agreements against the backdrop
(and presumably with the knowledge) of the price-fixing term that state law
would supply. In fact, every Supreme Court case to hold state liquor laws
preempted by § 1, has done so on the ground that these laws either mandated or
authorized forms of then per se unlawful vertical price-fixing arrangements
between wholesalers and retailers. See, e.g., Midcal, 445 U.S. 97 (California law
mandated resale price maintenance among wholesaler and its retailers); 324
Liquor, 479 U.S. 335 (same as to New York law); Schwegmann Bros. v. Calvert
Distillers Corp., 341 U.S. 384 (1951) (same as to Louisiana law per an interpretation
of § 1 as amended by the now-repealed Miller-Tydings Act). Of course, as noted
earlier, the application of preemption doctrine to vertical price fixing
arrangements has been overtaken by Leegin’s removal of vertical restraints from
per se condemnation.
Third, and finally, two post-Battipaglia decisions of the Supreme Court,
each involving claims of horizontal price-fixing, lend support to Judge Friendly’s
reasoning in finding against preemption. One, Fisher, discussed earlier, does so
36
by narrowing the scope of state action within § 1’s preemptive reach. The other,
Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), does so by underscoring the
limited scope of private conduct capable of per se violating § 1.
Fisher, as noted, upheld Berkeley’s rental-cap ordinance in the face of a § 1
preemption claim that it brought about horizontal price fixing. The Supreme
Court recognized that “[h]ad the owners of residential rental property in
Berkeley voluntarily banded together to stabilize rents in the city,” that concerted
activity would have worked a per se violation of § 1. Fisher, 475 U.S. at 266. But,
the Court emphasized, more was required. There needed to be concerted action.
“A restraint imposed unilaterally by government does not become concerted-
action within the meaning of the statute simply because it has a coercive effect
upon parties who must obey the law.” Id. at 267. “[T]he mere fact that all
competing property owners must comply with the same provisions of the
Ordinance is not enough to establish a conspiracy among landlords.” Id.
This requirement is significant here. We do not take issue with the holding
of the district court here that, given the participation that a post-and-hold law
requires of each wholesaler in connection with the posting component,
37
Connecticut’s law, viewed as a whole, qualifies as hybrid under Fisher.15 But we
doubt that such a law mandates or authorizes “concerted action” among the
wholesalers subject to it. Particularly as to the “hold” component of the law that
was the basis of the Battipaglia dissent, Connecticut’s prohibition on altering
prices for a 30-day period is a purely negative restraint. It does not call for any
private action, let alone concerted action. See Hertz Corp. v. City of New York, 1
F.3d 121, 127 (2d Cir. 1993) (finding hybrid, but upholding, city statute that
“eliminate[d] an element of price competition” among rental-car industry
competitors); cf. Flying J, Inc. v. van Hollen, 621 F.3d 658, 662--63 (7th Cir. 2010)
(“[I]t is only when a state law mandates or authorizes collusive conduct that it is
preempted by federal antitrust law.” (citing Fisher, 475 U.S. at 265)). Fisher’s
emphasis on the need for concerted action reinforces that Judge Friendly was
right both to focus on the posting, rather than the holding, component of New
York’s post-and-hold law, and to find the law non-preempted.
As to Twombly, although it is more commonly cited for its articulation of
pleading standards, the Court in its substantive discussion homed in on the
15
In finding that the statute grants private actors “a degree of private regulatory
power” so as to qualify as hybrid, Fisher, 475 U.S. at 268, the district court relied
on 324 Liquor, which had held hybrid a resale-price maintenance law with similar
price-posting features. See Conn. Fine Wines & Spirits, 255 F. Supp. 3d at 369.
38
discrete evil prohibited by § 1. “§ 1 of the Sherman Act does not prohibit [all]
unreasonable restraints of trade.” Twombly, 550 U.S. at 553. It prohibits “only
restraints effected by a contract, combination, or conspiracy.” Id. (emphasis added).
The Court explained, therefore, that in § 1 cases, “[t]he crucial question is
whether the challenged anticompetitive conduct stem[s] from independent
decision or from an agreement.” Id. (internal citations omitted). Even conscious
parallel acts based on competitors’ mutual recognition of “shared economic
interests” are not “’in [themselves] unlawful.’” Id. at 553--54 (quoting Brooke Grp.
Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227 (1993)); see also United
States v. Apple, Inc., 791 F.3d 290, 315 (2d Cir. 2015) (“[P]arallel behavior that does
not result from an agreement is not unlawful even if it is anticompetitive.”). In
other words, under § 1, that conscious parallel conduct can create an equally
uncompetitive market to parallel conduct achieved by agreement is of no
moment. The gravamen of § 1 is an agreement among competitors.
On this basis, Twombly upheld the dismissal of a complaint that alleged
consciously parallel decisions among recently deregulated telecommunications
carriers not to compete in one another’s (horizontal) regional markets. The
complaint had not alleged actual agreement among the carriers, and its
allegations were consistent with “natural” and “unilateral” behavior by each
39
carrier, as each had good reason to appreciate that its self-interest lay in
forebearing from initiating competition. See 550 U.S. at 564, 566; see also id. at 568
(“[The carriers] doubtless liked the world the way it was, and surely knew the
adage about him who lives by the sword. Hence, a natural explanation for the
noncompetition alleged is that the former Government-sanctioned monopolists
were sitting tight, expecting their neighbors to do the same thing.”)
Twombly’s reasoning resonates here because, under a post-and-hold law,
there is a “natural” explanation—independent of any agreement or coordination
among liquor wholesalers—for these competitors to arrive at common monthly
product prices. Such a law authorizes a wholesaler, during the four days after
initial posting, to match a competitor’s lower price, with such prices then held for
a month. Under these circumstances, the law itself invites and facilitates
conscious parallelism in pricing. It puts in public view each competing
wholesaler’s price quotes. And it authorizes, but it does not oblige, wholesalers
during a defined window unilaterally to match (or parallel) a competitor’s lower
price as the “held” price for the coming month. Nothing about this arrangement
requires, anticipates, or incents communication or collaboration among the
competing wholesalers. Quite the contrary: A post-and-hold law like
Connecticut’s leaves a wholesaler little reason to make contact with a competitor.
40
The separate, unilateral acts by each wholesaler of posting and matching instead
are what gives rise to any synchronicity of pricing. To mirror Twombly: “[A]
natural explanation for the noncompetition alleged,” id. at 568, is that the state-
regulated wholesalers are independently making pricing decisions within a
framework aimed at avoiding price wars that invites them, before being held to a
price for a month, to match that of their competitors. A post-and-hold law,
therefore, does not implicate the evil against which § 1 guards: an agreement to
unreasonably restrain trade. It would make little sense to preempt a state statute
which facilitates parallel conduct that parties can legally undertake on their own
under § 1.
Under these circumstances, we do not find reason to conclude that
Battipaglia has been, sub silentio, overruled. If anything, its reasoning has been
fortified by intervening decisions like Fisher and Twombly. Battipaglia therefore
controls Total Wine’s challenge to Connecticut’s post-and-hold provisions. See
United States v. Moore, 949 F.2d 68, 71 (2d Cir. 1991) (prior opinions of a Second
Circuit panel bind future panels “in the absence of a change in the law by higher
authority” or a ruling by the en banc Court). Any application to revisit Battipaglia
is beyond this panel’s authority. Battipaglia remains good—and persuasive—law.
41
CONCLUSION
For the reasons above, we affirm the decision below. We hold that the
challenged provisions of Connecticut law governing liquor pricing are not
preempted by § 1 of the Sherman Act.
42