TFWS, Incorporated v. Schaefer ( 2005 )

CORRECTED OPINION
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 04-1688
TFWS, INCORPORATED, d/b/a Beltway Fine Wine
and Spirits,
Plaintiff - Appellee,
versus
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,
Defendants - Appellants,
and
CHARLES W. EHART, in his Official Capacity as
Administrator of the Alcohol and Tobacco Tax
Unit of the Comptroller of the State of
Maryland,
Defendant.
---------------------------------------------
MARYLAND STATE LICENSED BEVERAGE ASSOCIATION;
NATIONAL DISTRIBUTING COMPANY, INC.; BALTIMORE
COUNTY LICENSED BEVERAGE ASSOCIATION, INC.;
RELIABLE CHURCHILL, LLLP,
Amici Supporting Appellants.
Appeal from the United States District Court for the District of
Maryland, at Baltimore. William D. Quarles, Jr., District Judge.
(CA-99-2008-S)
Argued: May 27, 2005 Decided: August 9, 2005
Corrected Opinion Filed: October 5, 2005
Before LUTTIG, MICHAEL, and TRAXLER, Circuit Judges.
Vacated and remanded by unpublished per curiam opinion.
ARGUED: Steven Marshall Sullivan, Solicitor General, William Ferris
Brockman, Assistant Attorney General, OFFICE OF THE ATTORNEY
GENERAL OF MARYLAND, Baltimore, Maryland, for Appellants. William
James Murphy, MURPHY & SHAFFER, L.L.C., Baltimore, Maryland, for
Appellee. ON BRIEF: J. Joseph Curran, Jr., Attorney General of
Maryland, Meredyth Smith Andrus, Assistant Attorney General,
Baltimore, Maryland, for Appellants. John J. Connolly, MURPHY &
SHAFFER, L.L.C., Baltimore, Maryland, for Appellee. Joseph A.
Schwartz, III, SCHWARTZ & METZ, P.A., Baltimore, Maryland, for
Amicus Curiae, The Maryland State Licensed Beverage Association,
Supporting Appellants. Thomas W. Rhodes, Rachel D. King, SMITH,
GAMBRELL & RUSSELL, L.L.P., Atlanta, Georgia, for Amicus Curiae,
National Distributing Company, Inc., Supporting Appellants. David
F. Mister, Amy K. Finneran, MISTER, WINTER & BARTLETT, L.L.C.,
Timonium, Maryland, for Amicus Curiae, Baltimore County Licensed
Beverage Association, Inc., Supporting Appellants. Howard Graff,
Leslie R. Cohen, Deborah A. Skakel, Jodi Trulove, DICKSTEIN,
SHAPIRO, MORIN & OSHINSKY, L.L.P., Washington, D.C., for Amicus
Curiae, Reliable Churchill, L.L.L.P., Supporting Appellants.
Unpublished opinions are not binding precedent in this circuit.
See Local Rule 36(c).
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PER CURIAM:
This case is now on appeal for the third time. TFWS,
Inc., a large liquor retailer in Maryland, is suing the State
Comptroller of Maryland, seeking a declaration that certain
Maryland statutes and regulations governing the wholesale pricing
of liquor and wine violate the Sherman Act. The Comptroller
asserts that the Twenty-first Amendment shields the Maryland regime
from federal antitrust scrutiny. We have already concluded that
the regulations violate the Sherman Act, and the remaining issue is
whether the Comptroller has a valid Twenty-first Amendment defense.
The last time this case was before us, we reversed the district
court’s order awarding summary judgment to the Comptroller, an
order based on the district court’s conclusion that Maryland’s
Twenty-first Amendment interest in promoting temperance outweighs
the federal interest in promoting competition under the Sherman
Act. We concluded that summary judgment was inappropriate because
there existed disputed factual issues about the effectiveness of
the Maryland regulations in promoting temperance. On remand the
district court held a bench trial and awarded judgment to TFWS
after finding that the regulations do not promote temperance
because they do not raise liquor and wine prices in Maryland.
(This result would leave Maryland without a Twenty-first Amendment
interest.) The district court’s finding that the challenged
regulations do not raise liquor and wine prices in Maryland is
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based on a comparison of prices in Maryland and Delaware. Because
the district court failed to take into account whether the
difference in the two states’ excise tax rates affects the price
comparison analysis, we cannot conclude that the district court’s
determination is free of clear error. We therefore vacate the
award of judgment to TFWS and once again remand for further
proceedings.
I.
The two challenged Maryland liquor regulations are
explained in some detail in our first opinion, TFWS, Inc. v.
Schaefer, 242 F.3d 198, 202-03 (4th Cir. 2001) (TFWS I), so we will
provide only a brief summary here. The first regulation, the post-
and-hold regulation, establishes how and when liquor wholesalers
may alter their prices. See Md. Ann. Code art. 2B, § 12-103(c).
The second regulation, the volume discount ban regulation, requires
a wholesaler to offer every retailer the same price for a
particular product. Md. Ann. Code art. 2B, § 12-102(a). One
effect is that wholesalers cannot offer discounts to larger
retailers for purchasing large volumes because discounts of any
kind are prohibited. Id.
In TFWS I we affirmed the district court’s determination
that both regulations violate federal antitrust law because they
constitute per se violations of § 1 of the Sherman Act. 242 F.3d
4
at 210. We reversed, however, the district court’s dismissal of
TFWS’s complaint on Twenty-first Amendment grounds. The district
court had determined on its own motion that despite their anti-
competitive effect the regulations were nonetheless valid under the
liquor control powers reserved to the states under the Twenty-first
Amendment. Because neither side had an opportunity to address the
Twenty-first Amendment issue, we vacated the order of dismissal and
remanded the case. We provided the following instructions to the
district court:
On remand Maryland should be given the opportunity
to assert and substantiate its Twenty-first Amendment
defense, and TFWS should be permitted to respond. The
analysis the district court should undertake in analyzing
Maryland’s interest and then balancing it against the
federal interest is straightforward. First, the court
should examine the expressed state interest and the
closeness of that interest to those protected by the
Twenty-first Amendment. We acknowledge that little
analysis is needed on this point. Temperance is the
avowed goal of the Maryland regulatory scheme, and the
Twenty-first Amendment definitely allows a state to
promote temperance. Second, the court should examine
whether, and to what extent, the regulatory scheme serves
its stated purpose in promoting temperance. Simply put,
is the scheme effective? Again, the answer to this
question may ultimately rest upon findings and
conclusions having a largely factual component. Finally,
the court should balance the state’s interest in
temperance (to the extent that interest is actually
furthered by the regulatory scheme) against the federal
interest in promoting competition under the Sherman Act.
TFWS I, 242 F.3d at 213 (internal quotation marks and citation
omitted).
On the first remand both sides moved for summary judgment
after discovery. The district court awarded summary judgment to
5
the Comptroller, concluding that (1) the Maryland regulations were
effective in promoting temperance and (2) Maryland’s interest in
promoting temperance outweighed the federal interest in promoting
competition. We reversed because “[t]he district court arrived at
its conclusion that the Maryland regulations were effective in
promoting temperance by weighing conflicting evidence” at the
summary judgment stage. TFWS, Inc. v. Schaefer, 325 F.3d 234, 241
(4th Cir. 2003) (TFWS II). Because “a district court may not
resolve conflicts in the evidence on summary judgment motions,” we
vacated the order awarding summary judgment and remanded for trial
on “the question of whether, and to what extent, Maryland’s
regulatory scheme is effective in promoting temperance.” Id. at
241-42 (internal quotation marks omitted).
On remand the district court conducted a bench trial, at
which the Comptroller sought to prove in two steps that the
regulations are effective in promoting temperance. First, the
Comptroller attempted to establish that the challenged regulations
increase retail liquor and wine prices in Maryland. Second, the
Comptroller attempted to establish that the higher prices are
effective in reducing consumption of liquor and wine in Maryland.
The district court concluded, after considering all of the
evidence, that the challenged regulations “do not increase Maryland
liquor prices,” and, as a result, the regulations are not effective
in promoting temperance. J.A. 1249. Because Maryland has no
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Twenty-first Amendment interest in the regulations, the district
court reasoned, there is nothing to balance against the federal
interest reflected in the Sherman Act. The district court enjoined
the Comptroller from enforcing the regulations, and the Comptroller
now appeals.
II.
The Comptroller argues that the district court erred in
finding that the challenged regulations do not raise liquor and
wine prices in Maryland. We review for clear error the factual
findings of a district court sitting without a jury. Fed. R. Civ.
P. 52(a). “A finding is ‘clearly erroneous’ when although there is
evidence to support it, the reviewing court on the entire evidence
is left with the definite and firm conviction that a mistake has
been committed.” United States v. U.S. Gypsum Co., 333 U.S. 364,
395 (1948). “If upon . . . review, we think that the findings of
the judge below were clearly erroneous, i.e. that he misapprehended
the evidence or went against the clear weight thereof, it is our
duty to say so and reverse the decision.” United States v. One
1955 Mercury Sedan, 242 F.2d 429, 430 (4th Cir. 1957). This
deference to the district court’s factual findings applies even
when they “do not rest on credibility determinations, but are based
instead on physical or documentary evidence.” Anderson v. City of
Bessemer City, 470 U.S. 564, 574 (1985).
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In finding that the challenged regulations do not raise
liquor and wine prices in Maryland, the district court relied
exclusively on evidence comparing liquor and wine prices in
Maryland to liquor and wine prices in Delaware, a state that
repealed comparable regulations over a decade ago. The evidence
generally showed that Maryland prices are lower than (or at least
the same as) Delaware prices, which indicates that the challenged
regulations do not raise prices in Maryland and thus do not promote
temperance. The district court relied heavily on two of TFWS’s
exhibits, Exhibits 93 and 94, which compare Maryland wholesale case
prices to Delaware wholesale case prices. (Wholesale prices are
presumably indicative of retail prices.) Exhibit 93 compares the
lowest prices in 2003 for 2,637 liquor and wine products. Prices
were based on data provided by TFWS’s stores in Maryland and
Delaware. Exhibit 93 shows that when quantity discounts were taken
into account in Delaware, the lowest Maryland price was lower than
the lowest Delaware price for 54 percent of the surveyed products.
Exhibit 94 compares the lowest prices of forty liquor and wine
products over a seven-month period. Prices were taken from the
Delaware Beverage Monthly and the Maryland Beverage Journal.
Exhibit 94 shows that when quantity discounts were taken into
account, the lowest Maryland price was lower than the lowest
Delaware price for 67.5 percent of the surveyed products. The
district court also relied on anecdotal evidence that Maryland
8
retail prices are widely known to be lower than Delaware retail
prices and that many Delaware residents cross into Maryland to buy
their liquor and wine.
According to the Comptroller, the district court’s
reliance on Exhibits 93 and 94 and the anecdotal evidence is
misplaced because this evidence fails to take into account the
difference in excise taxes imposed by Maryland and Delaware. The
Comptroller asserts, as he did before the district court, that any
comparison of prices must adjust for excise taxes because the
significant difference in excise taxes distorts the results (and
thus the probative value) of the comparisons.
We conclude that the district court’s finding that the
regulations do not raise prices in Maryland is open to clear error
because the court’s analysis is incomplete. The district court is
correct that there is ample evidence in the record that Maryland
wholesale and retail prices are the same as, or lower than,
Delaware wholesale and retail prices. But as the district court
itself pointed out, “both parties used Delaware liquor prices as a
control group to gauge the effect of the regulations on Maryland
liquor prices.” J.A. 1246 (emphasis added). Put another way, the
whole purpose of comparing Maryland and Delaware prices is to
determine whether the challenged regulations actually have the
effect of raising prices in Maryland. Excise taxes imposed on
wholesalers, the parties agree, affect wholesale and retail prices.
9
However, Maryland currently imposes one of the nation’s lowest
wholesale excise tax rates whereas Delaware currently imposes a
relatively high wholesale excise tax rate. In Maryland a
$.40/gallon tax is imposed on wine and a $1.50/gallon tax is
imposed on liquor. In Delaware a $.97/gallon tax is imposed on
wine, a $3.75/gallon tax is imposed on liquor of twenty-five proof
or greater, and a $2.50/gallon tax is imposed on liquor of less
than twenty-five proof. See Federation of Tax Administrators,
S t a t e L i q u o r E x c i s e T a x R a t e s ,
http://www.taxadmin.org/fta/rate/liquor.html (Jan. 1, 2005);
Federation of Tax Administrators, State Wine Excise Tax Rates,
http://www.taxadmin.org/fta/rate/wine.html (Jan. 1, 2005). This
may indicate that in order “to gauge the effect of the regulations
on Maryland liquor prices,” J.A. 1246, price comparisons should be
adjusted for excise taxes in order to control for the difference in
excise taxes between the two states. Otherwise, the fact that
Maryland prices are the same as, or lower than, Delaware prices may
tell us nothing about the effect of the challenged regulations on
Maryland prices. Any difference in prices could be due to excise
taxes, the challenged regulations, or both.
The potential significance of excise taxes is
illustrated by the following example involving a case (6 bottles)
of 1.75 liter bottles of Stolichnaya 80 Vodka. According to TFWS’s
Exhibit 94, the lowest published price in Maryland for the relevant
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seven-month period was $158.35 and the lowest Delaware price,
taking into account quantity discounts, was $161.94. Thus,
according to Exhibit 94, a case of Stolichnaya costs $3.59 less in
Maryland and this fact supposedly indicates that the challenged
regulations do not raise prices in Maryland. However, a Delaware
wholesaler would be required to pay $10.401 in excise taxes on its
case whereas a Maryland wholesaler would be required to pay only
$4.162 on its case. Delaware thus imposes $6.24 more in excise
taxes on a case of 1.75 liter bottles of Stolichnaya than does
Maryland, and the $3.59 difference reflected in Exhibit 94 could
very well be due to the difference in excise taxes. At this point,
we do not know the cause of the price difference because there is
no factfinding or analysis by the district court that explains the
extent of the impact that excise taxes have on prices or why a
comparison of prices should not adjust for excise taxes.
On appeal TFWS responds to the Comptroller’s argument
that the price comparisons should be adjusted for excise taxes by
asserting that “[t]he price that matters to the consumer is the
retail price, which includes excise taxes. It makes no sense to
1
There are 3.785 liters in a gallon. Thus a case of 1.75
liter bottles contains 2.774 gallons of liquor ((6 x 1.75) ÷
3.785). Assuming that Stolichnaya 80 Vodka is greater than twenty-
five proof, and thus that the higher Delaware rate of $3.75/gallon
applies, the excise tax on a case of Stolichnaya 80 Vodka is $10.40
(2.774 gallons times $3.75/gallon).
2
Applying the current Maryland tax rate results in an excise
tax of $4.16 (2.774 gallons times $1.50/gallon).
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remove those taxes from a state-to-state comparison.” Br. for
Appellee at 42. TFWS’s argument, however, does not adequately
address the issue of whether a comparison of Delaware and Maryland
prices must control for excise taxes in order to be indicative of
the challenged regulations’ effect on Maryland prices.
We have examined all of the evidence in this case, and we
are “left with the definite and firm conviction that a mistake has
been committed,” U.S. Gypsum Co., 333 U.S. at 395, because the
district court did not consider the issue of whether the price
comparisons should be adjusted for excise taxes. We cannot
conclude that the current record supports the district court’s
finding that the challenged regulations do not raise liquor and
wine prices in Maryland. In other words, we cannot say at this
point that the price comparisons cited by the district court are
sufficiently reliable to provide an indication of the effect the
challenged regulations have on Maryland prices. There is no
factfinding or analysis by the district court that explains the
extent of the impact excise taxes have on prices or why a
comparison of prices need not be adjusted for excise taxes.
Moreover, there is no evidence showing that when excise taxes are
subtracted, prices in Maryland are still lower (and thus the
challenged regulations do not raise prices). In fact, we have
found only evidence to the contrary, that is, evidence showing that
when excise taxes are subtracted from Maryland and Delaware
12
wholesale prices, prices in Maryland are actually higher than those
in Delaware (which would appear to indicate that the challenged
regulations raise prices in Maryland). Other than the above-
mentioned price comparisons that include excise taxes, there is no
evidence that establishes that the challenged regulations do not
raise prices in Maryland. In sum, the district court’s analysis is
not yet complete, and at this stage we cannot conclude that its
finding that the regulations do not raise liquor and wine prices in
Maryland is free of clear error. We therefore vacate the district
court’s order entering judgment in favor of TFWS and remand for
further proceedings.
On remand the district court should first address the
issue of whether excise taxes need to be taken into account when
comparing Maryland and Delaware prices. The district court, of
course, may exercise its usual discretion in determining whether,
or to what extent, the record should be reopened as a result of the
excise tax issue. If the court concludes that a comparison of
prices should not be adjusted for excise taxes, the court should
provide its reasons, and it may then reaffirm its earlier result.
If the court concludes, however, that the prices should be adjusted
for excise taxes, then the court must determine the extent to which
excise taxes should be taken into account. The Comptroller asserts
that wholesale and retail prices reflect the entire excise tax
imposed by the states and that adjusting prices requires
13
subtracting the entire tax. However, it is unclear to us whether
wholesale and retail prices reflect the entire excise tax imposed,
as it is possible that the prices reflect only a portion of the
excise tax. We note that the final exhibits submitted by the
Comptroller, Exhibits 113 and 113A, show higher prices in Maryland
when excise taxes are subtracted, but it is for the district court
to determine in the first instance whether this evidence is
sufficient to support a finding that the challenged regulations
raise prices. Moreover, given the timing of the Comptroller’s
submission of these exhibits, it may be that TFWS should have an
opportunity to offer a response to these exhibits. If the price
comparison evidence ultimately shows that the challenged
regulations do raise Maryland prices, then the district court
should determine whether the increase in prices affects consumption
in that state. That determination will control whether the
district court must proceed further under our instructions in TFWS
I, 242 F.3d at 213.
VACATED AND REMANDED
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