Connecticut Fine Wine and Spirits, LLC v. Seagull

17-2003
Connecticut Fine Wine and Spirits, LLC v. Seagull
17‐2003
Connecticut Fine Wine and Spirits, LLC v. Seagull
United States Court of Appeals
FOR THE SECOND CIRCUIT
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley
Square, in the City of New York, on the 6th day of September, two thousand
nineteen.
PRESENT:
ROBERT A. KATZMANN,
Chief Judge,
JOSÉ A. CABRANES,
ROSEMARY S. POOLER,
PETER W. HALL,
DEBRA ANN LIVINGSTON,
DENNY CHIN,
RAYMOND J. LOHIER, JR.,
SUSAN L. CARNEY,
RICHARD J. SULLIVAN,
JOSEPH F. BIANCO,
MICHAEL H. PARK,
Circuit Judges.
CONNECTICUT FINE WINE AND SPIRITS,
LLC, d/b/a, TOTAL WINE & MORE,
Plaintiff‐Appellant,
v. No. 17‐2003
COMMISSIONER MICHELLE H. SEAGULL,
DEPARTMENT OF CONSUMER
1
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.
For Plaintiff‐Appellant: William J. Murphy, John J. Connolly,
Adam B. Abelson, Zuckerman
Spaeder LLP, Baltimore, MD.
James T. Shearin, Edward B. Lefebvre,
Pullman & Comley LLC, Bridgeport,
CT.
For Defendants‐Appellees: Clare E. Kindall, Solicitor General,
Robert J. Deichert, Assistant Attorney
General, for William Tong, Attorney
General, Hartford, CT.
For Intervenors‐Defendants‐ David S. Hardy, Damian K.
Appellees: Gunningsmith, Carmody Torrance
Sandak & Hennessey LLP, New
Haven, CT.
Michael J. Spagnola, Siegel, O’Connor,
O’Donnell & Beck, P.C., Hartford, CT.
2
Patrick A. Klingman, Klingman Law,
LLC, Hartford, CT.
Robert M. Langer, Benjamin H.
Diessel, Wiggin and Dana LLP,
Hartford, CT.
Deborah Skakel, Craig M. Flanders,
Blank Rome LLP, New York, NY.
John F. Droney, Jr., Jeffrey J. Mirman,
Hinckley Allen & Snyder, LLP,
Hartford, CT.
Following disposition of this appeal on February 20, 2019, an active judge
of the Court requested a poll on whether to rehear the case en banc. A poll having
been conducted and there being no majority favoring en banc review, rehearing
en banc is hereby DENIED.
Richard J. Sullivan, Circuit Judge, joined by José A. Cabranes, Debra Ann
Livingston, and Michael H. Park, Circuit Judges, dissents by opinion from the
denial of rehearing en banc.
FOR THE COURT:
CATHERINE O’HAGAN WOLFE, CLERK
3
RICHARD J. SULLIVAN, Circuit Judge, joined by JOSÉ A. CABRANES, DEBRA ANN
LIVINGSTON, and MICHAEL H. PARK, Circuit Judges, dissenting from the denial of
rehearing en banc:
Today our Court declines to reconsider en banc the panel’s holding that
Connecticut’s “post‐and‐hold” alcohol pricing statute is consistent with Section 1
of the Sherman Act. Although that holding was clearly compelled by our prior
decision in Battipaglia v. New York State Liquor Authority, 745 F.2d 166 (2d Cir. 1984),
I believe we should have taken this opportunity to join federal courts across the
country in rejecting Battipaglia’s majority opinion in favor of Judge Winter’s
forceful dissent in that case. As a result of this refusal to grant rehearing, we
perpetuate a longstanding circuit split and continue to allow de facto state‐
sanctioned cartels of alcohol wholesalers to impose artificially high prices on
consumers and retailers across all three states in our Circuit. That strikes me as an
unfortunate consequence, particularly when the correct legal analysis has been
staring us in the face for more than thirty‐five years. Accordingly, I respectfully
dissent from the denial of rehearing en banc.
I.
Connecticut’s post‐and‐hold scheme contains three main components. First,
alcohol wholesalers must share their prices with market participants on a monthly
basis (the “post”). Conn. Gen. Stat. § 30‐63(c). Second, wholesalers have four days
to adjust their posted prices, except that they cannot go below the lowest posted
price. Id. Third, at the end of the price‐adjustment period, wholesalers must
adhere to their adjusted prices for one month (the “hold”). Id.
A divided panel of our Court upheld New York’s nearly identical post‐and‐
hold scheme in Battipaglia. Writing for the majority, Judge Friendly concluded that
such a scheme did not mandate or authorize conduct that would be per se illegal
had it been the subject of a private agreement. 745 F.2d at 173–75 (citing Rice v.
Norman Williams Co., 458 U.S. 654, 659–61 (1982)). In so concluding, Judge Friendly
focused mainly on the post, observing that “[t]he Supreme Court has never held
that the exchange of price information . . . ‘necessarily constitutes a violation of the
antitrust laws in all cases.’” Id. at 174 (quoting Rice, 458 U.S. at 661).
That reasoning, however, failed to account for the per se illegality of the hold.
As Judge Winter explained in dissent, a “requirement of adherence to announced
prices has been uniformly held illegal without regard to its reasonableness.” Id. at
179 (Winter, J., dissenting) (citing Sugar Inst. v. United States, 297 U.S. 553, 601
(1936) (explaining that “steps . . . to secure adherence, without deviation, to prices
and terms . . . announced” are illegal)); see also Catalano, Inc. v. Target Sales, Inc., 446
2
U.S. 643, 649–50 (1980) (per curiam) (recognizing the “plain distinction between
the lawful right to publish prices . . . on the one hand, and an agreement among
competitors limiting action with respect to the published prices, on the other”).
In the years following our decision in Battipaglia, courts outside our Circuit
have – without exception – rejected Judge Friendly’s position and instead followed
Judge Winter’s dissent in striking down similar post‐and‐hold laws. See Costco
Wholesale Corp. v. Maleng, 522 F.3d 874, 893 n.15, 894–96 (9th Cir. 2008) (noting that
“Judge Friendly’s antitrust analysis strangely failed to account for the New York
requirement that posted prices be adhered to by wholesalers,” and agreeing with
Judge Winter’s “pointed[] observ[ation] in dissent” that a post‐and‐hold
requirement was per se unlawful); TFWS, Inc. v. Schaefer, 242 F.3d 198, 209–10 (4th
Cir. 2001) (noting that “Battipaglia has not been followed elsewhere” and
concluding that it was “obvious” that “agreements to adhere to previously
announced prices are unlawful per se”); Canterbury Liquors & Pantry v. Sullivan, 16
F. Supp. 2d 41, 47 (D. Mass. 1998) (“I am persuaded by the reasoning and
statements of the Supreme Court to concur with . . . Judge Winter in this case.”);
see also Miller v. Hedlund, 813 F.2d 1344, 1348–51 (9th Cir. 1987) (holding Oregon’s
post‐and‐hold law preempted by the Sherman Act); Beer & Pop Warehouse v. Jones,
3
41 F. Supp. 2d 552, 560–62 (M.D. Pa. 1999) (similar). A leading antitrust treatise
has also endorsed Judge Winter’s position. See Phillip E. Areeda & Herbert
Hovenkamp, Antitrust Law ¶ 217b2 (4th ed. 2013) (“Given the great danger that
agreements to post and adhere will facilitate horizontal collusion, the dissent’s
position [in Battipaglia] is more consistent with [Supreme Court precedent].”).
Despite this consensus, the panel opinion doubles down on Battipaglia,
concluding that, “[i]f anything, its reasoning has been fortified by intervening
decisions like Fisher [v. City of Berkeley, 475 U.S. 260 (1986)] and [Bell Atlantic Corp.
v. Twombly, 550 U.S. 544 (2007)].” Conn. Fine Wine & Spirits, LLC v. Seagull, 932 F.3d
22, 39 (2d Cir. 2019) as amended (July 29, 2019). According to the panel, Fisher
permits state post‐and‐hold laws unless they mandate or authorize actual
“concerted action” among alcohol wholesalers. Id. at 38. Similarly, the panel
likens alcohol wholesalers to the telecommunications carriers held to be engaging
in lawful parallel conduct in Twombly. Id. at 38–39.
The panel’s reasoning stretches Fisher and Twombly too far. In Fisher, the
Supreme Court upheld a Berkeley ordinance that – unlike a post‐and‐hold law –
unilaterally imposed rent ceilings upon landlords “to the exclusion of private
control.” 475 U.S. at 266. In doing so, the Court distinguished such “unilateral”
4
restraints, which are not subject to antitrust preemption, from “hybrid” restraints,
which grant private actors “a degree of private regulatory power.” Id. at 267–68.
Although the panel opinion “do[es] not take issue” with the district court’s
classification of Connecticut’s post‐and‐hold law as a hybrid restraint, it cites
Fisher for the proposition that preemption is not warranted unless the statute in
question authorizes or compels actual “concerted action” among private parties.
Conn. Fine Wine & Spirits, LLC, 932 F.3d at 38. But again, Fisher requires no such
thing. As the Supreme Court clarified only a year later in 324 Liquor Corp. v. Duffy,
a hybrid restraint may be attacked under Fisher even when “there is no ‘contract,
combination . . . , or conspiracy, in restraint of trade.’” 479 U.S. 335, 345 n.8 (1987)
(quoting 15 U.S.C. § 1); see also Freedom Holdings, Inc. v. Spitzer, 357 F.3d 205, 223
n.17 (2d Cir. 2004) (“[S]ince our decision in Battipaglia, the Supreme Court has
made it clear that an actual ‘contract, combination or conspiracy’ need not be
shown for a state statute to be preempted by the Sherman Act.” (quoting 324 Liquor
Corp., 479 U.S. at 345 n.8)). Likewise, Twombly did not involve a hybrid restraint
(or any state‐imposed restraint for that matter), and I am aware of no case, other
than the panel opinion in this case, extending Twombly’s antitrust holding to the
special context of hybrid restraints.
5
Moreover, the panel opinion’s overriding focus on concerted action
overlooks the economic realities of a post‐and‐hold pricing scheme. The problem
with Connecticut’s law is not that it affirmatively compels wholesalers to collude
in order to fix prices, but rather that it provides no incentive – or ability – for
wholesalers to compete on price. See Costco Wholesale Corp., 522 F.3d at 896 (citing
George Stigler, A Theory of Oligopoly, 72 J. Pol. Econ. 44 (1964)); Miller, 813 F.2d at
1349 (“Simply ending the analysis because of the lack of concerted activity among
the wholesalers fails to take into account the presence and effect of the state’s
involvement in the matter.”). Connecticut has imposed a scheme whereby
wholesalers are encouraged to pick inflated prices for alcohol, knowing that they
will always be able to match the price of a competitor. By contrast, a market
entrant hoping to gain market share by lowering prices will inevitably be
frustrated by the adjust‐and‐hold provisions of the statute, which will prevent the
entrant from further reducing prices. Since wholesalers will never be punished
for artificially high prices, or rewarded for market‐based low prices, they are likely
to eventually degenerate into a de facto cartel in which wholesalers vie to post the
highest possible prices without fear of market reprisal.
6
As courts across the country have recognized, these are precisely the kinds
of anticompetitive effects that doomed similar liquor laws under the Sherman Act.
See 324 Liquor Corp., 479 U.S. at 342 (striking down liquor laws that were “virtually
certain” to reduce competition and that may have “facilitat[ed] cartelization”);
Costco Wholesale Corp., 522 F.3d at 896 (“State enforcement of adherence to
privately set, supra‐competitive prices is precisely the danger which the Supreme
Court envisioned in crafting the hybrid and active supervision tests.”); TFWS, Inc.,
242 F.3d at 214 (Luttig, J., concurring) (“[T]he Maryland regulations before us are
not materially different from the regulations in 324 Liquor . . . .”). Thus, intervening
Supreme Court case law has undermined, not fortified, Battipaglia’s holding.
II.
Of course, the mere fact that Battipaglia was wrongly decided does not, by
itself, justify en banc review in this case. En banc rehearing is generally warranted
only when (1) necessary to “secure or maintain uniformity of the court’s
decisions,” or (2) the case “involves a question of exceptional importance.” Fed.
R. App. P. 35(a). But the latter condition is easily satisfied here.
First, this case perpetuates a circuit split between our Circuit and the Ninth
and Fourth Circuits, see Costco Wholesale Corp., 522 F.3d at 894–96; TFWS, Inc., 242
7
F.3d at 210; Miller, 813 F.2d at 1348–51, the exact kind of situation that the Federal
Rules of Appellate Procedure contemplate as appropriate for en banc rehearing, see
Fed. R. App. P. 35(b)(1)(B); id., Advisory Committee Notes (1998 Amendments)
(“[A] situation that may be a strong candidate for a rehearing en banc is one in
which the circuit persists in a conflict created by a pre‐existing decision of the same
circuit and no other circuits have joined on that side of the conflict.”). Indeed, the
circuit split in this case is particularly well‐suited for resolution by our en banc
court in light of its longstanding duration (thirty‐two years years since the Ninth
Circuit’s contrary decision in Miller v. Hedlund), developments in Supreme Court
case law since Battipaglia was decided thirty‐five years ago, and the formidable
collection of authorities now rejecting Battipaglia’s holding.1 See supra at 3–4.
Second, post‐and‐hold laws impose serious and well‐recognized harms on
consumers and retailers across all three states in our Circuit. See, e.g., James C.
Cooper & Joshua D. Wright, Alcohol, Antitrust, and the 21st Amendment: An
Empirical Examination of Post and Hold Laws, 32 Int’l Rev. L. & Econ. 379, 390 (2012)
1 Shortly before Battipaglia was decided, two state supreme courts ruled that their states’ post‐and‐hold
laws were unilateral restraints not subject to preemption under the Sherman Act. See Intercontinental
Packaging Co. v. Novak, 348 N.W.2d 330, 337–38 (Minn. 1984); Wine & Spirits Specialty, Inc. v. Daniel, 666
S.W.2d 416, 418–19 (Mo. 1984). Like Battipaglia, those cases have not been followed elsewhere, and their
reasoning has been undermined by the Supreme Court’s subsequent development of the “hybrid restraint”
classification in Fisher and 324 Liquor Corp. – a classification that, as the panel opinion acknowledges,
applies to Connecticut’s post‐and‐hold law. Conn. Fine Wine & Spirits, LLC, 932 F.3d at 38.
8
(“Our results suggest that constraining antitrust enforcement [against post‐and‐
hold regimes] . . . would result in lower consumer welfare for alcoholic beverage
consumers with no offsetting reduction in social harms.”); see also Christopher T.
Conlon & Nirupama Rao, The Price of Liquor is Too Damn High: Alcohol Taxation and
Market Structure 34 (NYU Wagner Research Paper No. 2610118, 2015),
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2610118 (demonstrating
“how [post‐and‐hold] legislation, which governs wholesale alcohol pricing in
many states, acts as a device to facilitate collusion”). Although this case directly
concerns only Connecticut’s post‐and‐hold statute, similar laws also exist in New
York and Vermont. See N.Y. Alco. Bev. Cont. Law § 101‐b(4) (liquor and wine
post‐and‐hold law); 14‐1 Vt. Code R. § 8 (beer post‐and‐hold law).2 Surely the
widespread anticompetitive harms that post‐and‐hold laws inflict across our
Circuit provide sufficient justification to merit revisiting Battipaglia, a case that has
become an outlier over the last three and a half decades.
* * *
2 Unlike Connecticut’s and New York’s post‐and‐hold schemes, Vermont’s scheme does not include an
“adjust” provision under which wholesalers have a short period of time to match the lowest posted price
before the hold takes effect. Nevertheless, while an adjust provision exacerbates the anti‐competitive
effects of post‐and‐hold laws, such laws are sufficiently anticompetitive on their own to violate the
Sherman Act. See Costco Wholesale Corp., 522 F.3d at 896 n.18 (“[The absence of an adjust provision] will not
save the [post‐and‐hold] scheme from per se condemnation. That firms are not empowered immediately
to alter their prices to meet a lower price or to adjust to a higher price does not alter the conclusion that in
the long run, prices for beer and wine are more likely to be uniform and stable because of tacit collusion.”).
9
Members of our Court have frequently invoked the “virtues of restraint” –
including judicial economy, collegiality, and “our Circuit’s longstanding tradition
of general deference to panel adjudication” – to counsel against en banc review,
even where a case presents a question of exceptional importance. United States v.
Taylor, 752 F.3d 254, 256 (2d Cir. 2014) (Cabranes, J., dissenting from the denial of
rehearing en banc) (quotation marks and citations omitted). But while the
propriety of assigning these “virtues” such significant weight may be fairly
debated as a general matter, such considerations are hardly implicated under the
unusual circumstances of this case, which turns on a 1984 split decision that has
been undermined by intervening Supreme Court case law and roundly rejected by
courts and commentators alike. Here, it would have been simple enough to grant
en banc rehearing and largely adopt the reasoning of Judge Winter’s prescient
dissent in Battipaglia. Instead, we have chosen to leave in place a longstanding
circuit split and to permit artificially high prices for alcohol consumers and
retailers throughout our Circuit. Needless to say, I consider this a missed
opportunity, and, for the reasons discussed above, I respectfully dissent.
10