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Connecticut Fine Wine & Spirits, LLC v. Harris

United States District Court, D. Connecticut

June 6, 2017

CONNECTICUT FINE WINE & SPIRITS, LLC, Plaintiff,
v.
JONATHAN A. HARRIS, Defendants.

          RULING RE: MOTIONS TO DISMISS (DOC. NOS. 38, 66, 80)

          Janet C. Hall United States District Judge.

         TABLE OF CONTENTS

         I. INTRODUCTION .................................................................................................. 2

         II. BACKGROUND ................................................................................................... 3

A. Connecticut's Liquor Marketplace ................................................................... 3
B. Total Wine ....................................................................................................... 6

         III. LEGAL STANDARDS ........................................................................................... 7

A. Motions to Dismiss: Rule 12(b)(6) ................................................................... 7
B. Sherman Act Preemption of State Statutes ..................................................... 7

         IV. DISCUSSION ..................................................................................................... 12

A. Post and Hold Provisions .............................................................................. 15
1. Unilateral or Hybrid Restraint ................................................................... 15
2. Per Se Violation or Rule of Reason Analysis ........................................... 19
a. Count One: Horizontal Price Fixing .................................................... 20
b. Count Two: Vertical Price Fixing ........................................................ 25
B. Minimum Retail Price Provisions ................................................................... 27
1. Unilateral or Hybrid Restraint ................................................................... 27
2. Per Se Violation or Rule of Reason Analysis ........................................... 29
a. Count One: Horizontal Price Fixing .................................................... 30
b. Count Two: Vertical Price Fixing ........................................................ 31
C. Price Discrimination Prohibition ..................................................................... 36

         V. CONCLUSION .................................................................................................... 39

         I. INTRODUCTION

         Plaintiff Connecticut Fine Wine & Spirits, LLC (“Total Wine”) instituted this action against defendants Jonathan A. Harris, Commissioner of the Connecticut Department of Consumer Protection, and John Suchy, Director of the Connecticut Division of Liquor Control (collectively, the “state defendants”), in their official capacities. Compl. (Doc. No. 1) at 1. Total Wine alleges that certain state statutory and regulatory provisions governing the distribution and sale of alcoholic beverages are preempted by federal antitrust law.[1] See id. ¶¶ 28, 33. Total Wine seeks declaratory and injunctive relief. See id. ¶ 34.

         Four trade associations-the Wine & Spirit Wholesalers of Connecticut (“WSWC”), Connecticut Beer Wholesalers Association (“CBWA”), Connecticut Restaurant Association (“CRA”), and Connecticut Package Stores Association (“CPSA”) (collectively, the “trade associations”)-filed Motions to Intervene (Doc. Nos. 27, 30, 39, 47). The court granted the motions, see Ruling (Doc. No. 62) at 2, as well as a subsequent Motion to Intervene (Doc. No. 69) filed by Brescome Barton, Inc. (“Brescome” and, with the trade associations, “intervenors”), see Order (Doc. No. 75).

         Harris and Suchy filed a joint Motion to Dismiss, see generally Mot. to Dismiss (“State Defs. Mot.”) (Doc. No. 38), as did the trade associations, see generally Mot. to Dismiss by Wine & Spirits Wholesalers of Conn., Conn. Beer Wholesalers Ass'n, Conn. Rest. Ass'n, & Conn. Package Stores Ass'n (“Trade Ass'ns Mot.”) (Doc. No. 66).

         Brescome filed an additional Motion to Dismiss. See generally Def. Brescome Barton, Inc.'s Mot. to Dismiss (“Brescome Mot.”) (Doc. No. 80). Each Motion to Dismiss relies on Federal Rule of Civil Procedure 12(b)(6). See State Defs. Mot. at 1; Trade Ass'ns Mot. at 1; Brescome Mot. at 1. Total Wine filed a consolidated opposition to the Motions, see generally Pl.'s Consolidated Opp'n to Defs.' & Intervenors' Mots. to Dismiss (“Opp'n” or “Opposition”) (Doc. No. 82), and the state defendants and intervenors replied in a timely manner, see generally State Defs.' Reply Mem. in Supp. of Mot. to Dismiss (“State Defs. Reply”) (Doc. No. 84); Intervenors' Joint Reply in Supp. of their Mots. to Dismiss (“Intervenors Reply”) (Doc. No. 85). The court heard oral argument on the pending Motions on May 18, 2017.

         For the reasons set forth below, the Motions to Dismiss are GRANTED.

         II. BACKGROUND[2]

         A. Connecticut's Liquor Marketplace

         The sale of alcoholic beverages in Connecticut is prohibited, except as permitted by Connecticut's Liquor Control Act. Conn. Gen. Stat. § 30-74(a). “Connecticut has what may be characterized as a tripartite pricing mechanism establishing the method by which liquor prices are set by the manufacturer, . . . the wholesaler[, ] and the retailer.” Serlin Wine & Spirit Merchs., Inc. v. Healy, 512 F.Supp. 936, 937-38 (D. Conn. 1981). Most relevant here are three sets of requirements: the post and hold provisions, minimum retail price provisions, and price discrimination prohibition.

         First, Connecticut's post and hold provisions require state-licensed manufacturers and wholesalers to post a “bottle price” and a “case price” each month with the Department of Consumer Protection. See Compl. ¶ 12. Posted prices are then made available to industry participants, who may, and often do, amend their own postings to match competitors' lower prices. See id. ¶¶ 12, 16. Once these prices are finalized, the manufacturer or wholesaler must maintain its posted prices for the following month.[3] See id. ¶ 12.

         Second, the minimum retail price provisions require that retailers sell to customers at or above a statutorily defined “cost.” See id. ¶ 13. Generally, a retailer's “cost” for a given alcoholic beverage is determined by adding the posted bottle price- as set by the wholesaler-and a markup for shipping and delivery.[4] See Id. Wholesalers occasionally lower their posted case prices for a given month, without lowering posted bottle prices, during what are referred to as “off-post” months. See Id. Although retailers buy almost exclusively by the case, their prices remain fixed by the minimum retail price provisions, which reference posted bottle prices, rather than posted case prices. See id.

         Finally, wholesalers must sell a given product to all retailers at the same price.[5]See id. ¶ 14. Specifically, wholesalers may not offer discounts to retailers who are high volume purchasers. See Compl. ¶ 14.

         No Connecticut agency or instrumentality actively supervises the price posting and matching processes. See id. ¶ 21. Rather, manufacturers and wholesalers are left to post prices as they see fit, without review by the state. See id.

         B. Total Wine

         Total Wine owns and operates four retail beverage stores in Connecticut. Compl. ¶ 1. It holds package store permits for its four retail locations. See id. ¶ 9. Total Wine strives “to offer[ ] the nation's best selection of alcoholic beverages, and to hav[e] the lowest prices on wine, spirits, and beer.” See id. ¶ 7. Total Wine alleges that the challenged provisions prevent it from using its “efficiencies” to reduce the prices at which it sells to consumers. See id. ¶¶ 17, 22. It has not lowered its prices below its “cost, ” for fear of being subject to civil and criminal penalties. See id. ¶ 22; see also Id. ¶ 15 (discussing penalties for violations of Liquor Control Act).[6] As Total Wine acknowledged at oral argument, its antitrust preemption claims are facial challenges.

         III. LEGAL STANDARDS

         A. Motions to Dismiss: Rule 12(b)(6)

         In ruling on a Motion to Dismiss, the court “accept[s] all factual claims in the complaint as true and draw[s] all reasonable inferences in the plaintiff's favor.” Simon v. Key Span Corp., 694 F.3d 196, 201 (2d Cir. 2012) (citing Famous Horse Inc. v. 5th Ave. Photo Inc., 624 F.3d 106, 108 (2d Cir. 2010)). “[T]he court, in judging the sufficiency of the complaint, must accept the facts alleged and construe ambiguities in the light most favorable to upholding the plaintiff's claim.” Doe v. Columbia Univ., 831 F.3d 46, 48 (2d Cir. 2016). However, the court need not “accept conclusory allegations or legal conclusions masquerading as factual conclusions.” Faber v. Metro. Life Ins. Co., 648 F.3d 98, 104 (2d Cir. 2011) (quoting Rolon v. Henneman, 517 F.3d 140, 149 (2d Cir. 2008)). Instead, “[t]o survive dismissal, the plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient to raise a right to relief above the speculative level.” Lanier v. Bats Exch., Inc., 838 F.3d 139, 150 (2d Cir. 2016) (quoting ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007)). “While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions . . . .” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quotation marks and citations omitted).

         B. Sherman Act Preemption of State Statutes

         Section 1 of the Sherman Act provides that “[e]very contract, combination . . . or conspiracy, in restraint of trade or commerce . . . is declared to be illegal.” 15 U.S.C. § 1. The Supreme Court has made clear that, “[i]n determining whether the Sherman Act pre-empts a state statute, [courts] apply principles similar to those . . . employ[ed] in considering whether any state statute is pre-empted by a federal statute pursuant to the Supremacy Clause.” Rice v. Norman Williams Co., 458 U.S. 654, 659 (1982).[7] “[T]he party asserting preemption must demonstrate an ‘irreconcilable conflict' between the challenged statute and the Sherman Act. Such a conflict will be found only ‘when the conduct contemplated by the statute is in all cases a per se violation' of the antitrust laws.” Freedom Holdings v. Cuomo (“Freedom Holdings IV”), 624 F.3d 38, 49-50 (2d Cir. 2010) (quoting Norman Williams, 458 U.S. at 659, 661). “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, ” nor is it preempted solely because “the state scheme might have an anticompetitive effect.” Norman Williams, 458 U.S. at 659. As the state defendants pointed out at oral argument, see Hr'g Tr. (Doc. No. 89) at 11:6-11:10, whether or not private parties are actually colluding has no import in the preemption analysis, which focuses on the text and face of the statutes at issue.

         Ordinarily, “a two-step inquiry guides analysis of” claims that state statutes are preempted by the Sherman Act. Freedom Holdings IV, 624 F.3d at 49. At the first step, the court must determine whether the state statutes “mandate or authorize a per se antitrust violation.” Id. at 50 (quotation marks and citation omitted). Then, “[e]ven if plaintiffs showed that the challenged statutes mandate or authorize a per se antitrust violation, those laws might still be saved from preemption by the doctrine of state action immunity, if the anti-competitive conduct is both clearly articulated and affirmatively expressed as state policy and actively supervised by the [s]tate itself.” Id. (internal quotation marks and citations omitted). Neither the defendants nor any of the intervenors have suggested at this time that Total Wine's claims should be dismissed at the second step of this analysis. See Opp'n at 12 n.4 (discussing the second step-so-called Parker immunity-and defendants' failure to raise it as grounds for dismissal). Similarly, neither the defendants nor the intervenors have suggested at this time that any of the challenged provisions might be saved by the Twenty-first Amendment. Cf. Costco Wholesale Corp. v. Maleng, 522 F.3d 874, 901-04 (9th Cir. 2008) (discussing permissibility of Washington's post and hold provisions under Twenty-first Amendment). Therefore, the court's analysis in this Ruling focuses solely on the first step of the above inquiry: determining whether the state statutes “mandate or authorize a per se antitrust violation.” Freedom Holdings IV, 624 F.3d at 49 (quotation marks and citation omitted).

         In determining whether there is an irreconcilable conflict between the state and federal statutes, the court must determine whether the challenged state statutes qualify as unilateral or hybrid restraints. “[R]estraints ‘unilaterally imposed by government . . . to the exclusion of private control' do not violate the antitrust laws.” Freedom Holdings IV, 624 F.3d at 50 (quoting Fisher v. City of Berkeley, Cal., 475 U.S. 260, 266 (1986)); see also Fisher, 475 U.S. at 267 (characterizing unilateral restraints as “outside the purview of § 1” of Sherman Act). “Where, however, state law does not regulate unilaterally but, rather, grants private actors a degree of regulatory control over competition, the statute may be preempted as a ‘hybrid' restraint on trade.” Freedom Holdings IV, 624 F.3d at 50 (citing, inter alia, 324 Liquor Corp. v. Duffy, 479 U.S. 335, 345-46 & n.8 (1987)).

         If the statute qualifies as a hybrid restraint, the court then must determine whether the conduct envisioned by the statute constitutes a per se violation of the Sherman Act, or instead would receive rule of reason scrutiny. See Norman Williams, 458 U.S. at 661. “[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.” Id. In other words, if a state statute “mandates or authorizes conduct” that is a per se violation of the Sherman Act, it is preempted; however, 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.” Id. ...


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