No. 84-2022
Argued: November 3, 1986Decided: January 13, 1987
Held:
- 1. Section 101-bb is inconsistent with 1 of the Sherman Act. Resale price maintenance has long been regarded as a per se antitrust violation. The New York statute, which applies to all liquor wholesalers and retailers, allows “vertical control” by wholesalers of retail prices. Such industrywide resale price fixing is virtually certain to reduce both interbrand and intrabrand competition, because it prevents wholesalers from allowing or requiring retail price competition. Cf. California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97 . Pp. 341-343.
-
- 2. New York’s pricing system is not valid under the state-action exemption from the antitrust laws. The State’s system does meet the first requirement of the two-part test for determining immunity under Parker v. Brown, supra, that the challenged restraint be “one clearly articulated and affirmatively expressed as state policy.” However,
- New York’s liquor pricing system does not meet the second requirement that the State’s policy be “actively supervised” by the State itself. New York simply authorizes price setting and enforces the prices established by private parties. The State has displaced competition among liquor retailers without substituting an adequate system of regulation. Cf. California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., supra. Pp. 343-345.
- 3. New York’s pricing system is not valid under the Twenty-first Amendment. Although 2 of the Amendment qualifies the federal commerce power, the Amendment does not operate to “repeal” the Commerce Clause wherever state regulation of intoxicating liquors is concerned. The question in each case is whether the interests implicated by a state regulation are so closely related to the powers preserved by the Twenty-first Amendment that the regulation may prevail, notwithstanding that its requirements directly conflict with express federal policies. Pp. 346-352.
- (a) The State’s asserted interest in protecting small retailers does not suffice to afford immunity from the Sherman Act. Although the New York Court of Appeals correctly concluded that the purpose of the 12 percent minimum markup was to protect those retailers, the court made no findings that the purpose of the “bottle price” definition of cost was to protect small retailers, and cited no legislative or other findings that either the markup or the “bottle price” definition of cost has been effective in preserving the retailers. The State’s resale price maintenance system directly conflicts with the “familiar and substantial” federal interest in enforcing the antitrust laws. Pp. 348-351.
- (b) It is not necessary to consider whether New York’s pricing system can be upheld as an exercise of the State’s power to promote temperance. The Court of Appeals did not find that the statute was intended to promote temperance, or that it does so. This Court accords great weight to the views of the State’s highest court on state-law matters, and customarily accepts the factual findings of state courts in the absence of exceptional circumstances. No such exceptional circumstances appear in this case. Pp. 351-352.
64 N. Y. 2d 504, 479 N. E. 2d 779, reversed and remanded.
POWELL, J., delivered the opinion of the Court, in which BRENNAN, WHITE, MARSHALL, BLACKMUN, STEVENS, and SCALIA, JJ., joined. O’CONNOR, J., filed a dissenting opinion, in which REHNQUIST, C. J., joined, post, p. 352. [479 U.S. 335, 337]
Bertram M. Kantor argued the cause for appellant. With him on the briefs were Michael H. Byowitz and Seymour Howard.
Deputy Assistant Attorney General Cannon argued the cause for the United States as amicus curiae urging reversal. With him on the brief were Solicitor General Fried, Assistant Attorney General Ginsburg, Deputy Solicitor General Cohen, Harriet S. Shapiro, Catherine G. O’Sullivan, and Andrea Limmer.
Christopher Keith Hall, Assistant Attorney General of New York, argued the cause for appellees. With him on the brief were Robert Abrams, Attorney General, O. Peter Sherwood, Solicitor General, and Richard G. Liskov, Lloyd Constantine, and August L. Fietkau, Assistant Attorneys General. *
[ Footnote * ] Briefs of amici curiae urging affirmance were filed for Peerless Importers, Inc., et al. by Lawrence Kill, Steven M. Pesner, Anthony A. Dean, Ralph S. Spritzer, Michael Whiteman, and Jonathan P. Nye; and for Wine, Liquor & Distillery Workers Union Local 1, AFL-CIO, et al. by Victor Feingold. Martin P. Mehler filed a brief for Metropolitan Package Store Association, Inc., et al. as amici curiae.
JUSTICE POWELL delivered the opinion of the Court.
The State of New York requires retailers to charge at least 112 percent of the “posted” wholesale price for liquor, but permits wholesalers to sell to retailers at less than the “posted” price. The question presented is whether this pricing system is valid under either the state-action exemption from the antitrust laws or the Twenty-first Amendment.
I
A
Wholesalers of liquor in the State of New York must file, or “post,” monthly price schedules with the State Liquor Authority (SLA). N. Y. Alco. Bev. Cont. Law (ABC Law) [479 U.S. 335, 338] 101-b (McKinney 1970 and Supp. 1986). 1 The schedules must report, “with respect to each item,” “the bottle and case price to retailers.” 101-b(3)(b). The ABC Law itself does not require that the posted case price of an item bear any relation to its posted bottle price. The SLA, however, has promulgated a rule stating that for cases containing 48 or fewer bottles, the posted bottle price multiplied by the number of bottles in a case must exceed the posted case price by a “breakage” surcharge of $1.92. SLA Rule 16.4(e), 9 NYCRR 65.4(e) (1980). 2
Retailers of liquor may not sell below “cost.” ABC Law, 101-bb(2). 3 The statute defines “cost” as “the price of such [479 U.S. 335, 339] item of liquor to the retailer plus twelve percentum of such price.” 101-bb(2)(b). “Price,” in turn, is defined as the posted bottle price in effect at the time the retailer sells or offers to sell the item. Ibid. Although the statute defines retail cost in terms of the wholesaler’s posted bottle price, retailers generally purchase liquor by the case. The SLA expressly has authorized wholesalers to reduce, or “post off,” the case price of an item without reducing the posted bottle price of the item. SLA Bulletin 471 (June 29, 1973). 4 By reducing the case price without reducing the bottle price, [479 U.S. 335, 340] wholesalers can compel retailers to charge more than 112 percent of the actual wholesale cost. Similarly, because 101-bb(2)(b) defines “cost” in terms of the posted bottle price in effect when the retailer sells or offers to sell the item, wholesalers can sell retailers large quantities in a month when prices are low and then require the retailers to sell at an abnormally high markup by raising the bottle price in succeeding months. The New York retail pricing system thus permits wholesalers to set retail prices, and retail markups, without regard to actual retail costs. New York wholesalers advertise in trade publications that their “post offs” will guarantee retailers large markups, sometimes in excess of 30 percent. App. 32-35. Wholesalers also advertise that buying large quantities while wholesale prices are low will result in extra retail profits after wholesale prices are raised. App. to Juris. Statement 101A. The effect of this complex of statutory provisions and regulations is to permit wholesalers to maintain retail prices at artificially high levels.
B
Appellant 324 Liquor Corporation sold two bottles of liquor to SLA investigators in June 1981 for less than 112 percent of the posted bottle price. Because the wholesalers had “posted off” their June 1981 case prices without reducing the posted bottle prices, appellant’s retail prices represented an 18 percent markup over its actual wholesale cost. As a result of this violation, appellant’s license was suspended for 10 days and it forfeited a $1,000 bond. Appellant sought relief from the penalties on the ground that 101-bb violates 1 of the Sherman Act, 15 U.S.C. 1. A New York Supreme Court denied the petition. 324 Liquor Corp. v. McLaughlin, 119 Misc. 2d 746, 464 N. Y. S. 2d 355 (1983). The Appellate Division reversed. 324 Liquor Corp. v. McLaughlin, 102 [479 U.S. 335, 341] App. Div. 2d 607, 478 N. Y. S. 2d 615 (1984). The New York Court of Appeals upheld the validity of 101-bb and reinstated the penalties. J. A. J. Liquor Store, Inc. v. New York State Liquor Authority, 64 N. Y. 2d 504, 479 N. E. 2d 779 (1985). The Court of Appeals held that 101-bb is not immune under the state-action doctrine of Parker v. Brown, 317 U.S. 341 (1943), because the State does not actively supervise the resale price maintenance system. The court nevertheless concluded that the statute is a proper exercise of powers reserved to the State by the Twenty-first Amendment, because “the State interest in protecting retailers which underlies [the statute] is of sufficient magnitude to override the Federal policy expressed in the antitrust laws.” J. A. J. Liquor Store, Inc. v. New York State Liquor Authority, supra, at 522, 479 N. E. 2d, at 789. We noted probable jurisdiction, 475 U.S. 1080 (1986), and we now reverse.
II
In California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., 445 U.S. 97 (1980), we invalidated a California statute requiring all producers, wholesalers, and rectifiers of wine to file fair trade contracts or price schedules with the State. Midcal establishes the framework for our analysis of New York’s liquor pricing system.
A
The “threshold question,” in this case as in Midcal, is whether the State’s pricing system is inconsistent with the antitrust laws. Id., at 102. Section 101-bb imposes a regime of resale price maintenance on all New York liquor retailers. Resale price maintenance has been a per se violation of 1 of the Sherman Act “since the early years of national antitrust enforcement.” Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 761 (1984). See Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 404 -409 (1911). Our recent decisions recognize the possibility that a vertical restraint imposed by a single manufacturer or wholesaler [479 U.S. 335, 342] may stimulate interbrand competition even as it reduces intrabrand competition. Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 51 -52 (1977). Accordingly, we have held that concerted nonprice restrictions imposed by a single manufacturer are to be judged under the rule of reason. Id., at 59. We also have held that a single manufacturer may announce resale prices in advance and refuse to deal with those who fail to comply. Monsanto Co. v. Spray-Rite Service Corp., supra, at 761; United States v. Colgate & Co., 250 U.S. 300, 307 (1919). Neither of these qualifications to the per se rule applies in this case. Section 101-bb directly restricts retail prices, and retailers are subject to penalties for failure to adhere to the resale price schedules. The New York statute, moreover, applies to all wholesalers and retailers of liquor. We have noted that industrywide resale price maintenance also may facilitate cartelization. Continental T. V., Inc. v. GTE Sylvania Inc., supra, at 51, n. 18. Mandatory industrywide resale price fixing is virtually certain to reduce interbrand competition as well as intrabrand competition, because it prevents manufacturers and wholesalers from allowing or requiring retail price competition. The New York statute specifically forbids retailers from reducing the minimum prices set by wholesalers.
The antitrust violation in this case is essentially similar to the violation in Midcal. It is true that the wholesalers in Midcal were required to adhere to a single fair trade contract or price schedule for each geographical area. 445 U.S., at 99 -100. Midcal therefore involved horizontal as well as vertical price fixing. Although the horizontal restraint in Midcal may have provided an additional reason for invalidating the statute, our decision in Midcal rested on the “vertical control” of wine producers, who held “the power to prevent price competition by dictating the prices charged by wholesalers.” Id., at 103. As we explained in Rice v. Norman Williams Co., 458 U.S. 654 (1982), the California statute [479 U.S. 335, 343] was invalidated because “it mandated resale price maintenance, an activity that has long been regarded as a per se violation of the Sherman Act.” Id., at 659-660 (emphasis in original; footnote omitted). We hold that ABC Law 101-bb is inconsistent with 1 of the Sherman Act. 5
In Parker v. Brown, 317 U.S. 341 (1943), the Court held that the Sherman Act does not apply “to the anticompetitive conduct of a State acting through its legislature.” Hallie v. Eau Claire, 471 U.S. 34, 38 (1985). Parker v. Brown rests on principles of federalism and state sovereignty. Under those principles, “an unexpressed purpose to nullify a state’s control over its officers and agents is not lightly to be attributed to Congress.” Parker v. Brown, 317 U.S., at 351 . At the same time, “a state does not give immunity to those who violate the Sherman Act by authorizing them to violate it, or by declaring that their action is lawful.” Ibid. Our decisions have established a two-part test for determining immunity under Parker v. Brown. “First, the challenged restraint must be `one clearly articulated and affirmatively expressed as state policy’; second, the policy must be `actively supervised’ by the State itself.” California Retail Liquor Dealers Assn. v. Midcal Aluminum, Inc., supra, at 105 (quoting Lafayette v. Louisiana Power & Light Co., [479 U.S. 335, 344] 435 U.S. 389, 410 (1978) (plurality opinion)). New York’s liquor-pricing system meets the first requirement. The state legislature clearly has adopted a policy of resale price maintenance. Just as clearly, however, New York’s liquor-pricing system is not actively supervised by the State. As in Midcal, the State “simply authorizes price setting and enforces the prices established by private parties.” 6 445 Page 345 U.S., at 105 . New York “neither establishes prices nor reviews the reasonableness of the price schedules.” Ibid. New York “does not monitor market conditions or engage in any `pointed reexamination’ of the program.” Id., at 106 (quoting Bates v. State Bar of Arizona, 433 U.S. 350, 362 (1977)). 7 Each wholesaler sets its own “posted” prices; the State does not control month-to-month variations in posted prices. Nor does the State supervise the wholesaler’s decision to “post off,” the amount of the “post off,” the corresponding decrease, if any, in the bottle price, or the frequency with which a wholesaler posts off. The State has displaced competition among liquor retailers without substituting an adequate system of regulation. “The national policy in favor of competition cannot be thwarted by casting such a gauzy cloak of state involvement over what is essentially a private price-fixing arrangement.” 445 U.S., at 106 . 8 [479 U.S. 335, 346]
III
Section 2 of the Twenty-first Amendment reserves to the States the power to regulate, or prohibit entirely, the transportation or importation of intoxicating liquor within their borders. 9 Section 2 “grants the States virtually complete control over whether to permit importation or sale of liquor and how to structure the liquor distribution system.” Midcal, 445 U.S., at 110 . The States’ Twenty-first Amendment powers, though broad, are circumscribed by other provisions of the Constitution. See Larkin v. Grendel’s Den, Inc., 459 U.S. 116, 122 , n. 5 (1982) (Establishment Clause); Craig v. Boren, 429 U.S. 190, 204 -209 (1976) (Equal Protection Clause); Wisconsin v. Constantineau, 400 U.S. 433, 436 (1971) (procedural due process); Department of Revenue v. James Beam Co., 377 U.S. 341, 345 -346 (1964) (Export-Import Clause). Although 2 directly qualifies the federal commerce power, the Court has rejected the view “that the Twenty-first Amendment has somehow operated to `repeal’ the Commerce Clause wherever regulation of intoxicating liquors is concerned.” Hostetter v. Idlewild Liquor Corp., 377 U.S. 324, 331 -332 (1964). 10 Instead, the Court has engaged [479 U.S. 335, 347] in a “pragmatic effort to harmonize state and federal powers.” Midcal, supra, at 109. The question in each case is “whether the interests implicated by a state regulation are so closely related to the powers reserved by the Twenty-first Amendment that the regulation may prevail, notwithstanding that its requirements directly conflict with express federal policies.” Capital Cities Cable, Inc. v. Crisp, 467 U.S. 691, 714 (1984). [479 U.S. 335, 348]
A
The New York Court of Appeals concluded that 101-bb “was expressly designed to preserve competition in New York’s retail liquor industry by stabilizing the retail market and protecting the economic position of small liquor retailers.” J. A. J. Liquor Store, Inc. v. New York State Liquor Authority, 64 N. Y. 2d, at 520, 479 N. E. 2d, at 788. The Court of Appeals traced the recent history of the State’s regulation of retail liquor prices. In early 1964, the Moreland Commission completed an extensive study of the state laws governing the sale and distribution of alcoholic beverages. New York State Moreland Comm’n on the Alcoholic Beverage Control Law, Report and Recommendations Nos. 1-3 (1964). “The Commission’s major findings were that New York consumers suffered from serious price discrimination when compared to liquor consumers in other States and that a severe lack of competition existed in the New York retail market.” J. A. J. Liquor Store, Inc. v. New York State Liquor Authority, supra, at 519, 479 N. E. 2d, at 787. The New York Legislature responded in 1964 by enacting sweeping changes in the ABC Law primarily intended to promote price competition among liquor retailers. Ibid. The 1964 version of 101-bb prohibited retail sales below cost and defined cost as the bottle price in effect when the retailer sells or offers to sell the item. ABC Law 101-bb (McKinney 1970). During the years between 1964 and 1971, the number of liquor stores in New York declined. The State Senate Excise Committee investigated the decline and concluded that “the mass of small retailers are unable to compete with the large volume outlets that have emerged.” New York State Legislature, Senate Excise Committee, Final Report 29-30 (Mar. 5, 1971). In 1971 the legislature enacted the current version of ABC Law 101-bb to “protec[t] the economic position of small liquor retailers.” J. A. J. Liquor Store, Inc. v. New York State Liquor Authority, supra, at 520, 479 N. E. 2d, at 788. [479 U.S. 335, 349]
We agree with the New York Court of Appeals that the purpose of the 12-percent minimum markup is to protect small retailers. We have noted that the 12-percent markup is imposed on the “posted bottle price,” a price that may differ from the actual wholesale price paid by the retailer. See supra, at 339-340. There is no indication in the statute or its legislative history, however, that the purpose of defining cost as “posted bottle price” was to protect small retailers. The New York Legislature first defined cost in terms of posted bottle price in the 1964 amendments to the ABC Law. The purpose of those amendments, as the New York Court of Appeals found, was to increase price competition among liquor retailers. The 1971 amendments simply retained bottle price as the basis of the statutory definition of cost and added 12 percent to reflect the retailer’s overhead and operating expenses. Indeed, the legislative Committee that considered the 1971 amendments concluded that the bottle price definition of cost put small retailers at a slight disadvantage. The Committee noted that “[t]he present definition of `cost’ [as] scheduled bottle cost to the retailer does afford some margin of profit to large retailers in particular, and, to a lesser extent, to all retailers who can afford to buy by the case.” New York State Senate Excise Committee, Final Report, supra, at 8-9. The Committee suggested that “consideration be accorded to . . . [r]evision or elimination of . . . `post offs’ practices that appear to afford discriminatory advantages to possession of great purchasing power.” Id., at 41. The Committee did not recommend an amendment to this effect because it considered the matter “outside the scope of the directive given to this Committee.” Ibid. 11 [479 U.S. 335, 350]
In Midcal, we found nothing in the record to suggest that California’s wine-pricing system actually helped sustain small retailers. 445 U.S., at 113 . Similarly, in this case the New York Court of Appeals cited no legislative or other findings that either the minimum markup requirement or the “bottle price” definition of cost has been effective in preserving small retail establishments, and made no findings of its own. Our Midcal opinion cites evidence that States with “fair trade laws” not unlike ABC Law 101-bb actually had higher rates of firm failure, and slower rates of growth of small retail stores, than free trade States in the years between 1956 and 1972. 445 U.S., at 113 (citing S. Rep. No. 94-466, p. 3 (1975)). The only relevant evidence in the record indicates that the number of retail liquor outlets in New York continued to decline between 1970 and 1979. App. to Juris Statement 99A. We are unwilling to assume on the basis of this record that 101-bb has the effect of protecting small retailers.
In this case, as in Midcal, the State’s unsubstantiated interest in protecting small retailers “simply [is] not of the same stature as the goals of the Sherman Act.” 445 U.S., at 114 . New York’s resale price maintenance system directly conflicts with the “familiar and substantial” federal interest in enforcement of the antitrust laws. Id., at 110. “Antitrust laws in general, and the Sherman Act in particular . . . are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms.” United States v. Topco Associates, Inc., 405 U.S. 596, 610 (1972). We therefore conclude that the State’s asserted interest in [479 U.S. 335, 351] protecting small retailers does not suffice to afford immunity from the Sherman Act. 12
B
Appellees finally argue that 101-bb furthers the State’s interest in promoting temperance. Brief for Appellees 39-44. One would hardly suggest that the New York Legislature set out to promote temperance by increasing the number of retail outlets for liquor. Rather, appellees argue that New York’s pricing system has the effect of raising retail prices, and that higher prices decrease consumption of liquor. The New York Court of Appeals did not find that the statute was intended to promote temperance, or that it does so. On the contrary, that court cited the conclusion of the Moreland Commission that higher prices do not decrease consumption of liquor. J. A. J. Liquor Store, Inc. v. New York State Liquor Authority, 64 N. Y. 2d, at 521, n. 2, 479 N. E. 2d, at 788, n. 2 (citing Moreland Comm’n Report No. 1, at 3, 17). Of course, we are not bound by findings of the Court of Appeals that undercut powers reserved by the Twenty-first Amendment. Midcal, supra, at 111; Hooven & Allison Co. v. Evatt, 324 U.S. 652, 659 (1945). We nevertheless accord “great weight to the views of the State’s highest court” on state-law matters, Indiana ex rel. Anderson v. Brand, 303 U.S. 95, 100 (1938), and customarily accept the factual findings of state courts in the absence of exceptional circumstances. Midcal, supra, at 111-112. Our review of the record discloses no such exceptional circumstances in this case. 13 We therefore do not reach the question whether New [479 U.S. 335, 352] York’s liquor-pricing system could be upheld as an exercise of the State’s power to promote temperance.
IV
We conclude that the Twenty-first Amendment provides no immunity for New York’s authorization of private, unsupervised price fixing by liquor wholesalers. We therefore reverse the judgment of the New York Court of Appeals and remand the case for further proceedings not inconsistent with this opinion.
