“Total” Deconstructed

By Peter A. Berdon as seen on thebeveragejournal.com

On June 6, just several weeks ago, U.S. District Court Judge Janet C. Hall dismissed all of Total Wine & Spirits claims in its case seeking to upend Connecticut’s regulation of the beverage alcohol industry.  Nearly one year ago Total filed a lawsuit against the state of Connecticut seeking to invalidate three key provisions of the Connecticut Liquor Control Act, alleging they violate the Sherman Antitrust Act.  Specifically, Total sought to invalidate the laws and regulations that establish “post and hold”, prohibit sales below the “minimum bottle” and price discrimination among retailers.  The major Connecticut trade associations (The Wine & Spirits Wholesaler of Connecticut, the Package Store Association, the Connecticut Beer Wholesalers Association and the Connecticut Restaurant Association) moved to be made parties to the case to support the current laws.  The State and the trade associations quickly sought dismissal of the suit, asserting that even if facts alleged by Total were true, they were not entitled to win judgment under the law.  The Court sided with the State and the Trade Associations, finding that, even while giving Total every benefit of the doubt, the state’s requirements surrounding price filings, minimum bottle and prohibition against price discrimination do not violate the Sherman Antitrust Act.   

The Court’s decision preserves, at least for now, Connecticut’s statutory scheme.

The Court’s decision clearly spells out its reasoning.  The area of antitrust law is complex and evolving.  Not every restraint of trade, no matter how anti-competitive its effect may be, automatically violates federal antitrust law.  Whether the law by itself (unilateral), or the actions of private citizens in combination with the statue or regulation (hybrid), results in a restraint of trade determines whether such restraint is lawful (unilateral) or possibly lawful (hybrid).  After determining the method of restraint, the court then applies the appropriate standard—a per se violation or a Rule of Reason analysis.  Per se violations are actions which clearly have no justification and are automatic violations of the Sherman Antitrust Act. Where restraints might be justifiable, the Rule of Reason analysis looks at the relationship of the actors.  Restraints which impact actors within the same tier (horizontal) automatically violate the Sherman Antitrust Act; while those that impose restraints between actors in different tiers (vertical) may well be lawful. 

The Court determined that while Connecticut’s post and hold requirement may restrain trade among wholesalers, a prior Second Circuit case, Battipaglia, compelled it to apply the Rule of Reason analysis and therefore concluded the provision is lawful.  The Court noted that recent cases from other federal circuits determined similar restrictions were unlawful under a per se analysis, notably TFWS (a similar action brought by Total in Maryland and decided in 2001).

Similarly, the Court determined that Connecticut’s Minimum Retail Price requirement, often referred to as minimum bottle, is a not a per se violation of the Sherman Anti-Trust Act.  The Court, finding the restraint was vertical, applied the Rule of Reason analysis and held the provision does not violate the Sherman Antitrust Act. 

The Court quickly dismissed Total’s price discrimination allegations on the basis that the restriction is not a hybrid restriction and as such does not violate the Sherman Antitrust Act.The June 6 decision, however, will likely not be the end of the story.  By the time this article is printed, Total may have already initiated steps to challenge the decision through an appeal to the Second Circuit Court of Appeals. This would be the first stop before the United States Supreme Court.  Significantly, the court’s holding in this case seems at odds with the holdings in two other relatively recent beverage alcohol cases, TFWS (another case brought by Total challenging Maryland’s statutory scheme) and Costco v Washington (a case brought by Costco challenging certain provision of Washington’s statutory scheme).  Should the Second Circuit Court of Appeals follow the holdings of prior cases and uphold this decision, the case would then be ripe for consideration by the US Supreme Court to resolve the differing opinions among the circuits.