Judge enjoins liquor-pricing regulations

Daily Record, The (Baltimore), May 4, 2004 by Ann Parks

Two of Maryland's liquor-pricing regulations are unenforceable, a federal judge in Baltimore has held.

The decision invalidates the post-and-hold liquor pricing system, which requires wholesalers to lock in their prices a month in advance, as well as the volume discount ban, under which wholesalers must offer a given product to every retailer at the same price.

It's a good thing for consumers, said William James Murphy, who has represented Towson liquor retailer TFWS Inc., d/b/a Beltway Fine Wine & Spirits, in a battle that has gone on for nearly five years.

On Friday, U.S. District Judge William D. Quarles permanently enjoined Comptroller William Donald Schaefer from enforcing the regulations after finding that they did not achieve their stated purpose of promoting temperance by raising prices.

Accordingly, the regulations are ineffective and a per se violation of the Sherman Act, Quarles wrote.

Counsel for the state could not be reached for comment before press time.

TFWS first challenged the regulations in 1999, claiming they had an anticompetitive effect on the marketplace. The pricing system regulations require liquor wholesalers to post price schedules and proposed price changes with the comptroller on the fifth day of every month; for at least one month following the posting, wholesalers must sell liquor to retailers at the prices established in their schedules.

TFWS also challenged the volume discount ban, which prohibits wholesalers from offering discounts to liquor retailers. As a result, a retailer who purchases a large amount of liquor - as opposed to a few bottles - is not free to negotiate a lower price.

The U.S. District Court dismissed the complaint in September 1999, but in 2001 the 4th U.S. Circuit Court of Appeals reversed. The appellate court held that both regulations violated the federal Sherman Antitrust Act; however, it remanded the case to determine whether Maryland's 21st Amendment interest in promoting temperance outweighed the interest in promoting competition.

The district court once again ruled for the comptroller in 2002, but last year the 4th Circuit remanded the case for a third round - holding that summary judgment was improper since factual determinations were necessary in determining whether the regulations were effective in achieving artificially high prices and promoting temperance.

On Friday, Quarles ruled for TFWS. The judge determined that the data and anecdotal evidence showed Maryland's published liquor prices were still generally lower than those of Delaware, which has repealed similar pricing system regulations and a discount ban.

The court concludes that the post-and-hold and quantity discount bans do not increase Maryland's liquor prices, Quarles wrote.

WHAT THE COURT HELD

Case:

TFWS Inc. t/a Beltway Fine Wine & Spirits, USDMD No. WDQ-99-2008, Sept. Term 2002. Opinion by Quarles, J. Filed April 30, 2004.

Issue:

Does Maryland's post-and-hold liquor pricing system and volume discount ban achieve its stated purpose of promoting temperance and eliminating the undue stimulation of the sale of alcoholic beverages?

Holding:

No. The state should be permanently enjoined from enforcing or maintaining these regulations since price data shows that they do not maintain artificially high prices that reduce liquor consumption, as asserted by the state.

Counsel:

William James Murphy for appellant; Steven Marshall Sullivan for appellees.