WASHINGTON – A federal appeals court ruled Thursday that a lower court erred when it said Maryland’s liquor pricing controls are exempt from the Sherman Antitrust Act.
The 4th U.S. Circuit Court of Appeals said U.S. District Judge Frederic Smalkin must hear arguments from the state and a Towson liquor store on whether Maryland is exempt from the antitrust act under the 21st Amendment. That amendment ended Prohibition and gave states “wide latitude” to regulate the sale and distribution of liquor.
A spokesman for Comptroller William Donald Schaefer, whose office enforces liquor laws, did not return a phone call seeking comment Thursday.
David Trone, owner of Beltway Fine Wine and Spirits, had not seen the ruling and said he and his lawyer would have to review the ruling before commenting.
TFWS Inc., which operates Beltway Fine Wine and Spirits, sued Schaefer and the administrator of his Alcohol and Tobacco Tax unit, claiming that state laws prohibiting volume discounts on liquor and requiring the posting of prices violated the antitrust act.
State law requires liquor wholesalers to post their prices and keep that level for at least a month, giving other wholesalers a chance to match their prices if they wish.
The state also prohibits wholesalers from offering volume discounts to retailers and it requires wholesalers to offer each retailer the same price. Liquor cannot be sold directly to retailers in Maryland, but must go through wholesalers.
The Alcoholic Beverages Code acknowledges the “anti-competitive intent” of the law, according to court documents, but the pricing plan is justified with the argument that it promotes temperance by eliminating price wars.
TFWS charged that the price controls were anti-competitive and maintained an artificially high price.
In September 1999, Smalkin ruled that the state regulations do violate the Sherman Antitrust Act. But he found, on his own, that the 21st Amendment trumped that act, although the state had not raised the issue in its defense.
Smalkin said that lower prices would make liquor more readily available, and therefore readily abused. He also said, according to court documents, that “problems of alcohol abuse have always been particularly acute and endemic among the poor, who are too easily and sorely tempted to escape their predicament through a bottle.”
Both sides appealed the ruling.
A three-judge panel of the appeals court agreed with Smalkin that Maryland’s practice violated the Sherman Act. But the appellate judges ruled that the lower court erred in dismissing the complaint without hearing arguments from both sides on the 21st Amendment.
The case was sent back to District Court so the parties could offer evidence on that issue.
The appellate court said that in order to prevail under the 21st Amendment, the state’s interests must be of sufficient weight to “prevail against the federal interest in enforcement of the antitrust laws.”
The appeals court said that although the promotion of temperance is allowed under the 21st Amendment, the state would have to prove that Maryland’s regulations actually promote temperance.