WASHINGTON – The director of the state’s Alcohol and Tobacco Tax Unit predicted “business as usual,” even though a federal appeals court found that Maryland liquor regulations may be subject to the Sherman Antitrust Act.
Charles Ehart said it will ultimately be up to the courts to decide whether the state is exempt from the antitrust act under the 21st Amendment.
The 4th U.S. Circuit Court of Appeals said Thursday that U.S. District Judge Frederic Smalkin erred when he said that Maryland was exempt from the act under the 21st Amendment. That amendment ended Prohibition and gave states “wide latitude” to regulate the sale and distribution of liquor.
Ehart called the 21st Amendment exemption the “the biggest issue of all,” and said it still has to be settled by the courts. He said he could not rule out the case’s return to the appeals court, or to the Supreme Court, since both parties appealed the original district court ruling.
David Trone, the majority owner of Beltway Fine Wine and Spirits, said Friday he could not comment on pending litigation. His company brought the antitrust suit against the state.
Assistant Attorney General Steven M. Sullivan did not return a call for comment Friday.
TFWS Inc., which operates the 20,000-square foot Beltway Fine Wine and Spirits, sued Schaefer and Ehart, claiming that state alcohol advertising and pricing laws violated the antitrust act and maintained an artificially high price for liquor.
In Maryland, liquor wholesalers must file their prices at the comptroller’s office, which makes that data available to competitors who can then match the price. Wholesalers are prohibited from offering volume discounts to retailers.
The laws are designed to promote temperance by preventing price wars that would increase consumption, according to the Alcoholic Beverages Code.
In September 1999, Smalkin ruled that the state regulations violate the Sherman Antitrust Act, but that the 21st Amendment trumped that act. The state had not raised the amendment in its defense and neither side had addressed the issue.
Smalkin said that cheaper liquor would make it more readily available and more 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.”
A three-judge panel of the appeals court agreed that Maryland’s practice violated the Sherman Act. But the appellate judges ruled that Smalkin erred in dismissing the complaint without hearing arguments from both sides on the 21st Amendment.
The court found that Maryland’s regulations inhibited competition and gave a significant degree of “private regulatory power” to the liquor wholesalers.
The appeals court said that Maryland would have to prove that the regulations actually promote temperance to be exempted under the 21st Amendment, and that the state’s interests were of sufficient weight to “prevail against the federal interest in enforcement of the antitrust laws.”
Richard D. Warren, an attorney who specializes in alcoholic beverage law, said that Maryland appears to have its work cut out for it in convincing the courts that the 21st Amendment applies. He noted that both courts determined that Maryland violated the Sherman Antitrust Act and that the state’s liquor laws represent “hybrid restraint” of trade.
Ironically, if Maryland had more of a hand in controlling liquor prices, the regulations would be less likely to violate the antitrust act, he said.