WASHINGTON – For the second time, a Maryland liquor retailer and the state comptroller have been sent back to district court to argue whether state regulations on alcohol prices violate retailers’ rights to fair competition.
A federal district judge ruled last year that the state’s 21st Amendment right to try to reduce alcohol consumption outweighed the antitrust violations of the liquor regulations it imposes on alcohol sales.
The 4th U.S. Circuit Court of Appeals on Monday agreed with Judge Frederic N. Smalkin’s decision in the case, but said he erred when he issued his ruling without going to trial.
A three-judge panel of the appeals court ordered the case back to Smalkin, saying in a published opinion by Judge M. Blane Michael that there was disputed evidence that needed to be heard in court.
Charles W. Ehart, the administrator of the Alcohol and Tobacco Tax Unit of the comptroller’s office, said he was not concerned about another hearing, because each time the state’s position has prevailed.
“We’re prepared to go forth with the trial, making the same arguments we made before,” Ehart said.
Beltway Fine Wine and Spirits, a Maryland liquor retailer, sued Ehart and Comptroller William Donald Schaefer in July 1999, alleging that the regulations on liquor and wine prices violated the federal Sherman Antitrust Act.
The comptroller’s office argued that the rules are allowed under the 21st Amendment, which repealed Prohibition, because the state has a right to protect its citizens from the dangers of alcohol abuse.
The first time the appeals court heard the case, in 2001, it ordered Smalkin to determine whether the state’s rules actually promoted temperance and whether that outweighed the liquor store’s right to fair competition.
It told the district court to answer three questions. First, to examine whether the state’s interest in promoting temperance was protected by the 21st Amendment, as the comptroller’s office argued. Second, to examine whether the regulations were effective at promoting temperance. Third, to “balance the state’s interest in temperance . . . against the federal interest in promoting competition under the Sherman Act.”
Smalkin granted summary judgment for the state in February 2002, ruling that the regulations were protected, that they were effective and that they outweighed antitrust concerns.
But while it agreed with Smalkin on the first question, the appellate court noted that the two sides presented conflicting statistics on Maryland’s alcohol consumption and economic theories about the effects of higher prices.
The state presented two experts, one who testified that higher prices generally drive down consumption and another who said evidence showed prices in Maryland were generally higher than in other states.
But the retailer’s sole expert challenged both of the state’s witnesses.
He said higher prices could simply lead people to buy cheaper liquor in the same amounts as before, and that the higher profits could actually make it easier to market alcohol, thus driving consumption up. He also presented evidence that Maryland prices are lower than in other states, and that consumption was unaffected in two states that removed regulations similar to Maryland’s.
“Because much of the evidence in this case is expert opinion and statistics, we can appreciate why the district court believed that it was more efficient to go ahead and resolve the evidentiary conflicts in the summary judgment record,” the appellate court wrote.
But it said that without a trial, the court could not make decisions on the facts of the evidence or address the balance between the state and federal interests.