Liquor retailer protests Md. law

Store says banning bulk-discount buys is antitrust violation

July 03, 2000|By Jay Apperson | Jay Apperson,SUN STAFF

A large Baltimore County liquor store is mounting a court challenge to the Prohibition-era law governing the distribution of alcoholic beverages in Maryland, an assault that could mean lower prices for consumers.

TFWS Inc., which operates the Beltway Fine Wine & Spirits store near Towson, wants to be able to buy liquor and wine from wholesalers at quantity discounts, a practice now prohibited. The store is asking a federal appeals court to rule that Maryland's liquor distribution statute violates federal antitrust law.

"Wal-Mart sells a huge selection of products at very competitive prices. That's the same approach Beltway has taken," said David J. Trone, majority owner of Beltway Fine Wine, which is believed to be the state's largest liquor store. "We have been hampered by an antiquated, backward system that has been in place since Prohibition and has been kept there to protect the entrenched mom and pop interests."

But lawyers for the state and for associations of liquor sellers argue that the system is necessary to avoid price wars that could lead to an increase in drinking - and bring economic disorder to what is perhaps the state's most closely regulated business.

"Everybody in the industry is watching this," said John Borgen, vice president and director of operations in the Jessup office of National Distributing Co., a wholesaler for Jim Beam whiskey and Sutter Home wines, among other products. "The cornerstone of our whole industry is the three-tier system. If it's changed, it would change the way we do business."

Maryland, like many states, adopted its so-called "three-tier system" shortly after Prohibition was repealed in 1933. Under the system, distilleries, wineries and breweries sell their products to wholesale distributors, who in turn sell to retailers.

In repealing Prohibition, the 21st Amendment granted to states the right to regulate liquor distribution. Maryland justified its tight regulation of the alcohol industry --- its law grants state officials the authority to "limit economic competition" - by citing an interest in "promoting temperance."

"Alcohol is the only consumer product in the country that had a constitutional amendment banning its sale. ... You start with the premise that it is a controlled product with taxes coming out of it," said Jim Simpson, a former Maryland liquor store owner who is special projects coordinator for the National Licensed Beverage Association, a trade group for retailers.

Simpson defends the industry's unique regulations, saying, "If one person is out of control, then you've got to compete. Then you'll end up with price wars, you'll end up with all kinds of crazy gimmicks. I would much rather have an orderly system with this product."

But at a recent hearing on TFWS' case at the U.S. Court of Appeals' Fourth Circuit in Richmond, Va., the store's lawyer, William J. Murphy, argued that package good stores should be allowed to benefit from economies of scale, as do companies in virtually any other industry.

"My client, which is a large retailer, would like to say to a wholesaler, `Your usual price for this product is $10 a case. If I buy a thousand cases will you give me a price of $9.50?' The answer is no because the state does not allow that normal free market mechanism to take place," Murphy told the judges.

Trone said that if he can buy for less, consumers will see lower prices.

The appeals court has not ruled in the TFWS case.

`Legal system collapsing'

The argument that the need to curb drinking outweighs other rights under the law is increasingly under attack in courtrooms across the country.

John A. Hinman, a San Francisco lawyer who represents wineries and large retailers while specializing in alcohol beverage distribution law, said a series of recent cases have whittled away at states' power to regulate advertising and price control mechanisms within the industry. In those cases, judges ruled that the interest in temperance did not outweigh free speech rights under the First Amendment and federal anti-trust law under the Sherman Act.

"The legal system," Hinman said, "is collapsing in on the 21st Amendment."

He added that Maryland's liquor industry is "one of the most micromanaged systems in the country. ... You sneeze in Maryland, you're regulated."

`Works very efficiently'

Charles W. Ehart, director of the state comptroller's office's Alcohol and Tobacco Tax Division, said the state's system "works very efficiently. Anything can be improved upon or tweaked, but the basic framework in our state works well."

Ehart, who is a defendant in the store's suit, declined to comment directly on the case, as did state Comptroller William Donald Schaefer, a co-defendant in the case.

Trone's company filed suit last year after recent attempts to change the state's alcohol distribution laws went nowhere.

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