Court finds for liquor store

Appellate panel says state rules violate federal antitrust law

Could lead to lower prices

March 06, 2001|By Jay Apperson | Jay Apperson,SUN STAFF

In a decision that could lead to lower liquor and wine prices for Maryland consumers, a federal appeals court has granted a large Baltimore County package goods store another chance to challenge the Prohibition-era laws governing the distribution of alcoholic beverages in the state.

Handing the operators of the mammoth Beltway Fine Wine & Spirits store an across-the-board victory in the second round of its legal skirmish with the state, the U.S. Court of Appeals for the 4th Circuit ruled last week that Maryland's regulations for wholesale liquor and wine sales violate federal antitrust law, and that the state is not immune to a court challenge to its liquor statutes.

The appellate court also threw out U.S. District Judge Frederic N. Smalkin's ruling that the state's interest in promoting "temperance" through stable alcohol prices outweighs the anti-competitive effect of the pricing system.

Noting that the District Court reached that decision by "relying mainly on its own instincts and perceptions," the appellate panel said the judge should revisit the issue after both sides present evidence of whether Maryland's laws meet their goal of discouraging excessive drinking.

"Simply put, is the scheme effective?" the appellate judges wrote, framing the issue before the federal District Court.

At issue are Maryland regulations banning wholesalers from offering quantity discounts to retailers and requiring the wholesalers to publicly "post and hold" their prices.

David J. Trone, majority owner of Beltway Fine Wine, declined to comment on the decision yesterday. He previously has argued that the state's system keeps consumer prices artificially high, and that he knows of no studies proving that lower liquor prices lead to more drinking.

Rather, he has said, higher prices encourage people to buy less-expensive products.

Steven M. Sullivan, an assistant attorney general representing state Comptroller William Donald Schaefer in the case, said the state has evidence linking price changes to levels of drinking.

"Mr. Trone says there's no connection between sales and price. Has he never heard of happy hour?" Sullivan said yesterday.

Beltway Liquors, believed to be the largest package goods store in Maryland, has been an unpopular figure in the state's liquor industry since 1995, when Trone applied for a license for the Towson-area store. Other liquor store owners protested the application before the Baltimore County liquor board and in Circuit Court.

Three industry groups are opposing Trone in his suit against Schaefer and Charles W. Ehart, administrator of the alcohol unit in the comptroller's office.

In the suit, filed in 1999 in U.S. District Court in Baltimore, TFWS Inc., the corporation that operates Beltway Fine Wine, complained that it should be able to use its size to negotiate better deals with wholesalers. The store says it could then offer lower retail prices and, in turn, increase its sales.

The policies under challenge apply only to spirits and wine, and not to beer.

Critics of efforts to change the law complain that large stores, given the chance to buy in bulk, could undercut smaller neighborhood stores -- and after the competition was killed off, raise prices. Lawyers for the state and for associations of liquor sellers say the state's system is needed to avoid price wars that could bring economic disorder to the industry and lead to an increase in drinking.

In September 1999, Smalkin ruled that the state statute violates antitrust law under the federal Sherman Act.

But the judge granted the state's motion to dismiss the case, pointing to the public's stake in promoting temperance. The judge said that price wars among liquor dealers should be prohibited because the poor are historically vulnerable to alcoholism -- and noted the 18th-century etching, "Gin Lane," which depicts the despair caused by the abuse of cheap spirits in London slums.

Both sides appealed the aspects of the ruling that went against them.

In its opinion, a three-judge panel on the Richmond, Va., appellate court called the post-and-hold policy "a form of horizontal price fixing," reinforced by the volume discount ban, which removes potential flexibility. The court told Smalkin to explore how well Maryland's law promotes temperance in balancing that goal against the federal interest of promoting competition.

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