Last week, in Connecticut Fine Wine and Spirits LLC v. Seagull, the US Court of Appeals for the Second Circuit affirmed a lower court’s motion to dismiss a lawsuit from Total Wine & More challenging parts of Connecticut’s Liquor Control Act and related regulations. Though the decision represents a victory for state alcohol regulatory regimes, the Second Circuit’s ruling was decided on the basis of established antitrust law and did not raise or rely on state regulatory authority under the 21st Amendment. Nonetheless, state alcoholic beverages regulators will embrace the court’s ruling.

In Connecticut Fine Wine, Total Wine challenged three sets of provisions in Connecticut’s alcohol laws. First, Total Wine challenged “post-and-hold” provisions. Under the post-and-hold provisions, state-licensed wholesalers are required to post a “bottle price” and “case price” each month with the Connecticut Department of Consumer Protection. Those prices are then made available to industry participants. During the four days after prices are posted, wholesalers may “amend” their posted prices to match—but not drop below—lower prices offered by competitors. Wholesalers are then obligated to “hold” their prices for a month.

Second, Total Wine challenged the state’s minimum-retail-price provisions. The minimum-retail-price provisions require retailers to sell alcohol beverages to customers at or above a statutorily defined “cost,” which is determined by adding the posted bottle price and a markup for shipping and delivery. Combined with the post-and-hold provisions, the minimum-retail-price provisions bind retailer prices to wholesaler prices.

Third, Total Wine challenged the state’s price discrimination and volume discount provisions. The price discrimination/volume discount provisions preclude wholesalers from offering a given product to different retailers at different prices and from offering discounts to retailers who are high-volume purchasers.
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Two recent developments reinforce my expectation that the Supreme Court will need to clarify the scope of its 2005 Granholm v. Heald decision within the next few years.

Granholm struck down state restrictions on the interstate sale and shipment of wine by wineries, where the state permitted in-state wineries to engage in such direct-to-consumer sales activities but withheld that privilege from out-of-state wineries. According to that decision, such facially-discriminatory laws are virtually per se unconstitutional under the so-called “dormant” Commerce Clause, and are not saved by the additional power that states have over alcohol sales under the 21st Amendment. The Granholm court also referred to the three-tier system as “unquestionably legitimate.”

In the years since Granholm, lower federal courts have wrestled with the question of whether or not the Commerce Clause’s non-discrimination principle is limited to state laws imposing different rules on in-state versus out-of-state producers and products. Decisions by several Circuit Courts of Appeal, including the US Court of Appeals for the Second Circuit (Arnold’s Wines, 2009) and the Eighth Circuit (Southern Wine, 2013), have concluded that only those state laws discriminating against out-of-state producers or products face the high level of scrutiny mandated by Granholm. Others, including the Fifth Circuit (Cooper II, 2016) and the Sixth Circuit (Byrd, 2018), have concluded that state laws regulating the wholesale- and retail-tiers remain subject to vigorous Commerce Clause scrutiny. Notably, however, the Fifth and Sixth Circuit opinions also suggest that the outcome of a challenge to a state law regulating the wholesale- or retail-tier may depend on the type of law challenged, and both involved residency requirements for licensees, not laws directly regulating the sale and shipment of alcohol.
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Last month the US District Court for the Central District of California issued an order in the Shalikar v. Asahi Beer U.S.A., Inc. false advertising class action case. Like many similar cases, Shalikar alleges that the plaintiffs, as representatives of a purported class of consumers, were deceived into paying more for Asahi beer because they believed the beer was made in Japan when, in fact, the beer sold in the United States was produced in Canada. In the recent order, the court denied Asahi’s motion to dismiss for failure to state a claim (a 12(b)(6) motion).

The Shalikar plaintiffs brought their case under California’s Consumer Legal Remedies Act, Unfair Competition Law, and False Advertising Law, and also pled common-law claims for breach of implied warranty, fraud, intentional misrepresentation and unjust enrichment. Asahi beer that is sold in the United States is brewed in Canada, and each label states “Brewed and Bottled under Asahi’s Supervision by Molson Canada, Toronto, Canada.” Each label also states “Product of Canada” as required by US customs regulations. Plaintiffs alleged, however, they were deceived into paying more for the product because the labels and packaging use the word “Asahi,” which means “morning sun” in Japanese, and the label and packaging employs Japanese characters in several places. Plaintiffs also produced a survey purporting to show that the beer’s packaging led 86 percent of the respondents to believe that the product was brewed in Japan.
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Earlier this month, a Massachusetts Superior Court judge granted beer wholesaler Craft Beer Guild, LLC’s (Craft) motion to dismiss a civil suit, Shelton Bros., Inc. v. Craft Beer Guild, LLC d/b/a Craft Brewer’s Guild, brought against it by beer importer Shelton Brothers, Inc. (Shelton) in connection with Craft’s alleged breach of its distribution agreement with Shelton. Craft distributed beer imported by Shelton throughout Massachusetts.

In November 2016, Shelton filed a complaint alleging that Craft breached a 2009 oral agreement between Craft and Shelton by failing to follow through on its promises regarding pricing and providing two dedicated sales people to support Shelton’s brands. In its complaint, Shelton alleged that sales of its products were in “steep decline” by 2011 due to Craft’s discriminatory pricing of Shelton’s products in the market.
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