2nd Circuit judges dissent in failure to have full court hearing over antitrust problems with alcohol wholesaler “post and hold” pricing laws. The “hold” is the problem.

You’d be hard pressed to find a stronger condemnation of the failure to hold an en banc hearing than this recent dissent filed in Total Wine’s challenge to the post and hold provisions of Connectcicut’s alcohol regulatory laws. We wrote about how Total Wine lost this challenge back in February. While the three-judge panel that decided Total Wine wouldn’t win the case noted the circuit split between their decision and the way the 4th and 9th Circuits had addressed the issue, they still upheld the state’s post and hold law under a decades-old precedent.

Turns out, that didn’t sit well with a group of judges on the 2nd Circuit who were not on that three-judge panel and when Total Wine brought it’s request to have the full circuit hear the case and the court wouldn’t hear it, they spoke out. Forcefully.

Noting not only the circuit split, but also the failings in the original decision from the 80’s that created the law that hurts consumers in allowing wholesalers to tacitly collude on alcohol pricing without an ability to competitively lower their prices as they choose rather than in the monthly post and hold filings. Here’s how the judges took exception to the rationale of the panel in protecting the state statute that allows alcohol wholesalers to hurt consumers:

Moreover, the panel opinion’s overriding focus on concerted action overlooks the economic realities of a post-and-hold pricing scheme. The problem with Connecticut’s law is not that it affirmatively compels wholesalers to collude in order to fix prices, but rather that it provides no incentive – or ability – for wholesalers to compete on price. See Costco Wholesale Corp., 522 F.3d at 896 (citing George Stigler, A Theory of Oligopoly, 72 J. Pol. Econ. 44 (1964)); Miller, 813 F.2d at 1349 (“Simply ending the analysis because of the lack of concerted activity among the wholesalers fails to take into account the presence and effect of the state’s involvement in the matter.”). Connecticut has imposed a scheme whereby wholesalers are encouraged to pick inflated prices for alcohol, knowing that they will always be able to match the price of a competitor. By contrast, a market entrant hoping to gain market share by lowering prices will inevitably be frustrated by the adjust-and-hold provisions of the statute, which will prevent the entrant from further reducing prices. Since wholesalers will never be punished for artificially high prices, or rewarded for market-based low prices, they are likely to eventually degenerate into a de facto cartel in which wholesalers vie to post the highest possible prices without fear of market reprisal.

As courts across the country have recognized, these are precisely the kinds of anticompetitive effects that doomed similar liquor laws under the Sherman Act. See 324 Liquor Corp., 479 U.S. at 342, 107 S.Ct. 720 (striking down liquor laws that were “virtually certain” to reduce competition and that may have “facilitat[ed] cartelization”); Costco Wholesale Corp., 522 F.3d at 896 (“State enforcement of adherence to privately set, supra-competitive prices is precisely the danger which the Supreme Court envisioned in crafting the hybrid and active supervision tests.”); TFWS, Inc., 242 F.3d at 214 (Luttig, J., concurring) (“[T]he Maryland regulations before us are not materially different from the regulations in 324 Liquor ….”). Thus, intervening Supreme Court case law has undermined, not fortified, Battipaglia‘s holding.

And in arguing against the law and the failure to hold an en banc rehearing to consider the anticompetitive effects, the dissent’s summary of the issues created a compelling argument for appealing this case to SCOTUS:

First, this case perpetuates a circuit split between our Circuit and the Ninth and Fourth Circuits, see Costco Wholesale Corp., 522 F.3d at 894–96; TFWS, Inc., 242 F.3d at 210; Miller, 813 F.2d at 1348–51, the exact kind of situation that the Federal Rules of Appellate Procedure contemplate as appropriate for en banc rehearing, seeFed. R. App. P. 35(b)(1)(B); id., Advisory Committee Notes (1998 Amendments) (“[A] situation that may be a strong candidate for a rehearing en banc is one in which the circuit persists in a conflict created by a pre-existing decision of the same circuit and no other circuits have joined on that side of the conflict.”). Indeed, the circuit split in this case is particularly well-suited for resolution by our en banc court in light of its longstanding duration(thirty-two years since the Ninth Circuit’s contrary decision in Miller v. Hedlund), developments in Supreme Court case law since Battipaglia was decided thirty-five years ago, and the formidable collection of authorities now rejecting Battipaglia‘s holding.1 See supra at –––– – ––––.

Second, post-and-hold laws impose serious and well-recognized harms on consumers and retailers across all three states in our Circuit. See, e.g., James C. Cooper & Joshua D. Wright, Alcohol, Antitrust, and the 21st Amendment: An Empirical Examination of Post and Hold Laws, 32 Int’l Rev. L. & Econ. 379, 390 (2012) (“Our results suggest that constraining antitrust enforcement [against post-and-hold regimes] … would result in lower consumer welfare for alcoholic beverage consumers with no offsetting reduction in social harms.”); see alsoChristopher T. Conlon & Nirupama Rao, The Price of Liquor is Too Damn High: Alcohol Taxation and Market Structure 34 (NYU Wagner Research Paper No. 2610118, 2015), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2610118 (demonstrating “how [post-and-hold] legislation, which governs wholesale alcohol pricing in many states, acts as a device to facilitate collusion”). Although this case directly concerns only Connecticut’s post-and-hold statute, similar laws also exist in New York and Vermont. See N.Y. Alco. Bev. Cont. Law § 101-b(4) (liquor and wine post-and-hold law); 14-1 Vt. Code R. § 8 (beer post-and-hold law). Surely the widespread anticompetitive harms that post-and-hold laws inflict across our Circuit provide sufficient justification to merit revisiting Battipaglia, a case that has become an outlier over the last three and a half decades.

You can bet someone’s already drafting the cert petition. Our take on this hasn’t waned. The system improperly allows for tacit collusion. A fact other jurisdictions recognize and ward against to benefit consumers. The criticism in this dissent is spot on and will likely be the way the next case goes should a different panel hear a similar issue or should the Supreme Court take up the matter.