324 Liquor Corp. v. Duffy

479 U. S. 335

January 13, 1987

New York had a law that required retailers of alcoholic beverages to sell drinks at a minimum of 12% higher than the “posted” wholesale price. This posted price would be determined by the wholesalers themselves, and the law allowed them to make sales to retailers at prices below its own “posted” prices. 324 Liquor was caught making a sale below the 12% minimum, and had its license temporarily suspended. It then challenged the New York law, claiming that it violated the Sherman Antitrust Act.

In a 7-2 decision, Powell held that the New York law was invalid. A long line of precedent had made it clear that industry wide resale price fixing violated the Sherman act. New York argued that there was an exception to this general rule if the price fixing was a result of state action. But this state action exception required that the restraint imposed must be “actively supervised” by the state. Because New York let wholesalers set their own posted prices and then ignore them, all without state review, Powell held that New York could not invoke the state action exception.

Finally, Powell addressed the argument that the Sherman act did not apply because of the state’s power under the 21st Amendment. He went about this by examining the state’s justifications for the law. New York’s justifications of trying to stabilize the retail market and protect small businesses were found to be unsupported by an examination of the actual effects and operation of the law. Therefore, because the state’s interests were so weak, Powell held that the state could not hide behind the 21st Amendment.

O’Connor dissented, and was joined by Rehnquist. She did some highly persuasive analysis of legislative history, which showed that the 21st Amendment was definitively intended to end all application of federal laws to the alcohol industry. She disagreed vigorously with the majority’s inquiry into the weight of New York’s interests, and would have upheld the law as a routine exercise of a state’s 21st Amendment powers.

As I read the case, I was strongly reminded of Nebbia v. New York, when the Court upheld a law that set a minimum price for milk. Four Justices dissented, saying this was an unconstitutional imposition on the rights of businesses. The dissent made a good argument, but in the half century since, the views of the dissent seem to have vanished completely. In any case, on the basis of the arguments that were actually made in Duffy, I think O’Connor had the much stronger opinion. As a final note, reading this case only reinforced my original notion that Iacobucci was wrongly decided. If violating a federal law required close scrutiny of the state’s asserted interest, why does a state’s apparent violation of the First Amendment get almost no scrutiny at all?

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