Amicus Curiae Brief — Massachusetts Food Ass'n v. Massachusetts Alcoholic Beverage Control Commission

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No. 99-1449

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IN THE a -

Supreme Court of the United States

MASSACHUSETTS FoopD ASSOCIATION, et al.,

. Petitioners,

MASSACHUSETTS ALCOHOLIC BEVERAGE

CONTROL COMMISSION, et al.,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the First Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

AND BRIEF OF AMICI CURIAE

BEER DISTRIBUTORS OF MASSACHUSETTS, INC.,

WINE & SPIRITS WHOLESALERS OF

MASSACHUSETTS AND MASSACHUSETTS

PACKAGE STORES ASSOCIATION, INC.

IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

ERNEST GELLHORN

Counsel of Record

ANN G. WEYMOUTH

Suite 100

2907 Normanstone Lane, N.W.

Washington, DC 20008-2725

March 30, 2000 (202) 319-7104

WILSON-Epne Printine Co., Inc. - (202) 789-0096 - WASHINGTON, D.C. 20001

22 ef

IN THE

Supreme Court of the United States

No. 99-1449

MASSACHUSETTS Foop ASSOCIATION, ef al.,

- Petitioners,

MASSACHUSETTS ALCOHOLIC BEVERAGE

CONTROL COMMISSION, et al.,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the First Circuit

MOTION FOR LEAVE TO FILE BRIEF AMICUS CURIAE

The Beer Distributors of Massachusetts, Inc., the Wine

& Spirits Wholesalers of Massachusetts and the Massa-

chusetts Package Stores Association, Inc. (“Amici”)

hereby move, pursuant to Rule 37.2(b) of the Rules of

the Supreme Court of the United States, for leave to

file the attached Amicus brief in opposition to the peti-

tion for certiorari. The grounds for this request are as

follows:

1. Petitioners in this matter have consented to the

filing of the Amicus brief. Their consent is filed with the

Clerk of Court.

2. Respondents have not objected to the filing of this

Amicus brief, but have declined to sign a letter of consent

thereto.

3. Petitioners do not address the 21st Amendment in

their Petition and Respondents have only noted but not

argued the Amendment’s application in their argument

below, even though it is dispositive.

4. The Amicus brief presents the argument that the

2ist Amendment bars Petitioners’ Complaint because the

three-store limit on ownership of retail liquor stores, which

is the basis for this controversy, is within the “core

powers” of the Amendment. The statutory provision,

therefore, is immunized from challenge under the

Supremacy Clause whether or not it conflicts with the

Sherman Act.

WHEREFORE, Amici respectfully request that this

motion for leave to file their Amicus brief be granted.

Respectfully submitted,

ERNEST GELLHORN

Counsel of Record

ANN G. WEYMOUTH

Suite 100

2907 Normanstone Lane, N.W.

Washington, DC 20008-2725

March 80, 2000 (202) 319-7104

TABLE OF AUTHORITIES

INTEREST OF AMICI CURIAE ........

TABLE OF CONTENTS

INTRODUCTION AND SUMMARY OF ARGU-

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THE HISTORY OF THE 21ST AMENDMENT

CLEARLY SHOWS THAT A PRINCIPAL

PURPOSE WAS TO ALLOW STATES “AB-

SOLUTE CONTROL” OVER THE DISTRIBU-

TION AND RETAIL SALE OF ALCOHOLIC

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STATES HAVE “PLENARY POWER” TO

REGULATE THE DISTRIBUTION AND

SALE OF ALCOHOLIC BEVERAGES .............

MASSACHUSETTS’ THREE-STORE OWNER-

SHIP LIMITATION FURTHERS CORE CON-

CERNS OF THE 21ST AMENDMENT AND

THUS SURVIVES A SUPREMACY CLAUSE

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TABLE OF AUTHORITIES

Cases:

Actmedia, Inc. v. Stroh, 880 F.2d 957 (9th Cir.

1986) .....

Bacchus Imports, Ltd. v. Dias, 468 U.S. 268

(1984)

Boston Neighborhood Tazi Ase’s nv. Dept. of Pub-

lic Utilities, 410 Mass. 686, 575 N.E.2d 52

(1991) i

Brown-Forman Distillers Corp. v. N.Y. State

Liquor Authority, 476 U.S. 573 (1986) ..............

California Retail Liquor Dealers Ass’n v. Midcal

Aluminum, Inc., 445 U.S. 97 (1980) ..................

City of Columbia v. Omni Outdoor Advertising,

ea. Se es A IID ices: tottvaniencansncinainiensbonneen

Community Communications Co. v. City of Boul-

der, 455 U.S. 40 (1982)

Connolly v. ABCC, 334 Mass. 6138, 138 N. E. 2d 131

- CRED escrencccice

Craig v. Boren, 429 U.S. 190 (1976), reh’g denied,

429 U.S. 1124 (1977)

Department of Revenue v. James B. Beam Distill-

Sea Cag BIT TE. GAL CUGBE) cc cvsscccecsecectesciccecasnee

In the Matter of Detroit Auto Dealers Ass’n, Inc.,

111 F.T.C. 417 (1989), aff’d, 955 F.2d 457 (6th

Cir.), cert. denied, 506 U.S. 978 (1992) —...........

Exxon Corp. v. Governor of Maryland, 437 U.S.

117 (1978), reh’g denied sub nom. Shell Oil Co.

v. Governor of Maryland, 489 U.S. 884 (1978)..

Fisher v. City of Berkeley, Cal., 475 U.S. 260

(1986) *

44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484

(1996)

FTC v. Ticor Title Insurance Co., 504 U.S. 621

(1992) ......

Healy v. Beer Institute, 491 U.S. 324 (1989)........

Hoover v. Ronwin, 466 U.S. 558 (1984) ...............

Hostetter v. Idlewild Bon Voyage Liquor Corp.,

877 U.S. 324 (1964) ...........

Johnson v. Martignetti, 374 Mass. 784, 875 N.E.

2d 290 (1978) .........

Page

10

4,8

13

11

13

4

7,8

iii

TABLE OF AUTHORITIES—Continued

Page

Joseph E. Seagram & Sons, Inc. v. Hostetter, 384

Ee I ecieen ei e eel f= 8

Massachusetts Food Ass’n v. Massachusetts Al-

coholic Beverages Control Commission, 197 F.3d

560 (1st Cir. 1999), affirming, 184 F.R.D. 217

(D. Mass. 1999) pesilelbblasdiisadade dint 3

Milton S. Kronheim & Co. v. District of Colum-

bia, 91 F.3d 193 (D.C. Cir. 1996), cert. denied,

Fs ee 8

New Motor Vehicle Bd. v. Orrin W. Fox Co., 489

A ae ee ee ee 13

North Dakota State Bd. of Pharmacy v. Snyder's

Drug Stores, Inc., 414 U.S. 156 (1978) _............. 13

North Dakota v. United States, 495 U.S. 423

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Patrick v. Burget, 486 U.S. 94 (1988) ................. 4

Prices Corner Liquors, Inc. v. Delaware Alcoholic

Beverage Control Commission, 705 A.2d 571

I SR I i Ed 14

Rice v. Norman Williams Co., 458 U.S. 654

aR IE rele RT a PRN e O 4

Simms v. Farris, 657 F. Supp. 119 (E.D. Ky.

1987), aff'd per curiam, 840 F.2d 18 (6th Cir.

Se vi enasbablasins 14

Southern Motor Carriers Rate Conference, Inc. v.

United States, 471 U.S. 48 (1985) 0... 4

324 Liquor Corp. v. Duffy, 479 U.S. 385 (1987)... 4, 6,9

Town of Hallie v. City of Eau Claire, 471 U.S. 34

(1985) . siiiciineanaaaas 4

Victoria, Inc. v. ABCC, 33 Mass. App. Ct. 507,

EE teen 12

Constitution & Statutes:

U.S. Constitution, XXI Amendment ....................... passim

Mass. Gen. L. c. 188, §§ 2 et seq. 2. ence cccececeeee 11

Mass. Gen. L. c. 188, § 12 ........ inisbacalaiteamiiaiiil 11,12

Mass. Gen. L. c. 188, § 12A oo. ccececceeecenceceeceneee 11

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Mass. Gen. L. c. 188, § 16... = 11

iv

TABLE OF AUTHORITIES—Continued

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Ratification of the Twenty-first Amendment to the

Constitution of the United States (E. S. Brown

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IN THE

Supreme Comet of the United States

No. 99-1449

MASSACHUSETTS Foop ASSOCIATION, et al.,

- Petitioners,

MASSACHUSETTS ALCOHOLIC BEVERAGE

CONTROL COMMISSION, ef al.,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals

for the First Circuit

BRIEF OF AMICI CURIAE

BEER DISTRIBUTORS OF MASSACHUSETTS, INC.,

WINE & SPIRITS WHOLESALERS OF

MASSACHUSETTS AND MASSACHUSETTS

PACKAGE STORES ASSOCIATION, INC.

IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

-

INTEREST OF AMICI CURIAE

The Amici herein are three trade associations: the

Beer Distributors of Massachusetts, Inc. (“BDM”); the

Wine & Spirits Wholesalers of Massachusetts (“WSWM”);

and the Massachusetts Package Stores Association, Inc.

(“MassPack”).* Together they represent 26 wholesalers

and approximately 600 retailers in the Commonwealth of

Massachusetts who are engaged in the distribution and

* Pursuant to Supreme Court Rule 87.6, Amici state that no

counsel for a party authored this brief in whole or in part, and no

persons other than the Amici, their members, or their counsel,

made a monetary contribution to the preparation or submission of

this brief.

2

sale of alcoholic beverages. Their operations are closely

regulated by the Defendants herein.

The issue in this case as presented by Petitioners,

whether the three-store retail ownership limitation in the

Massachusetts Alcoholic Beverage Control Act, Mass.

Gen. L. c. 138, § 15, is preempted by the Sherman Act,

15S U.S.C. § 1, could fundamentally alter how alcoholic

beverage wholesalers and retailers of Massachusetts con-

duct their business. The motion of BDM, WSWM and

MassPack to participate as Intervenor-Defendants in this

matter was denied by the courts below, but they partici-

pated by submission of an Amicus brief with the parties’

consent. The Amici believe that they can provide a

different perspective for the Court’s benefit because, while

briefed below, neither party presents an argument herein

on whether the 21st Amendment to the U.S. Constitution

immunizes § 15 of the MABC from antitrust challenge.

INTRODUCTION AND SUMMARY OF ARGUMENT

Section 2 of the 21st Amendment provides that “[t]he

transportation or importation into any State .. . for

delivery or use therein of intoxicating liquors, in violation

of the laws thereof, is hereby prohibited.” This Court

has ruled repeatedly, and without exception, that the “core

power” conferred on the States by §2 is the power to

control the distribution and sale of imported alcoholic

beverages.

The Massachusetts Alcoholic Beverage Control Act

(“MABC Act”) provision at issue, limiting to three the

number of retail outlets that a single person or entity

may own, Mass. Gen. L. c. 138, § 15, is a clear example

of a State liquor law that falls within the purview of the

21st Amendment. Section 15’s multiple ownership restric-

tion serves several vital State interests directly related to

the distribution of alcoholic beverages in Massachusetts,

such as ensuring orderly market conditions, “controlling the

3

tendency toward concentration of power in the liquor

industry,” and “preserving the right of small, independent

liquor dealers to do business.” Johnson v. Martignetti,

374 Mass. 784, 792, 375 N.E.2d 290, 297 (1978) (up-

holding § 15 against challenges under the Due Process

and Equal Protection Clauses).

Both the District Court and First Circuit below ruled

that the three-store limit in § 15 of the MABC Act was

“unilaterally imposed by government . . . to the exclusion

of private contro!” and thus that § 15 was neither within

the coverage of the Sherman Act nor subject to pre-

emption under the Supremacy Clause. Massachusetts

Food Ass'n v. Massachusetts Alcoholic Beverages Control

Commission, 197 F.3d 560, 566 (1st Cir. 1999) (quoting

Fisher v. City of Berkeley, 475 U.S. 260, 266 (1986)),

affirming, 184 F.R.D. 217 (D. Mass. 1999). We agree

that such a conclusion is mandated by this Court’s prece-

dents and we support Massachusetts’ argument that the

case does not warrant the grant of a writ of certiorari.

However, we separately argue herein, as we did below,

that the Court should reject the Petition for the additional

1 Both the District Court and First Circuit declined to address

the 21st Amendment argument preserved by the State-Defendant

and presented fully by the Amici. In its denial of party participa-

tion to the Amici as Intervenor-Defendants, the District Court

ruled that the 21st Amendment (and state action immunity) argu-

ments “appear more appropriate for consideration after some

factfinding, if that is necessary.” Pet. App. 26a n.7. The First

Circuit also did not address the 21st Amendment argument but

stated cnly that intervention was unnecessary because the In-

tervenors’ “other legal arguments (for example, based on the

Twenty-First Amendment) to sustain the statute. . . . were easily

presented in amicus briefs.” Pet. App. 12a (emphasis in original).

In accordance with the First Circuit’s lead, the Amici file this

brief on the 21st Amendment issue to ensure that the Court is fully

apprised of the argument that the three-store ownership limit in

§ 15 of the MABC Act also is immune from challenge under the

Supremacy Clause because it is within the State’s core powers as

4

reason that § 15’s three-store restriction is immune from

challenge because of the 21st Amendment’s reservation

to the States of “virtually complete control over . . . how

to structure the liquor distribution system.” California

Retail Liquor Dealers Ass'n v. Midcal Aluminum, Inc.,

445 US. 97, 110 (1980). Section 15 of the MABC Act

is a basic structural requirement setting forth one of sev-

eral criteria that must be satisfied for the issuance of a

retail license. Accordingly, § 15 comes within the pro-

tective umbrella of the 21st Amendment and, in this

circumstance, overrides any preemption by the Sherman

Act under the Supremacy Clause Thus, this is not an

appropriate case for the Court once again to consider

the boundaries between state regulation and the Sherman

Act.”

ARGUMENT

The history of the 21st Amendment demonstrates that

the purpose of § 2 thereof was to empower the States

defined in the Amendment. That the lower courts did not address

the 21st Amendment does not prevent its consideration by this

Court because it is not a fact-based issue (and the District Court

identified no relevant factual questions) and its consideration now

can fully resolve the case and avoid the necessity for a remand.

See Bacchus Imports, Ltd. v. Dias, 468 U.S. 268, 274 n.12 & 279 n.3

(1984) (majority and dissent agreed that 2lst Amendment issue

was properly before the Court although it was not argued below).

2 Between 1982 and 1992, the Court addressed the metes and

bounds of the state action immunity from federal preemption under

the antitrust laws in ten cases. FTC v. Ticor Title Insurance Co.,

504 U.S. 621 (1992); City of Columbia v. Omni Outdoor Ad-

vertising, Inc., 499 U.S. 365 (1991); Patrick v. Burget, 486

U.S. 94 (1988); 324 Liquor Corp. v. Duffy, 479 U.S. 335 (1987) ;

Fisher v. City of Berkeley, Cal., 475 U.S. 260 (1986); Town of

Hallie v. City of Eau Claire, 471 U.S. 34 (1985); Southern Motor

Carriers Rate Conference, Inc. v. United States, 471 U.S. 48 (1985) ;

Hoover v. Ronwin, 466 U.S. 558 (1984); Rice v. Norman Williams

Co., 458 U.S. 654 (1982); Community Communications Co. v. City

of Boulder, 455 U.S. 40 (1982). :

5

not only to control the importation of alcoholic bever-

ages, but also to regulate all aspects of their distribution

and sale where importation was allowed. Distribution

and sale in this context include ownership qualification

requirements and, more specifically, the number of retail

stores that one person or entity may control. Because

the statute in question is one way by which the State con-

trols the marketing of alcoholic beverages, it “fall[s]

within the core of the State’s power under the Twenty-

first Amendment,” North Dakota v. United States, 495

U.S. 423, 432 (1990) (Stevens, J., plurality opinion),

and therefore cannot be preempted by the Sherman Act.

I. THE HISTORY OF THE 21ST AMENDMENT

CLEARLY SHOWS THAT A PRINCIPAL PURPOSE

WAS TO ALLOW STATES “ABSOLUTE CONTROL”

OVER THE DISTRIBUTION AND RETAIL SALE

OF ALCOHOLIC BEVERAGES

The first purpose of the 21st Amendment was, of

course, to end Prohibition.* If that were all, however,

§ 1’s “repeal” of the 19th Amendment would have been

sufficient.

Section 2 was an acknowledgment that the “noble ex-

periment” had failed because the effort to establish one

uniform: standard through national regulation did not take

account of “local sentiment and local habits.” 76 Cong.

Rec. 4146 (1933) (statement of Senator Wagner). Ac-

cordingly, when the House version of the. Amendment

contained no express statement of State authority to regu-

3 Section 1. The eighteenth article of amendment to the Con-

stitution of the United States is hereby repealed.

Section 2. The transportation or importation into any State,

Territory, or possession of the United States for delivery or

use therein of intoxicating liquors, in violation of the laws

thereof, is hereby prohibited.

U.S. Constitution, XXI Amendment.

6

late the importation and distribution of alcohol, see H.R.J.

Res. 480, Senator Blaine, the chairman of the Judiciary

Committee and primary sponsor of the Amendment, pro-

posed the addition of §2 “to restore to the States by

constitutional amendment absolute control in effect over

interstate commerce affecting intoxicating liquors which

enter the confines of the States.” 76 Cong. Rec. 4143

(1933) (emphasis added). As a consequence, the Senate

_approved the addition of § 2 because, as revised, the 21st

Amendment would leave it “entirely to the States to deter-

mine in what manner intoxicating liquors shall be sold or

used and to what places such liquors may be trans-

ported.” Jd. at 4225 (statement of Sen. Swanson; con-

currence of Sen. Robinson). See generally 324 Liquor

Corp. v. Duffy, 479 U.S. 335, 353-57 (1987) (O’Connor,

J., dissenting).

This conclusion is confirmed by the Senate’s considera-

tion and rejection of a proposed § 3 that would have

granted Congress “concurrent power” to regulate or pro-

hibit sales of alcoholic beverages in on-premises establish-

ments (i.e., restaurants and bars). See S. Rep. No. 1022,

at 1 (1933). It was rejected by the Senate because the

grant of such authority to Congress to regulate distribu-

tion would be contrary to the objectives of § 2. 76 Cong.

Rec. 4143 (1933) (Senator Blaine); see id. at 4177-78

(Senator Black). State ratifying conventions similarly

understood that the grant of full authority to the States

to regulate who, how, where and when alcoholic beverages

are to be distributed and sold within their boundaries was

a central purpose of the 21st Amendment. Ratification of

the Twenty-first Amendment to the Constitution of the

United States 172 (E. S. Brown ed. 1938).

7

IL STATES HAVE “PLENARY POWER” TO REGU-

LATE THE DISTRIBUTION AND SALE OF ALCO-

HOLIC BEVERAGES

The judicial construction of the scope and effect of the

21st Amendment has often been said to have changed

substantially since 1933. It was initially interpreted as

exempting all state regulation from challenge under the

Commerce Clause. Later cases, however, rejected its ap-

plication to state laws affecting constitutionally protected

individual rights or federal laws not related to the “core

powers” identified in § 2 of the Amendment. These cases

are not inconsistent; they simply cover different subjects.

This Court always has and continues to read the “core

powers” of § 2 as granting States “plenary power to reg-

ulate and control . . . the distribution, use, or con-

sumption of intoxicants within [its] territory.” Depart-

ment of Revenue v. James B. Beam Distilling Co., 377

U.S. 341, 346 (1964); see also 44 Liquormart, Inc. v.

Rhode Island, 517 US. 484, 51415 (1996) (state

regulatory power over distribution “largerly unfettered by

the Commerce Clause”) (citation omitted). Thus, under

the 21st Amendment, the Court has given state controls

on the structure of the distribution system a strong “pre-

sumption of validity.” North Dakota, 495 U.S. at 433.

Nor are these merely isolated examples. Cases holding

that the 21st Amendment does not apply to price fixing,

discriminatory classifications, etc., have invariably taken

special note of the core power immunity. For example

in Craig v. Boren, 429 U.S. 190, 205-07 (1976), reh’g

denied, 429 US. 1124 (1977), after reviewing the

history of State regulation and of the adoption of the

2ist Amendment, the Court observed that State con-

trols focused specifically on importation, transportation

and distribution are immune because it is “transparently

clear” that they are within the core powers protected by.

8

§ 2 of the Amendment. Jd. at 207. See also id. at 215

(Stewart, J., concurring) (“Every State has broad power

under the Twenty-first Amendment to control the dispen-

sation of alcoholic beverages within its borders.”). Other

illustrative cases include: Brown-Forman Distillers Corp.

v. N.Y. State Liquor Authority, 476 U.S. 573, 584

(1986) (21st “Amendment gives the States wide latitude

to regulate the importation and distribution of liquor

within the territories”); Bacchus Imports, Ltd. v. Dias,

468 U.S. 263, 282 (1984) (Stevens, J., dissenting) (deci-

sions have “consistently reaffirmed” and “repeatedly ac-

knowledg[ed] the broad nature of state authority to regu-

late commerce in intoxicating liquors”); Joseph E. Sea-

gram & Sons, Inc. v. Hostetter, 384 U.S. 35, 42 (1966)*

(“wide latitude” given to State liquor regulation); Hos-

tetter v. Idlewild Bon Voyage Liquor Corp., 377 US.

324, 337 (1964) (Black, J., dissenting) (States given

“plenary powers”).

Of course, State liquor control laws imposing require-

ments outside the core areas of importation, transporta-

tion and distribution can be preempted by contrary federal

law. See, e.g., California Retail Liquor Dealers Ass'n v.

Midcal Aluminum, Inc. supra. But, “[nJothing in Bacchus

or the other later cases overrules the principles iterated in

the Boren and Beam cases” that liquor regulation within

the “core powers” granted to the States continues to be

immune under the 21st Amendment. Milton S. Kronheim

& Co. v. District of Columbia, 91 F.3d 193, 203 (D.C.

Cir. 1996), cert. denied, 520 U.S. 1186 (1997). Accord

44 Liquormart, 517 U.S. at 514-15 (quoted p. 7, supra).

To be sure, where the challenged State laws have

involved authorization of private conduct directly setting

| 4 The price affirmation law upheld in Seagram, not in issue here,

was abrogated in Healy v. Beer Institute, 491 U.S. 324 (1989).

9.

wholesale or retail prices of such products by private

parties, the Court has found that the State liquor laws

preempted by the Sherman Act were not immunized by

the 21st Amendment. The control of price competition, at

least by private parties, was not the kind of State control

envisaged by § 2 of the 21st Amendment because it does

not relate to “the structure of the. distribution . system.”

See California Retail Liquor Dealers Ass’n v. Midcal

Aluminum, Inc., supra at 110 (State authorized resale

price maintenance preempted by Sherman Act); see also

Healy v. Beer Institute, 491 U.S. 324 (1989) (price

affirmation law requiring that in-state prices charged by

brewers not exceed lowest price for beer products in

border States); 324 Liquor Corp. v. Duffy, 479 U.S. 335

(1987) (posting law delegating price setting authority to

private parties); Brown-Forman Distillers Corp. v. N.Y.

State Liquor Authority, 476 U.S. 573 (1986) (requiring

distillers not to sell to wholesalers at a price no higher

than the lowest price they charged anywhere in the U.S.).

However, where the primary interests of § 2 of the

21st Amendment are being served by the State regulation

and price is not controlled by private agreement, the 21st

Amendment trumps any application of the Supremacy

Clause to overturn State law. None of the Supremacy

cases identified above involved an ownership or locational

restriction. None involved typical qualification require-

ments regulating who could own a retail establishment

(e.g., non-felons with experience and adequate assets) or

the number of retail outlets permitted in any community

(e.g., quota and locational limitations).

North Dakota v. United States, 495 U.S. 423 (1990)

is illustrative of the latitude given to State laws which

regulate the distribution of alcoholic beverages. There,

the Court unanimously upheld a “reporting requirement”

under which out-of-state liquor distributors had to report

10

the volume of all liquor shipped to federal enclaves in-

cluding military bases. A second regulation imposing a

“labeling requirement” under which out-of-state distrib-

utors had to label liquor bottles shipped to a federal en-

clave so as to identify that the liquor was for consump-

tion only within the federal enclave was upheld more nar-

rowly on a 5-4 vote. Although there was no majority

opinion on the labeling issue, both the 4-member plurality

by Justice Stevens and the concurrence by Justice Scalia

reaffirmed that regulation of the distribution system was

within the State’s core powers protected by the 2l1st

Amendment as follows:

[I]n the interest of promoting temperance, ensuring

orderly market conditions, and raising revenue, the

State has established a comprehensive system for the

distribution of liquor within its borders. That system

is unquestionably legitimate. (Stevens, J., plurality

opinion) (495 U.S. at 432)

The Twenty-first Amendment . . . empowers North

Dakota to require that all liquor sold for use in the

State be purchased from a licensed in-state whole-

saler.” (Scalia, J., concurring) (495 U.S. at 447)

Under these principles, § 15 of the MABC Act fits

within this 21st Amendment framework. It limits the

number, and therefore the power, of retailers; past ex-

perience shows that such power often has been abused.

Cf. Actmedia, Inc. v. Stroh, 830 F.2d 957, 966 (9th

Cir. 1986) (three-tier ownership restrictions designed to

control “dominance or undue influence”).

11

Ill. MASSACHUSETTS’ THREE-STORE OWNERSHIP

LIMITATION FURTHERS CORE CONCERNS OF

THE 21ST AMENDMENT AND THUS SURVIVES

A SUPREMACY CLAUSE CHALLENGE

The three-store ownership limit in § 15 of the MABC

Act is but one of a series of requirements by which Massa-

chusetts closely regulates who may be licensed as a retailer

(or wholesaler) of alcoholic beverages (§§ 12, 15 & 18),

the personal background of those with ownership interests:

(§§ 12 & 15), the interests of manufacturers and whole-

salers in retail stores (§ 25), the number of on- and off-

premises outlets permitted in the State (§§ 15 & 17),

the location of on-premise outlets as approved by local

committees (§§ 12, 16C & 16D), the hours and days of

operation of retail sales (§§ 12, 15, 33, 33A & 33B),

the adulteration of alcoholic beverages sold at retail

(§ 16), the collection of sales (or excise) taxes (§ 21),

the reporting to the MABCC of all purchase orders and

sales invoices by wholesalers (§ 18), the acceptance of

unannounced inspections of wholesaler records and prem-

ises (§ 12A, 18, 19, 19B & 19C), and so forth. See

Mass. Gen. L. c. 138, §§ 2 et seq.

Theoretical arguments can, of course, be asserted that

each of these provisions, examined in isolation and out of

context, could have deleterious effects on competition and

thus be within the reach of the Sherman Act (assuming

that other elements of an antitrust offense are shown).

The requirement, for example, that retail establishments,

including bars and restaurants, must restrict sales to pre-

scribed hours or lose their licenses (MABC Act §§ 12 &

15), can be said to be a limitation on output. Cf. In the

Matter of Detroit Auto Dealers Ass'n, Inc., 111 F.T.C.

417 (1989), affd, 955 F.2d 457 (6th Cir.), cert. denied,

506 U.S. 973 (1992) (joint advertising agreement by

auto dealers to close their showrooms at 6 p.m. held

to be an agreement to shorten business hours and, thus,

12

‘an output reduction). The same can be said for the -

requirements that retail licensees must be of good char-

acter and without a felony record, and that they must

not sell liquor to minors. MABC Act §§ 12, 15, 34 &

64. Those restrictions limit the number of potential sellers

and buyers, thereby suppressing both supply and demand.

Indeed, other provisions in the MABC Act, not challenged

by Petitioners herein, set express quotas on the number

of off-premise outlets (e.g., no more than 250 in Boston)

as well as the number and location of retail stores in

their locales (§ 17). See also Victoria, Inc. v. ABCC, 33

Mass. App. Ct. 507, 512, 602 N.E.2d 578, 581 (1992)

(Commission to look at local public interest in addition

to population in granting licenses).

In fact, however, the purpose and effect of these restric-

tions is to protect public health and safety, to prevent

unauthorized trafficking (and diversion), to foreclose

underage consumption, and to collect excise and sales

taxes. See, e.g. MABC Act § 23 (“[t]he provisions for

the issue of licenses and permits hereunder . . . are en-

acted with a view only to serve the public need and in

such a manner as to protect the common good”); Con-

nolly v. ABCC, 334 Mass. 613, 618-19, 138 N.E.2d

131, 135-36 (1956) (ABCC could consider patronage

by school children, proximity to churches and propriety

in evaluating license application). According to Massa-

chusetts’ highest court in Johnson v. Martignetti, supra,

the ownership limitation in § 15 serves multiple public _

interest objectives, none of which involves price setting

or output restriction:

Concentration of retailing in the hands of an eco-

nomically powerful few has been thought to intensify

the dangers of liquor sales stimulations, thereby

threatening trade stability and promotion of temper-

ance. Regulation of the number of licenses issued,

13

therefore, aims at controlling the tendency toward

concentration of power in the liquor industry; pre-

venting monopolies; avoiding practices such as in-

discriminate price cutting and excessive advertising;

and preserving the right of small, independent liquor

dealers to do business. (374 Mass. at 792, 375

N.E.2d at 297)

Limiting the number of retail outlets controlled by one

person ensures more effective enforcement of the State’s

liquor control program. The retail owner is more likely

to directly oversee operations where three stores are the

maximum, and the threat of a license revocation or sus-

pension is likely to present a more serious sanction to the

small business as compared to the chain store or super-

market. Similarly, control of market concentration and

retail store ownership interests can be critical in prevent-

ing the misuse of economic power and in obtaining the

benefits of competition. It is, for example, not unusual

for public policy to impose limits on the number of regu-

lated entities one person may control. See 47 C.F.R.

§ 73.3555 (Federal Communications Commission national

multiple ownership rules for television stations); T. Krat-

tenmaker & L. Powe, Regulating Broadcast Programming

94-96 (1994). See also U.S. Dept. of Justice & Federal

Trade Commission, Joint Horizontal Merger Guidelines

§ 2.0 (1992).5

5 This Court also has upheld simlar restrictions outside the field

of liquor control against Sherman Act and Due Process challenges.

E.g., New Motor Vehicle Bd. v. Orrin W. Fox Co., 439 U.S. 96

(1978) (location of new automobile dealerships); Exxon Corp. v.

Governor of Maryland, 487 U.S. 117 (1978) (ownership interest

in retail service stations), reh’g denied sub nom. Shell Oil Co. v.

Governor of Maryland, 439 U.S. 884 (1978); North Dakota State

Bd. of Pharmacy v. Snyder’s Drug Stores, Inc., 414 U.S. 156 (1973)

(ownership interest in pharmacies). See also Boston Neighborhood

Taxi Ass’n v. Dept. of Public Utilities, 410 Mass. 686, 575 N.E.2d

52 (1991) (limit on number of taxi licenses).

a4

Thus, when faced with a challenge to state regulation

of the number and location of retail liquor stores, the

lower courts have upheld such restrictions under the 21st

Amendment. In Simms v. Farris, 657 F. Supp. 119 (E.D.

Ky. 1987), aff'd per curiam, 840 F.2d 18 (6th Cir. 1988),

the court upheld a limitation of the number and location

of retail liquor stores in rural areas under the 2lIst

Amendment because, as the District Court reasoned, the

restriction was designed “to facilitate the ease of policing”

compliance with state liquor regulations. 657 F. Supp. at

124. On review, the Sixth Circuit was more direct, up-

holding this “attempt by Kentucky to regulate the sale

and use of liquor within its borders” because the State’s

authority was being applied “to control the distribution

and use of intoxicating. beverages.” 840 F.2d at 18.

Accord Prices Corner Liquors, Inc. v. Delaware Alcoholic

Beverage Control Commission, 705 A.2d 571, 576 (Del.

S.Ct. 1998) (upholding more restrictive locational re-

quirements for off-premises retail liquor stores in unin-

corporated areas).

Similarly, Massachusetts’ limit on the number of retail

liquor stores that one person may control is justified by

its policy of control over all aspects of the distribution

of alcoholic beverages. By restricting that number to no

more than three stores, the State has imposed a direct

limit on the market power exercised by any-retail store.

15

. CONCLUSION

For the foregoing reasons, the Petition for a Writ of

Certiorari should be denied.

Respectfully submitted,

ERNEST GELLHORN

Counsel of Record

ANN G. WEYMOUTH

Suite 100 ; .

2907 Normanstone Lane, N.W.

Washington, DC 20008-2725

March 30, 2000 (202) 319-7104