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

PETITIONER:Joseph E. Seagram & Sons, Inc.
RESPONDENT:Hostetter
LOCATION:Congress

DOCKET NO.: 545
DECIDED BY: Warren Court (1965-1967)
LOWER COURT:

CITATION: 384 US 35 (1966)
ARGUED: Feb 23, 1966
DECIDED: Apr 19, 1966

Facts of the case

Question

Audio Transcription for Oral Argument – February 23, 1966 in Joseph E. Seagram & Sons, Inc. v. Hostetter

Earl Warren:

— et al.

Mr. Daly.

Thomas F. Daly:

Mr. Chief Justice and may it please the Court.

This is an appeal from a judgment of the New York Court of Appeals determined by a divided vote 4 to 3, judgments on the Appellate Division and of the special term holding — upholding the constitutionality of certain provisions of Section 7 and upholding the constitutionality of the entirety of Section 9 of the Chapter 431 of the laws of New York of 1964.

My remarks here are going to be directed entirely to the question of the constitutionality of Section 9.

I’ll leave the question of the constitutionality of Section 7, because of the limitations of time, to my brief.

The parties involved here, the appellants are in three categories.

The first are the most of the distillers who sell liquor throughout the United States.

They will be referred to here either as distillers, manufacturers, or the owners of the brand name.

Also, appellants here are importers of liquor from other countries who sell here.

They will be referred to either as the brand owners or as importers.

Also as appellants, are wholesalers who sell the liquor of the various whole — importers and distillers exclusively in the State of New York.

Mr. Jack Goodman, who is associated with me in this case, will at the conclusion of my remarks have some remarks to make concerning the New York wholesalers.

Now, before I get into a discussion of Section 9 and what it entails and why we think it is unconstitutional, I would like to review briefly the alcoholic beverage control law of New York State because I think with an understanding of what has gone before, it will be more readily apparent why we believe and urge that Section 9 is unconstitutional.

New York, like most of the other states, after repeal in 1933 for the purpose of promoting temperance and at least to limit the social evils that flow from unrestricted consumption of alcohol past an Alcoholic Beverage Control Law.

That law still continues in effect with various amendments which I am going to mention.

Sometime in the late 1940s, the legislature apparently felt that the distillers and some of the wholesalers were taking advantage of the law and were giving discounts and other things that weren’t helpful to restricting the evils which the legislation and the Act tried to prevent.

So, at that time, the Act was amended to provide that each distiller and each wholesaler must file each month a schedule of the prices at which they were to sell their liquor, that is, the wholesaler would have to file the price or the distiller or brand owner would have to file a schedule, they are called postings, and they were publicly displayed which would show the price that his commodity was being sold throughout the state to wholesalers and it had to be sold to every wholesaler at that price, less certain discounts which were provided for in the law.

Likewise, the wholesaler had to file each month a schedule which would show the prices at which he would sell to retailers anywhere in the state, and they had to abide by those prices.

In other words, there couldn’t be competition between wholesalers, there could be competition between wholesalers but there couldn’t be competition between one wholesaler and various retailers.

Wholesalers, after they had posted their prices, however, within 10 days after the original posting, if they saw that another wholesaler was selling the same brands for less, could then reduce his price to the price of the other wholesaler so there was competition as between wholesalers but no competition as between wholesalers and retailers.

Now, that law went on until the early 1950s or the late 1940s and then —

There was no control of the consumer price?

Thomas F. Daly:

Only the contractual fair trade pricing.

So —

Thomas F. Daly:

I’m going to come to that in a minute.

During all this period, they could fair trade by contractual arrangements, but that was the only control on consumer prices.

Now, in the late 40s, it was discovered that there was a price war going on that in spite of price control, the contractual price control, a price war is going on and retailers and other people were selling liquor in a way that the legislature felt again, was not carrying out the objects of temperance and controlling the evils that are thought to flow from the unrestricted sale and consumption of liquor.

So at that time, the legislature passed an Act which became law, which made price control mandatory, and they did that for the expressed purpose and I quote — I don’t quote this, I read this, as a result and for the purpose of eliminating price wars “which unduly stimulate the sale of liquor and wine, mandatory price control will be adopted.”

Now, what mandatory price control was, the state said, the alcohol — we, the distiller, the wholesaler — the price set by the distiller for the sale and retail of the brand named product will be enforced by the State.

Thomas F. Daly:

In other words, the Alcoholic Control Board would enforce that and for instance, if a retailer sold at a price that was fixed, a price below what it was fixed by the manufacturer, his license could be taken away or it could be otherwise disciplined by the Alcoholic Control Board.

It wasn’t left to private enforcement and that was to a logic stand, very effective in keeping prices pegged by the distiller and there was no selling below cost.

Now, we get down to 1960 and for various reasons unconnected with what I’m discussing now, a scandal broke out in the liquor authority in New York.

It reached such proportions that Governor Rockefeller felt that it should be investigated and he appointed under an Act known as the Moreland Act, he appointed commissioners to make a study of the Alcoholic Control Board laws and what could be done to eliminate large fields of discretion which apparently brought about this corruption.

He is the Governor, appointed three distinguished citizens of New York.

The Chairman was former Judge Walsh, who was also an Assistant Attorney General of the United States.

They conducted long hearings and investigated the whole ABC law and came up with a number of conclusions, most of which have no bearing here.

But among the conclusions they came up with was that New York State or the citizens of New York State were paying about a dollar a quart or a dollar a fifth more for liquor throughout the — in the state and than was being charged to citizens of the other states.

Now and they’ve — they said that the reason, and this is awfully important (Inaudible) — I want to impress it on the Court, the reason that New York citizens were being charged more than citizens of other state was because of the mandatory price control provisions.

And I would like to point to the findings of the Commission as they appear in the record or the recommendations of the committee, and I refer to page 157 of the record, and here’s their conclusion, “For all of the foregoing reasons, we have concluded that Section 101 (c),” and Section 101 (c) was the mandatory price control provisions of the law, “injures the New York consumer in at least three important ways,” and then it goes on to talk about the price to the consumer in New York being higher and the elimination of free competition and having a competitive market in New York.

They recommended to the Governor and to the legislature that this mandatory price provision be eliminated from the law, and they said, and it was their conclusion, that if this was done in spite of the fact that they intended to allow contractual fair trading to continue, it was their finding that with the elimination of mandatory price control, prices in New York would seek their natural level and the discrimination which they found against New York citizens would be eliminated.

The Governor went along with that and a bill was introduced to provide for the elimination of mandatory price control, as well as the elimination of other practices which they had found to be bad and which do not concern us here.

And the Governor in his message to the legislature, and that appears on page 188 of the record and I’m now reading from the first — second full paragraph, such a compulsory resale price maintenance is at war with the American system of free competition.

And then he goes on to say the result, and this is the result of mandatory price control, is that New York consumers have been compelled to pay on the average, $1 more per fifth of liquor than they would have to pay if they were a free market.

And then goes on to say that this runs about 150 million a year.

Again, I emphasize that what was causing this difference in price was mandatory price control.

A bill was submitted to the legislature which contained the provision eliminating mandatory price control, and I may say parenthetically that the elimination of this mandatory price control does not apply to wine.

New York State is a great grower of wine grapes and a great distiller, a manufacturer of wine.

So apparently, the legislature was making a distinction there between wine and other alcoholic beverages.

The legislature however, rejected the bill that had been introduced by the Governor, and a new bill was introduced which was in all respects, about the same except for the addition of Section 7, which I have referred to, and Section 9.

Now, those were incorporated in the new bill.

The Act, which became law and which we’re attacking now appears in the appendix commencing at A5 but if Your Honors would turn to page A16, this is where we really get into the part that we’re attacking.

At page A16 —

Earl Warren:

What page is that, please?

Thomas F. Daly:

Sir?

Earl Warren:

What page is that, please?

Thomas F. Daly:

A16.

Earl Warren:

8?

Thomas F. Daly:

A.

Earl Warren:

Oh, yes, in the brief.

Thomas F. Daly:

Appendix to our brief, sir.

Earl Warren:

In the brief, yes.

Thomas F. Daly:

Do you have it, sir?

Earl Warren:

Yes, I got it.

Thank you.

Thomas F. Daly:

In enacting Section 9 and in eliminating mandatory price control, this is what the legislature said, and I’m reading now at the bottom of paragraph 8.

Hugo L. Black:

Paragraph what?

Thomas F. Daly:

8 or Section 8, as it appears on page A16.

In order to forestall possible monopolistic and anticompetitive practices designed to frustrate the elimination of such discrimination, that is the discrimination caused by mandatory price control and disadvantage.

It is hereby further declared that the sale of liquor should be subjected to certain further restrictions, prohibitions and regulations, and the necessity for the enactment of the provisions of Section 9 of this Act is therefore declared a matter of legislative determination.

Now, it’s — now, let us get into what Section 9 provides.

As I mentioned before, each month, the manufacturer or brand owner of (Inaudible) –distillers first must post a pricelists, so must the wholesale.

Now, Section 9 provides that in connection with the posting of both those pricelists, the manufacturer or brand owner must also file an affirmation or an affidavit that the prices of the bottle and case price of each brand, and each distiller may have 50, 100, 200 brands which he files for each month and each wholesale up may have the same amount.

That each bottle and case price of each particular brand has been sold throughout the United States either as far as the sale from the distiller to the wholesaler at no higher price than it has been sold either by the distiller or by a related person, and I will get to the definition of a related person later, at no higher price than that liquor has been sold by the distiller or a related person anywhere in the United States in the previous month.

And, with respect to the wholesaler, the distiller must also file his affirmation that the price at which the wholesaler is selling to the retailer is no higher than that particular item of liquor was sold anywhere in the United States in the preceding month by either the distiller, if he sold to retailers, or by any related wholesaler anywhere in the United States.

Now —

(Inaudible)

Thomas F. Daly:

The consumer —

No, control over the price to be carried by the retailer.

Thomas F. Daly:

Except that the law does provide that the retailer must not sell below his cost and the cost as defined there is the cost to the retailer, the actual purchase price not including any discounts.

So, it can’t be sold below the retailer’s cost but that’s the only limitation except as it may be fair traded — contractually fair traded.

William J. Brennan, Jr.:

And if it’s fair traded, I gather you — the consumer may get no break at all.

Thomas F. Daly:

He may not, although I must say, Your Honor, as you probably– and I refer you to the decided opinions in New York since mandatory price control has been in effect, the decided cases indicate that fair tra — contractual fair trading has not been nearly as effective as mandatory price control.

William J. Brennan, Jr.:

Well, was — wasn’t there only recently another 4-3 —

Thomas F. Daly:

Yes, sir, yes.

William J. Brennan, Jr.:

— decision of the Court of Appeals which —

Thomas F. Daly:

Yes, sir.

William J. Brennan, Jr.:

— as I understood it, sustained in the face of this statute of the voluntary fair trading, could it not?

Thomas F. Daly:

No, they upheld voluntary fair trading.

William J. Brennan, Jr.:

That’s what I say.

Thomas F. Daly:

Minority said that, in view of the fact that this — the enforcement of this statute stayed —

William J. Brennan, Jr.:

The issue was whether —

Thomas F. Daly:

— it shouldn’t be.

William J. Brennan, Jr.:

— whether that statute, what do you call it, Feld-Crawford?

Thomas F. Daly:

Feld-Crawford Act.

William J. Brennan, Jr.:

Had been repealed by implication by this Court?

Thomas F. Daly:

No, I don’t think they went that far, Your Honor, but I merely cite these cases to indicate, because my adversary takes a somewhat different position and I’ll get to that later, that contractual price control has not been wholly effective in keeping prices up.

William J. Brennan, Jr.:

I’m — I wonder though, Mr. Daly, have we kept such an abstract question here or?

Thomas F. Daly:

I don’t think so, Your Honor.

I think it’s not at all abstract.

William J. Brennan, Jr.:

Well, if aside, as I understand your exposition to it, this was largely a consequence of conclusion that mandatory price seems to, did not at all control the consumption of alcohol.

Thomas F. Daly:

(Inaudible)

No, no.

Mandatory price control kept up the price in New York.

William J. Brennan, Jr.:

It kept up the price but it didn’t —

Thomas F. Daly:

Kept up the price.

William J. Brennan, Jr.:

But the purpose of keeping up the price as I understood it was to —

Thomas F. Daly:

Were to —

William J. Brennan, Jr.:

— try to diminish the consumption of alcohol.

Thomas F. Daly:

That’s right.

William J. Brennan, Jr.:

And it failed, apparently.

They said the legislature —

Thomas F. Daly:

No, the Moreland Act Commission and perhaps I should’ve mentioned this earlier, found that the price of liquor had no relation to consumption.

William J. Brennan, Jr.:

That’s what I mean.

So that, this was not a good device for —

Thomas F. Daly:

Well —

William J. Brennan, Jr.:

— keeping down the consumption —

Thomas F. Daly:

That’s right.

William J. Brennan, Jr.:

— of liquor.

Thomas F. Daly:

That’s right, the price control was not necessary to further the aims of temperance.

William J. Brennan, Jr.:

And yet, I take it, if the idea of this was, since it didn’t work to keep it down like consumers ought not to get any — have to pay more than they would other where, other states —

Thomas F. Daly:

That’s right.

Well, the Moreland Act —

William J. Brennan, Jr.:

Yet isn’t it — yet I gather, under voluntary fair trading, the consumer in New York may have to pay a lot more than he pays in New Jersey anyway, wouldn’t it?

Thomas F. Daly:

Conceivably he could, of course the cost of doing business in New York is considerably higher than it is in other states so that he still even with free competition, it might end up that the consumer paying more and I don’t think this bill is going to eliminate it.

What it’s going to do as the Court of Appeals said is, probably result in raising prices throughout the United States rather than reducing them in the State of New York.

This isn’t at all an academic discussion.

It had very —

William J. Brennan, Jr.:

Well, aren’t we (Voice Overlap) —

Thomas F. Daly:

— real repercussions —

William J. Brennan, Jr.:

— the law — this law has not yet been applied at all, has it?

Thomas F. Daly:

It has not been applied because it’s been stayed all the way up, Your Honor, and which was stayed —

Hugo L. Black:

Suppose it, Mr. — suppose it —

Thomas F. Daly:

— by Mr. Justice Harlan pending this review.

Hugo L. Black:

Suppose it did have the effect of raising the price —

Thomas F. Daly:

Sir?

Hugo L. Black:

Suppose it did have the effect of raising the price of beverages at the time all over the United States.

Would you say that was unconstitutional?

Thomas F. Daly:

You’re leaving out —

Hugo L. Black:

Isn’t that the reason for holding it up?

Thomas F. Daly:

Yes, yes, I —

Hugo L. Black:

Why?

Thomas F. Daly:

I think it would be because I think it would be a serious effect on the other states to say that — well, as the Attorney General’s many —

Hugo L. Black:

But it doesn’t say they have to do that, does it?

Thomas F. Daly:

No, they don’t have to do it but New York —

Hugo L. Black:

Is it because it might have that effect and violate some provisions of the Constitution, which one?

Thomas F. Daly:

Yes, sir.

I think it violates the Commerce Clause.

I think it violates the Due Process Clause.

I think it violates the Supremacy Clause.

Thomas F. Daly:

I think it interferes with the operation of the antitrust laws and it interferes with the operation of the Robinson-Patman Act as I hope to develop as we go along.

In other words, Section 9 was not passed for the purpose of reducing prices.

The legislature and the Moreland Act Commission believed that the elimination of mandatory price control would do that.

As I said, Section 9 which we’re complaining about here was passed in order to forestall possible monopolistic practices designed to frustrate the elimination of such discrimination and disadvantages that Section 9 — that was the reason for the enaction — adoption of Section 9.

Now, let me read to you what a related person is and it’s the related person, Your Honors, who really fix the price of liquor in New York State.

A related person shall mean (1), and I’m reading from page A17 of the appendix to our brief under (d) there, down towards the bottom of that paragraph, shall mean (1) — shall mean any person, (1) in the business of which such brand owner or wholesaler designated as agent has an interest direct or indirect by stock or other security ownership as lender or lienor, or by interlocking directors or officers, or (2) the — and this is the really important phrase, the exclusive principle or “substantial business of which is a sale of a brand or brands of liquor purchased from such brand owner or wholesaler designated as agent, and the same definition applies to sales from wholesalers to retailers.”

So, in other words, you can have throughout the United States not the distiller fixing this price, not the wholesaler fixing this price but some so-called related person who is some independent person who does a substantial amount of business in a particular brand.

There’s no definition about a substantial amount is.

The amounts of brands may run — a particular distiller which a particular wholesaler sells may run anywhere from 75% down to 1% and we don’t know what that means.

Now, let me also show the definition of price and I again, I move over to A19 (i).

In determining the lowest price for which any item of liquor was sold in any other state or the District of Columbia, appropriate reductions shall be made to reflect all discounts in excess of those to be in effect under such schedule and all rebates, free goods, allowance, and inducements of any kind whatsoever offered, note that offered, or given to any such wholesaler.

Now, it’s not only the price at which some related person might sell, but the price at which he might have offered, although sale had not been made.

And these independent wholesalers are completely independent of the distillers so that some wholesaler out in some state in the Middle West or anywhere else, if he offers a brand of liquor, even if he sells below cost if he offers that brand in that particular month, that is the price, at a price that’s even below cost, that is the price at which that brand of liquor must be sold in New York two months later because you have to first file your schedule and the affirmation for the price of the previous month at which you’re going to sell in the succeeding month.

So, two months later, New York must sell that brand of liquor at the price that this related person wholesaler sold somewhere in the United States and that includes all rebates which a state might — some other state might allow and which New York doesn’t.

New York, incidentally, it counts for about 12% of the liquor market in the United States.

Abe Fortas:

Mr. Daly, this Act has not been —

Thomas F. Daly:

Sir?

Abe Fortas:

— in operation at all, has it?

Thomas F. Daly:

Oh, the Act has.

Section —

Abe Fortas:

I mean, Section 9.

Thomas F. Daly:

— Section 9 had been stayed, Your Honor.

Abe Fortas:

But, nevertheless, do you– is it your argument that despite that, the specific questions are before us?

Thomas F. Daly:

Oh, yes.

Yes, I think so.

Well, how about the Act to be enforced (Inaudible)

Thomas F. Daly:

Oh, yes, regulations were issued and the state was all prepared to enforce it, and it would’ve been enforced except for stays and during a certain period of time, by the voluntary accusation of the Attorney General’s Office in lieu of a stay.

And then, Mr. — the Chief Judge at the Court of Appeals, after the decision came down, entered a stay pending the application to Mr. Justice Harlan for a stay, which you then granted sir.

Earl Warren:

Mr. Daly, may I ask this to revert just a moment to what you’ve gone through about the related dealers.

And, you say that if anyone of them had sold for less than the regular price that the distiller could not or certainly at the time sell this liquor in New York, is that it?

Thomas F. Daly:

He could sell it, Your Honor.

He had the choice of either not selling it or —

Earl Warren:

Yes.

Thomas F. Daly:

— selling it at the price that was fixed by this affiliated or —

Earl Warren:

Yes, yes.

Thomas F. Daly:

— a wholesaler.

Earl Warren:

Does that apply whether he received any rebates or anything of that kind, any special inducement from the distiller or —

Thomas F. Daly:

Oh, yes.

Yes, it —

Earl Warren:

It makes no difference —

Thomas F. Daly:

It makes no difference.

Earl Warren:

— whether he received any preference of any kind over others?

Thomas F. Daly:

None at all.

It’s whatever price the — this related person fixes for any reason that he wants to fix it.

It has — if he got rebates from the distiller, that would also have to be taken into account, that is, it’s the price at which — it’s the price at which he sells.

Earl Warren:

Yes.

But without regard to —

Thomas F. Daly:

And he gives rebates to the —

Earl Warren:

— to any — any preference that the distiller might give.

Thomas F. Daly:

That’s right.

He’s completely independent of the distiller and it’s a price at which he sells that fixes the price at which the wholesaler may sell to the retailer.

Hugo L. Black:

May I ask you?

The legislature we read each year and found out what was the lowest price at which liquor has been sold in the state for the past year can simply fix that as the price that must be sold out in New York.

Would your objection — constitutional objection be the same?

Thomas F. Daly:

No, Your Honor, if it were done for the purpose of promoting or furthering the aims of temperance, I —

Hugo L. Black:

But I’m not —

Thomas F. Daly:

Yes sir.

Hugo L. Black:

Can you —

Thomas F. Daly:

And I do think that they would have the price — the right to fix the price of liquor.

Hugo L. Black:

Did you think it had the right to fix the price even though their measurement was precisely that which is here stated?

Thomas F. Daly:

That’s right, subject to, of course, aside from the Twenty-first —

Hugo L. Black:

(Inaudible)

Thomas F. Daly:

— aside from the Twenty-first Amendment.

I don’t suppose they could fix the price of liquor at a confiscatory price.

Now, I’m leaving out the Twenty-first Amendment, assuming there was some other product and not liquor, I don’t think they could fix it.

I think they have a right under certain circumstances probably to fix the price of any product but that takes in consideration due process and the other constitutional provisions but I agree with you.

And, if it’s for the purpose of promoting temperance, I think they undoubtedly had the right to fix the price.

But this, as Your Honor will realize, was not (Voice Overlap) —

Hugo L. Black:

That’s a pretty big problem, isn’t it?

Thomas F. Daly:

Sir?

Hugo L. Black:

That’s a pretty big problem with whether it promotes temperance, so that would be —

Thomas F. Daly:

Well —

Hugo L. Black:

A lot of people observed an idea which is perhaps no good that if you’d make them pay so much for it, that it’s hard to pay it, that they’d drink less.

Thomas F. Daly:

Yes, but I want to point out that the legislature itself does not, in enacting this statute, did not enact it for the purpose of promoting temperance.

It was enacted merely to prevent anticompetitive practices which might prevent the citizens of New York receiving the benefit which the Moreland Act Commission said would be obtained from the repeal of mandatory price control.

That was the only purpose for enacting this.

It wasn’t —

Hugo L. Black:

But wasn’t that — I found out from hearsay of course only, that different states frequently have laws which require the same brand to be sold at different prices.

And maybe —

Thomas F. Daly:

Yes.

Hugo L. Black:

Maybe they wanted to provide that this might still be unconstitutional.

Thomas F. Daly:

But —

Hugo L. Black:

Maybe the object was to see that New York didn’t get pleased in the price of liquor they had then, if he would have to pay and compares them with the price they had to pay in other states.

Thomas F. Daly:

As I understand the rationale of all those other states which fix marked up prices, it’s in furtherance of the promotion of temperance and the object — objectives of unduly — not unduly stimulating the sale of liquor.

And again, I emphasize —

Hugo L. Black:

Well, I’ve heard that they hadn’t quite different reasons in some of the states.

Thomas F. Daly:

Well, I don’t know of that, Your Honor.

Earl Warren:

Is there any indication that New York had been discriminated against?

Thomas F. Daly:

Only —

(Inaudible)

Thomas F. Daly:

Only as —

Earl Warren:

Vis-à-vis the other states?

Thomas F. Daly:

No, only as I’ve said, Your Honor, as a result of mandatory price control.

The Moreland Act Commission and in the Governor’s message which I read, said that because of mandatory price control, the price of liquor was somewhat higher in New York.

Now, the — as the Commission found, there was some evidence or a lot of evidence that the cost of doing business in New York was higher than in other states, but they did find that because of mandatory price control that New Yorkers were being discriminated against it but that presumably is eliminated now because mandatory price control has been eliminated.

Abe Fortas:

Mr. Daly, I — are there some states which have state monopolies and which have–

Thomas F. Daly:

Yes.

Abe Fortas:

— similar —

Thomas F. Daly:

Yes, and I’ll —

Abe Fortas:

Well, as —

Thomas F. Daly:

I’ll discuss that right now, Your Honor.

There are a number of states, I’ve forgotten, the record shows, I don’t have the — number doesn’t come to mind but it’s —

Byron R. White:

17.

Thomas F. Daly:

17, I think, Your Honor is right, in which the state acts as the purchasers from the manufacturers to the distillers of the alcoholic spirits and they in turn sell it within the state.

And, they inquire — they require warranties that the price at which they’re buying is the price is no higher than the price which it sold in other states by the manufacturers.

And —

Abe Fortas:

Was that true of all 17?

Thomas F. Daly:

I think it’s true of all 17.

The warranties and some are different from the others.

Pennsylvania has about the broadest warranty, I think.

And my adversary uses that as a reason why there’s nothing very improper in what New York State has done.

But may I point out in ref — with reference to these monopoly states, this considerable difference.

First, it’s purely contractual, whereas, the law here is — if a violation of the law or filing of a false affirmation in New York State can result in six months imprisonment and $10,000 fine can result in the revocation of your license so you can’t do business in the state, and — well, in short, it has severe (Inaudible) — criminal sanctions which the monopoly states don’t have that is it’s purely contractual.

If you — if they find that you’ve sold for more, they could start a suit to collect from you and tell you that they won’t buy from you anymore just the same as any dealer can.

(Inaudible)

Thomas F. Daly:

Sir?

Do you have a monopoly state that — monopolies the — this position of criminal sanctions?

Thomas F. Daly:

They don’t have the criminal sanctions.

Well, (Inaudible)

Thomas F. Daly:

Well, I think it does, Your Honor.

Thomas F. Daly:

And I see my five minutes are going and may I also say that we don’t have this related person problem because as the price of the monopoly states, it’s the price at which the distiller sells, not the price at which the related person sells or to whom we have no control.

That is the — that is one of the broad distinctions between the monopoly states in our situation where we’re in the — at the mercy of a so-called related person over whom we have no control at all.

And, thirdly, none of the monopoly states have a warranty that’s as broad as this which includes inducements of any kind whatsoever either offered or given.

Now, in summation, and I really can’t, because of the limitation of time, get into the constitutional arguments, but may I point out in summary that under this Section 9, the price of the liquor is not set by New York State.

It’s set by — it’s not set by statute.

The price is not set by the brand owner.

The price is not set by a wholesaler.

The price is set by some related person somewhere in the country, over whom we have no control.

And that’s so with reference to the price by the distiller to the wholesaler and the price by the wholesaler to the retailer with one exception, a retailer may sell his private brand without any price restrictions at all.

A private brand is where a retailer buys from a wholesaler or from a distiller and sells under his own name, that’s so-called private brand.

And wine does not come under these prohibitions.

Well, if New York (Inaudible)

Thomas F. Daly:

The price at which liquor would have to be sold under this law in New York has absolutely — may have absolutely no relation to the price at which liquors should be sold in New York.

As I said, the expenses of doing business, both for the industry and for the wholesalers, is considerably higher.

Mr. Goodman will go into that, so I’ll leave that for the time being.

And it may have no relation to what would be an honest and fair price in New York which the people of New York should be asked to pay because it’s the price of selling the liquor there.

And it may have no relation to the fair price at which the liquor is being sold by some related person somewhere in the country because for some reason or another, to meet competition in brands that aren’t sold — even sold in New York, he may sell his liquor, as he can lawfully in a lot of states, at a loss.

And yet, if he sells out of loss out in some small town in the Middle West where his costs are a lot less, if that liquor is going to be sold in New York and New Yorkers aren’t going to be deprived of the choice of their favorite brand, it must be sold at the price that that man does sell it somewhere out in the West, but a person over whom the wholesaler in New York, or to whom the distiller contrary to what my adversary will say by quotation from outside the record in which I will hope to answer in rebuttal.

That will be the price in New York with the — or the distiller will have the choice of saying or the wholesaler will have the choice of saying, “We’re not going to sell those brands in New York,” and the New York consumer, if he likes that brand, can go to New Jersey or Connecticut or somewhere else to buy it but he won’t be able to buy it in New York.

Earl Warren:

Suppose you didn’t have the related dealer provision in there and the state had just said that no distiller can sell his liquor in New York if he gives any rebate or preference to anyone that he does not give to the State of New York.

Thomas F. Daly:

I think New York could do that.

Earl Warren:

You think New York could.

Thomas F. Daly:

I think that they could do it, yes, sir.

Byron R. White:

Mr. Daly.

Thomas F. Daly:

But I — I think — I’m sorry, sir.

Byron R. White:

What is your prediction on what will happen if this law is upheld?

Will it result in a — in one price across the country?

Thomas F. Daly:

I’m afraid that it’s going to and for this reason, I —

Byron R. White:

Well, doesn’t it almost have to?

Thomas F. Daly:

I think it will have to and because, as the Attorney General’s committee and was quoted in brief at page 40 and I think it’s inevitable economic law if, as a result of reducing your price to one person, you must reduce it to all, the result is going to be that you’re not going to reduce it to anyone.

Tom C. Clark:

You can fair trade it, couldn’t you?

Thomas F. Daly:

They can — you can fair trade it still in New York.

Tom C. Clark:

Despite this (Inaudible)

Thomas F. Daly:

By a —

Tom C. Clark:

— even though — even though we decided that this law was alright, they could still fair trade it.

Thomas F. Daly:

They could still fair trade but the — it couldn’t be sold to the wholesaler —

Potter Stewart:

The price would have to —

Thomas F. Daly:

At a price any higher than it was sold any price else in the country by a related person.

Byron R. White:

But —

Thomas F. Daly:

So —

Tom C. Clark:

Well, I thought it could be.

Did the Court of Appeals passed that — wasn’t that in their opinion last week?

Thomas F. Daly:

No.

Tom C. Clark:

(Inaudible)

Thomas F. Daly:

That it got — yes, but the —

Tom C. Clark:

That it could be higher?

Thomas F. Daly:

Yes, but you see, this action has been stayed.

This section is not in effect, Your Honor.

Tom C. Clark:

Your position is that if this section is — it sounds defective it could not fair trade it at a higher price in New York.

Thomas F. Daly:

They — they could — well, they’re not going to — I assume that if they have to sell, say, at $2 a quart less, they’re not going to fix the retail price at the old price and give all that difference to the retail.

I assume what will happen would be the price would be reduced all along the line.

Tom C. Clark:

Well, as I understood the Court of Appeals opinion, why — say, they set the price at $10, and they’d been selling outside the state at $9 and that $10 price was set under the — under a contract, under the fair trade, would that be possible assuming that this section (Inaudible)

Thomas F. Daly:

It would — well, of course it — yes, Your Honor, it would because it — they might have to sell in New York at a higher price because the cost of doing business in New York would be higher.

Tom C. Clark:

So, they could sell at a higher price.

Thomas F. Daly:

Oh, they — they couldn’t, Your Honor, if Section 9 is in effect because they could only sell it at the price at which some related person — wholesaler somewhere else in the country sold it.

That is, suppose a related person wholesaler sold an item of Bourbon, say, which was selling at $10 in New York in this particular month.

That same brand was sold somewhere in the state by a wholesaler or outside the state by a wholesaler at $5.

Two months from now, the brand owner of that brand would have to file an affirmation stating that the re — the wholesaler who was selling his brand to retailers were selling at no higher price than the price of $5 which had been sold in this other state.

So, it couldn’t be sold from (Voice Overlap) —

Abe Fortas:

Mr. Daly, I don’t read this way.

Thomas F. Daly:

Sir?

Abe Fortas:

I don’t read the statute this way, I’m sure you’re correct.

You should help me.

As I understand, looking at A17, the definition of related person, the difficult part is in (2).

Thomas F. Daly:

Yes.

Abe Fortas:

(2).

Now, that applies — see if this is correct.

That applies, as I read it, only to a dealer, let me call him, who purchases from the brand owner — direct from the brand owner or from a wholesaler designated as agent and who sells only to a wholesaler and who sells — he has to be selling to a wholesaler.

You look above that.

In other words, your last statement, if I correctly understood you, you’re talking about a related person, a wholesaler who sells to a retailer.

But that would not — that this —

Thomas F. Daly:

Oh, yes, because —

Abe Fortas:

— section doesn’t apply to the last (Voice Overlap) —

Thomas F. Daly:

I read — you — you’re reading from the section probably that refers to a sale from a distiller to a wholesaler.

Abe Fortas:

I am.

Thomas F. Daly:

It’s also the same provision where the sale is from a wholesaler to a retailer.

Abe Fortas:

Where is that?

Thomas F. Daly:

That’s in —

Abe Fortas:

Is it also use related person —

Thomas F. Daly:

— (i) on page A19.

Abe Fortas:

Does that use the term “related person”?

Thomas F. Daly:

Or (f), I should say, (f) on page 8.

There are two sections, you see, there’s —

Abe Fortas:

I see.

Thomas F. Daly:

There’s (d) of 9 and (f) of 9.

One applies for sales from the distiller to the wholesaler and the other applies from the wholesaler to the retailer.

In both instances, the affirmation must be filed by the distiller or brand owner that the price of which the liquor is being sold is no higher than the price sold by a related person.

Abe Fortas:

Now, looking at (f), the related person would have to purchase from the brand owner or the distiller or from a wholesaler designated as agent.

Thomas F. Daly:

That’s right.

Abe Fortas:

And to be current under (f), the related person would then sell to a retailer.

Thomas F. Daly:

Well, a related person may not be doing business in New York at all, he wouldn’t be.

Abe Fortas:

I know that.

I say, wherever he is, North Dakota —

Thomas F. Daly:

Yes.

Abe Fortas:

— he sells to a retailer.

Thomas F. Daly:

He’d be a related person, a wholesaler.

Abe Fortas:

Alright.

Now, does that related person wholesaler could file in New York, which is compared–

Thomas F. Daly:

He wouldn’t file it in New York.

Abe Fortas:

I understand that, would filing in New York with — the price of which would be compared with this North Dakota price would be a filing not by Seagram, let’s say the distiller, but by the wholesaler in New York.

Is that right?

Thomas F. Daly:

It would be the price at which the wholesaler in New York —

Abe Fortas:

In New York.

Thomas F. Daly:

— could sell to a retailer, but it — but Seagram, if it was this — if it were the brand owner, would have to file an affidavit or an affirmation that the price shown on the wholesaler’s schedule of the prices to retailers was no higher than the price which had been fixed by this wholesaler on his sale to retailers out in Dakota.

Abe Fortas:

Even if —

Thomas F. Daly:

If even we (Voice Overlap) —

Abe Fortas:

That even if Seagram — the distiller, is not engaged in selling to retailers in New York?

Thomas F. Daly:

Seagram, ordinarily — most of the whole — most of the distillers do not sell to retailers in New York.

Abe Fortas:

Well, in other jurisdictions —

Thomas F. Daly:

They sell it to wholesalers.

Abe Fortas:

— there’s a law that forbids them from doing it.

Thomas F. Daly:

No, they could sell.

Abe Fortas:

But, that is not in the —

Thomas F. Daly:

There are instances.

In fact, the section itself provides that — for sales to retailer in the — where the distiller sells to retailer, he must also make an affirmation.

Abe Fortas:

Well, I don’t want to take any more of your time, but just to sum this up.

Is it or is it not true that a distiller even though it does not sell to retailers in New York State, would have to file a schedule saying that nowhere else in the United States is the particular brand sold by wholesalers to retailers at less than it is in New York.

Thomas F. Daly:

That’s right.

As long as it was related, the person wholesaler is related person as defined in this section anywhere in the map.

Tom C. Clark:

I’m sorry.

Tom C. Clark:

I still don’t understand.

Suppose you would — (Inaudible) we’re talking now about the distiller, he elected — say you lost this case and he elected, “well, I’ll sell directly to retailers under the Crawford-Feld or Feld-Crawford Act” and so he makes a contract at $10, let’s say.

All then — this time (Inaudible) might he sell them in New Jersey for $9?

Now, would that be legal?

Thomas F. Daly:

No, because the price —

Tom C. Clark:

He couldn’t do it?

Thomas F. Daly:

The price would be set by a “related person” wholesalers who sold to retailers somewhere else.

William J. Brennan, Jr.:

And yet, that recent opinion of your Court of Appeals indicates, I thought that Feld-Crawford would allow the $10 price.

Am I wrong about that?

Thomas F. Daly:

What — that case, what happened there, Your Honor, was this.

As I recall the case, I remember reading it, I wasn’t involved in (Inaudible).

William J. Brennan, Jr.:

No, I understand it’s not involved in this part.

Thomas F. Daly:

One of the distillers, I think, was trying to enforce fair trading.

Macy’s and some other stores have been undercutting and some of the retailers were undercutting.

Macy’s, they tried to enforce their fair trade contracts.

A position was taken by some of the retailers that these distillers weren’t coming into Court with clean hands because they had obtained from Mr. Justice Harlan the stay of the operation of Section 9.

As a result, prices had not reached the level that the —

William J. Brennan, Jr.:

Under this statute —

Thomas F. Daly:

— Moreland Act Committee thought it should and therefore, it would be unconscionable and equity should not enforce those fair trade contracts.

That was about the (Inaudible) — the majority didn’t agree with it, (Voice Overlap) —

William J. Brennan, Jr.:

That argument was rejected by the majority.

Thomas F. Daly:

The argument was rejected by the minor — minority — by the majority, yes.

Earl Warren:

We’ll recess now.

Mr. Goodman, you may — if you had finished, Mr. Daly.

Thomas F. Daly:

Yes, sir.

Earl Warren:

You have, (Inaudible).

Thomas F. Daly:

May I have five minutes for rebuttal, in over our time?

Earl Warren:

Well, I think you could have five minutes, yes.

Thomas F. Daly:

Thank you sir.

Jack N. Goodman:

Mr. Chief Justice.

Earl Warren:

Yes.

Jack N. Goodman:

May it please the Court.

There are three segments of the industry.

There’s the distiller, there’s the wholesaler and basically, there’s the retail package store.

What New York has said in substance is this.

That the distiller that sells to the wholesaler in New York cannot charge him any more than he, the distiller, or someone whom he’s designated to sell for him to other wholesalers sells for in another state.

William J. Brennan, Jr.:

What New York said that the distiller didn’t sell to the wholesaler but directly to the retailer?

Jack N. Goodman:

If the distiller sells to the retailer, he would then be called a wholesaler for the purpose of this statute and then he could not sell any for any higher price than a wholesaler in another state is selling to retailers.

He would then fall under subdivision (f) rather than subdivision (d).

Subdivision (d) is intended to cover distiller to wholesaler.

Subdivision (f) is intended to cover wholesaler to retailers.

William J. Brennan, Jr.:

Does it define the distiller in that situation as a wholesaler?

The statute —

Jack N. Goodman:

It —

William J. Brennan, Jr.:

— so define.

Jack N. Goodman:

It talks in terms of sales to retailers.

In other words, you can sell to a retailer in New York under subdivision (f) for any higher price than a sale to any retailer at any time during the preceding month in any other state.

So that they’re talking about the method of doing business rather than the definition and that’s in the essence what New York has said here.

That the distiller must sell to the wholesaler at no higher price than distillers or his agent sell to wholesalers in other states, and wholesalers in New York must not sell to retailers for any higher price than sales are made to retailers in other states at any time in any one sale.

Abe Fortas:

Does New York law prohibit the ownership of retailers by distillers?

Jack N. Goodman:

Yes, sir.

Abe Fortas:

Or by the ownership of retailers by wholesalers?

Jack N. Goodman:

Yes, sir.

We are not permitted to have an interest in the retail business.

When I say we, I’m speaking primarily now for the wholesalers who are the appellants here.

Tom C. Clark:

And if he sells directly (Inaudible) — sells directly, he’s covered by the Act?

Jack N. Goodman:

He certainly is.

He can’t sell for any higher price than sales are being made to retailers in other states during the preceding month.

Now, when I say the preceding month, our statutory scheme is setup this way.

I must file my price on the 10th of this month as a wholesaler selling to retailers for every sale that I’m going to make in the next succeeding month, and it becomes effective on the first of the first of the next succeeding month.

Jack N. Goodman:

But what this statute has done is to say that my price, for example, filed on February 10th for my March sales to retailers must not be higher than the price at which merchandise was sold in other states to retailers during January.

There’s a two-month flag.

Now, speaking for the wholesaler, what I’m — our basic position is that this is unconstitutional in terms of the wholesaler doing business in New York State because his price is being governed and is a maximum price, not a minimum price.

His price is being governed by price that is being set in 32 other states by any number of wholesalers and, yes, even by the Liquor Commission, say, in the State of Minnesota or the State of Kansas or the State of New Mexico.

William J. Brennan, Jr.:

And what’s the provision of the Constitution that violate?

Jack N. Goodman:

We feel that this is in violation of Article 14.

William J. Brennan, Jr.:

Well, which?

Jack N. Goodman:

Due process.

William J. Brennan, Jr.:

Due process?

Jack N. Goodman:

Yes, sir.

William J. Brennan, Jr.:

You mean, we’re getting back now to the 1930s again and before application of due process?

Jack N. Goodman:

Well, we feel this, Your Honor, that —

William J. Brennan, Jr.:

I thought that fight was over.

Jack N. Goodman:

We feel that — while this Court has given the states great power in terms of fixing prices in many industries, and they’re all cited in the appellee’s briefs, whether it’s tobacco commissions or whether it’s insurance or whether it’s the theater tickets that came up, at least in those cases you had the legislature sit down and either itself or through an administrative agency, fix the price.

William J. Brennan, Jr.:

You would — so you would concede the state could do that here?

Jack N. Goodman:

I would say that the legislation —

Byron R. White:

Even though the legis — even though the Commission (Inaudible) — if the Commission was empowered to investigate the prices at which liquor was sold around the country and was directed to set the price for the forthcoming month at the lowest price it found around the country that — would you say that was alright or no?

Jack N. Goodman:

I would say that — if it said that it automatically had to follow the lowest price around the country, that that would be in invalid.

Byron R. White:

Would be valid, do you say that?

Jack N. Goodman:

If we said that it had to be reasonable, if we said that it had to — it could take it into consideration, yes.

But that — to take automatically the lowest price fixed by any wholesaler in an individual sale, not his whole month sale but in an individual sale, if for some reason he wanted to give away the liquor for below cost with no relationship to the conditions that do — that are obtained here in New York that this is not, we think, sanctioned by the decisions of this Court.

Byron R. White:

So, you don’t rest on any — on the Supremacy Clause or conflicts (Inaudible) of that by the Sherman Act?

Jack N. Goodman:

I think that — yes, those are — the — those are basically the problems of the distiller.

I’m talking now basically with the problems of the wholesaler.

What the distiller in basically (Voice Overlap) —

Byron R. White:

Oh, I know but (Inaudible) — from the standpoint of the wholesalers, you don’t rest on this other —

Jack N. Goodman:

No, the wholesaler doing business strictly in New York, I don’t think has a commerce question involved here at all.

I don’t think it has —

Byron R. White:

But are — these all — these local wholesalers?

Jack N. Goodman:

Most of the wholesalers here are local.

Jack N. Goodman:

Some may do business in two states, but most of them here are doing business strictly in New York.

They do not do business in other states and that basically this is it.

In other words, what our legislature has said here is blindly take the lowest price that you found for example in any place in the country during the month of January and that price automatically becomes the highest price at which any wholesaler in New York can sell it during the month of March with no concern.

For example, in many of these states, they’ll let the — the wholesaler may give quantity discounts unlimited, but our statute says that we can only give a 2% quantity discount.

In other words, we’re operating in entirely different arenas, the wholesaler in New York from the wholesaler in other states.

And the argument of the brief of the state is this.

They say we’re all part of one big family, one big industry and therefore I am bound by what the wholesaler in another state has done.

I don’t think that we have this community of responsibility that the wholesaler in New York has got to be bound by the conditions that have — that prevail with respect to the wholesalers in the rest of the country.

Byron R. White:

Mr. Goodman, I gather, the Moreland Commission didn’t recommend this law.

Where did it come from?

What interest did come up with this law?

Jack N. Goodman:

During the time that the Moreland Commission was investigating and recommending, the Minority Leader of the Senate, and it’s in the record, proposed a Bill which would have limited the law only with respect to the distiller level to the wholesaler.

In other words, the distiller could not sell to the wholesaler for any higher price than he was selling in another state.

And, in none of the legislative history was there any intent or coverage of the wholesaler doing business strictly in New York.

Those are the Zuretski Bills and they’re included in the record here.

Byron R. White:

Somebody — usually, laws like these have some interest in mind or some purposes to be affected.

I’m just trying to fathom whose interests are served at all by this bill, by this law?

Do you say —

Jack N. Goodman:

What —

Byron R. White:

— you lose by it but who gains?

Jack N. Goodman:

I suppose that there is an underlying assumption that if you depress the price at the top from the distiller to the wholesaler, and if you depress the price from the wholesaler to the retailer, then somehow it might seep through to the consumer, although, before the lunch recess, it was brought out that the Feld-Crawford Act which still permits the distiller to fix the price at which the retailer sells to the consumer —

Byron R. White:

(Inaudible)

Jack N. Goodman:

— is still in effect.

Byron R. White:

Can he fix the price — the price at which it’s sold?

It just doesn’t — fixing a minimum price.

Jack N. Goodman:

He can fix the price I think under New York law.

Byron R. White:

Is just one price?

They can’t go higher or lower, if he fair trades it.

Jack N. Goodman:

He can fix the price or he can set —

Byron R. White:

That’s it?

Jack N. Goodman:

Or he can — usually, it’s been a minimum but he could actually set the Act — our Feld-Crawford law sets the price.

Byron R. White:

So you said — so, I gather from what you say that this is the consumer interest which was promoting this law.

Jack N. Goodman:

That may have been the reason why the theory was that if you depressed it at the top and at the second level, it may seep through even though the control at the level from retailer to consumer was still maintained in the distiller under Feld-Crawford, which the Court of Appeals said is still in effect.

Hugo L. Black:

Is that an —

Abe Fortas:

Mr. Goodman —

Hugo L. Black:

— unreasonable assumption?

Jack N. Goodman:

I don’t think it’s an unreasonable assumption.

Abe Fortas:

Mr. Goodman, what happens to private brand liquors?

Jack N. Goodman:

Not covered.

Abe Fortas:

In other words — I — suppose a retailer has a private brand, owns a private brand, then none of these provisions of Section 9 apply?

Jack N. Goodman:

None of them are applicable.

Abe Fortas:

Well, that excludes quite a lot of the business, doesn’t it?

Jack N. Goodman:

It’s growing.

Abe Fortas:

Do you have any idea what percentage it is in New York State?

Jack N. Goodman:

I would say that it may be as much as 20% private legal business in New York State.

Abe Fortas:

So that, a distiller can sell private label whisky, let’s say, to a wholesaler and a wholesaler can sell private label whisky to a retailer without reference to prices that are charged elsewhere for the same quality.

Jack N. Goodman:

The private label business in how it operates in many ways, it may not come through a conventional wholesaler.

It may come through just what we call a clearing agent who merely to comply with the law is in the shoes of a wholesaler.

That type of business is not covered by Section 101 (b) to which these amendments were directed.

Was that —

Abe Fortas:

Well, then I would infer from what you’ve said that possibly one of the purposes of this arrangement in Section 9 is to help the smaller retailer in his sales of branded whisky or (Voice Overlap) —

Jack N. Goodman:

This was always the purpose of 101 (b) to which these amendments were appended and it is still, to a certain extent, I suppose basic in the Feld-Crawford.

It is to protect the brand and it is also perhaps to protect the small retailer from the undue competition of the large.

That’s why we have this so-called non-discrimination statute that wholesalers must sell to all retailers for the same amount and we are prohibited from giving more than a 2% discount for quantity.

Abe Fortas:

Let me put it this way.

If a small retailer has been hurt by the competition of the in-brand or the private brand — private labeled liquors to the extent that these revisions in Section 9 result in his getting branded merchandise at a lower price would make them more competitive.

The private brands that Macy’s, for example, sells and to that extent, the small retailer will be the sister, is that one of the purposes in here?

Jack N. Goodman:

I don’t think that the question of the competition with the private brand was ever suggested in any of the legislative history of limiting the maximum price.

Byron R. White:

Oh, I must say then, what was then — what does appear in the legislative history as to what prompted this bill?

Is it just a very large mystery or what?

Jack N. Goodman:

If I can sum up the legislative history —

Byron R. White:

You could — can they — who introduced it, but I have no idea what —

Jack N. Goodman:

If I can sum up the legislative history, I can say this.

The Moreland Commission said that we don’t want to have the minimum consumer price from the retailer to the consumer fixed by the distiller and made an enforceable — required enforceable law of the state.

They didn’t want to put the prestige and the power of the administrative agency in enforcing the minimum consumer from retailer to consumer.

They said, “We’re perfectly willing to have the distiller have all of the trouble that he has in going into a Court of Equity with all of the difficulties of getting an injunction and all of the defenses that are raised by the violating retailer, namely that he’s not doing a fair and equitable job of enforcement but we’re not going to make it a law that we, as the state, are going to enforce through our administrative agency.”

And their theory was, very frankly, they looked at Washington D.C. and they said the re — the consumer in Washington D.C. is buying liquor cheap.

Washington doesn’t have a minimum consumer law.

Ergo, if we eliminate the minimum consumer law in New York, the New York consumer will get cheap liquor.

Byron R. White:

Well, if they intend to — Feld-Crawford however would permit the —

Jack N. Goodman:

They specifically said, Your Honor, in their recommendation and the Governor said it in the message to the legislature at the special session that we are still going to leave you with the Feld-Crawford law and in the vernacular knock your brains out in trying to enforce the minimum consumer.

Byron R. White:

Is there a non-signing provision in the Feld-Crawford —

Jack N. Goodman:

There is.

So that — what the currents were in the — it may not be relevant but the haste with which the bill was passed I think is somewhat indicative of what took place in New York.

The legislature in the regular session rejected the whole Moreland Commission proposal and in the special session, this compromise conglomerate bill was passed.

Byron R. White:

Feld-Crawford — the Feld-Crawford relates only to retail prices to consumers, is that the —

Jack N. Goodman:

That’s all.

Byron R. White:

So that there’s no inherent — inconsistency between these two Acts at all.

Jack N. Goodman:

No, (Inaudible) —

William J. Brennan, Jr.:

You said conglomerate, you mean confusing?

Jack N. Goodman:

When I say conglomerate, there were so many other sections in the statute.

For example, they said they eliminated the old distance requirements that we used to have before package stores.

They abolished the minimum consumer and then, for some reason, this was lumped on to the so-called inhibition on the top.

Byron R. White:

What are the sanctions in this law?

Is it cancellation of licenses or is it a criminal or both?

Jack N. Goodman:

Both.

It’s a prohibition from sale if there is a — the technique that was used was an affirmation, but an affirmation is the technique under the statute.

Byron R. White:

Let’s assume —

Jack N. Goodman:

But actually what it means is you can’t sell.

Byron R. White:

Let’s assume you lost the — you’ve lost this case to the extent — I’m just saying that we can’t decide it here, isn’t right or something like that?

Byron R. White:

How could you ever get it up here again?

Jack N. Goodman:

I think that was the question that Mr. Justice Fortas suggested, whether or not this is a premature matter and from our view it’s not premature.

We think that when the statute says, “Take the lowest price next month that’s fixed by any wholesaler in any state or any administrative agency in Kansas or New Mexico and that’s going to become your price next month.”

We have the elements of a controversy that we could — we believe–

Byron R. White:

Yes, but what if the Court disagreed with you on your due process argument and we really wanted to look into the conflict — problems of conflict of Robinson-Patman and Sherman Act?

There, you — let’s see, you have to have a more concrete — a little more concrete details and a better picture of the context of the —

Jack N. Goodman:

Well —

Byron R. White:

— from the impact under the Act.

Jack N. Goodman:

I would like Mr. Daly to have a few minutes to talk about Robinson-Patman Act but basically, his argument is that New York is saying that you can’t do things that the federal statute says you can.

And, under the Commerce Clause and the antitrust law, you’re saying that as a result of this law, the distiller will have to engage in antitrust activity in order to protect the New York market.

Now, I don’t want to get into them but basically, those are the arguments.

I think that this, but if the controversy is not right or if the Court should think so, in a sense what we’ve got to do is wait until we actually have to apply one of these outlandish prices in Kansas or the Kansas Control Commission and then start a new action on the ground that it’s confiscatory.

And I don’t think that we have to wait for that point when on the face of the statute, it is such a complete delegation of price fixing to so many people in other parts of the country with whom we have no relationship.

Now, the Attorney General says it’s not price fixing.

They haven’t told us at what price to sell, but I say that’s playing with words.

They’ve told us we can’t sell above a certain price.

That’s our maximum price and it’s extent in 32 states and could be on any one sale or it could be on a monstrous sale and the statute says that you have to eliminate all the discounts.

Now, I think that a statute which on its face has that construction is basically unconstitutional and the Court should say so and —

Byron R. White:

Well, what about the —

Jack N. Goodman:

— let the legislature try another way.

Byron R. White:

What if the state said — passed a law that said all the distillers must get together and all agree upon the price and sell only at the agreed upon price?

Do you think that would be in conflict with the Sherman Act?

Jack N. Goodman:

Off hand, I would say yes.

I would say that —

Byron R. White:

Not withstanding the Twenty-first Amendment.

Jack N. Goodman:

Oh, I think that — my feelings about the Twenty-first Amendment is they’re — that they’re to take off the restrictions in connection with goods coming in and out of the state, but the Frankfort case, I think the — this Court has said that the Sherman Act in the — is still in existence and I think it said it in the Schwegmann case that the antitrust laws are still in effect and the state laws can’t go haywire with respect to antitrust.

Earl Warren:

Mr. Daly, you may now have your five minutes if you wish.

And (Inaudible) —

Thomas F. Daly:

In rebuttal, yes Your Honor.

Earl Warren:

— for rebuttal, yes.

Earl Warren:

Mrs. — Ms. Toch, you may proceed with your argument.

Ruth Kessler Toch:

Mr. Chief Justice, may it please the Court.

Our position is that this law is an enactment within the authority of the State of New York under the Twenty-first Amendment bolstered by the police power as applied in a developing concept of the Government’s concern for and responsibility and duty to the people and their well-being including economic well-being.

I submit that there is nothing in any decision of this Court under the Twenty-first Amendment including the Idlewild decision and the Bean decision then does — that does other than support the validity of Section 9.

I think, perhaps when — I might do now is clarify some of the things that have been said about this law and its purpose and its history and the New York wholesalers.

The Moreland Commission decided and there are reports and, if it please the Court, I can send — get together one set and send them down.

I have quoted from them in the brief, have charts in the brief that show that the prices in New York State were higher to the consumer by about — up to a dollar down half a fifth than they were elsewhere in the country.

And these were brand prices, the prices largely of the — what is known as the big-four distillers who are among the 62 plaintiffs and appellants in this case.

The Moreland Commission concluded that the prices were high to the consumer and their suggested remedy was to eliminate the consumer resale prices enforced by the State Liquor Authority and all this went up to the legislature in January 1964.

Now, every — in other words, the problem was in the consumer — in the Moreland Commission report.

It was found in the Moreland Commission report.

They had the recommendation for solving this problem.

Then, the legislature went to work on it.

There was a joint legislative committee.

Indeed, the same committee is holding hearings right now to find out why the prices haven’t gone down.

But, there was this joint legislative committee back here and they had hearings and the retailers, I take it, got busy.

Everything that allege — that leads the legislature to — and the Congress, indeed, to adopt the law is not necessarily documented or recorded but they found out and people are telling them, and they are educated I take it if they didn’t know before it about how the industry operates and the retailers testified.

You’re going to remove these prices, consumer resale prices.

You better get at, and I quote, “the big fellows” because our prices obviously are necessarily influenced by the prices that we have to pay, the wholesaler has to pay.

And so, the legislature, during the regular session, did nothing.

And the Governor called a special session and by this time, as I say, they had learned and so they recommended that the way to solve the problem of consumer prices was not only by the elimination of the price fixing agreement — sorry, the price fixing statute, but also by the elimination — by requiring the whole — distiller and wholesale prices to be lower in New York.

Now (Voice Overlap) —

Earl Warren:

Is there evidence that the distillers were discriminating against New York?

Ruth Kessler Toch:

There is evidence, may it please in Your Honor, Mr. Chief Justice, and the Court, there was evidence that the price that the retailer paid in New York.

The retailer was higher than the price that the consumer pays right here in Washington.

Earl Warren:

Yes, but that wasn’t what I asked.

You said a little while ago that they’d assert — determined they would have to get after the big fellows.

Ruth Kessler Toch:

Right.

Earl Warren:

Now, the big fellows, I suppose, the biggest of all would be the distillers.

Ruth Kessler Toch:

Yes.

Earl Warren:

Now, is there any evidence that or did do it, that they go into this because the distillers were discriminating against New York in the prices that they charged them as compared with other states or did this extra cost to the consumers in New York depend on something that was in the State of New York?

Ruth Kessler Toch:

The prices to the retails —

Earl Warren:

The what?

Ruth Kessler Toch:

The prices to the retailers by the wholesalers were known to be higher.

Earl Warren:

Yes, but I’m asking about the distillers.

Was there any evidence if they were discriminating against New York?

Could that (Voice Overlap) —

Ruth Kessler Toch:

Hold — against New York wholesalers?

Earl Warren:

Yes.

Ruth Kessler Toch:

That, I cannot say, Mr. Chief Justice.

I’m not willing to say that now.

I want to go back and look, but the cons — retail prices were high because — for one reason, because the retailer was paying more in New York to the wholesaler.

Earl Warren:

Well, whose fault was that?

Was that the distiller or the wholesaler?

Ruth Kessler Toch:

Well, now we have to accept the — that they’re not legislating the abstract and we have to accept what is known in the industry and which is not denied.

They used the euphemism “suggest” but the distillers suggest, if they don’t direct, wholesale prices, yes.

And we are dealing here in this statute not with every little wholesaler, if there is such a thing, but the wholesalers who do a substantial part of their business in a particular brand.

Liquor is not, at least in New York State, wholesale the way toothpaste is or cereals or soap flakes.

There are what they call Seagram wholesalers and Brown-Forman wholesalers and Calvert wholesalers.

And those wholesalers are not permitted, for example as Seagram wholesaler, is not permitted to distribute the same grade brand of liquor from another wholesaler.

In other words, a prime brand of Seagram, the distiller who gets — sorry, the wholesaler who gets the distribution of that brand is not permitted to also sell a prime brand of say, National Distillers.

And this is a — the price schedules of which Mr. Daly spoke that are on file, also have on file, or say, the price schedule for four roses and then it says distributed by wholesalers so and so and so and so and so and so.

So that there is that influence on the price.

As I say — they you — they say suggested.

It is known in the industry that it is a little more than suggested.

Earl Warren:

Well, the thing that concerns me is this.

If there’s no evidence or no practice in the industry that would show that the distillers were discriminating against the wholesalers in New York and the price in New York to the consumer was still a dollar — a dollar and a half higher than in other states, how would it help that situation if the state required the distiller to sell it at a still lower price to the wholesaler?

Ruth Kessler Toch:

Well, when I say I — I’m not willing to say “yes, there was” because I would have to check that.

But may I say this, that there was evidence that the price to — the price as they say, seeps down.

There was evidence that the price to the retailer was higher than it was elsewhere.

Ruth Kessler Toch:

There was in fairness to the wholesaler then, certainly, if — the thing to do was to have ensured that the distiller didn’t charge the wholesaler more.

In other words, that the distiller had to be fair to the wholesaler if you were going to require the wholesaler who is tied in with the distiller to charge less to the retailer.

Earl Warren:

Well, I could see that —

Ruth Kessler Toch:

Well —

Earl Warren:

— easy enough, if —

Ruth Kessler Toch:

Yes.

Earl Warren:

— if they were charging — if the distillers were charging —

Ruth Kessler Toch:

Well —

Earl Warren:

— the wholesalers more than they did in other states.

Ruth Kessler Toch:

Well, may I please, Your Honor, Mr. Chief Justice, I don’t think that in any legislation the legislation has to spell out, we have —

Earl Warren:

No.

Ruth Kessler Toch:

— found buts and so, we have to assume that they had knowledge, individual knowledge, pooled knowledge, and the case having said so.

Earl Warren:

But the only reason I asked the question was because —

Ruth Kessler Toch:

Yes.

Earl Warren:

— you said —

Ruth Kessler Toch:

Yes.

Earl Warren:

— as I recall it, that the legislative — the legislature determined that the only way they could solve this problem was to get at the big fellows.

Now, I want to know what the big fellows have done.

Ruth Kessler Toch:

Well, the legislature, we have to (Inaudible) — we have to assume that the legislature came to the conclusion from things people told them, from things they had read, from things they had heard from the retailers telling them and there is at least one bit of testimony that I did quote in the brief.

One of the retailers who said to the joint legislative committee this isn’t where the problem is.

The problem is in what we have to pay and this, I submit, is something that we have to accept that a legislative body is not required to prove.

We did this because we had this on record.

We have to assume that they had it on record, if they had it on record, certainly it is reasonable.

On any — I mean, as I say, if we were going under the police power.

There was a mention of private brands, and private brands are not covered because they don’t have to be.

I mean, you don’t have to go cover everything in the law.

The classification is — there’s a basis for classification.

For example, in some states, you can’t sell liquor for on-premises consumption.

That’s highly — hard liquor but you can’t sell wine or beer.

So, there’s a reasonable classification of that.

Ruth Kessler Toch:

Now, I should say one thing about the purpose section of the — in connection with Section 9.

The appellants keep quoting one provision, but I would like, if I may, to quote a couple of more lines of it.

Section 8, it’s in page 20 of my brief, the legislature found the consumers of alcoholic beverage in this state should not be discriminated against or disadvantaged by play — paying unjustifiably higher prices for brands of liquor than are paid by consumers in other states.

And that the price discrimination and favoritism are contrary to the best interest and welfare of the people of the state that Section 11, and that’s the one they removed the consumer resale price, of this Act will provide a basis for eliminating such discrimination and disadvantage of consumers in the state in order to forestall possible monopolistic and anticompetitive practices designed to frustrate the elimination of such discrimination and disadvantage.

That is to say, to their consumer.

It is hereby further declared that the sale of liquor should be subjected to certain further restrictions, prohibitions, and regulations and the necessity for the enactment of the provisions of Section 9 of this Act is, therefore, declared as a matter of legislative discrimination.

It has been suggested by Mr. Justice Fortas and Mr. Justice Brennan that there are here abstract questions because the law has not yet been put in effect.

I hardly agree.

They are here on conjecture and speculation as to complications they are going to run into and, on such speculation and conjecture, laws are not declared unconstitutional.

William J. Brennan, Jr.:

Do you agree that Section 9 (f) would apply in the case of direct sales from a distiller to retailer?

Ruth Kessler Toch:

Do I — yes, yes.

William J. Brennan, Jr.:

You do?

Ruth Kessler Toch:

Yes.

William J. Brennan, Jr.:

The distiller in that instance is the wholesaler —

Ruth Kessler Toch:

Yes.

William J. Brennan, Jr.:

— for the purpose of that.

Ruth Kessler Toch:

Yes, yes.

And indeed, I — the distiller fixes the consumer resale price.

He fixed it under the statutory — the state enforced provision.

He fixed it under Feld-Crawford.

Mr. Justice Black asked would the law be unconstitutional if pri — if this resulted in prices raised all over the country.

Certainly not, because if that happens, if this is going to be the law that did it, it’s the distiller that does it and it would defeat the whole purpose of the law.

The whole purpose of the law is to keep your prices low.

You manage to be able to sell for lower prices elsewhere, what about us?

Now —

Potter Stewart:

It wouldn’t be — according to the argument at least, it wouldn’t be the distillers that did it.

It would be the effect of economic necessity that did it.

If, as it’s stated, New York is a high-cost market, in order to sell in New York at all, under this law, you’d have to raise the prices elsewhere, wouldn’t you?

Ruth Kessler Toch:

Mr. Justice Stewart, no.

New York may be a high-cost market but I don’t think it’s the only one.

Ruth Kessler Toch:

I live in New York and there are a lot of things that are (Voice Overlap) —

Potter Stewart:

It’s not the only one but it is —

Ruth Kessler Toch:

Elsewhere.

Potter Stewart:

Yes, but there are — surely, there are many areas where the cost of selling are much, much lower.

And this law requires that the price in New York be no higher than the lowest price anywhere in the United States.

Ruth Kessler Toch:

I — now, there’s another answer to that, Mr. Justice Stewart, and that is, in New York as well as in any large state, the price — the cost of operation is cheaper in one part of the state than the other, rents are cheaper and some aren’t.

That has not had anything to do with the price of liquor in New York State, either the dis — well, the distillers, of course, have to sell to all their wholesalers at the same — any distiller has to sell under New York’s wholesaler.

But the wholesalers, the wholesaler who I would suspect pays less rent in Albany than he does in New York or White Plains, he charges exactly the same to — as the wholesalers in New York City or the wholesaler in Rochester or Buffalo.

So, that has had no influence on the price of liquor.

Now — and another thing, when they say that if they have to lower — that the — they can’t lower the price in New York State without raising it elsewhere.

How come that in one-third of the states of these United States, they are required to warrant that their price is no lower than in other state?

That hasn’t, apparently influence the price in New York State or in a lot of other states.So, they don’t have to have a uniform price.

New York doesn’t say it has to match.

It can be lower in New York.

It could be higher elsewhere.

And, New York has never said that, although you can have a distiller fix consumer price that has to be high, but it’s been high and there are in — there have been, for example, letters put into records that indicate that when the con — the wholesaler sells to the consumer or to the — sorry, the distiller sells to the wholesaler, he says, “We charge you this and so, thou shall charge this and so to the wholesaler, wholesaler to the retailer, and then the consumer fixed.”

So, there is this influence and it is only those wholesalers who are controlled because the (Inaudible) — the people who drew the law had learned that if they just said to the distillers, “you charge this,” the wholesaler wasn’t going to do a particle of good because these — the distillers — the wholesalers who are the arm of the distillers would be keeping the price up, and this is why they did it.

And the fact that the distillers would be innocent of who is substantial and so on, there are affidavits in the record put in by the plaintiffs as to the number of wholesalers they have.

They don’t have that many wholesalers.

Even a house like Seagram has 330 in all of the United States and they can tell you instantly how many they have in New York, and they know how much, and it’s in the record and I have quoted what they put down on the brief, how much each wholesaler does?

What percentage of each wholesaler’s business is done in Seagram from the one who does 90% to the one who does 1% or to 5% so that there is an — this is an — a hierarchy and a very tight-knit operation and we must appreciate that this legislation was enacted not in the abstract but geared to the particular industry.

And on the other hand, no laws have to be geared to the practices of an industry to what might upset the practices of an industry.

Abe Fortas:

Is it — does the distiller know prices at which retailers sell for a country, a branded product?

Ruth Kessler Toch:

Mr. Justice Fortas, I would certainly suspect so.

Abe Fortas:

Is there anything in the record in that effect?

Ruth Kessler Toch:

I think that there is some testimony to that effect.

When I say testimony — sorry, the affidavit and I — it’s the — I have said something in the affidavit — in the brief about the operation as they disclaimed from these affidavits.

They divide the country into regions and they have people over in charge of each region, and it is — there was reporting up the line, and they have what they call — is known colloquially in the industry as missionaries —

Abe Fortas:

Well, I —

Ruth Kessler Toch:

— who go around the country watching their prices.

Abe Fortas:

Well, I guess we’re all familiar with that but that’s another step from that to burdening a distiller with criminal responsibility or a wholesaler with criminal responsibility.

Ruth Kessler Toch:

Well, it —

Abe Fortas:

In the event that he — that there are some sales in which he’s (Voice Overlap) —

Ruth Kessler Toch:

He doesn’t have to know the retail price —

Abe Fortas:

I know that.

Ruth Kessler Toch:

— for this statute.

His own price he knows.

Abe Fortas:

Yes.

Ruth Kessler Toch:

No question.

The price —

Abe Fortas:

The third point —

Ruth Kessler Toch:

— of his — sorry?

Abe Fortas:

I said the third point is the —

Ruth Kessler Toch:

Alright.

The wholesalers, alright.

The wholesaler’s price, yes, because if liquor is manufactured for the purpose of falling into a certain category, there are prime brands, A brands, and so on.

And, there’s a price for each one of these brands and, before a brand leaves a distillery, they know down the line what it’s going to sell for and it mustn’t drop out of that price range because if it does, it drops out of their rate and the competition between — in the liquor industry is not a price competition.

In other words, I’m not going to sell it cheaper a brand and this is how I’m going to get the business.

It’s a prestige of a brand.

Abe Fortas:

I understand that, but I still — still troubled by the question I asked you.

I’m not at all sure that it’s before us with this posture of the case but has been argued that is to say, whether a statute — whether you properly charge a distiller or a wholesaler in New York with knowledge of all wholesale prices for that brand throughout the country.

Ruth Kessler Toch:

The — I think the way it is, is the wholesaler is not — in other words, there’re just certain wholesalers who are bound by this, and that is the ones who have an exclusive franchise or an interlocking director or are ahead, do a substantial part of their business.

And the affirmation, they don’t have to find out the prices.

The distiller is the one who makes the affirmation and the distiller, in this industry, the manufacturer is in a position to make that affirmation because, as I say, it isn’t like toothpaste that every wholesaler in the United States — drug wholesalers sells it or cereal that every grocery jobber or whatever you call it, sells it.

There are limited numbers, there are limited number and I have noted that in the brief, the largest number of wholesalers for any one of these brand is the Seagram and they have 330 and they go down the line.

So, the — I would dare say that at the drop of a hat, any — the executive, the chief executives, the people who’ve made the affidavits in this case couldn’t tell you what their brand is selling for.

Byron R. White:

Yes, but the wholesaler —

Ruth Kessler Toch:

Maybe they have the maverick.

Byron R. White:

Excuse me.

The wholesaler —

Ruth Kessler Toch:

Sorry.

Byron R. White:

— doesn’t need to give this information to the distiller legally.

I mean —

Ruth Kessler Toch:

The wholesaler may not but practically, he certainly does.

Byron R. White:

Well, I know but Mr. Justice Fortas is asking about the criminal penalty side.

If the wholesaler says, “Go peddle your papers, I won’t give you this kind of information,” and the distiller can’t get it and, yet, this particular wholesaler actually has shown to have sold in a lower price than the distiller posed, what then?

Ruth Kessler Toch:

I — and, number one, they — for any criminal prosecution, there obviously has to be a criminal intent.

And in any — the administration of any statute, the — obviously, prosecution isn’t demands it, but if the — in the administration of any statute, if any distiller is going to say, “I don’t want to do it,” but it happens every day, if any distiller goes to the liquor authority and says, “We’re great, except this particular wholes — we’re in shape.

This is our lowest price, except that we have a maverick wholesaler out somewhere.

He won’t tell it.”

Then I assure Your Honor, as a very practical matter, he is not going to be prosecuted, certainly not.

William J. Brennan, Jr.:

But it’s not only the wholesaler, it’s also the so-called related person, isn’t it?

Ruth Kessler Toch:

Well, it — that is only the wholesaler who has — does a substantial part —

William J. Brennan, Jr.:

Well, how does the distiller know about this prices charged by the related person?Where does he get that information?

Ruth Kessler Toch:

He — as a practical matter, he knows it in advance and in — and it’s in —

William J. Brennan, Jr.:

So, I gather, with the wholesaler being — obviously has the records — relationships.

Ruth Kessler Toch:

That’s it.

William J. Brennan, Jr.:

But does he with the related person?

Ruth Kessler Toch:

Well, the related person is the wholesaler.

William J. Brennan, Jr.:

You mean that’s —

Ruth Kessler Toch:

Related person —

Potter Stewart:

— (Inaudible) anonymous in respect to —

Ruth Kessler Toch:

Yes.

Potter Stewart:

But not exactly.

If this — this affects wholesalers only if they are related persons.

Ruth Kessler Toch:

Right.

Potter Stewart:

Is that it?

Ruth Kessler Toch:

Yes.

Potter Stewart:

Yes.

Ruth Kessler Toch:

Only in those cir —

Potter Stewart:

Not to all wholesalers.

Ruth Kessler Toch:

What I —

Potter Stewart:

It’s only such wholesalers who fit the definition of related persons, I believe.

Ruth Kessler Toch:

Who fits that definition and the reason they put that in is because they knew they might as well not write the law if they —

Potter Stewart:

Right.

Ruth Kessler Toch:

— did not do it that way.

Potter Stewart:

Alright.

Ruth Kessler Toch:

Because the distiller — Justice said here, he’s — have quoted it and said, “go peddle your papers,” and the wholesaler would’ve been.

It’s only those who are the arms and any wholesaler who has that relationship and doesn’t tell the price, if the — indeed the distiller doesn’t know it in advance which as a practical matter, he does.

If he doesn’t tell it, he is going to be out of business and if he does a substantial amount of the business in any one of these brands, he is jolly well going to tell him right away quick if they don’t know it beforehand because this is where they get their business.

Byron R. White:

Well, why isn’t it the — why isn’t it the — why isn’t the other side correct in saying that just this — this absolutely forces the distiller to enter into an arrangement with all related persons as to what prices the wholesalers can resell their products because otherwise, there’s a — the scheme just couldn’t work.

I mean, the wholesaler — the distillers aren’t going to put up with just a lot of hear them-scare them pricing around the country.

They’re going to say their wholesalers know this is a — this — we got to price up so we could keep our — so we won’t go out of business, so let’s —

Ruth Kessler Toch:

Mr. Justice —

Byron R. White:

— all agree.

Ruth Kessler Toch:

Mr. Justice White, they do it now.

Byron R. White:

Well, I know, but that’s what you say they’re going to do.

You agree they’re going to do that.

Now, why isn’t that (Voice Overlap) —

Ruth Kessler Toch:

No, no.

I — they’re not going to do that.

All they’re going to do now that’s different from anything else they do is to affirm on the basis of the information which they have in advance, should they have at the end —

Byron R. White:

Yes, but I suggest they’re just not going to sit back —

Ruth Kessler Toch:

— of the month that they’ll make the affirmation.

Byron R. White:

— and wait for information.

They’re going to make an arrangement which the law most requires them to do with the wholesalers as to what their prices are going to be.

And so, you’re going to have a manufacturer, a distiller, ring — entering into an arrangement on resale prices with wholesalers.

Ruth Kessler Toch:

That is only if they’re going to insist on keeping their prices up in New York.

Byron R. White:

I don’t get it.

That’s fine, but that — this is what’s going to happen here.

Ruth Kessler Toch:

Well, that’s their doing.

Byron R. White:

They’re going to have to do —

Ruth Kessler Toch:

That is their doing.

If they say, “Now, in order for me to keep my prices up —

Byron R. White:

So, you’re saying —

Ruth Kessler Toch:

— in New York State —

Byron R. White:

You’re saying that if the necessary result of your law is for them to enter into an arrangement in violation of the Sherman Act, that’s their tough luck.

Ruth Kessler Toch:

That’s their tough luck and they’re doing it (Inaudible) to defeat the purpose of this law, to defeat it, because what New York wants is not for them to raise the prices outside so as to keep the prices up in New York.

New York likes the prices outside of their state fine and says, “So, we want to get in on it.”

I believe it’s Mr. Justice Black who noted that the legislature could, each year, fix that price, fix the price according to the lowest price in other states and indeed they could.

They could give the maximum percentage markup and so on.

And this actually leaves them free to determine their own prices, but not to charge more in New York than they find it possible to charge elsewhere.

Byron R. White:

Let me ask you another one.

Let’s — doesn’t this law say that — let’s say that a — it makes a distiller sell at a certain price level in New York and if that distiller wants to sell in another state at a higher price, it doesn’t prevent him from doing that but —

Ruth Kessler Toch:

Of course not.

Byron R. White:

But that, I suppose, as regarding a competing distiller would be a violation of the Robinson-Patman Act, wouldn’t it?

Ruth Kessler Toch:

Yes, why wouldn’t it?

Byron R. White:

Well, primary lined competition though.

Ruth Kessler Toch:

No, I don’t think so.

I don’t think that the Robinson-Patman Act has anything to do with this or the Sherman Act.

They can charge more outside New York State.

They can charge less in New York, but the New York’s — they — we just don’t want to charge more in New York, which they’ve been doing, any more than they’ve been charging less in New York because they charge more else — because they charge less elsewhere.

They have been doing it now.

Byron R. White:

So, you don’t — do you think economically that the result is going to be a leveled price across the country or not?

Ruth Kessler Toch:

No, I don’t because — I say, I think that what’s happened in the 17 —

Byron R. White:

I’m not suggesting there’s anything wrong with that.

Ruth Kessler Toch:

— monopoly states — sorry Mr. Justice.

Byron R. White:

I’m not suggesting there’s anything wrong with that.

I’m just wondering what your prediction was.

Ruth Kessler Toch:

Well, I am not in on the conclaves of the industry so I don’t know —

Byron R. White:

Yes.

Ruth Kessler Toch:

— if they’re going to operate that way.

I don’t know.

But on the other hand, I don’t think that this is — has anything to do with the law.

We’re not supposed to be determining their merchandising practices nor are we supposed to be gearing our statute to it and this is I say is under the police power.

I am not talking about — I would rest with the Twenty-first Amendment, but if I were going to go into the police power, this is under the police power.

Most of our discussion has been as though this were — the Twenty-first Amendment is not determinative which I am willing to say it is.

Now, the — under the police power, the — this Court has found for example that you can set the price of their tickets, tobacco and so on.

So, certainly to — it is within the policy of those cases and length and conscience in respect to consumer protection that New York had — was within its power under the police power to set this.

Now, under the Twenty-first Amendment, I submit that all the earlier cases have frankly discriminate — had held laws that rationally discriminate it against out of state vendors of liquor and this Court has upheld them and I submit that there’s nothing in the later cases that suggest that any limitation of the principle on which those cases were decided, and which is the principle of this statute as an internal regulation of the sale of liquor within the geographical limits of this state — of New York.

I think we’ve gone adequately, so far as I’m concerned, unless the Court has any questions on the police power and also on the status of the wholesalers in this state.

Byron R. White:

Excuse me.

Ruth Kessler Toch:

Sir?

Byron R. White:

What is your thought on the core of what the legislative history shows on what interests were promoting this law or you — I know you —

Ruth Kessler Toch:

I would suspect it was the retailers.

Byron R. White:

Although it — you say it was aimed at certainly protecting consumers.

Ruth Kessler Toch:

Yes.

Byron R. White:

Do you think that gives — if the retailers were really interested in this to — in order to get branded products cheaper?

Ruth Kessler Toch:

I think it was the combination of two things.

That the retailers felt that it wasn’t fair to them to remove Section 101 and then leave them paying the higher prices to the wholesalers and the wholesalers to distiller.

And the next thing was that they — inevitably they were going to be the Feld-Crawford agreement and inevitably, the Feld-Crawford — the price under Feld-Crawford was going to be high unless the retailers were paying less.So they showed that the — if it was the retailers who talked about it, they showed, “Why did we move and let 101 say not only was unfair to them,” if that was all that was done but also that it wouldn’t do to consumers a bit of good and they proved to be correct because not only these Feld-Crawford agreements were entered into with great speed and alacrity and enforced and the consumer price has not only remained high but in some instances, has gone up.

Byron R. White:

In your state, are retail licenses restricted in the sense of one license to one person or may a person have several outlets?

Ruth Kessler Toch:

I believe that a retailer has only retail license.

Is that what you mean?

And only for one location.

Byron R. White:

Only and the corp —

Ruth Kessler Toch:

I think —

Byron R. White:

A partnership or a corporation can’t have the whole string, the whole chain of retail liquor establishments.

Ruth Kessler Toch:

To my knowledge, no.

Byron R. White:

And so it’s an individual —

Ruth Kessler Toch:

To my —

Byron R. White:

— property.

Ruth Kessler Toch:

I believe it is and I believe that the license in —

Byron R. White:

Well, what about Macy —

Ruth Kessler Toch:

— to location.

Byron R. White:

What about Macy’s?

Ruth Kessler Toch:

They have just one.

I believe — now, if they sell liquor, and I — I’m — I (Voice Overlap) —

Byron R. White:

They just sell (Voice Overlap) —

Ruth Kessler Toch:

— would be willing to vouch for it.

Byron R. White:

Macy sell liquor — If they sell liquor at all, they just sell at that one price.

Ruth Kessler Toch:

I think it’s another corporation that sells that if they do have others, I think so.

But I’m not willing to assert that as an actual fact.

I wouldn’t know, but they — there are no such things as a lot of chain selling —

Byron R. White:

Liquors.

Ruth Kessler Toch:

— liquor as there are where drug stores, I guess, and groceries can sell them we think in New York.

They sell liquor and — except that as they say, apparently, the palmer store can have a liquor license for one — for the sale of liquor even though it sells other things and how that comes about, I wouldn’t be willing to vouch.

But they — in any event, they sell only at retail and there can be —

Byron R. White:

Are most of the distillers that are affected out of — they actually do their distilling operations outside of New York?

Ruth Kessler Toch:

Yes, yes.

Byron R. White:

And they are foreign corporations as far as New York is concerned.

Ruth Kessler Toch:

They have a right to do business and they have —

Byron R. White:

Yes.

Ruth Kessler Toch:

— to be licensed to do business in New York–

Byron R. White:

Oh, yes, I know they’re (Voice Overlap) —

Ruth Kessler Toch:

Or through an agent, but this law affects only those who do business outside the state.

Byron R. White:

And New York is what percentage in the national market?

Ruth Kessler Toch:

12%.

Byron R. White:

12%.

Ruth Kessler Toch:

12%, this — I don’t — I’m no expert on economics, but it certainly seems to me that where you do a lot more business, you would be selling for less.

Ruth Kessler Toch:

I mean that’s the theory on which Woolworths and other stores have been able to keep prices down at least —

Byron R. White:

Does this record support your claim that New York was the higher priced market in — higher cost market in terms of the —

Ruth Kessler Toch:

Well, (Inaudible) — well, they do say that their price cost of operation is higher in New York and I’m sure that it is higher in California and higher in a lot of other states than, say, it is in Nebraska, but at the — that is what happens when you have a nationwide operation.

But again —

Byron R. White:

Well —

Ruth Kessler Toch:

— as I have said —

Byron R. White:

What (Voice Overlap) —

Ruth Kessler Toch:

— their price (Voice Overlap) —

Byron R. White:

That may be what happened, but if you concede that cost could easily be lower in Nebraska than in New York, what’s very reasonable about New York saying that people doing business in New York must sell at the same price as they sell in Nebraska?

Ruth Kessler Toch:

Because, I believe that it was found that, as far as the cost of — as far as liquor prices are concerned, they are not so much tied in with the price — cost of operation as they are with keeping a level — with the prices for a brand.

Now, I have never lived in Washington.

Byron R. White:

Do you mean —

Ruth Kessler Toch:

But I wouldn’t suspect that Washington is a very low — has a very living cost.

And the price of operation, I suspect that rents are higher in Washington, I don’t know.

And yet, they do some for less in Washington, they —

I don’t think it was found that there was a relationship necessarily between the lower price and the state in which it was sold any more than there is a relationship between the sale in parts of — sections of New York State or other state.

Byron R. White:

But they are going to have to get their cost back somewhere aren’t they?

Ruth Kessler Toch:

Oh, I think they will but, beyond that, I don’t think that is — I respectfully submit the concern of the Court.

I mean, that’s within the competence of the legislature.

William J. Brennan, Jr.:

What is the concern of the — to the Court, at least to where the argument is made by — you’re — rather in our position is, that New York simply hasn’t got the power to pass legislation that would result in raising the prices to consumers in Nebraska.

Ruth Kessler Toch:

But the New York law doesn’t help —

William J. Brennan, Jr.:

And the argument is made that because of the economic facts of life, that is precisely what would happen and then what — that this New York legislation is going to result in raising prices to consumers in South Dakota, Nebraska, and what have you.

Ruth Kessler Toch:

It —

William J. Brennan, Jr.:

And then, New York is without any such power.

Ruth Kessler Toch:

It hasn’t yet, has it?

William J. Brennan, Jr.:

It was —

Ruth Kessler Toch:

It hasn’t yet.

William J. Brennan, Jr.:

Well, it hasn’t (Voice Overlap) —

Ruth Kessler Toch:

And I don’t think we have to determine — I’m sorry?

Byron R. White:

Well, the law hasn’t done anything yet because the wholesaler —

Ruth Kessler Toch:

That’s right.

Byron R. White:

— has never been enforced yet.

Ruth Kessler Toch:

That is correct and I don’t think that we have a right to assume or even to accord them the right to find a way to defeat the purpose of this law by raising the price elsewhere —

Earl Warren:

Do you think the —

Ruth Kessler Toch:

— which is exactly what they’re going to do.

Earl Warren:

Do you think this litigation is premature?

Ruth Kessler Toch:

Yes, I — yes I do.

Those arguments, I certainly do, yes.

I think that it’s all based — all their arguments are in conjecture and speculation and their — let’s say, fair argument that we have a right to charge — that we have a right to charge and New York can tell us.

And I think that especially when it comes — when we’re dealing with liquor which is a regulated industry and where there has obviously been, very obviously, we know we have to look at the charts and I’ve summarized some of them here where they’re obviously keeping a price left that New York can say to this regulated industry, “We are not only not going to protect you and accord you this right but we think that we have found that you are charging less elsewhere, you apparently can charge less elsewhere, they, too, should charge us a little less.”

Hugo L. Black:

I heard some suggestions that the Act might be bad as confiscatory.I assume that there can be no doubt that it would be premature.

So, that question —

Ruth Kessler Toch:

Oh, assured —

Hugo L. Black:

— (Inaudible) this time it would be confiscatory.

Ruth Kessler Toch:

Assuredly.

Hugo L. Black:

They don’t know what it would be it — in one month.

And ordinarily in the rate cases before you hold that a rate confiscatory there has to be some evidence to show it.

Ruth Kessler Toch:

Right.

And I personally have a profound regard for the merchandising guilt, the business guilt of this industry and I’m sure they’re going to — I don’t think they’re going to go out of business.

Hugo L. Black:

You don’t think what?

Ruth Kessler Toch:

They’re going to go out of business.

Potter Stewart:

(Inaudible)

Ruth Kessler Toch:

I’m sorry, Justice Stewart?

Potter Stewart:

They wouldn’t want to (Inaudible)

Ruth Kessler Toch:

May I be permitted a witticism?

I thought that this case is either going to make me an alcoholic or I’ll never touch a drop.

I — as far as they do raise interstate commerce and Sherman Act and Robinson-Patman Act arguments and as I say, I think that this case — we rest on the Twenty-first Amendment bolstered by the police power which has been demonstrated by this Court to be applicable to prices, maximum prices, but — and I have talked about the — their arguments on the interstate commerce and Sherman Act somewhat.

It’s a repercussion argument and they reach for it.

And —

Byron R. White:

Let me just ask you a hypothetical —

Ruth Kessler Toch:

Yes.

Byron R. White:

— question.

So let’s just assume, just assume now, the only way that you could comply with the New York law was to violate the Sherman Act.

Well, let’s just assume that.

Now, what about that on their constitutional argument — on their Supremacy Clause argument?

Would you say that the state may force people to violate the Sherman Act?

Ruth Kessler Toch:

Well, I turn to the Frankfort Distilleries case and the Frankfort —

Byron R. White:

This is a Twenty-first Amendment argument?

Ruth Kessler Toch:

Yes, yes, it is a Twenty-first Amendment.

I don’t think we can get away with it (Voice Overlap) —

Byron R. White:

Alright, aside — aside from the Twenty-first Amendment, you wouldn’t think New York could get away with that under the Sherman Act?

If New York —

Ruth Kessler Toch:

Well, I wouldn’t be willing —

Byron R. White:

Let’s assume it wasn’t liquor here that it was some other commodity that this applies to and the only way you could possibly comply with it was to violate the Sherman Act.

Ruth Kessler Toch:

If the Act would have to direct the conspiracy, I would like —

Byron R. White:

(Inaudible)

Ruth Kessler Toch:

— to be excused for saying so.

Byron R. White:

Yes.

Ruth Kessler Toch:

I — I’m now willing to say —

Byron R. White:

But you rely on the Twenty-first Amendment anyway.

Ruth Kessler Toch:

What is it, Justice?

Byron R. White:

Do you say the Twenty-First Amendment catches the (Inaudible)?

Ruth Kessler Toch:

I think the Twenty-first Amendment, yes.

And I don’t think that’s — that the Act directs it.

Well, let me say this.

I think there are provisions in our ABC law, Alcoholic Beverage Control law, and probably a lot more over the country that certainly direct a lot of things that would be perhaps violative of the Sherman Act.

They direct, for example, that every wholesaler must charge the same to every one of his retailers.

Now, that doesn’t mean to say that the other wholesaler for the same product should.

That’s a different thing.

This they’ve done but they’re not certainly required to.

Ruth Kessler Toch:

Now, I don’t know, is that a price fixing?

But, they are required to.

New York State statute does not permit them to give inducements and they’re concerned about the word “inducements,” but this has been the law for 22 years.

A wholesaler to a retailer — to his retailers or distillers to wholesalers, not supposed to pay for their advertising and things like that, not suppose to give them anything but the 2% quantity discount.

Now, other state laws permit it.

Now, if you’re going to make a Robinson-Patman argument, and then this law violates it.

So, I think we really need to go back and we can stay with it, that this is a Twenty-first Amendment, that anything that they might be doing otherwise would be of their doing.

It isn’t the law.

It is of the industry’s doing and with this, we surely are not concerned, we’re not directing it.

And even if we were directing it as being the Twenty-first Amendment, I think that it wouldn’t be — this wouldn’t make the law invalid.

Hugo L. Black:

When was (Inaudible) — Twenty-first Amendment?

What — how could your law be interpreted in a way anyone can slash into the argument and they would compel liquor people or liquor dealers to conspire with others to violate the Sherman Act?

Ruth Kessler Toch:

I — you — Mr. Justice Black, I think —

Hugo L. Black:

I was just thinking maybe you had a better answer, at least the Sherman Act.

Ruth Kessler Toch:

I think that’s a — it doesn’t do it.

I don’t think it does it, no matter what the commodity is.

Hugo L. Black:

Do you think that they could get by without any reasonable field of having the sword of the Antitrust Act over them if they have made this on the ground that maybe it didn’t compel them to conspire with somebody else to fix prices?

Ruth Kessler Toch:

Yes, it would have to be.

In other words, under — I believe that one of the opinions in Frankfort Distilleries said that — the — if they’re doing anything that might conceivably be violative of the Sherman Act then their ordinary — other circumstances, if it was their doing, it would not be an unreasonable restraint of trade because the statute — they will be doing something to comply with the public statute.

It would not be unreasonable.

You have to get —

Hugo L. Black:

Well, you could — you’d lose me on that argument if you’re going to say that because the state passes a law of some kind which compels somebody to violate a federal law, we grew up to see whether it’s reasonable.

If —

Ruth Kessler Toch:

No, but isn’t —

Hugo L. Black:

If you could conceive of circumstances under which your law is going to compel people, people engaged in the liquor business, to conspire with one another to fix prices, then I would say that you couldn’t get out on the ground, well, it’s reasonable (Inaudible) be compelled to do that because New York wants it done.

Ruth Kessler Toch:

Now — well, it doesn’t compel them.

I can’t say that it compels them.

Hugo L. Black:

But that’s what I’m talking about.

Ruth Kessler Toch:

You want me to say whether —

Hugo L. Black:

It seems to me like (Voice Overlap) —

Ruth Kessler Toch:

— it compels them and yes I’m —

Hugo L. Black:

It seems to me like you have a much better argument than the ones that tried to defend it on the ground that New York would not be compelling (Voice Overlap) —

Ruth Kessler Toch:

Well, Mr. Justice Black, this is what I — I’ve been trying to say all along.

I was trying to answer a question and that is why I said that, but I have insisted all along that this doesn’t compel them to do anything — any conspiring to fix prices.

What Section 8 and this is — they kept calling it an antitrust and an anti (Inaudible) — no, competitive and still unlocked.

What the legislature had in mind in writing that was, as I say, they had become educated and it didn’t take clairvoyance for them to see that there would be a tacit maintaining of distiller and wholesale prices in order that the removal of Section 101 (c) was not going to mean the consumer resale price of their brands.

And each one has his priced brand that they certainly don’t want to come down to low prices, and this was the reason for this law.

And when they say in their brief, “Well, if we’re doing this, you can get us under this statute or that statute or the other statute.”

Well, it’s up to the legislature to say whether we think this statute is good enough and the Court well knows there are any number of statutes that affect the individuals and industries conduct the same conduct.

I submit that this statute is entirely constitutional under the Twenty-first Amendment and even if we search for reasonableness under the police power that it certainly does not compel the violation of any provision of the Constitution or any statute and so there’s no federal statute, there is no issue of supremacy.

Earl Warren:

Very well.

Mr. Daly.

Thomas F. Daly:

If the Court please, on the question of prematurity I think that — well, when this action was brought, the state was just implying — making us file the affirmations and everybody who filed an affirmation took the risk that if the affirmation were false they might end up imprisoned for six months with a $10,000 fine and all the other consequences.

They also took the risk, as we’ve pointed out in our brief, of perhaps violating the Sherman Act, of being accused of violating the Sherman Act and the Robinson-Patman Act and other provisions of law.

So that — and I think under the authorities under those circumstances, an action for declaratory judgment as our action was, is entirely proper that we don’t have to wait until we’ve been convicted of a crime before we take an appeal.

I think it’s proper to test out the constitutionality of the statute under the circumstances present here without waiting for an actual conviction and —

Is that an answer the question presented (Inaudible) whether or not it was a constitutional question?

The answer (Inaudible)

Thomas F. Daly:

Well, I submit, Your Honor, with all due deference that these are not abstractions.

That’s it’s perfectly reasonable to assume the consequences that are going to flow from this Act, and I think that we point them out in our brief.

I don’t have time to go into them now, but I don’t think that they’re assumptions without a sound basis and I don’t think that the people in this industry should be subjected to the penalties that will accrue if they do violate the Act and that we should have to go to the (Inaudible) root cause of a first standing, that conviction before it’s brought up.

Now, in answer to Your Honor’s question about whether there was any finding that New Yorkers were discriminated against by the distillers, there’s absolutely no finding of that effect.

In fact, the finding that the — of the Commission which investigated this was that the prices in New York were due solely to Section — the mandatory price resale and they said they didn’t know where the excess price that they said was charged New Yorkers because of mandatory price sale — retail.

They didn’t know where the difference went.

They said that they assumed that some of it went to the retailers, some of it went to the wholesalers, and some of it may have gone to the distillers, but they really didn’t know.

There’s no question, and they — and it’s supported in the record that the price of doing business in New York is considerably higher than it is in most of the other states, and that the profits to retailers I think the record shows in this state is 0.66 per dollar of sales whereas the average pri — profit to retailer is I think it’s in the record but my recollection is, is 1.26.

So that, the retail profit because of the cost of doing business is considerably less in the State of New York.

William J. Brennan, Jr.:

Oh, but not —

Thomas F. Daly:

Not the retailer but the wholesaler.

Potter Stewart:

That’s the percentage, 0.66?

Thomas F. Daly:

0.66 percentage.

Potter Stewart:

Percentage?

Thomas F. Daly:

Percentage, yes.

It’s in the record.

Potter Stewart:

Yes, yes, I’m —

Thomas F. Daly:

And supported by the record.

And, I may say, Your Honor, that Mrs. Toch, I’m sorry to say, was going completely outside the record when she says that the distillers have complete control over the wholesalers.

What she is in fact accusing us of, violating the Sherman Act now and of continuous violation of the Sherman Act.

We don’t have control over these wholesalers and there’s no way these so-called related person wholesalers are completely independent of us, and if we tried in any way to coerce them into giving us their prices if they don’t want to give it to us, we’ll be up on the charges of violating the Sherman Act and coercing them.

We have no control over them whatsoever and there’s not one spit of evidence in the record to show that we have and it just stands to reason that we can’t have it.

And in fact, this legislation that we’re complaining about was not passed in the legislative declaration as here, was not passed because distillers were charging more in New York or because distillers were controlling the wholesale price in New York or that the distillers had control of the wholesalers.

It was passed as the legislate — as it’s shown on page 16, and I read it and Mrs. Toch had read it to you.

In order to forestall possible monopolistic practices, that is, practices in the future.

Earl Warren:

Very well.