PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
TFWS, INCORPORATED, d/b/a
Beltway Fine Wine and Spirits,
Plaintiff-Appellee,
v.
PETER FRANCHOT, Comptroller of
the State of Maryland; THADDEUS
S. RUSSELL, Director of the Motor
Fuel, Alcohol and Tobacco Tax
Regulatory Division,
Defendants-Appellants,
and
WILLIAM DONALD SCHAEFER, in his
Official Capacity as Comptroller
No. 07-2108
of the Treasury of the State of
Maryland; LARRY W. TOLLIER,
Director, Regulatory and
Enforcement Division, Office of
the Comptroller of the State of
Maryland; CHARLES W. EHART, in
his Official Capacity as
Administrator of the Alcohol and
Tobacco Tax Unit of the
Comptroller of the State of
Maryland,
Defendants.
2 TFWS, INC. v. FRANCHOT
LICENSED BEVERAGE
DISTRIBUTORS OF MARYLAND,
INCORPORATED; AMERICAN
BEVERAGE LICENSEES; MARYLAND
STATE LICENSED BEVERAGE
ASSOCIATION; NATIONAL BEER
WHOLESALERS ASSOCIATION;
WINE AND SPIRITS WHOLESALERS OF
AMERICA, INCORPORATED,
Amici Supporting Appellants.
Appeal from the United States District Court
for the District of Maryland, at Baltimore.
William D. Quarles, Jr., District Judge.
(1:99-cv-02008-WDQ)
Argued: May 13, 2009
Decided: July 15, 2009
Before DUNCAN, Circuit Judge, HAMILTON, Senior
Circuit Judge, and Malcolm J. HOWARD, Senior United
States District Judge for the Eastern District of North
Carolina, sitting by designation.
Affirmed by published opinion. Judge Duncan wrote the opin-
ion, in which Senior Judge Hamilton and Senior Judge How-
ard joined. Senior Judge Howard wrote a separate concurring
opinion.
TFWS, INC. v. FRANCHOT 3
COUNSEL
ARGUED: William F. Brockman, OFFICE OF THE
ATTORNEY GENERAL OF MARYLAND, Baltimore,
Maryland, for Appellants. William James Murphy, MURPHY
& SHAFFER, LLC, Baltimore, Maryland, for Appellee. ON
BRIEF: Douglas F. Gansler, Attorney General of Maryland,
Steven M. Sullivan, Solicitor General, OFFICE OF THE
ATTORNEY GENERAL OF MARYLAND, Baltimore,
Maryland, for Appellants. John J. Connolly, MURPHY &
SHAFFER, LLC, Baltimore, Maryland, for Appellee. Howard
Graff, Deborah A. Skakel, DICKSTEIN SHAPIRO, LLP,
New York, New York; Robert C. Douglas, Glen K. Allen,
DLA PIPER US LLP, Baltimore, Maryland, for Licensed
Beverage Distributors of Maryland, Incorporated, Amicus
Supporting Appellants. Anthony S. Kogut, John A. Yeager,
WILLINGHAM & COTE, P.C., East Lansing, Michigan, for
American Beverage Licensees and Maryland State Licensed
Beverage Association, Amici Supporting Appellants. Stephen
M. Diamond, Coral Gables, Florida; Michael D. Madigan,
Katherine E. Becker, Jon R. Steckler, MADIGAN, DAHL &
HARLAN, P.A., Minneapolis, Minnesota, for National Beer
Wholesalers Association and Wine and Spirits Wholesalers of
America, Incorporated, Amici Supporting Appellants.
OPINION
DUNCAN, Circuit Judge:
This long-running antitrust suit is on appeal for the fourth
time. Maryland now asks us to revisit and reverse our earlier
holding that the state’s liquor and wine (collectively, "liquor")
regulatory scheme is a form of horizontal price fixing in per
se violation of the Sherman Act. We decline to do so because
the Supreme Court’s intervening decision in Leegin Creative
Leather Products, Inc. v. PSKS, Inc., 127 S. Ct. 2705 (2007),
4 TFWS, INC. v. FRANCHOT
on which Maryland primarily relies, concerned vertical, rather
than horizontal, price fixing, and Maryland’s other arguments
are unavailing. Moreover, as to the only issue not controlled
by the law of the case, we affirm the district court’s holding
that the state’s regulatory scheme is preempted by the Sher-
man Act.
I.
In 1999, TFWS, Inc., a large liquor retailer in Maryland,
sought declaratory and injunctive relief in federal district
court alleging that the state’s liquor and wine regulations vio-
late, and are preempted by, Section 1 of the Sherman Act, 15
U.S.C. § 1. In particular, TFWS challenged Maryland’s "post-
and-hold" pricing system and its "volume discount ban." See
Md. Code Ann., Art. 2B, § 12-102 & 103. The post-and-hold
pricing system prescribes how and when liquor wholesalers
may change their prices. Specifically, wholesalers must post
a schedule of prices with the Comptroller by a fixed date
every month. That schedule is made available to other whole-
salers and the prices are locked in for the following month.
Under the volume discount ban, a wholesaler must offer every
retailer the same price for a given product, thus preventing
wholesalers from cutting prices to large retailers.
Maryland moved to dismiss the suit on two grounds: (1) the
suit was barred by 11th Amendment state immunity and (2)
Section 1 of the Sherman Act did not apply to a state official’s
enforcement of state law (so-called "state actor antitrust
immunity"). On September 1, 1999, the district court issued
its opinion. Responding to Maryland’s motion, the court held
that (1) the suit was not barred by the 11th Amendment and
(2) Maryland did not enjoy state actor antitrust immunity.
Responding to TFWS’s complaint, the court held that Mary-
land’s "post-and-hold" pricing system and its "volume dis-
count ban" are hybrid restraints on trade1 and per se violations2
of the Sherman Act.
1
"Hybrid" restraints on trade are governmentally-imposed trade
restraints that enforce private pricing decisions. "Unilateral" restraints on
TFWS, INC. v. FRANCHOT 5
Nevertheless, the district court dismissed the suit on 21st
Amendment grounds.3 The court held that, notwithstanding
the anticompetitive effects of the challenged regulatory
scheme, it was a valid exercise of Maryland’s 21st Amend-
ment powers4 and that the state’s interest in promoting tem-
perance trumped the federal interest in promoting competition
under the Sherman Act. Consequently, the court concluded,
the scheme was not preempted. TFWS appealed the district
court’s ruling on the 21st Amendment issue. Maryland cross-
appealed on the other issues. A lengthy process of litigation
ensued, which we summarize here as background to the cur-
rent appeal.
In TFWS, Inc. v. Schaefer ("TFWS I"), 242 F.3d 198 (4th
Cir. 2001), in the portion of our holding relevant to the cur-
rent appeal, we affirmed the district court’s Sherman Act
holding and vacated its dismissal of the action. We held that
the "post-and-hold" pricing system and the "volume discount
ban" (a) are part of a single regulatory scheme; (b) both con-
stitute hybrid restraints on trade; and (c) both are per se viola-
tions of the Sherman Act. We reasoned that
[t]he post-and-hold system is a classic hybrid
restraint: the State requires wholesalers to set prices
and stick to them, but it does not review those pri-
trade are those that are unilaterally imposed by the government. See
TFWS, Inc. v. Schaefer ("TFWS I") 242 F.3d 198, 207-08 (4th Cir. 2001).
2
A "per se" violation occurs when a state regulatory scheme is irrecon-
cilable on its face with § 1 of the Sherman Act. See id., at 206-07.
3
Maryland, however, had not yet raised any 21st Amendment defense.
4
Section Two of the Twenty-First Amendment provides, "The transpor-
tation or importation into any State, Territory, or possession of the United
States for delivery or use therein of intoxicating liquors, in violation of the
laws thereof, is hereby prohibited." U.S. Const. amend. XXI. This section
has been interpreted to give states very broad authority to regulate the sale
and distribution of alcoholic beverages within their borders. See North
Dakota v. United States, 495 U.S. 423, 431 (1990).
6 TFWS, INC. v. FRANCHOT
vately set prices for reasonableness; the wholesalers
are thus granted a significant degree of private regu-
latory power. The volume discount ban is a part of
the hybrid restraint because it reinforces the post-
and-hold system by making it even more inflexible.
TFWS I, 242 F.3d at 208-09. We further held that these hybrid
restraints mandated activity that was "essentially a form of
horizontal price fixing," id. at 209, making them per se viola-
tions of § 1 of the Sherman Act.5 See N.C.A.A. v. Bd. of
Regents of the Univ. of Okla., 468 U.S. 85, 100 (1984) (label-
ing horizontal price fixing "the paradigm of an unreasonable
restraint of trade"); see also Catalano, Inc. v. Target Sales,
Inc., 446 U.S. 643, 649-50 (1980) (per curiam).
In vacating the district court’s ruling on the 21st Amend-
ment issue, we remanded to the district court to give the par-
ties the opportunity to argue the issue and develop the record.
See TFWS I, 242 F.3d at 211-13. Subsequent district court
decisions in 2002, 2004 and 20076 as well as this court’s deci-
sions in 2003 and 20057 dealt solely with the 21st Amendment
and related issues. Following our vacatur in TFWS I, Mary-
land moved the district court for summary judgment based on
a 21st Amendment defense. The district court granted Mary-
land’s motion, holding that Maryland’s interests in promoting
5
With the post-and-hold pricing system, we recognized a plain distinc-
tion between the lawful right to publish prices, on the one hand, and an
unlawful agreement among competitors limiting action with respect to the
published prices, on the other. Id. at 209 (citing Catalano, Inc. v. Target
Sales, Inc., 446 U.S. 643, 649-50 (1980) (per curiam)). We also concluded
that under Catalano Maryland’s ban on volume discounts was a per se
violation of the Sherman Act.
6
See TFWS, Inc. v. Schaefer, 183 F. Supp. 2d 789 (D. Md. 2002);
TFWS, Inc. v. Schaefer, 315 F. Supp. 2d 775 (D. Md. 2004); TFWS, Inc.
v. Schaefer, 2007 WL 2917025 (D. Md. Sept. 27, 2007) (unpublished).
7
See TFWS, Inc. v. Schaefer ("TFWS II"), 325 F.3d 234, 242 (4th Cir.
2003); TFWS, Inc. v. Schaefer ("TFWS III"), 147 F. App’x 330, 334-36
(4th Cir. 2005) (unpublished).
TFWS, INC. v. FRANCHOT 7
temperance under the 21st Amendment prevailed over the
federal interest under the Sherman Act.
On appeal from that decision, we again vacated the district
court’s grant of summary judgment, holding that there was a
disputed question of fact as to whether (and to what extent)
Maryland’s regulations were effective in serving their claimed
purpose of promoting temperance. TFWS, Inc. v. Schaefer
("TFWS II"), 325 F.3d 234, 242 (4th Cir. 2003). Without
determining the effectiveness of the regulatory scheme, the
district court could not properly weigh the competing state
and federal interests. See id. at 242-43.
On remand from TFWS II, the district court heard testi-
mony and took evidence from the parties on the effect of the
regulations on liquor price, and consequently on liquor con-
sumption and temperance. The parties compared Maryland’s
liquor and wine prices with those in Delaware, where TFWS
also had retail operations. The district court found that Mary-
land’s regulatory scheme was ineffective in furthering the
state’s purported interest in temperance and that the balance
weighed in favor of the federal interest in promoting competi-
tion. Consequently, the district court concluded that the stat-
utes and associated regulations at issue were preempted by the
Sherman Act. Maryland appealed.
Once again, we vacated the district court’s ruling, finding
that it was clearly erroneous because it failed to take into
account (or explain why it was not necessary to take into
account) the effect of excise taxes on the price of liquor and
wine. TFWS, Inc. v. Schaefer ("TFWS III"), 147 F. App’x
330, 334-36 (4th Cir. 2005) (unpublished). On remand from
TFWS III, the district court took evidence on the effect of the
excise tax on liquor prices (comparing Maryland and Dela-
ware). The district court again found that Maryland’s regula-
tory scheme was ineffective in furthering its purported interest
in temperance and was therefore preempted by the Sherman
Act.
8 TFWS, INC. v. FRANCHOT
In the matter now before us, Maryland timely appealed.
Maryland primarily argues that we erred in holding in TFWS
I that its scheme is a per se violation of the Sherman Act.
Maryland further contends that the district court erred in find-
ing that its regulatory scheme is ineffective and preempted by
the Sherman Act. We examine these issues in turn.
II.
Maryland argues that we should reverse our 2001 decision
in TFWS I — after five additional court decisions — in which
we held that Maryland’s "post-and-hold" pricing system and
"volume discount ban" are hybrid restraints on trade and per
se violations of § 1 of the Sherman Act. Maryland recognizes
that our prior holding constitutes the law of the case. It never-
theless asserts that reconsideration is warranted here.
The law of the case doctrine "posits that when a court
decides upon a rule of law, that decision should continue to
govern the same issues in subsequent stages in the same
case." United States v. Aramony, 166 F.3d 655, 661 (4th Cir.
1999) (quoting Christianson v. Colt Indus. Operating Corp.,
486 U.S. 800, 815-16 (1988)). As a practical matter, then,
once the decision of an appellate court establishes the law of
the case, it "must be followed in all subsequent proceedings
in the same case in the trial court or on a later appeal [ ]
unless: (1) a subsequent trial produces substantially different
evidence, (2) controlling authority has since made a contrary
decision of law applicable to the issue, or (3) the prior deci-
sion was clearly erroneous and would work manifest injus-
tice." Aramony, 166 F.3d at 661 (citations and internal
quotations omitted); see also United States v. Lentz, 524 F.3d
501, 528 (4th Cir. 2008). In attempting to convince us to over-
turn the law of the case, Maryland presents several arguments,
which we consider in turn.
TFWS, INC. v. FRANCHOT 9
A.
Relying on the second exception (i.e., material change in
controlling authority), Maryland first argues that "[t]his Court
should . . . revisit the preemption analysis in TFWS I in light
of intervening Supreme Court authority that renders untenable
the precedents that were central to the panel’s holding."8
Appellant’s Br. at 26. Maryland points to the Supreme
Court’s 2007 decision in Leegin, arguing that "resale price
maintenance is no longer subject to per se analysis under fed-
eral antitrust law, but must instead be judged under a rule-of-
reason standard." Appellant’s Br. at 28.
Maryland’s analysis is flawed. First, in Leegin, the
Supreme Court did not overrule, or even question, any
Supreme Court precedent on which we relied in TFWS I.9 The
8
The relevant Supreme Court decisions we relied on in TFWS I were:
324 Liquor Corp. v. Duffy, 479 U.S. 335 (1987); Cal. Retail Liquor Deal-
ers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980); and Schwegmann
Bros. v. Calvert Distillers Corp., 341 U.S. 384 (1951).
9
Maryland’s analysis seems to draw a parallel between Leegin and our
holding in TFWS I on the basis of the shared term "resale price mainte-
nance." See Appellant’s Br. at 28-29. In Leegin, the Supreme Court used
the term "resale price maintenance" to describe vertical price fixing that
the Court held was to be evaluated according to the "rule of reason" and
was no longer per se illegal. However, in TFWS I, we used the same term
merely to describe a commonality between three Supreme Court decisions,
Schwegmann, Midcal, and 324 Liquor, and not to describe the Maryland
regulatory scheme. See TFWS I, 242 F.3d at 208 ("All three of these cases,
Schwegmann, Midcal, and 324 Liquor, dealt with the liquor or wine indus-
try and some form of state-sanctioned resale price maintenance."). Further,
at the point in our analysis in TFWS I where we relied on these Supreme
Court decisions, we were analyzing whether Maryland’s regulatory
scheme was a hybrid restraint on trade and not whether this scheme was
a per se violation of the Sherman Act — the topic of interest in Leegin.
See id. at 208 (noting that Schwegmann, Midcal, and 324 Liquor "[e]ach
involved state liquor or wine laws that empowered private parties to set
prices, and those prices were enforced by government mechanisms."). We
based our conclusion that the scheme is a per se violation explicitly on our
finding that Maryland’s scheme constituted horizontal price fixing. See id.
at 209.
10 TFWS, INC. v. FRANCHOT
Supreme Court has repeatedly instructed that only the
Supreme Court itself may exercise the prerogative of deter-
mining whether any of its own prior holdings have been over-
turned. See, e.g., Rodriguez de Quijas v. Shearson/Am.
Express, Inc., 490 U.S. 477, 484 (1989). The Court has also
clarified that it "does not normally overturn, or [ ] dramati-
cally limit, earlier authority sub silentio." Shalala v. Ill. Coun-
cil on Long Term Care, Inc., 529 U.S. 1, 18 (2000).
Second, in TFWS I, we ruled that Maryland’s regulatory
scheme was "a form of horizontal price fixing." TFWS I, 242
F.3d at 209 (emphasis added). Leegin, in contrast, concerned
vertical resale price maintenance, holding that such arrange-
ments were no longer subject to the per se rule. Leegin, 127
S. Ct. at 2714-15. That holding is inapposite. In fact, Leegin,
far from undermining our conclusion that horizontal price fix-
ing is per se illegal under the Sherman Act, actually reiterates
that rule. See Leegin, 551 S. Ct. at 2723 (noting that "[t]he
same legal standard (per se unlawfulness) applies to horizon-
tal market division and horizontal price fixing because both
have similar economic effect"). Indeed, our holding in TFWS
I that Maryland’s horizontal price fixing was a per se viola-
tion of the Sherman Act explicitly flowed from prior Supreme
Court precedent. See TFWS I, 242 F.3d at 209 (citing Bd. of
Regents of the Univ. of Okla., 468 U.S. at 100 (1984), for the
principle that horizontal price fixing is "the paradigm of an
unreasonable restraint of trade"); see also Catalano, 446 U.S.
at 649-50 (holding that there is "a plain distinction between
the lawful right to publish prices . . . on the one hand, and an
agreement among competitors limiting action with respect to
the published prices, on the other"); Sugar Inst. v. United
States, 297 U.S. 553, 581 (1936) (noting that steps taken to
secure "adherence, without deviation, to the prices and terms
. . . announced" violate § 1 of the Sherman Act). Conse-
quently, the second exception to the law of the case doctrine
does not undermine our analysis in TFWS I.
TFWS, INC. v. FRANCHOT 11
B.
Maryland’s remaining challenges to the law of the case
appear to be directed at the third exception to the law of the
case doctrine, which permits a departure from the law of the
case when the previous decision was "clearly erroneous and
would work manifest injustice." Aramony, 166 F.3d at 661.
We now consider these challenges.
In TFWS I, we ruled that the volume discount ban was part
of the hybrid restraint and a per se violation.10 Maryland con-
tends on appeal that even if the "post-and-hold" pricing sys-
tem is a hybrid restraint and a per se violation of the Sherman
Act, the "volume discount ban" is a unilateral — not hybrid—
restraint that should not have been bundled with the "post-
and-hold" pricing system. Appellant’s Br. at 33-35. Maryland
asserts that "the volume discount ban can stand on its own.
Standing alone, it is clearly a unilateral restraint."11 Appel-
lant’s Br. at 34.
Significantly, although Maryland now challenges this rul-
ing, in prior pleadings, it essentially agreed with our position
in TFWS I. For instance, Maryland earlier described the chal-
lenged statutes as "part of the State of Maryland’s longstand-
ing statutory system to regulate and control sale and
distribution of alcoholic beverages." Maryland’s Br. for
TFWS I, No. 04-1688, at 7 (March 7, 2005) (emphasis added).
Additionally, Maryland cited with approbation the Maryland
10
But see Costco Wholesale Corp. v. Maleng, 522 F.3d 874 (9th Cir.
2008), in which the Ninth Circuit came to a different conclusion in
reviewing Washington law. The Ninth Circuit struck down Washington’s
"post-and-hold" pricing system (which it found to be a per se violation of
the Sherman Act), but severed and upheld Washington’s "volume discount
ban" as a unilateral restraint on trade. Id. at 898-900.
11
Maryland failed to even raise this concern until its third appeal to this
court—years after our initial decision in TFWS I and years after Maryland
itself had staked a position essentially identical to our holding in TFWS I
on this issue.
12 TFWS, INC. v. FRANCHOT
Court of Appeals’s interpretation of the statutes at issue as
"part of a comprehensive scheme," J.A. 77 (citation and inter-
nal quotation marks omitted), as well as that court’s holding
that "the proper rule of construction is that all parts of Article
2B [which includes the statutes at issue here] must be read
together as they form part of a general system," J.A. 78 (cita-
tion and internal quotation marks omitted). Further, Mary-
land’s own witness testified that the post-and-hold pricing
system is utilized in part to enforce the volume discount ban.
J.A. 2321-24. Similarly, in its latest appeal, Maryland agreed
that the post-and-hold pricing system and the volume discount
ban operate together, conceding that "the post-and-hold sys-
tem facilitates monitoring and enforcement of the volume dis-
count ban." Appellant’s Br. at 34.
Moreover, as we held in TFWS I, Maryland’s volume dis-
count ban does "reinforce[ ] the post-and-hold system" and
makes it "even more inflexible." TFWS I, at 209. For instance,
the volume discount ban facilitates self-policing among mar-
ket participants because departures from established prices are
readily recognizable. See, e.g., Catalano, 446 U.S. at 649-50.
In Maryland, a wholesaler who notices a low retail price for
a competitor’s product has all the information needed to
report a violation: the filed wholesale price and the knowl-
edge that the retailer cannot have received a discount. The
challenged regulations allow private businesses to set prices,
mandate price-filing and price-holding, and allow industry
players to facilitate detection of would-be price cutters—
especially in a state like Maryland where just two wholesalers
control 85%-90% of the liquor market. In short, the two pro-
visions at issue together grant private actors the tools to
engage in coordinated pricing, and so constitute hybrid — not
unilateral — restraints.
Maryland presents its argument for severance of its volume
discount ban as though for review in the first instance, and
does not attempt to meet the high burden of showing that our
holding in TFWS I was clearly erroneous and would work a
TFWS, INC. v. FRANCHOT 13
manifest injustice. A prior decision does not qualify for this
third exception by being "just maybe or probably wrong; it
must . . . strike us as wrong with the force of a five-week-old,
unrefrigerated dead fish." Bellsouth Telesensor v. Info. Sys. &
Networks Corp., 1995 WL 520978, *5 n.6 (4th Cir. 1995)
(unpublished) (quoting Parts & Elec. Motors, Inc. v. Sterling
Elec., Inc., 866 F.2d 228, 233 (7th Cir. 1988)). It must be
"dead wrong." Sterling Elec., 866 F.2d at 233. Maryland pro-
vides insufficient basis for us to find clear error or manifest
injustice in this court’s earlier holding that Maryland’s vol-
ume discount ban is a hybrid restraint and a per se violation
of the Sherman Act.
Maryland’s final challenge to the law of the case is the
assertion that we erred by not giving proper deference to leg-
islative findings. The state maintains that the validity of its
challenged regulatory scheme should not "depend on a judi-
cial assessment of its effectiveness." Appellant’s. Br. at 41.
This argument fails to meet its required burden for two rea-
sons. First, the primary Supreme Court precedent that Mary-
land relies upon, Exxon Corp. v. Governor of Md., 437 U.S.
117 (1978), is inapposite. In Exxon, the Supreme Court found
that Exxon Corp.’s substantive due process challenge to
Maryland’s legislation rested on an evaluation of the eco-
nomic wisdom of that legislation. The Supreme Court held
that "the Due Process Clause does not empower the judiciary
to sit as a superlegislature to weigh the wisdom of legisla-
tion." Id. at 124 (citations and internal quotation marks omit-
ted). The judiciary’s role in such a challenge is limited to
rational basis review. See id. at 124-25 ("Regardless of the
ultimate economic efficacy of the statute, we have no hesi-
tancy in concluding that it bears a reasonable relation to the
State’s legitimate purpose in controlling the gasoline retail
market, and we therefore reject appellants’ due process
claim."). This holding simply reiterates the Supreme Court’s
long-standing jurisprudence that due process challenges to
14 TFWS, INC. v. FRANCHOT
economic regulations receive only the highly deferential ratio-
nal basis review.
The nature of the challenge here is fundamentally different.
The regulatory scheme at issue has been found to be a per se
violation of the Sherman Act. This court’s determination of
the effectiveness of this scheme is an effort to salvage the
scheme despite this violation because of the state’s authority
under the 21st Amendment. See, e.g., Midcal, 445 U.S. at
112-14. In other words, despite the scheme’s violation of fed-
eral law, the state is given the opportunity to demonstrate that
its own interests outweigh those of the federal government.
Here, a determination of effectiveness is essential to weigh
the competing interests because the state’s interests are
weighed in the balance only insofar as they are actually
advanced by the regulatory scheme. Id. at 113-14. The 21st
Amendment may provide "shelter" for a state’s liquor statutes
that violate the Sherman Act only if the state’s interest truly
outweighs the federal interest. Id. at 114. The rational basis
test, with its accompanying legislative deference, is simply
irrelevant in this context.
Second, in remanding in TFWS I to determine regulatory
effectiveness this court was following Supreme Court guid-
ance instructing that judicial determination of the effective-
ness of a state’s liquor regulations is necessary when those
regulations violate the Sherman Act. See, e.g., Midcal, 445
U.S. at 113 ("Nothing in the record in this case suggests that
the wine pricing system helps [further the state’s interest in]
sustain[ing] small retail establishments."); 324 Liquor, 479
U.S. at 350 ("[I]n this case the New York Court of Appeals
cited no legislative or other findings that either the minimum
markup requirement or the ‘bottle price’ definition of cost has
been effective in [furthering the state’s interest in] preserving
small retail establishments, and made no findings of its own.")
(emphases added). Supreme Court precedent clarifies the
importance of determining regulatory effectiveness and per-
mits the use of multiple sources to make such a determination.
TFWS, INC. v. FRANCHOT 15
Legislative findings, empirical studies (i.e., "other findings"),
or findings by the court can all be useful in assessing the
effectiveness of a state’s regulatory scheme in achieving its
stated purpose. See 324 Liquor, 479 U.S. at 350.
As we summarized in TFWS I, drawing extensively on
Supreme Court precedent:
[U]nsubstantiated state concerns under the Twenty-
first Amendment are not sufficient to trump the goals
of the Sherman Act; a state must demonstrate that its
liquor regulatory policies directly serve [i.e., are
effective in furthering] the interests it proffers under
the Twenty-first Amendment. . . . In the end, the
state’s interests must be of sufficient weight to pre-
vail against the federal interest in enforcement of the
antitrust laws.
TFWS I, 242 F.3d at 212 (citations and quotations omitted).
Finding no exceptions to the law of the case, we decline to
revisit our prior holdings on these points.
III.
We turn now to the only issue not controlled by the law of
the case. In TFWS III, we vacated the district court’s order
finding that Maryland’s regulatory scheme was ineffective
and preempted by the Sherman Act because the district court
failed to take into account, or explain why it was unnecessary
to take into account, Maryland’s and Delaware’s excise tax
rates and their effect on prices. TFWS III, 147 F. App’x at
331-32. We remanded with instructions that the states’ excise
taxes must be considered to determine the effectiveness of
Maryland’s regulatory scheme.
On remand, the district court, following our instructions,
conducted additional fact-finding. Following this fact-finding,
16 TFWS, INC. v. FRANCHOT
the district court held that (1) controlling for excise taxes is
a logical means of eliminating a separate variable and any
excise tax differentials should be eliminated; (2) controlling
for excise tax, Maryland’s prices are on average only 0.2%
more expensive than Delaware’s prices; (3) economic theory
shows that a uniform 0.2% increase in price will cause a 0.2%
decrease in wine consumption and a 0.3% decrease in liquor
consumption and studies of states that have abolished similar
laws indicate no significant change in alcohol consumption
patterns; and (4) Maryland proved only that the challenged
regulations have (at best) a minimal impact in furthering the
state’s interest in temperance. Consequently, the district court
concluded that the federal interest in promoting competition
outweighs the state’s interest and so Maryland’s regulatory
scheme is preempted by the Sherman Act. Although Mary-
land challenges the district court’s legal conclusion that the
federal interest outweighs the state interest, it does so primar-
ily by challenging the court’s second factual finding regarding
the minimal impact of Maryland’s challenged regulations on
prices.
Our standard of review is well established. "We defer to the
district court’s factual findings and do not set them aside
unless clearly erroneous; and we review legal conclusions de
novo." United States v. Stevenson, 396 F.3d 538, 541 (4th Cir.
2005). A factual finding is clearly erroneous when we are
"left with the definite and firm conviction that a mistake has
been committed." Anderson v. Bessemer City, 470 U.S. 564,
573 (1985) (internal quotation marks and citation omitted).
But "[i]f the district court’s account of the evidence is plausi-
ble in light of the record viewed in its entirety," we will not
reverse the district court’s finding simply because we have
become convinced that we would have decided the question
of fact differently. Id. at 573-74. Thus, when "there are two
permissible views of the evidence, the [district court’s] choice
between them cannot be clearly erroneous." Id. at 574.
Maryland challenges the district court’s finding that the
state’s regulatory scheme has a minimal impact on pricing by
TFWS, INC. v. FRANCHOT 17
arguing that the pricing data that TFWS provided, and on
which the court relied, was flawed. Maryland employs two
primary arguments in attempting to demonstrate the unreli-
ability of this data. First, Maryland argues that in TFWS III
"this Court reversed, finding that [TFWS’s analyses] were not
‘sufficiently reliable to provide an indication of the effect the
challenged regulations have on Maryland prices.’" Appel-
lant’s Br. at 49 (quoting TFWS III, 147 F. App’x at 335).
However, Maryland’s attempt to find support in TFWS III for
its current position (i.e., that TFWS’s data is flawed) is mis-
guided. The contextualized quote from our holding in TFWS
III is as follows:
[W]e cannot say at this point that the price compari-
sons cited by the district court are sufficiently reli-
able to provide an indication of the effect the
challenged regulations have on Maryland prices.
There is no factfinding or analysis by the district
court that explains the extent of the impact excise
taxes have on prices or why a comparison of prices
need not be adjusted for excise taxes.
Id. In other words, we did not hold that TFWS’s analyses
were not reliable—we simply held that we could not evaluate
whether or not the analyses were reliable because of the lack
of information about excise tax rates. Maryland has conceded
that this "most conspicuous" methodological flaw "was cor-
rected in TFWS’s revised price comparisons [which incorpo-
rated the effect of the states’ excise tax rates]." Appellant’s
Br. at 52. The revised data took into account the excise tax
rate in each state in order to more accurately compare Mary-
land’s liquor and wine prices with those in Delaware. Conse-
quently, our prior finding provides no support for Maryland’s
current challenge.
Second, Maryland questions the assumption underlying
TFWS’s data that retailers buy their stock exclusively in the
months when the prices are lowest. Maryland labels this type
18 TFWS, INC. v. FRANCHOT
of purchasing an "extreme form of bridge buying," and argues
that most retailers do not have the credit or storage capacity
to engage in it. Appellant’s Br. at 54. TFWS responds that
since the assumption was made for both Maryland and Dela-
ware, and the point of the study was to provide comparative
data, this assumption was valid.12 See Appellee’s Br. at 54-56.
The point of the analysis was not to claim that all retailers
actually buy when prices are at their lowest but simply to find
a reference point that provides a fair basis of comparison for
the two states’ liquor and wine prices. See Appellee’s Br. at
55. For instance, it would also have made sense to compare
average prices to average prices or highest prices to highest
prices. Id. The district court found that "[a]lthough TFWS’s
data are far from perfect, they permit a more reliable compari-
son of Maryland and Delaware wholesale prices. The State
has produced nothing better, and relies on TFWS’s data in
conducting its analysis."13 J.A. 5667.
In reviewing the record in its entirety, we find that the dis-
trict court’s reliance on the data provided by TFWS was rea-
sonable. Maryland’s arguments provide no basis for us to
conclude that the district court’s findings of fact — and, in
12
TFWS also points out, and the state does not dispute, that Maryland
has not raised its excise tax on liquor for more than fifty years. See Appel-
lee’s Br. at 5, 42. Maryland has consistently rejected bills that would raise
its excise taxes. See J.A. 5091-127 (collecting bills proposing to raise the
excise tax that failed to make it through the legislature). Maryland, along
with the District of Columbia, imposes the lowest excise tax in the nation
on distilled spirits and a tax rate on wine that is well below the national
median. J.A. 5134.
13
For instance, Maryland submitted data that was not representative of
each state and which did not consistently survey the same retailers. J.A.
5660-61. Further, the state did not even provide any new analysis of its
original data to control for the effect of excise taxes. J.A. 5661. Finally,
although Maryland’s approach did not allow for any discount via bridge
buying in Maryland, it applied quantity discount to all Delaware prices,
even though not all Delaware retailers are able to take advantage of these
discounts. J.A. 5662. This flawed approach skewed Maryland’s prices
upward and Delaware’s prices downward.
TFWS, INC. v. FRANCHOT 19
particular, its finding that Maryland’s regulatory scheme is
ineffective in furthering Maryland’s purported interest in tem-
perance — are clearly erroneous. Judging from the record, the
district court relied on the best evidence available and made
a reasoned judgment on the basis of that record. Once the dis-
trict court made its finding of fact that the challenged regula-
tory scheme had minimal impact in furthering the state’s
interests, the legal conclusion that the federal interest out-
weighed the state interest followed more or less as a matter
of course. Finding no error, we affirm.
IV.
For the foregoing reasons, the judgment appealed from is
AFFIRMED.
HOWARD, Senior District Judge, concurring:
I agree that the law of the case controls our decision and,
for that reason, concur in the majority’s opinion. Were we
writing on a clean slate, however, I would vote to uphold both
the volume-discount ban and the post-and-hold pricing system
on the grounds that they are unilaterally imposed government
restrictions, which do not run afoul of § 1 of the Sherman Act,
and, alternatively, that they constitute a proper exercise of
Maryland’s Twenty-first Amendment interests.