Antitrust Law Daily Wrap Up, ANTITRUST—C.D. Cal.: FTC's suit against national alcoholic beverage distributor survives dismissal, (Apr 22, 2025)

By Kenneth H. Ryesky, M.B.A., J.D.

Price reductions enabled favored chain stores to re-sell liquor "at retail prices below the wholesale prices paid by disfavored independent retailers."

The federal district court judge in Santa Ana, California has denied the motion by largest wine and spirit distributor in the United States to dismiss the price discrimination lawsuit filed against it by the FTC. The court found that the FTC had plausibly alleged violations of the Robinson-Patman Act and the FTC Act and ordered the distributor to file its answer to the complaint (FTC v. Southern Glazer’s Wine and Spirits, LLC, No. 8:24-cv-02684 FWS-ADS (C.D. Cal. Apr. 17, 2025)).

On December 12, 2024, despite opposition by two of its own Commissioners, the FTC filed a complaint against Southern Glazer's Wine & Spirits LLC (SGWS), the largest distributor of wine and spirits in the United States. The complaint alleges that SGWS "has repeatedly discriminated in price between disfavored independent purchasers and favored large chain purchasers of wine and spirits" in violation of the Robinson-Patman Act and the FTC Act. The Robinson-Patman Act allegations are for a so-called "secondary line" of price discrimination, whereby the price discrimination impedes competition with an entity that knowingly receives the benefit of the price discrimination. The alleged price discrimination entailed discounts and rebates to the favored purchasers in excess to those availed to the disfavored purchasers. SGWS moved to dismiss the complaint for failure to state a redressable cause of action.

Robinson Patman Act. The court denied SGWS's motion to dismiss the FTC's Robinson-Patman Act claim. A "secondary line" claim under the Act entails four elements: (1) occurrence in the course of interstate commerce; (2) goods of like grade and quality; (3) price discrimination between favored and disfavored customers; and (4) harm to competition.

The court ruled that even though the transactions specified in the complaint all occurred within individual states, there was a crossing of a state line in at least one of the alleged transactions under the flow-of-commerce theory. The fact that the alcoholic beverages were required under the various state laws to remain at rest in a warehouse or similar facility did not defeat the "practical economic continuity" of the transaction if the goods were shipped to the state in response to an actual or perceived demand by a customer.

Although the complaint did not set forth the volume or quality specifications of the alcoholic beverages sold by SGWS, the complaint is replete with contrasting price comparison examples for the exact same items. Moreover, the sales contracts were materially similar regarding non-pricing terms and conditions. This served to plausibly allege the like grade and quality requisite of the Robinson-Patman Act.

The complaint's recitations of contrasting sales prices for favored and disfavored customers (including a tabular illustration) sufficed to the allege price discrimination element of the secondary line allegation.

Harm to competition was also plausibly alleged. The favored buyers received significant price discounts over periods of time; from this, harm to competition can be inferred under the so-called Morton Salt inference. In such regard, the complaint also alleged that the substantial favorable discounts and rebates accorded to the large chains were not available to the small stores.

Here, SGWS argued that the complaint did not set forth the identities of the disfavored purchasers. The court agreed that SGWS would be entitled to such information during discovery, but the information's absence from the complaint did not vitiate the Morton Salt inference.

FTC Act. For the same reasons the court denied dismissal of the FTC's Robinson-Patman Act claim, the court denied dismissal of the claim under Section 5 of the FTC Act.

The Case is No. 8:24-cv-02684 FWS-ADS.

Judge: Slaughter, F.

Attorneys: Christina J. Brown for the FTC. Craig S. Primis (Kirkland & Ellis LLP) for Southern Glazers Wine and Spirits, LLC.

Companies: Southern Glazers Wine and Spirits, LLC

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