Affiliated Distillers Brands Corp. v. Gillis, 10132

• Citation: 81 S.D. 44,130 N.W.2d 597
• Decision Date: 12 October 1964
• Docket Number: No. 10132,10132
• Parties: AFFILIATED DISTILLERS BRANDS CORP., a corporation, Plaintiff and Appellant, v. Bruce D. GILLIS, as Commissioner of Revenue of the State of South Dakota, and Max Brookens as Director of the Alcoholic Beverage and Cigarette Tex Division of the Department of Revenue of the State of South Dakota, Defendants and Respondents.
• Court: Supreme Court of South Dakota

Page 597

130 N.W.2d 597

81 S.D. 44

AFFILIATED DISTILLERS BRANDS CORP., a corporation, Plaintiff and Appellant, v. Bruce D. GILLIS, as Commissioner of Revenue of the State of

South Dakota, and Max Brookens as Director of the Alcoholic

Beverage and Cigarette Tex Division of the Department of

Revenue of the State of South Dakota, Defendants and

Respondents.

No. 10132.

Supreme Court of South Dakota.

Oct. 12, 1964.

Woods, Fuller, Shultz & Smith, Sioux Falls, for plaintiff and appellant.

Frank L. Farrar, Atty. Gen., John Dewell, Asst. Atty. Gen., Pierre, for defendants and respondents.

RENTTO, Judge.

The Commissioner of Revenue adopted an amendment to Rule 10 of the Ruies and Regulations of the Department of Revenue relating to the alcoholic beverage laws of this state. It provided that those licensed as distillers and wholesalers of intoxicating liquor may not sell, give or deliver to a licensee of any class any intoxicating liquor other than high point beer and wine, in any container which is larger than a quart. Prior to the amendment gallon and half gallon sizes were permissible.

The plaintiff, engaged in the business of marketing, selling and distributing numerous well-known and extensively advertised brands of alcoholic beverages in the State of South Dakota, had built up a large and valuable volume of sales of whiskey in half gallon containers to licensed wholesalers therein. It brought this action to have the regulation declared invalid and asked an injunction to restrain its enforcement. It claimed that the authority under which the Commissioner issued the regulations is an impermissible delegation of legislative authority and, if not, the regulation was an arbitrary and unreasonable restriction on the liquor industry. The trial court ruled against the contentions of the plaintiff and entered an order dismissing the complaint. This appeal is from such action.

From the records in the Commissioner's office it appears that for the year 1963 there were licensed in the state 463 on-sale [81 S.D. 47] and 545 off-sale liquor establishments. Of these our municipalities operated 104 as on and off-sale combinations and 56 as off-sale stores. As the terms imply the off-sale store sells liquor by the package for use off the premises where sold and the onsale establishment sells it by the drink for consumption on its premises.

In the summer of 1963, prior to the issuance of the amendment on July 24th, the Commissioner learned from reports made to his office of a phenomenal increase in the importation into the state in half gallon containers of a brand of whiskey distributed by the plaintiff. At that time in 1963 one of our licensed wholesalers had bought from the plaintiff 2,150 cases of such whiskey in containers of that size. In 1962 and during several preceding years it had received only 25 cases annually. The Commissioner was of the view that this increase was occasioned by a promotional scheme instituted by the plaintiff underwhich a case of half gallons of such whiskey retailed for less than a case of quarts of the same liquor.

An investigation of the situation by the office of the Attorney General covering the second quarter of 1963 indicated that during that period, in 80 transactions, 475 half gallon bottles of such whiskey were sold to retailers licensed as on-sale dealers. An inspection of the premises of 25 of these licensees revealed that only six of them had half gallon bottles displayed on their bars. Of these one poured whiskey into drinks from such containers and the others only when specifically requested. The investigation disclosed that it was a rather common practice among on-sale dealers to refill the quart bottles of that brand displayed on their bars from the half gallon containers.

On the basis of these facts the Commissioner found that certain practices were taking place involving gallon and half gallon containers which resulted in an evasion of taxes and constituted a fraudulent business activity and a violation of SDC 5.0221. Accordingly, he promulgated the challenged amendment as an emergency measure. The section of the Code referred to provides 'No person shall buy or sell any package which has previously contained intoxicating liquor sold under the provisions of this title, or refill any such package; provided however, that this section shall not apply to beer containers.' By SDC 5.9904 its violation is made a misdemeanor.

The showing on which the Commissioner acted was presented to the trial court by affidavits which were not disputed or contradicted. The court concurred in the finding made by the Commissioner that certain licensees were refilling quart containers from the larger but less expensive gallon or half gallon containers and concluded that he was properly authorized to issue his amendment to regulation 10; that it was neither arbitrary nor unreasonable, but a proper exercise of the discretion and authority vested in him; and ordered the plaintiff's complaint dismissed. Its decision is silent on the tax aspect mentioned by the Commissioner and that feature is not urged. If such practice had any detrimental impact on the liquor revenue it could only be due to a diminution in the amount of the gross receipts tax occasioned by a reduction in the sale price of such whiskey to the licensee. Ch. 17, Laws of 1963.

The theory of administrative rule making is that in certain fields and in some respects the public interest is better served by delegating a large part of detailed law making to expert administrators, controlled by policies, objects and standards laid down by the legislature, rather than having all the details spelled out through the traditional legislative process. In accord with the general rule we said in Application of...