All Brand Importers, Inc. v. Department of Liquor Control

• Decision Date: 05 December 1989
• Docket Number: No. 13651,13651
• Citation: 567 A.2d 1156,213 Conn. 184
• Parties: ALL BRAND IMPORTERS, INC. v. DEPARTMENT OF LIQUOR CONTROL et al.
• Court: Connecticut Supreme Court

Page 1156

567 A.2d 1156

213 Conn. 184

ALL BRAND IMPORTERS, INC. v. DEPARTMENT OF LIQUOR CONTROL et al.

No. 13651.

Supreme Court of Connecticut.

Argued Oct. 3, 1989.

Decided Dec. 5, 1989.

Syllabus by the Court

By statute (§ 33-369[c], a merger of two corporations automatically vests the surviving corporation with all of the "rights, privileges, immunities and franchises" of the terminating corporation.

The plaintiff, A Co., an out-of-state shipper of beer, appealed to the trial court from a declaratory ruling by the defendant department of liquor control determining that, as a result of a merger with one of A Co.'s distributors, the defendant S Co. had acquired the distributor's rights to carry A Co.'s products. The trial court sustained the ruling of the department, and A Co. appealed. Held:

1. A Co.'s claim that regulatory control of the liquor industry precludes the application of § 33-369(c) to mergers of liquor permittees was unavailing; there is no reasonable basis in the statutes themselves to demonstrate that the liquor control statutes and the stock corporation laws, including § 33-369(c), which, by operation of law, vested S Co. with the distribution rights, were not intended to coexist, and A Co. had the statutory (§ 30-17[a] right to seek to terminate S Co.'s distribution rights by demonstrating "just and sufficient cause" at a hearing conducted by the department.

2. A Co. could not prevail on its claim that the department's determination that the distribution rights automatically vested in S Co. constituted a denial of substantive due process because it forced A Co. into a contract with a company that it had not selected; the department's decision had a rational basis in advancing the state's legitimate interest in controlling the industry as the legislature intended.

3. A Co.'s claim that it had been denied its rights to procedural due process was unavailing; A Co. had not cognizable federal due process right to expect to be free from the operation and effect of merger laws, and A Co. had no statutory or regulatory right to a hearing prior to the merger because the proceeding was not a "contested case" under the applicable provisions (§§ 4-166 and 4-182) of the Uniform Administrative Procedure Act.

Steven R. Humphrey, with whom, on the brief, was Ronald W. Zdrojeski, Hartford, for appellant (plaintiff).

Robert F. Vacchelli, Asst. Atty. Gen., with whom, on the brief, were Clarine Nardi Riddle, Atty. Gen., and Richard M. Sheridan, Asst. Atty. Gen., for appellee (named defendant).

Robert L. Julianelle, Westport, for appellees (defendant Star Distributors, Inc., et al.).

Before PETERS, C.J., and ARTHUR H. HEALEY, SHEA, CALLAHAN, GLASS, COVELLO and HULL, JJ.

ARTHUR H. HEALEY, Associate Justice.

The plaintiff brought an administrative appeal to the Superior Court from a declaratory ruling on May 5, 1987, by the department of liquor control (department). That court dismissed the appeal, and this appeal ensued. We find no error.

Since 1979, A. Gallo Distributing Company (Gallo) has been the designated distributor in Fairfield county for certain beer products of the plaintiff, All Brand Importers, Inc. (All Brand), an out-of-state shipper. On December 31, 1986, Gallo merged with Star Distributors, Inc. (Star). Gallo was the terminating corporation and Star was the surviving corporation. See General Statutes §§ 33-284(o ), 33-364. The surviving corporation retained the name Star Distributors, Inc. Both Gallo and Star held wholesaler permits issued by the department, which, on the merger, required that one of the two permits be surrendered. See General Statutes § 30-62; Regs., Conn. State Agencies § 30-6-A4(a). Gallo surrendered its wholesaler permit. By letter dated January 20, 1987, Star wrote the department requesting its advice on whether Star, as the surviving corporation, would be required to obtain reappointment letters from out-of-state shippers because of the merger. Star's letter opined, referring specifically to General Statutes § 33-369(c), ¹ that if the Connecticut statutes on merger were applicable, it would appear that such reappointments would not be necessary. The department, by letter dated February 5, 1987, replied that it would "require re-appointment of manufacturers in connection with the merger of [Gallo] into [Star]." Although tending to agree that § 33-369(c) appeared applicable, the department, citing certain statutes and a regulation, said, inter alia, that reappointment in Star's name under its permit should be obtained from all of the manufacturers and suppliers of Gallo for whom Star sought to distribute alcoholic beverages.

Thereafter, by letter dated February 20, 1987, Star wrote All Brand requesting that All Brand reappoint Star as a distributor of the All Brand lines previously distributed by Gallo. With this letter, Star enclosed copies of Gallo's "proposed" release of "all assigned distribution rights" of All Brand, a letter from Star "purporting" to accept appointment from All Brand as an exclusive distributor in Fairfield county and a request that All Brand forward a letter of the appointment of Star. All Brand refused to give an appointment letter to Star and attempted to appoint Burt's Beverage Co., Inc. (Burt's), as a distributor in Fairfield county. Star then wrote to the department on March 25, 1987, and requested a declaratory ruling as to whether, as a result of the merger, it succeeded to the distribution rights of Gallo under General Statutes § 30-17(a)(2).

Thereafter, the department issued a "Notice of Declaratory Ruling Hearing" to decide the following question: "Whether C.G.S. Sec. 33-369(c) automatically vests Star Distributors, Inc. with the distribution rights to All Brand products previously distributed by A. Gallo Distributing Company, which distribution rights are thereupon protected by C.G.S. Sec. 30-17(a)(2)?" On April 9, 1987, the department held a hearing at which testimony was taken and exhibits admitted into evidence. All Brand, Star and Burt's ² were present at that hearing and each was represented by counsel.

On May 5, 1987, the department issued a written decision in which it ruled that "Connecticut General Statutes, Sec. 33-369(c) automatically vests STAR DISTRIBUTORS, INC. with the distribution rights to ALL BRAND products previously distributed by A. GALLO DISTRIBUTING COMPANY, which distribution rights are thereupon protected by C.G.S. Sec. 30-17(a)(2)." In so ruling, the department determined, inter alia, that after reviewing the Liquor Control Act (title 30 of the General Statutes), it could not find any indication that § 33-369(c) was "modified or affected by any statute in [title 30]" and that there was no incompatability "between the corporate merger law and the Liquor Control Act." Although the department decided that a merger transfers the rights, privileges, immunities and franchises of each of the merging corporations (Gallo and Star), it emphasized that they were still required to obtain the approval of the department under its regulations. Gallo and Star had each requested prior approval of the department before the merger. Moreover, it also said that the inapplicability of § 33-369(c) to this case would result in "adverse consequences" not only to Connecticut wholesalers but also to the department's power.

The department emphasized and developed the distinctions between a permit granted by the department and the appointment agreements that distributors have with manufacturers and out-of-state shippers. Stressing that permits and distribution rights "are both subject to the pervasive regulatory control of the [department]," it pointed to our recent decision in Schieffelin & Co. v. Department of Liquor Control, 194 Conn. 165, 479 A.2d 1191 (1984), which, it opined, upheld "[t]he power to regulate virtually every aspect of the liquor and beer industry," including "permits and distributorships." Pointing out that this power has resulted in extensive legislation regulating manufacturers or out-of-state shippers, it stated that it was " 'apparent that Connecticut intends to and does control the supplying out-of-state shipper ... to make certain that the owner of the brand name, out-of-state shipper, cannot dominate or control the Connecticut wholesalers,' " (emphasis added) citing D. Brennan, "Liquor Control," 54 Conn.B.J. 611, 613-14. Further, it found that it was immaterial whether a distribution agreement was a "franchise" under the language of § 33-369(c) granting a surviving corporation "all the rights, privileges, immunities and franchises" of the merging corporations because, even if a distribution agreement were "found not to be a franchise per se," it would fall within the "all rights and privileges" language of that statute.

The department then turned to All Brand's argument referring to marketing plans and product mix. All Brand argued that "it does not want its product to be marketed with the other brands in the Star house" and, therefore, All Brand contends that it should have the right to terminate the appointment because of the merger. The answer to that argument, the department said, was "the use of the provisions of the 'just and sufficient cause hearing' " under § 30-17(b). It concluded that a " 'merger' in and of itself, does not create 'just and sufficient cause' for termination of a distributorship." (Emphasis added.) All Brand and Burt's ³ then appealed the department's decision to the Superior Court. The court dismissed the appeal.

The trial court found that All Brand had established aggrievement. In deciding that § 33-369(c) applied, the trial court not only pointed out that that statute contained no exceptions or policing mechanisms, but also concluded that the merger statute and the liquor control statutes were "readily reconciled, rational and consistent." It also indicated that the effect of the merger was to lump together all of the assets and liabilities of the ...