Allstate Beer, Inc. v. Julius Wile Sons & Co., Civ. A. No. C-78-1090-A.

Citation479 F. Supp. 605
Decision Date30 March 1979
Docket NumberCiv. A. No. C-78-1090-A.
PartiesALLSTATE BEER, INC., Plaintiff, W. E. Strickland, State Revenue Commissioner, Plaintiff-Intervenor, v. JULIUS WILE SONS & CO., INC.
CourtUnited States District Courts. 11th Circuit. United States District Courts. 11th Circuit. Northern District of Georgia

COPYRIGHT MATERIAL OMITTED

Paul L. Hanes, Atlanta, Ga., for plaintiff.

David A. Runnion, Atlanta, Ga., for plaintiff-intervenor.

H. Lamar Mixson, Jr., Atlanta, Ga., for defendant.

ORDER

HENDERSON, District Judge.

The above styled action was originally filed in the Superior Court of Fulton County and later removed to this court. Allstate Beer, Inc. (hereinafter referred to as "Allstate") filed suit against Julius Wile Sons & Co. (hereinafter referred to as "Julius Wile") for tortious interference with its contractual relationship with North Coast Cellars d/b/a Souverain Cellars (hereinafter referred to as "North Coast"). Julius Wile filed a counterclaim for a declaratory judgment that a part of the Georgia scheme for the regulation of alcoholic beverages, Ga. Code Ann. § 58-809, and the regulations promulgated thereunder, Reg. 560-8-7-.08(1) through (10), are unconstitutional. By order of December 15, 1978, the State Revenue Commissioner of Georgia, W. E. Strickland (hereinafter referred to as the "Commissioner"), was permitted to intervene to protect the state's interest in preserving its regulation of this industry. He is more correctly cast as a defendant on the counterclaim, since he does not seek any affirmative relief from the defendant, the plaintiff on the counterclaim. Presently pending is the motion of Julius Wile for judgment on the pleadings on its counterclaim, the Commissioner's motion for summary judgment on the counterclaim, and cross-motions for summary judgment.

Ga. Code Ann. § 58-809 states that: each shipper of wine into the state shall designate in the application for registration sales territories for each of its brands sold in Georgia, and shall name one licensed wholesaler in each territory who, within such territory, shall be the exclusive distributor of such brand within such territory. Such designations of wholesalers or wholesalers' territories shall be initially approved by the commissioner and shall not be changed nor initially disapproved except for cause and the commissioner shall determine cause after a hearing under regulations promulgated by the commissioner for such purposes.

Reg. 560-8-7-.08(5)(h) provides that:

Business reasons which may be considered by the State Revenue Commissioner in determining cause for authorizing a change of wholesalers or to change the territory of a designated wholesaler will include:
1. a wholesaler's bankruptcy or serious financial instability . . .,
2. a wholesaler's repeated violations of any provisions of federal or state law or regulations . . .,
3. a wholesaler's failure to maintain sales volume consistent with the sales volumes of other wholesalers of that brand, or a wholesaler's failure otherwise to promote the product effectively,
4. any other factors relevant to such proposed change and which aid the Commissioner in determining cause.

The following facts are undisputed. In August of 1976, North Coast filed with the Georgia Department of Revenue (hereinafter referred to as the "Revenue Department") a designation making Allstate its exclusive wholesaler for the state of Georgia. After North Coast and Julius Wile entered into an agreement granting Julius Wile certain distribution rights, Julius Wile filed, on May 12, 1977, an application to make Georgia Crown Distributing Co. its sole Georgia wholesaler. In a ruling issued on December 8, 1977 (hereinafter referred to as the "Revenue Ruling"), the Revenue Department construed the application as one for a change in the designation of an exclusive wholesaler for North Coast's wines, and determined that Julius Wile had not followed the proper procedures for effecting a change in wholesalers, as opposed to the designation of a new wholesaler. (Revenue Ruling, at 7-8). The Revenue Ruling nevertheless found that cause for terminating Allstate as North Coast's exclusive wholesaler had not been established under Reg. 560-8-7-.08(5)(h). (Revenue Ruling, at 8). The Revenue Department also considered and rejected Julius Wile's claims that the Georgia regulatory concept was unconstitutional. (Revenue Ruling, at 8-11). It permitted Allstate to remain as the exclusive wholesaler for North Coast until a change was approved by the Revenue Department, but refused to prohibit Julius Wile from shipping products other than North Coast wines into the state. (Revenue Ruling, at 12).

The plaintiff complains that the defendant failed to exhaust applicable state remedies before challenging the Georgia laws and regulations in federal court. This contention lacks merit. The Supreme Court of Georgia makes clear that the Commissioner's decision is the last step in the state administrative procedure and that the only remedy available to one aggrieved thereby is a resort to the state courts by way of a suit in equity. Blackmon v. Alexander, 233 Ga. 832, 213 S.E.2d 842 (1975). Of course, the fact that state courts are presumably open to the defendant is not a bar to federal court diversity jurisdiction. Therefore, even assuming arguendo that exhaustion of state administrative remedies would be required, see Ellison v. Califano, 546 F.2d 1162 (5th Cir. 1977); Litton Systems, Inc. v. Southwestern Bell Tel. Co., 539 F.2d 418, reh. den. 542 F.2d 1173 (5th Cir. 1976), the defendant has reached the end of its available state administrative trail.

Julius Wile first challenges the Georgia regulations as violative of the Sherman Antitrust Act, 15 U.S.C. §§ 1 et seq., and, thus, the Supremacy Clause of the U.S. Constitution, Art. VI, cl. 2. Because Julius Wile does not charge that Allstate is acting in violation of the federal antitrust laws, but rather attacks the regulatory program itself, the counterclaim is actually in the nature of a suit against state officials who supervise the distribution of alcoholic beverages. Indeed, as noted above, the Commissioner is more properly denominated a defendant on the counterclaim.

This distinction is crucial in an antitrust case. In a line of cases beginning with Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943) the Supreme Court has defined the parameters of the "state action" exemption to the federal antitrust laws. If the suit is against state officials individually for violating the antitrust laws in the administration of a certain state program, the Court has routinely held that the "state action" exemption applies. New Motor Vehicle Bd. of California v. Orrin W. Fox Co., 439 U.S. 96, 99 S.Ct. 403, 58 L.Ed.2d 361 (1978); Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 98 S.Ct. 2207, 2217-18, 57 L.Ed.2d 91 (1978); Bates v. State Bar of Arizona, 433 U.S. 350, 359-63, 97 S.Ct. 2691, 53 L.Ed.2d 810 (1977); see also, City of LaFayette v. Louisiana Power & Light Co., 435 U.S. 389, 98 S.Ct. 1123, 55 L.Ed.2d 364 (1978); cf. Cantor v. Detroit Edison Co., 428 U.S. 579, 96 S.Ct. 3110, 49 L.Ed.2d 1141 (1976); Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572 (1975); Schwegmann Bros. v. Calvert Distillers Corp., 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035 (1951). In Bates, after noting that the suit was against the state officials themselves, Bates, supra, 97 S.Ct. at 2697, the Court looked to two other factors to determine the "state action" exemption. First, the state's purpose in regulating the conduct in issue was examined. Quite naturally, it found that the state had a strong interest in regulating the practice of law. Id., at 2697-98. That concern is certainly no greater than the state's interest in regulating the distribution of alcoholic beverages, a task traditionally left to the states. U.S.Const., Art. XXI, § 2. Finally, the Court considered whether the activity in question was instigated by a private party and merely acquiesced in by the state or whether there was a clearly defined governmental policy actively pursued by the state. Bates, supra, at 2698. As described earlier, the Georgia regulations obviously fit that description. Moreover, that the state has a carefully designed program is evident in a comprehensive study, published by the Revenue Department in 1975, of the Georgia alcoholic beverage regulatory system, "An Inquiry Into Prices and Pricing Policies of Distilled Spirits and Malt Beverages in Georgia" (hereinafter referred to as the "Study").1 The Study pointed out that the system of "exclusive sales territories" had been in operation in Georgia since the legalization of alcoholic beverages following the repeal of prohibition. (Study, at 19). The primary purpose in developing the system was the desire to enforce Georgia's local option, which allows counties to remain "dry" if they so elect, by providing a means by which the diversion of alcoholic beverages from "wet" to "dry" counties could be traced. (Study, at 21). Other considerations were the prevention of monopolistic control by a few wholesalers and the exertion of undue economic pressure by producers. (Study, at 22). The Study concluded that the plan was sound and served to further its stated purpose (Study, at 49) while at the same time having "no significant effect upon the retail price of beverage alcohol." (Study, at 2).2

In sum, the Georgia regulations fall within the "state action" exemption to the Sherman Act and, hence, are not violative of that act or the Supremacy Clause.

Julius Wile also contends that the Georgia regulatory scheme violates the Commerce Clause. Citing the Twenty-first Amendment, the Supreme Court made it clear that, "a State is totally unconfined by traditional Commerce Clause limitations when it restricts the importation of intoxicants destined for use, distribution, or consumption within its borders." Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 330, 84 S.Ct....

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