Barco Beverage Corp. v. Indiana Alcoholic Beverage Com'n

• Decision Date: 11 December 1990
• Docket Number: No. 49A02-8809-CV-343,49A02-8809-CV-343
• Citation: 563 N.E.2d 658
• Parties: BARCO BEVERAGE CORPORATION, et al., Appellants (Plaintiffs), v. INDIANA ALCOHOLIC BEVERAGE COMMISSION, et al., Appellees (Defendants).
• Court: Indiana Appellate Court

Page 658

563 N.E.2d 658

BARCO BEVERAGE CORPORATION, et al., Appellants (Plaintiffs), v. INDIANA ALCOHOLIC BEVERAGE COMMISSION, et al., Appellees (Defendants).

No. 49A02-8809-CV-343.

Court of Appeals of Indiana,

Second District.

Dec. 11, 1990.

Phillip A. Terry, Brian K. Peters, McHale, Cook & Welch, P.C., Indianapolis, for appellants.

Linley E. Pearson, Atty. Gen., Frank A. Baldwin, Deputy Atty. Gen., Office of Atty. Gen., Indianapolis, for Indiana Alcoholic Beverage Comm.

Philip J. Ripani, David J. Bodle, Henderson, Daily, Withrow & Devoe, Indianapolis, for Indiana Liquor Stores Ass'n, Inc.; Indiana Retail Council, Inc.; Beermart, Inc.; Beerco, Inc. and Kebe Enterprises, Inc.

BUCHANAN, Judge.

CASE SUMMARY

Plaintiffs-appellants Barco Beverage Corporation, DeKalb Distributing and Lincoln Hills Beverage (hereinafter collectively referred to as Barco) appeal from a judgment in favor of the Indiana Alcoholic Beverage Commission (Commission), claiming the trial court erred when it determined the Commission had not exceeded its statutory authority when it promulgated a rule prohibiting territorial restraints on the sale of alcohol.

We affirm in part and reverse in part.

FACTS

The facts most favorable to the trial court's judgment reveal that Barco, representing the interests of wholesalers of alcoholic beverages, brought suit against the Commission on August 10, 1987, to determine the validity of 905 I.A.C. 1-28-1(3) (Rule 28), adopted in 1979, which provides in pertinent part "It shall be unlawful for any person engaged in business as a distiller, brewer, rectifier, vintner, or other producer, importer, or as a wholesaler of liquor, wine, beer or malt beverages, directly or indirectly, or through an affiliate to:

. . . . .

(3) Product Distribution--Restrict by agreement or otherwise, the sale or resale of liquor, wine, beer or malt beverages to a given geographical area or to permittees, who are otherwise entitled to buy, within a given geographical area. This section shall not be deemed to prohibit the designation of an 'area of primary responsibility', however, efforts to restrict sales to only the designated area of primary responsibility are deemed to be prohibited."

(Emphasis supplied.)

The trial court allowed several trade associations and alcoholic beverage retailers (Intervenors) to intervene in the action as defendants.

The trial court rendered its judgment on the parties' cross-motions for summary judgment. All parties agreed there was no genuine issue of material fact, and that only a question of law was to be decided. On July 13, 1988, the trial court entered its judgment and determined that the Commission did not exceed its authority when it promulgated Rule 28.

ISSUE

Whether the Commission had authority to promulgate and

enforce Rule 28? ¹

DECISION

PARTIES' CONTENTIONS--Barco argues that the Commission usurped the General Assembly's constitutional role as legislator when it promulgated Rule 28. It asserts that the Commission determined public policy, for which it had no guidance from the General Assembly, when it issued Rule 28, and therefore, under traditional separation of powers doctrine, Rule 28 is unconstitutional.

The Commission and the Intervenors respond that the statutory scheme which authorized the Commission to regulate the alcoholic beverage industry contains sufficient standards to guide the Commission in the promulgation of its rules. The Commission and the Intervenors also claim that the statutory scheme contains explicit policy principles which authorize the making of Rule 28.

CONCLUSION--The Commission possessed the authority to promulgate Rule 28 as it relates to brewers, vintners and beer and wine wholesalers, but it exceeded its authority when it included distillers, rectifiers and liquor wholesalers in the rule.

The question we must decide, which has never before been considered by an Indiana court, is whether Rule 28 is within the scope of Title 7.1 of the Indiana Code. Rule 28, in pertinent part, provides that it shall be unlawful for beer, wine and liquor producers and wholesalers to restrict the sale of alcoholic beverages to given geographic areas. Essentially, what the rule seeks to do is to maintain geographically open markets between the wholesalers and retailers of alcoholic beverages.

Historically, the issue of territorial limitations has received a great deal of attention from the legislature and the courts. In the first statute regulating the alcoholic beverage industry in Indiana after the passage of the Twenty-first amendment to the United States Constitution in 1933, wholesalers were limited in number and restricted geographically to selling alcoholic beverages only in specific areas, usually counties. 1933 Ind.Acts, Ch. 80, Sec. 6, p. 492. The quotas and territorial limitations were repeated when the legislature created the first Indiana Alcoholic Beverage Commission in 1935. 1935 Ind. Acts, Ch. 226, Sec. 5, p. 1064.

In 1939 the legislature abandoned the quota system and no longer limited wholesalers to selling in a specific territory. 1939 Ind.Acts, Ch. 29, Sec. 2, p. 86. Producers and wholesalers, however, executed agreements which gave some wholesalers exclusive distribution rights in certain geographic territories. In 1965, the legislature again adopted a quota system limiting the number of wholesalers in the state. 1965 Ind.Acts, Ch. 255, Sec. 1, p. 639.

In 1967, the United States Supreme Court addressed the question of vertical restraints in United States v. Arnold, Schwinn & Company (1967), 388 U.S. 365, 87 S.Ct. 1856, 18 L.Ed.2d 1249. The Court concluded that the vertical restraint of geographic territorial limitations among producers and distributors was per se illegal under the Sherman Anti-trust Act, 15 U.S.C. Sec. 1 et seq. After Schwinn, the exclusive franchise agreements between alcoholic beverage producers and wholesalers became unenforceable.

In 1973, the General Assembly enacted Title 7.1 to regulate and limit the manufacture, sale, possession, and use of alcohol; to protect the economic welfare, health, peace and morals of the people; and to provide for the raising of revenue. Ind.Code 7.1-1-1-1 (1988). The current Commission was established to administer the Title and was given the power to promulgate rules and regulations. Ind.Code 7.1-2-1-1; IC 7.1-2-3-2, 7.

Title 7.1 contains five articles which encompass 50 separate chapters regulating, sometimes in great detail, almost all aspects of the production, distribution, and sale of alcoholic beverages. This rather elaborate statutory scheme specifically delineates its regulation of the alcohol industry by distinguishing between brewers (producers of beer), vintners (producers of wine), and distillers and rectifiers (producers and purifiers of liquor). The statutory scheme consistently maintains this distinction between beer, wine and liquor throughout its treatment of the wholesaling and retailing of alcoholic beverages.

After Title 7.1 had been enacted, some wholesalers began a practice of offering price discounts to retailers who purchased alcoholic beverages from wholesaler's docks. Retail hauling and transshipping fostered competition between wholesalers for those retailers who chose to bear the cost of transporting alcoholic beverages from the wholesalers. These practices generated efforts by the wholesalers to amend Title 7.1 to allow territorial limitations.

Efforts had been made in the Indiana General Assembly as early as 1974 to produce legislation which would allow wholesalers to designate exclusive territories for the distribution of all types of alcoholic beverages (the so-called "Beer Baron Bills"). The efforts continued after the Commission promulgated Rule 28 and the most recent attempt was vetoed by Governor Bayh in May of 1989.

In 1977, the United States Supreme Court overruled the Schwinn decision in Continental T.V., Inc. v. GTE Sylvania, Inc. (1977), 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568. The Court determined vertical territorial restraints were not per se illegal, but decided, rather, the question of whether a particular restraint was illegal would be determined using the "rule of reason" standard as enunciated in White Motor Co. v. United States (1963), 372 U.S. 253, 83 S.Ct. 696, 9 L.Ed.2d 738, and Northern Pac. R. Co. v. United States (1958), 356 U.S. 1, 78 S.Ct. 514, 2 L.Ed.2d 545.

Rule 28 became effective March 16, 1979, prohibiting vertical territorial restraints in the alcoholic beverage industry. The specific question we consider is whether Rule 28 advances a public policy articulated in Title 7.1 or whether it is in an improper usurpation of the legislature's role as the architect of public policy. ² To begin our inquiry, we first look to the pertinent statutes.

Ind.Code 7.1-3-3-5(b) provides, in pertinent part:

"(b) A beer wholesaler permittee may possess, transport, sell, and deliver beer to:

(1) another beer wholesaler authorized by the brewer to sell the brand purchased;

(2) a consumer; or

(3) a holder of a beer retailer's permit, beer dealer's permit, temporary beer permit, dining car permit, boat permit, airplane permit, supplemental caterer's permit, or supplemental retailer's permit;

located within this state...."

(Emphasis supplied). This statute allows a beer wholesaler to sell to any customer within the state.

Another pertinent statute is IC 7.1-3-13-3(a):

"The holder of a wine wholesaler's permit may purchase, import, and transport wine and brandy from the primary source of supply. He may export and transport wine and brandy, by the bottle, barrel, cask, or other container, to points outside this state. He is entitled to sell, furnish, and deliver wine from inventory that has been located on the wholesaler's premises before the time of invoicing and delivery to a wine wholesaler, a wine retailer, a supplemental caterer, a temporary wine permittee, a supplemental retailer, and a wine dealer, but not at retail. He...