Brown-Forman Distillers Corp. v. State Liquor Authority

Decision Date08 March 1984
Docket NumberBROWN-FORMAN
Citation100 A.D.2d 55,473 N.Y.S.2d 420
PartiesIn the Matter of the Application ofDISTILLERS CORPORATION, Petitioner, for an order pursuant to Article 78 of the Civil Practice Law and Rules, v. STATE LIQUOR AUTHORITY, Respondent.
CourtNew York Supreme Court — Appellate Division

Macdonald Flinn, New York City, of counsel (William B. Schreiber and Margery A. Colloff, New York City, with him on brief; White & Case and Schreiber & MacKnight, New York City attorneys), for petitioner.

August L. Fietkau, New York City, of counsel (Melvyn R. Leventhal and Richard G. Liskov, Asst. Attys. Gen., New York City, with him on brief; Robert Abrams, Atty. Gen., New York City, attorneys), for respondent.

Before KUPFERMAN, J.P., and CARRO, ASCH, BLOOM and ALEXANDER, JJ.

ASCH, Justice.

Petitioner Brown-Forman Distillers Corporation produces and imports distilled spirits and sells them to independent wholesalers in more than 30 states including New York. On May 22, 1981, the State Liquor Authority served Brown-Forman with a Statement of Charges alleging that it had violated the Alcoholic Beverage Control Law § 101-b(3)(d) by selling distilled spirits to wholesalers in New York at prices higher than the prices charged wholesalers in other states. Brown-Forman had filed affirmations stating that its prices were no higher in New York than elsewhere in the United States. The charges alleged that Brown-Forman had made payments to wholesale purchasers in other states which effectively caused the price of petitioner's products to New York wholesalers to be higher than in those other states.

In the determination and findings adopted by the Authority on February 5, 1982, it was concluded that petitioner violated the New York affirmation law, ABCL § 101-b(3)(d), by making payments to wholesale purchasers in other states. The penalty imposed by the respondent Authority was a 10-day license suspension and a forfeiture of bond in the amount of $20,000 on each of petitioner's two licenses. The license suspension was deferred subject to imposition within a year should the Authority determine that petitioner failed to take "practical precautions to assure ... proper conduct."

Petitioner then commenced this Article 78 proceeding in Supreme Court, New York County, which was transferred to this Court for initial determination pursuant to CPLR 7804(g). It asserts that respondent Authority's determination is unsupported by any evidence and that hence it contravenes the substantial evidence requirement of CPLR § 7803(4). In addition, the petitioner claims that the New York affirmation statute, as thus applied, burdens interstate commerce, in violation of the United States Constitution. These contentions are, without merit.

The Moreland Commission appointed by the Governor in 1963 to study the sale and distribution of alcoholic beverages in New York found that New York consumers were victims of gross price discrimination on the part of the liquor industry (Moreland Commission Report No. 3 at p. 3-7). As a result, the Governor proposed legislation to end the liquor industry's discrimination against its New York customers. The Legislature enacted L.1964, Ch. 531, which sought to reduce consumer prices in New York. Section 9 of that statute, the affirmation provision, provided that in addition to filing a schedule of its prices to wholesalers, the distiller must file an affirmation that the scheduled price of each of its products is no higher than the lowest price at which the product was sold anywhere during the month immediately preceding the month in which the schedule was filed.

Thus, to engage in business in New York a distiller or wholesaler has to affirm that the price of each of its products is as low as the lowest price in the country during the preceding month. This affirmation provision was challenged on the grounds, inter alia, that it constituted an exercise of power not authorized by the 21st Amendment and violated the commerce clause. However, the statute was adjudged "to be, in all respects, constitutional and valid" (Joseph E. Seagram & Sons, Inc. v. Hostetter, 45 Misc.2d 956, 258 N.Y.S.2d 442, aff'd, 23 A.D.2d 933, 259 N.Y.S.2d 644, aff'd, 16 N.Y.2d 47, 262 N.Y.S.2d 75, 209 N.E.2d 701, aff'd, 384 U.S. 35, 86 S.Ct. 1254, 16 L.Ed.2d 336, reh. denied, 384 U.S. 967, 86 S.Ct. 1583, 16 L.Ed.2d 679).

Although the constitutionality of the affirmation provisions of § 101-b was upheld in Seagram, implementation of the law as originally enacted involved a number of problems. Consequently, in 1967 the Legislature amended the affirmation law to require distillers to affirm their New York prices to be no higher than their current prices elsewhere (ABC Law § 101-b[3][d] ). The present affirmation law provides that in addition to filing a schedule setting forth a description of each product and its price, the distiller must affirm that "the bottle and case price of liquor to wholesalers set forth in such schedule is no higher than the lowest price at which such item of liquor will be sold by such brand owner ... to any wholesaler anywhere in any other state of the United States or in the District of Columbia ... at any time during the calendar month for which such schedule shall be in effect" (ABC Law § 101-b[3][d] ).

To avoid the loophole of a distiller affirming that a given product was to be sold nationwide at a set price and then providing substantial discounts in the form of cash credit or free goods to purchasers in another state (which would result in the New York price being higher than the lowest real price elsewhere notwithstanding technical compliance with the affirmation law), the Legislature provided that in determining the lowest price elsewhere, "appropriate reductions shall be made to reflect all discounts" in excess of those listed on the New York schedule and shall reflect "all rebates, free goods, allowances and other inducements of any kind whatsoever offered or given to any" purchasing wholesaler in the nation (ABC Law § 101-b[3][g] ).

Accordingly, the affirmation law mandates equality not in the nominal list prices but in the real prices to the wholesalers. The distillers remain free to grant discounts, rebates, allowances, free goods, or other inducements to purchasers outside New York, so long as these payments are taken into account by the distiller in setting its New York affirmation price. As was true under the prior affirmation law, distillers are free to set their prices at any level so long as the New York price is no higher than the lowest real price elsewhere.

The determination by the hearing officer is supported by substantial evidence in the record. Under petitioner's program certain selected wholesalers in the various states have been provided a "lump sum" allowance, payable quarterly. This allowance, which is determined on an annual basis before the beginning of petitioner's fiscal year, is based initially upon budget requests from its various "state managers." Each state manager recommends a total dollar figure for that state on a per case basis. Petitioner asserts that its program involves a "no strings" allowance in that the wholesaler is not required to reduce his prices. It conceded, however, it employs independent market research firms to determine what promotional activities are employed by the recipients of the allowance. Petitioner also admitted that, while an allowance is effective without change for one fiscal year, the findings of the market researchers and petitioner's own determination as to how the allowance has been used are considered in deciding whether to discontinue or reduce the following year's allowance to a given wholesaler. In addition, while petitioner argues that its program should not be considered a price rebate or discount because the wholesalers are not informed of the per brand, per case breakdown of his lump sum allowance, it is uncontroverted that the lump sum is calculated by assigning each unit of each of petitioner's products in a given market area a dollar figure. Petitioner projects each wholesaler's annual volume of sales of each product. The allowance is finally determined by multiplying the dollar figure by the wholesaler's projected sales. The aggregate allowance is determined by adding the sum arrived at for each of petitioner's products that is stocked by the wholesaler.

Thus, petitioner's program, which is not reflected in its price schedules filed with the SLA, effectively reduces the actual liquor prices it charges in other states below the prices that it charges New York wholesalers. Petitioner is aware of or can determine the discount offered each wholesaler on a per item basis. Petitioner can also determine which is the largest discount offered for a particular item and is also in a position to use that discounted price to comply with the affirmation requirements of ABC Law § 101-b(3). Thus, there was more than a rational basis upon which the hearing officer could determine that petitioner's allowance program constituted the "rebates, free goods, allowances and other inducements of any kind whatsoever" proscribed by ABC Law § 101-b(3). Petitioner failed in filing its New York affirmation under the terms of ABC Law § 101-b(3)(g) to take into account the allowance granted under its allowance program. In so doing it was properly found to be in violation of ABC Law § 101-b(3).

The sole constitutional issue before this Court is whether the affirmation provision of ABC Law § 101-b(3) in its application to the petitioner's allowance program imposes an unreasonable burden on interstate commerce, in violation of the commerce clause of the United States Constitution. There is a strong presumption of statutory constitutionality (Montgomery v. Daniels, 38 N.Y.2d 41, 378 N.Y.S.2d 1, 340 N.E.2d 444). Moreover, when competing state and federal interests are balanced, the 21st Amendment to the United States...

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4 cases
  • Brown-Forman Distillers Corp. v. State Liquor Authority
    • United States
    • New York Court of Appeals Court of Appeals
    • April 2, 1985
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