Brown-Forman Distillers Corp. v. Olsen
| Decision Date | 01 June 1984 |
| Docket Number | BROWN-FORMAN |
| Citation | 676 S.W.2d 567 |
| Parties | DISTILLERS CORPORATION, Plaintiff-Appellant, v. Honorable Martha B. OLSEN, Commissioner of Revenue of the State of Tennessee; Honorable William M. Leech, Jr., Attorney General of the State of Tennessee; Beverage Control, Inc.; United Liquors Corporation of Chattanooga; Triple "C" Distributing Company, Defendants-Appellees. |
| Court | Tennessee Court of Appeals |
Joel M. Leeman, Gullett, Sanford & Robinson, Nashville, Morton Siegel, Siegel, Denberg, Vanasco, Shukovsky, Moses & Schoenstadt, Chicago, Ill., for plaintiff-appellant.
Charles L. Lewis, Asst. Atty. Gen., Nashville, for defendants-appellees Martha B. Olsen and William M. Leech, Jr.
John K. King, Morton, Lewis, King & Kries, Knoxville, for defendants-appellees Beverage Control, Inc. and Triple "C" Distributing Co.
J. Jerry Foster, Chattanooga, William Thomas McHugh, Tune, Entrekin & White, Nashville, for defendant-appellee United Liquors Corporation of Chattanooga.
This is a consolidation of three proceedings for judicial review of administrative decisions of the Tennessee Department of Revenue denying the petitions of the plaintiff for permission to transfer the distribution of certain brands of liquors from certain wholesalers to other wholesalers.
The three original applications were for the following transfers:
1. "Canadian Mist" and "Southern Comfort" from United Liquors Corporation to Athens Distributing Company.
2. "Southern Comfort" from Triple C Distributing Company to D. & V. Distributing Company.
3. "Canadian Mist" from Beverage Control, Inc., to D. & V. Distributing Company.
In addition to the request for permission for transfers, plaintiff requested a ruling of the department regarding the validity of the departmental regulation requiring permission of the department before transferring a brand from one distributor to another. The department ruled that the regulation was valid and denied permission for each of the intended transfers.
Upon appeal to the Chancery Court, the Chancellor affirmed; and plaintiff has appealed to this Court presenting issues for review as follows:
1. Statutory authority of Department
2. Constitutionality of Statute
3. Procedural Constitutionality of Regulation
4. Impairment of contract rights by Regulation
5. Conformity of present decision with Regulation and Administrative Procedures Act
The first four issues challenge the validity of Department of Revenue Rule No. 1320-4-6-.07 () which reads in pertinent part as follows:
(3) No manufacturer or importer shall be permitted to transfer a brand from one wholesale distributor to another without written approval of the Commissioner. Requests for approval of a transfer must at the same time be sent to the wholesale distributor in whose name the brand is then registered.
After due consideration, the Commissioner shall either approve or disapprove the transfer. If the Commissioner disapproves the transfer, the brand shall remain in status quo. After any such disapproval, failure on the part of any manufacturer or importer to ship his wholesaler a reasonable amount of the brand sought to be transferred will result in such manufacturer or importer not being allowed to register or distribute in this state any brand(s) manufactured or imported by him and will cause any containers of such brands in this state to be subject to confiscation as provided above.
(a) Approval for transfers of brands shall be given by the Commissioner only if it is found by him that the transfer is being proposed in good faith and for good cause and for no other reason.
(1) "Good Faith" shall mean the duty of the manufacturer or importer and a Tennessee wholesaler and all officers, employees or agents thereof to act in a fair and equitable manner toward each other.
(2) "Good Cause" shall include:
(i) Failure of a wholesaler to substantially comply with the provisions of a contract or understanding with a manufacturer or importer, which provisions are both essential and reasonable or use of bad faith on the part of a wholesaler in carrying out the terms of a contract or understanding.
(3) "Good Cause" shall not include failure or refusal, on the part of the wholesaler, to engage in any trade practices, conduct or activity which may result in a violation of any state or federal law or regulation.
Appellant first insists that the Department of Revenue has no authority to adopt Rule 7.
The interpretation of the statute relied upon by the Department requires a consideration of the history of the regulation of sale of alcoholic beverages in Tennessee since the repeal of the 18th Amendment of the United States Constitution, effective December 5, 1933, at which time the Federal Government yielded to the states full governmental power to prohibit or regulate intoxicating liquors.
By chapter 49 of the Public Acts of 1939, the Tennessee General Assembly legalized the sale of alcoholic beverages in counties where its sale should be approved in "Local Option Elections". The same statute provided:
The Commissioner [ *of Finance and Taxation] shall have and exercise the following functions, duties and powers, to-wit:
(b) To make, promulgate, alter, amend or repeal rules and regulations for the enforcement of this act or the collection of all license fees and taxes, and all penalties and forfeitures relating thereto.
Thereafter the Commissioner of Finance and Taxation (predecessor of the present Commissioner of Revenue) promulgated a regulation as follows:
From and after the effective date of this regulation no wholesale liquor distributor shall add an additional brand to his stock without first securing a written approval of the Commissioner.
By chapter 257, of the 1963 Public Acts of Tennessee, the General Assembly created the Alcoholic Beverage Commission (A.B.C.). Section 14 of said statute, now codified as TCA § 57-1-209, provided:
Rules and regulations.--The commission is hereby authorized to adopt and promulgate the present rules and regulations which are in existence pertaining to alcoholic beverages, and said commission may in its discretion alter, amend or repeal any of such parts of said rules and regulations as it deems necessary.
On November 20, 1964, the A.B.C. promulgated Rule No. 0100-3-.13(7) as follows:
No manufacturer, importer, or other person shall be permitted to transfer a brand from one wholesale distributor to another without written approval of the Commission. Requests for approval of a transfer must be submitted in writing and a copy of said request must at the same time be sent to the wholesale distributor in whose name the brand is then registered.
After due consideration, the Commission shall either approve or disapprove the transfer.
By Chapter 341 Section 1, Public Acts of 1979, the General Assembly enacted TCA § 57-3-301, which reads in pertinent part as follows:
Brand registration--Tax--Sale of brands of alcoholic beverages to wholesalers pursuant to contract.--(a) As used in this section "brand" means:
(1) Each and every distilled spirits or wine product bearing a distinct "brand name" or "trade name" as those terms are defined and used in the regulations regarding labeling of wines and distilled spirits promulgated by the federal bureau of alcohol, tobacco and firearms shall be considered a separate "brand" for purposes of this section.
(b)(1) There is imposed a tax of two hundred fifty dollars ($250) per annum upon each brand of alcohol beverages sold in this state, for which actual wholesale sales during the twelve (12) months immediately preceding May 22, 1979, were fifty (50) cases or more.
(2) There is imposed a tax of one hundred dollars ($100) per annum upon each brand of alcohol beverages sold in this state for which actual wholesale sales during the twelve (12) months immediately preceding May 22, 1979, were less than fifty (50) cases.
(c) No manufacturer, importer or representative shall introduce into this state any brand of alcohol beverages until such tax has been paid to the department of revenue.
(d) No wholesaler shall give an order, receive, accept or offer for sale any brand of alcohol beverages until the annual tax has been paid to the department of revenue.
(e)(1) No brand may be introduced into the state except pursuant to written contract to sell such brand in this state between the manufacturer or importer of such brand and the Tennessee wholesaler who is to sell such brand in this state. Every contract shall contain the specified area in which such wholesaler may sell such brand in any specified area. No such contract shall be for a period exceeding one (1) year unless renewed by written agreement of the parties;
(2) If any party to a contract described in subsection (e)(1) hereof fails to comply with any provision of said contract, an aggrieved party may bring an action in the circuit or chancery courts of this state;
(3) No contract shall include the entire state of Tennessee as the specified area in which such wholesaler will sell any brand. Each contract shall provide that when any location within a specified area becomes ineligible for the premises of a holder of a wholesale license as provided by law, the contract shall terminate and the manufacturer or importer shall reconsider the limits of all specified areas which include such new location.
(f) The department of revenue is authorized to promulgate rules and regulations relative to the brand registration provisions of this section.
[Acts 1979, ch. 341, § 1; T.C.A., § 57-130.]
Thereafter the Commissioner of Revenue promulgated Rule 7, quoted above.
Appellant concedes that the validity of the predecessor of Rule 7, Rule No. 0100-3-.13(7) of the A.B.C., has been upheld in Seagram Distillers Co. v. Jones, Tenn.App. 1976, 548 S.W.2d 667; cert. denied by...
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