Brown-Forman Distillers Corp. v. State Liquor Authority

• Decision Date: 02 April 1985
• Docket Number: BROWN-FORMAN
• Citation: 479 N.E.2d 764,490 N.Y.S.2d 128,64 N.Y.2d 479
• Parties: , 479 N.E.2d 764 In the Matter ofDISTILLERS CORPORATION, Appellant, v. STATE LIQUOR AUTHORITY, Respondent.
• Court: New York Court of Appeals Court of Appeals

Page 128

490 N.Y.S.2d 128

64 N.Y.2d 479, 479 N.E.2d 764

In the Matter of BROWN-FORMAN DISTILLERS CORPORATION, Appellant, v. STATE LIQUOR AUTHORITY, Respondent.

Court of Appeals of New York.

April 2, 1985.

Macdonald Flinn, William B. Schreiber and Margery A. Colloff, New York City, for appellant.

Robert Abrams, Atty. Gen., New York City (August L. Fietkau, Peter H. Schiff, Frederick K. Mehlman and Richard G. Liskov, New York City, of counsel), for respondent.

OPINION OF THE COURT

KAYE, Justice.

Appellant, Brown-Forman Distillers Corporation, on this appeal challenges both the State Liquor Authority's determination that it violated the lowest-price affirmation provisions of the Alcoholic Beverage Control Law, by failing to take into account promotional allowances given to wholesalers outside New York, and the constitutionality of the statute. We hold that the determination of the Authority was supported by substantial evidence and that the questioned provisions of the Alcoholic Beverage Control Law do not violate the Commerce Clause of the United States Constitution.

I

Alcoholic Beverage Control Law § 101-b prohibiting unlawful discriminations, requires every distiller selling liquor in New York to file monthly with the Authority a schedule specifying the brand or trade name of each item, its container capacity, contents, age, proof, number of bottles per case, and bottle and case price to wholesalers (Alcoholic Beverage Control Law § 101-b[3][a] ). With the schedule, the distiller must file an affirmation stating that the listed bottle and case prices will be "no higher than the lowest price at which such item of liquor will be sold * * * to any wholesaler anywhere in * * * the United States * * * at any time during the calendar month for which such schedule shall be in effect" (Alcoholic Beverage Control Law § 101-b[3][d] ). Appropriate deductions must be made from the scheduled and affirmed prices "to reflect * * * all rebates, free goods, allowances and other inducements of any kind whatsoever" given directly or indirectly outside New York (Alcoholic Beverage Control Law § 101-b[3][g] ). The affirmation provisions have their genesis in a Moreland Commission report demonstrating that New York consumers were grossly discriminated against in liquor prices for national brands (see, Moreland Commission Report No. 3, at 3-7). The requirement that all discounts be taken into account, itself originating as a response to disorderly and discriminatory pricing practices (see, L.1942, ch. 899), is designed to assure that the affirmed price is the true price.

With the approval of the Bureau of Alcohol, Tobacco and Firearms, in all States in which it sells liquor except New York, appellant conducts a promotional program for its wholesalers. In New York the program is precluded by Alcoholic Beverage Control Law § 101-b(2)(b), which permits only specified discounts. To encourage wholesalers to promote its brands, appellant provides lump-sum credits which are calculated annually and fixed for the year, based on the wholesaler's volume of past purchases and its sales projections for the coming year. The allowance to each wholesaler is computed on a per-case dollar figure, but since sales projections are used the figure does not necessarily correlate with the actual per-item discount. The allowance may be applied as the wholesalers see fit, although they are expected to discount their prices to retailers and in fact, as appellant stipulated, "the allowances have been used for price reductions or discounts to retail accounts on particular Brown-Forman brands or container sizes." While there are "no strings attached" for the wholesaler in its use of the credits, appellant is without obligation to continue providing them, and may terminate the promotional program as to any wholesaler at any time. Appellant conducts market studies to determine how wholesalers are using the credits, and considers how the credits are being used when fixing allowances for the following year. A wholesaler who does not use the allowance to promote Brown-Forman brands thus runs the risk of losing it for future years.

Approximately 20 States have enacted affirmation statutes patterned after New York's statute. Even where discounts must be reported, no other State has required appellant to lower its affirmation price by virtue of the promotional allowances.

The Authority, on stipulated facts, determined that the promotional credits were payments of the kind required by New York law to be taken into account in the affirmed price schedules (see, Alcoholic Beverage Control Law § 101-b[3][g] ), and that appellant's failure to reflect the credits on its schedules rendered the accompanying affirmations false. Appellant commenced this article 78 proceeding to challenge that determination as well as the constitutionality of the affirmation statute. Special Term transferred the proceeding to the Appellate Division, which, with one Justice dissenting, confirmed the determination of the Authority, upheld the statute, and dismissed the petition. 100 A.D.2d 55, 473 N.Y.S.2d 420. We now affirm.

II

Characterizing the allowances simply as costs incurred indirectly to promote its product line, appellant contends that there is no rational basis for the Authority's determination that the annual "no strings" promotional allowances are "rebates, free goods, allowances and other inducements of any kind whatsoever" (Alcoholic Beverage Control Law § 101-b[3][g] ), and that its failure to reflect the allowances on its affirmed price schedules did not constitute a violation of statute. According to appellant, the lump-sum allowances cannot be considered discounts because they are based in part on projections and do not correspond with actual quantities of product sold to wholesalers, rendering it impossible for precise per-item deductions to be made on the filed schedules.

The evidence considered by the Authority supported its conclusion that the allowances in practical application reduce the prices appellant charges wholesalers. Continued availability of the allowances is keyed to a wholesaler's purchases and its actual use of the credits. Appellant's wholesalers are expected to discount their prices, and in fact do so. The allowances are calculated on a per-case dollar figure. While that figure may not in fact correspond precisely to per-item discounts based on actual sales, projections are fixed by appellant with the wholesaler, based on experience and other factors, the obvious purpose being to make them accurate. Any real or apparent problem in ascertaining the precise per-item discount for purposes of the lowest-price affirmation is a difficulty built into the design of the program by appellant itself and cannot weigh in its favor. To hold otherwise would be to permit appellant to circumvent the affirmation provisions of the Alcoholic Beverage Control Law, when the program in effect reduces prices to wholesalers in other States.

The determination of the Authority that appellant's allowance is the functional equivalent of a discount and must be taken into account in the affirmation schedules is supported by substantial evidence, and therefore is sustained (see, 300 Gramatan Ave. Assoc. v. State Div. of Human Rights, 45 N.Y.2d 176, 181, 408 N.Y.S.2d 54, 379 N.E.2d 1183).

III

Appellant next contends that the statutory requirement that distillers affirm that they will not sell liquor to wholesalers in the State at a higher price than that at which the same item is being sold anywhere else in the Nation contravenes the Commerce Clause of the Federal Constitution (U.S. Const., art. I, § 8). Preliminarily, we note that legislative enactments are presumptively constitutional (see, Montgomery v. Daniels, 38 N.Y.2d 41, 54-56, 378 N.Y.S.2d 1, 340 N.E.2d 444; Matter of Malpica-Orsini, 36 N.Y.2d 568, 570, 370 N.Y.S.2d 511, 331 N.E.2d 486, appeal dismissed sub nom. Orsini v. Blasi, 423 U.S. 1042, 96 S.Ct. 765, 46 L.Ed.2d 631). To overcome the presumption, the party alleging unconstitutionality must demonstrate the existence of the infirmity beyond a reasonable doubt (see, Hotel Dorset Co. v. Trust for Cultural Resources, 46 N.Y.2d 358, 370, 413 N.Y.S.2d 357, 385 N.E.2d 1284). That presumption gains added force when coupled with the 21st Amendment to the US Constitution which made control over alcoholic beverage trafficking a matter of policy judgment for the State Legislature (see, New York State Liq. Auth. v. Bellanca, 452 U.S. 714, 718, 101 S.Ct. 2599, 2601, 69 L.Ed.2d 357; see generally, Note, The Effect of the Twenty-First Amendment on State Authority to Control Intoxicating Liquors, 75 Colum.L.Rev. 1578; Comment, State Liquor Affirmation Practices: Constitutional and Antitrust Problems, 77 Dick L.Rev. 643, 660-67). The declared policy of New York State is that it is necessary to regulate and control the manufacture, sale and distribution of alcoholic beverages (see, Alcoholic Beverage Control Law §§ 2, 101-b). and the challenged provisions implement that legislative determination.

Appellant contends that Alcoholic Beverage Control Law § 101-b(3) constitutes an impermissible interference with interstate commerce because in a given month it restricts distillers' freedom to lower their wholesale prices in any State once the per-item price has been established for New York. Appellant argues that the first case involving a challenge to the New York affirmation statute in any form, Seagram & Sons v. Hostetter, 16 N.Y.2d 47, 262 N.Y.S.2d 75, 209 N.E.2d 701, affd. 384 U.S. 35, 86 S.Ct. 1254, 16 L.Ed.2d 336,--which upheld its constitutionality--is distinguishable. Seagram was decided at a time when the affirmation requirement related to prices at which liquor items were sold in the month immediately preceding the month to which the schedule applied (see L.1967, ch. 798, § 2). The current statute, relating as it does to future prices, has the effect, according to appell...