California Beer Wholesalers Assn., Inc. v. Alcoholic Bev. etc. Appeals Bd.

• Decision Date: 11 August 1971
• Citation: 487 P.2d 745,5 Cal.3d 402,96 Cal.Rptr. 297
• Court: California Supreme Court
• Parties: , 487 P.2d 745 CALIFORNIA BEER WHOLESALERS ASSOCIATION, Inc., et al., Petitioners, v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD, Respondent; THRIFTIMART, INC., Real Party in Interest. Edward J. KIRBY, as Director, etc., Petitioner, v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD, Respondent; THRIFTIMART, INC., Real Party in Interest. L.A. 29858, 29859.

Page 297

96 Cal.Rptr. 297

5 Cal.3d 402, 487 P.2d 745

CALIFORNIA BEER WHOLESALERS ASSOCIATION, Inc., et al., Petitioners, v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD, Respondent;

THRIFTIMART, INC., Real Party in Interest.

Edward J. KIRBY, as Director, etc., Petitioner, v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD, Respondent;

THRIFTIMART, INC., Real Party in Interest.

L.A. 29858, 29859.

Supreme Court of California In Bank.

Aug. 11, 1971.

Rehearing Denied Sept. 8, 1971.

Thomas C. Lynch and Evelle J. Younger, Attys. Gen., David W. Halpin, Deputy Atty. Gen., and Albert G. Evans, San Francisco, for petitioners.

Leo K. Gallant, Loomis, for respondent.

Steck & Marston and Emil Steck, Jr., Pasadena, for real party in interest.

TOBRINER, Justice.

In these consolidated cases petitioners seek review of an order by the Alcholic Beverage Control Appeals Board granting a wholesale beer and wine license to a retailer of alcoholic beverages. We decide here that section 25502 of the Business and Professions Code, which forbids a beer and wine wholesaler from holding an off-sale retail license, necessarily prohibits the holder of an off-sale retail license from obtaining a beer and wine wholesale license. Once the retailer of alcoholic beverages acquires a wholesale beer and wine license, that retailer automatically 'holds' the wholesale license; he is accordingly a beer and wine wholesaler 'holding' a retail liquor license, and this integration of licenses is specifically forbidden by section 25502. To rule otherwise would be to create the anomolous situation that the right to hold both licenses would depend upon the fortuity of the order in which a party applied for them. But the error of such an incongruous result would go deeper; it would violate the legislative design of segregating wholesale from retail interests; it would permit, rather than prevent, the merging of the marketing functions and powers that the Legislature meant to keep separate.

1. The facts.

Thriftimart, Inc. (real party in interest) is a corporation consisting of two divisions managed and controlled by the same officers and board of directors. The retail division, Thriftimart, operates 77 retail grocery store outlets. Thriftimart, Inc., holds 73 off-sale general licenses authorizing the sale of packaged alcoholic beverages at 73 of these 77 retail outlets. ¹ The wholesale division, Smart and Final Iris Company, operates a wholesale grocery warehouse and 85 cash and carry wholesale grocery outlets serving primarily institutional buyers and small retail grocers.

In early 1969, Thriftimart, Inc., applied for a beer and wine wholesaler's license for its wholesale division, Smart and Final Iris Company. California Beer Wholesalers Association, Inc., Pasadena Beverage Company, and California Retail Liquor Dealers Institute, filed protests against Thriftimart's application.

On August 18, 1969, the Department of Alcoholic Beverage Control (hereinafter department) conducted a hearing on the application of Thrifitmart, Inc. At the conclusion of the proceeding the hearing officer sustained the protests, recommending that the license application be denied. The hearing officer concluded that although Thriftimart, Inc., did not intent to purchase beer and wine from its wholesale division for resale by its own retail division in violation of Business and Professions Code section 23779, ² nevertheless a single firm could not hold both an off-sale retail license and a wholesale liquor license.

On November 7, 1969, the department adopted the hearing officer's proposed decision, stating, 'If Thriftimart, Inc., obtained a beer and wine wholesaler's license it would be a wholesaler holding the ownership directly of 73 off-sale general licenses * * *. The granting of the petition would create a tied house relationship in violation of section 25502 of the Business and Professions Code * * * ³ (and) * * * would be contrary to the public welfare and morals.'

Thriftimart, Inc., appealed the department's decision to the Alcoholic Beverage Control Appeals Board (hereinafter board). The board reversed the department upon the ground that section 25502 'has no application to the facts here presented since that statute relates to an entirely different set of circumstances.' The board reasoned: 'To permit appellant the actual bona fide use of the wholesaler's license would not constitute a wrong or a violation of any statutory prohibition. * * * In this respect the instant case is readily distinguishable from Louis Stores and Borun Brothers. ⁴ * * * Thriftimart stores will not purchase beer and wine from its wholesale division. * * * We agree with appellant that the question here presented should be resolved by applying section 25506 ⁵ to the issue raised by the application for a wholesaler's beer and wine license.'

The board then proceeded to interpret sections 25502 and 25506 in the following manner: Section 25502 provides that no Wholesaler of beer, wine, or distilled spirits ⁶ shall hold any interest in a retailer's off-sale liquor license. Section 25506 provides that no holder of a Retailer's off-sale license shall possess any interest in a firm holding a Distilled spirits wholesaler's license. By forbidding a retailer from holding only a distilled spirits wholesaler's license, section 25506 might be construed under the doctrine of Inclusio unius est exclusio alterius to suggest that a retailer is free to acquire a wholesaler's beer and wine license.

2. The historical development of the tied-house restriction.

In order to understand the relationship of sections 25502 and 25506, we must examine the origins of these two sections in particular, and the legislative background of the California Alcoholic Beverage Control Law in general.

Following repeal of the Eighteenth Amendment, the vast majority of states, including California, enacted alcoholic beverage control laws. These statutes sought to forestall the generation of such evils and excesses as intemperance and disorderly marketing conditions that had plagued the public and the alcoholic beverage industry prior to prohibition. (See United States Department of Commerce, State Liquor Legislation (1941) at p. 20; Wilke & Holzheiser Inc. v. Dept. of Alcoholic Bev. Control (1966) 65 Cal.2d 349, 360, 55 Cal.Rptr. 23, 420 P.2d 736; Neel v. Texas Liquor Control Board (Tex.Civ.App.1953) 259 S.W.2d 312, 316--317; Bus. & Prof. Code, § 23001.) By enacting prohibitions against 'tied-house' arrangements, state legislatures aimed to prevent two particular dangers: the ability and potentiality of large firms to dominate local markets through vertical and horizontal integration (see Neel v. Texas Liquor Control Board, supra, 259 S.W.2d 312) and the excessive sales of alcoholic beverages produced by the overly aggressive marketing techniques of larger alcoholic beverage concerns (see Allied Properties v. Department of Alcoholic Beverage Control (1959) 53 Cal.2d 141, 346 P.2d 737; Affiliated Distillers Brands Corp. v. Sills (1970) 56 N.J. 251, 265 A.2d 809). ⁷

The principal method utilized by state legislatures to avoid these anti-social developments was the establishment of a triple-tiered distribution and licensing scheme. (See Affiliated Distillers Brands Corp. v. Sills, supra, 56 N.J. 251, 265 A.2d 809; Downer v. Liquor Control Commission (1948) 134 Conn. 555, 59 A.2d 290.) Manufacturing interests were to be separated from wholesale interests; wholesale interests were to be segregated from retail interests. In short, business endeavors engaged in the production, handling, and final sale of alcoholic beverages were to be kept 'distinct and apart.' (25 Ops.Cal.Atty.Gen. 288, 289 (1955).)

In the era when most tied-house statutes were enacted, state legislatures confronted an inability on the part of small retailers to cope with pressures exerted by larger manufacturing or wholesale interests. ⁸ (See Pickerill v. Schott (Fla.Sup.Ct.1951) 55 So.2d 716, 718; Weisberg v. Taylor (1951) 409 Ill. 384, 390, 100 N.E.2d 748 see also 32 Ops.Cal.Atty.Gen. 75, 76 (1958); 48 C.J.S. Intoxicating Liquors § 197, at p. 329.) Consequently, most of the statutes enacted during this period (1930--1940) manifested a legislative policy of controlling large wholesalers; the statutes were drafted in sufficiently broad terms, moreover, to insure the accomplishment of the primary objective of the establishment of a triple-tiered system. All levels of the alcoholic beverage industry were to remain segregated; firms operating at one level of distribution were to remain free from involvement in, or influence over, any other level. Thus, although the most significant development in the industry since the 1950's has been the growth of large retail chains, the alcoholic beverage statutes enacted in the 1950's are sufficiently broad to control industry-wide domination by large retail chains as well. ⁹

In addition, most statutes placed more stringent requirements on interests dealing in distilled spirits than on those dealing Control, supra, 53 Cal.2d 141, 147, 346 P.2d 737; cf. Wilke & Holzheiser, Inc. of intemperance in the consumption of distilled spirits, since distilled spirits, of course, contain a significantly higher alcoholic content than beer and wine. Further, since distilled spirits may not deteriorate as rapidly as some beer and wine, legislatures were particularly fearful of the possibility that wholesalers of distilled spirits would foist even greater inventories upon local retailers. (Cf. Ralphs Grocery Co. v. Reimel (1968) 69 Cal.2d 172, 186 fn. 1, 70 Cal.Rptr. 407, 444 P.2d 79 (dissenting opn. of Burke, J.).)

With this historical background in mind, we turn to an examination of the particular California statutes at issue in this case.

3. The statutory implementation of the tied-house restriction.

California's alcoholic beverage control laws and tied-house provisions ¹⁰ effectuate the legislative objectives outlined above. See ...