Delaware Alcoholic Beverage Wholesalers, Inc. v. Ayers

• Decision Date: 24 September 1985
• Citation: 504 A.2d 1077
• Parties: DELAWARE ALCOHOLIC BEVERAGE WHOLESALERS, INC., a not-for-profit Delaware corporation, Plaintiff Below, Appellant, v. Watson K. AYERS, J. Edwin James, Harry Strusowski and Edward J. Troise, Sr., individually and collectively comprising the Delaware Alcoholic Beverage Control Commission, Defendants Below, Appellees. . Submitted:
• Court: United States State Supreme Court of Delaware

Page 1077

504 A.2d 1077

DELAWARE ALCOHOLIC BEVERAGE WHOLESALERS, INC., a not-for-profit Delaware corporation, Plaintiff Below, Appellant, v. Watson K. AYERS, J. Edwin James, Harry Strusowski and Edward

J. Troise, Sr., individually and collectively

comprising the Delaware Alcoholic

Beverage Control Commission,

Defendants Below, Appellees.

Supreme Court of Delaware.

Submitted: Sept. 24, 1985.

Decided: Feb. 10, 1986.

Upon appeal from the Superior Court. AFFIRMED.

Bruce M. Stargatt (argued) and Richard H. Morse of Young, Conaway, Stargatt & Taylor, Wilmington, for appellant.

Robert W. Willard (argued), Dept. of Justice, Wilmington, for appellees.

Before CHRISTIE, C.J., McNEILLY and MOORE, JJ.

MOORE, Justice:

The Delaware Alcoholic Beverage Wholesalers, Inc., a trade association of liquor importers ¹ (the Association), appeals a decision of the Superior Court upholding the implementation of a new Rule 37 by the Delaware Alcoholic Beverage Control Commission (the Commission), relating to the financial responsibility of retail licensees. ² The Association challenges the new rule on the grounds that it violates 4 Del.C. § 705, ³ and that it is inconsistent with the regulatory scheme governing the alcoholic liquor industry in Delaware. However, we conclude that the Commission had full authority to promulgate this rule and properly did so. Accordingly, we affirm.

I.

The challenged Rule purports to control the extension of credit by wholesalers to retailers. Former Rule 37 had a similar purpose, but drew upon 4 Del.C. § 705, which requires that all sales by the Commission be for cash, as the source of such regulatory authority. ⁴ However, new Rule 37 is based upon 4 Del.C. § 543(b)(3), which imposes a duty of financial responsibility upon retailers. ⁵ In addition, the new rule no longer requires wholesalers to submit reports to the Commission of retailers whose accounts are delinquent.

The Association advances several contentions for retaining the former rule and its statutory predicate: (1) the Commission's long-standing interpretation of Section 705, (2) the General Assembly's recent failure to enact the new Rule into statutory form, and (3) the purposes behind the laws regulating the liquor trade.

Basically, this is a case of statutory construction, and we begin with a brief overview of the pertinent legislation. The Commission derives its broad rule-making authority from 4 Del.C. § 304(a), by which it adopts and promulgates rules and regulations, and by which it may also buy and sell liquor in its own name. Thus, 4 Del.C. § 304(a) provides in pertinent part:

(a) The Commission shall:

(1) Adopt and promulgate rules and regulations not inconsistent with the provisions of this title or of any other law of the State, and all such rules and regulations shall have the force and effect of law;

(2) Establish by rules and regulations an effective control of the business of manufacture, sale, dispensation, distribution and importation of alcoholic liquors within and into the State, including the time, place and manner in which alcoholic liquors shall be sold and dispensed, not inconsistent with the provisions of this title or with the provisions of any other law of this State.

* * *

(5) Control the manufacture, possession, sale and delivery of alcoholic liquors in accordance with the provisions of this title;

Section 506 prohibits wholesalers from obtaining an interest in retail outlets. ⁶ Section 543 lists the grounds for the denial of a liquor license, including an applicant's lack of financial responsibility. (See n. 5, supra ). Under Section 701, only the Commission, or those licensed by it, may sell alcoholic liquor. ⁷ By Section 702, the Commission shall sell and deliver all alcohol purchased by licensees, unless otherwise provided under Title 4, and purchasers may buy through the Commission from manufacturers or importers in the manner set forth in the rules and regulations. ⁸ Section 705 requires that "[e]very sale by the Commission shall be for cash." 4 Del.C. § 705. (See n. 3, supra.)

The stated purpose of former Rule 37, adopted in 1960, was to execute the legislative policy of Section 705, prohibiting wholesalers from directly or indirectly financing retailers. Paragraph b of the rule defined the term "cash", as used in Section 705, as payment by the second Thursday following the Saturday of the week of delivery. In effect this was a limited extension of credit for approximately two weeks. The old rule made the Commission a quasi collection agency for the wholesalers by its provisions for the reporting of delinquent accounts, the publication of a list of delinquent retailers, the imposition of an interest charge on unpaid balances, and the ultimate cessation of sales to an offending retailer. (See n. 4, supra.)

Proposed Rule 37 is based on Section 543(b)(3), which imposes a duty of financial responsibility upon licensees. Rather than engage in a fictitious and tortured definition of "cash" under Section 705, the new rule simply compels payment within the same time period as the former rule. However, the reporting of delinquents and the publication of the list are made optional, while the restrictive delivery provisions and interest charges are deleted. (See n. 2, supra.)

The Commission adopted new Rule 37 in May 1984, and shortly thereafter sought to have it enacted as a statute. However, the latter measure failed to pass. Meanwhile, the Association brought an action in Superior Court, pursuant to Section 10141(a) of the Administrative Procedures Act [29 Del.C. § 10141(a) ], seeking declaratory relief from the proposed regulation. ⁹ The Superior Court granted the Commission's motion for summary judgment and upheld the proposed rule. However, the effectiveness and enforcement of the rule have been stayed pending the outcome of this appeal.

II.

First, we address the issue of the Association's standing, which we raised sua sponte at oral argument.

It is axiomatic that in order to pursue this action the Association must have standing to do so. That means it must have a real and adverse interest affected by the proceedings. Wilmington Trust Company v. Barron, Del.Supr., 470 A.2d 257, 262 (1983). Here, the Association, as a corporate entity, is not subject to the proposed Rule, except that it may appoint a central reporting agent, approved by the Commission, who may receive notice of and publish a list of delinquent accounts. [See new Rule 37 C and D (n. 2, supra.) ] Furthermore, the alleged injury from the proposed rule affects the individual wholesalers, not the Association itself.

The law, however, is clear that an association has standing to bring suit on behalf of its members when: "(a) its members would otherwise have standing to sue in their own right; (b) the interests it seeks to protect are germane to the organization's purpose; and (c) neither the claim asserted nor the relief requested requires the participation of individual members in the lawsuit." Hunt v. Washington State Apple Advertising Commission, 432 U.S. 333, 343, 97 S.Ct. 2434, 2441, 53 L.Ed.2d 383 (1977). In Hunt, standing was granted to a plaintiff which was not even a traditional trade association, but an organization with no members, a state agency. This Court has recognized these principles, at least inferentially, in Delaware State Bar Association v. Alexander, Del.Supr., 386 A.2d 652, 659, 662 (1978).

In applying the foregoing criteria, it is clear that the members of the Association have standing to sue in their own right. The injury they claim is that the new rule will make it easier for unscrupulous wholesalers to extend credit to retailers in order to gain an advantage over their more ethical competitors. To that extent, the interest in preserving the wholesalers' stake in the local market is germane to the Association's purpose. Finally, the defeat of the proposed rule does not require the participation of all the individual members. Thus, we are satisfied that as a voluntary trade group the Association clearly has standing to challenge the regulation and to pursue the matter on appeal.

III.

In resolving this issue of statutory construction, our scope of review is whether the Superior Court erred as a matter of law in formulating or applying legal precepts. Rohner v. Niemann, Del.Supr., 380 A.2d 549 (1977).

Under 4 Del.C. § 304(a), the Commission shall adopt regulations consistent with Title 4. (See p. 1079, supra.) If proposed Rule 37 comports with that legislative framework, its implementation will be upheld.

At the outset, we note that both the former and new rules limit the availability of credit to liquor retailers. Section 543(b)(3), the statutory basis for the proposed rule, requires retailers to be financially responsible. (See n. 5, supra.) The new rule's requirement of payment, approximately two weeks after delivery, is reasonably related to that goal.

While the Association argues that the Commission's action opens the door to certain evils that the former rule excluded, a complete analysis of the statutory scheme demonstrates the futility of that position. Under Section 506 wholesalers are prevented from having an interest in retailers. This prevents the "tied house" in which the wholesaler uses its superior economic position to control a retailer. Moreover, Commission Rule 2 still prohibits the extension of credit by wholesalers to retailers, ¹⁰ and new Rule 37 still requires payment within approximately two weeks--the same basis upon which the former rule defined "cash" under § 705. Thus, the well-established terms of payment continue. The creation of a "tied house" remains illegal. None of these basic principles are affected by the elimination of the old reporting requirements, delivery rules, and interest charges.

Viewed realistically, such changes cannot be said to foster illegal practices of credit extension. A wholesaler wrongfully extending credit under the old rule was not likely...