Goldstein v. Miller

• Citation: 488 F. Supp. 156
• Decision Date: 25 April 1980
• Docket Number: K-79-2164.,Civ. No. K-79-2163
• Parties: Louis L. GOLDSTEIN, Comptroller of the Treasury of the State of Maryland; and State of Maryland v. G. William MILLER, Secretary of the Treasury; and G. R. Dickerson, Director of the Bureau of Alcohol, Tobacco and Firearms. The OVERBROOK EGG NOG CORPORATION, a Maryland Corporation; and Heublein, Inc., a Connecticut Corporation v. G. William MILLER, Secretary of the Treasury; and G. R. Dickerson, Director of the Bureau of Alcohol, Tobacco and Firearms.
• Court: United States District Courts. 4th Circuit. United States District Court (Maryland)

488 F. Supp. 156

Louis L. GOLDSTEIN, Comptroller of the Treasury of the State of Maryland; and State of Maryland v. G. William MILLER, Secretary of the Treasury; and G. R. Dickerson, Director of the Bureau of Alcohol, Tobacco and Firearms.

The OVERBROOK EGG NOG CORPORATION, a Maryland Corporation; and Heublein, Inc., a Connecticut Corporation v. G. William MILLER, Secretary of the Treasury; and G. R. Dickerson, Director of the Bureau of Alcohol, Tobacco and Firearms.

Civ. Nos. K-79-2163, K-79-2164.

United States District Court, D. Maryland.

February 29, 1980.

On Motions For Injunction Pending Appeal April 25, 1980.

Stephen H. Sachs, Atty. Gen. of Maryland, and Gerald Langbaum, Asst. Atty. Gen., Baltimore, Md., for plaintiffs in Civil No. K-79-2163.

Steve G. Gilden, and Wartzman, Rombro, Rudd & Omansky, P. A., Baltimore, Md., for plaintiff The Overbrook Egg Nog Corp.

Morton Siegel, Chicago, Ill., and Harold V. Gorman, Jr., Hartford, Conn., for plaintiff Heublein, Inc., in Civil No. K-79-2164.

Alice Daniel, Acting Asst. Atty. Gen., Washington, D. C., Russell T. Baker, Jr., U. S. Atty., Ellen Lipton Hollander, Asst. U. S. Atty., Baltimore, Md., William P. Arnold and Sandra M. Schraibman, Attys., Department of Justice, Washington, D. C., for defendants.

FRANK A. KAUFMAN, District Judge.

These two cases present the question of whether the federal government acting pursuant to its taxing power may restrict, by federal regulation, the number of bottle sizes which may be used in bottling distilled spirits in Maryland for sale within Maryland's borders. Plaintiffs in Civil No. K-79-2163 are the Comptroller of the Treasury of the State of Maryland and the State itself. Plaintiffs in Civil No. K-79-2164 are The Overbrook Egg Nog Corporation and Heublein, Inc. Defendants in both cases are the Secretary of the Treasury and the Director of the Bureau of Alcohol, Tobacco and Firearms. Jurisdiction in both cases exists under 28 U.S.C. § 1331. All plaintiffs seek injunctive and declaratory relief to prevent the said federal regulation from becoming effective. Initially, the regulation was to go into effect on January 1, 1980. However, by agreement of the parties hereto, the regulation has been held in abeyance pending the filing of the within opinion.

FACTS

The relevant and material facts are undisputed and disclose the following:

1. Louis L. Goldstein is the Comptroller of the Treasury of the State of Maryland and has the responsibility under the laws of Maryland for the regulation of the manufacture, sale, distribution, transportation and storage of alcoholic beverages within Maryland.

2. The Overbrook Egg Nog Corporation is a Maryland corporation licensed by the State to engage in business as a bottler of distilled spirits within Maryland. Overbrook also holds a permit from the Department of the Treasury to operate as a rectifier and distiller and pays federal tax to and registers with the Treasury as a rectifier.

3. Heublein, Inc. is a Connecticut corporation which manufactures and produces distilled spirits outside of Maryland, and has a permit from the State of Maryland allowing it to sell, consign, and deliver alcoholic beverages from outside of Maryland to persons in Maryland, including Overbrook, who are authorized to receive such spirits in Maryland. Heublein holds a Treasury permit to act as a distiller, pays federal taxes as a distiller and registers with the Treasury as such.

4. G. William Miller is the Secretary of the Treasury of the United States.

5. G. R. Dickerson is the Director of the Bureau of Alcohol, Tobacco and Firearms (ATF), a bureau within the Treasury Department.

6. On March 10, 1976, the ATF adopted final regulations establishing metric standards of fill (liquor-bottle sizes) under 27 C.F.R. Part 5, relating to the sale, shipment, or introduction of bottled distilled spirits in interstate or foreign commerce, which list of bottle sizes did not include a 118 milliliter (the approximate metric equivalent of the quarter-pint) standard of fill. The regulations were promulgated under the Federal Alcohol Administration Act, 27 U.S.C. §§ 201 et seq. The list of permitted bottle sizes appears at 27 C.F.R. § 5.47a.

7. On Oct. 26, 1976, ATF adopted final regulations implementing metric standards of fill for distilled-spirits bottles under the authority of the Internal Revenue Code of 1954, 26 U.S.C. § 5301. Those regulations included an amendment to 27 C.F.R. § 201.540b which adopted the metric standards of fill of 27 C.F.R. § 5.47a, but provided an exception to permit the use of four-ounce (quarter-pint) liquor bottles through December 31, 1979 for the packaging of distilled spirits in intrastate commerce only.

8. On November 16, 1979, the State of Maryland, acting through Comptroller Goldstein, adopted a final regulation, Code of Maryland Regulations (COMAR) 03.02.01.06, establishing within Maryland, as of January 1, 1980, the metric standards of fill previously adopted by ATF, and additionally allowing the use of the 118 milliliter bottle in intrastate commerce within Maryland.

9. Since 1950 Overbrook has bottled in Maryland distilled spirits in quarter-pint (118 milliliter) bottles for Heublein and four other out-of-state manufacturers and producers of distilled spirits.

10. Overbrook's bottling process has taken and presently continues to take place at Overbook's plant in Baltimore, Maryland. The liquor is shipped in bulk by Heublein from Connecticut to Maryland. The bottles, caps, and labels are shipped to Overbrook from locations within and without Maryland. The labels on the filled bottles state that the bottles are for sale within Maryland only. The filled bottles are stored at the Overbrook plant in Maryland until picked up by Maryland distributors for distribution to Maryland retailers.

STATUTES AND REGULATIONS

The regulation at the core of the dispute in the within cases is 27 C.F.R. § 201.540b, which provides in relevant part:

Liquor bottles shall conform to the applicable standards of fill provided in Subpart E of 27 CFR Part 5, including those for liquor bottles of less than 200 ml. capacity. The use of any bottle size other than as authorized in Subpart E of 27 CFR Part 5 is prohibited for the packaging of distilled spirits for domestic purposes, except that 4-ounce liquor bottles may be used through December 31, 1979, for packaging any distilled spirits, other than spirits bottled in bond after determination of tax, on bottling premises for sale in intrastate commerce only.

In 27 C.F.R. § 201.540b, defendants incorporated by reference the list of bottle sizes from 27 C.F.R. Part 5 Subpart E, but did not adopt any other part of that regulation. 27 C.F.R. § 201.540b was promulgated pursuant to 26 U.S.C. § 5301(a), a provision of the Internal Revenue Code, which states in relevant part:

(a) Requirements. — Whenever in his judgment such action is necessary to protect the revenue, the Secretary or his delegate is authorized, by the regulations prescribed by him and permits issued thereunder if required by him —

(1) to regulate the kind, size, branding, marking, sale, resale, possession, use, and reuse of containers (of a capacity of not more than 5 wine gallons) designed or intended for use for the sale of distilled spirits * * *.

26 U.S.C. § 5301 was enacted "to protect the revenue" and thus pursuant to the taxing power of Congress, embodied in the United States Constitution, Article I, Section 8, Clause 1, which contains the following authorization:

The Congress shall have Power To lay and collect taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States * * *.

The substantive provisions of both 26 U.S.C. § 5301 and 27 C.F.R. § 201.540b have been in existence for approximately forty-six years with wording and impact substantially similar to the wording and impact which they have today. 26 U.S.C. § 5301 was first approved by the Congress on June 18, 1934, in the form of House Joint Resolution 370 (48 Stat. 1020), which states:

Joint Resolution To protect the revenue by regulation of the traffic in containers of distilled spirits

Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That whenever in his judgment such action is necessary to protect the revenue, the Secretary of the Treasury is authorized by the regulations prescribed by him, and permits issued thereunder if required by him (1) to regulate the size, branding, marking, sale, resale, possession, use, and re-use of containers * * * designed or intended for use for the sale at retail of distilled spirits * * *.

H.J.Res. 370 became 26 U.S.C. § 2871 in the Internal Revenue Code of 1939. The above-quoted language in H.J.Res. 370 remained the same. In 1954, when Congress revised the Internal Revenue Code, section 2871 was reenacted as 26 U.S.C. § 5214 with its language left virtually intact.¹ In 1958, the above-quoted portion of H.J.Res. 370 became that part of 26 U.S.C. § 5301(a) quoted supra at p. 159.

Immediately after the passage of H.J. Res. 370 in 1934, and pursuant to the authority therein conferred upon him, the Secretary of the Treasury promulgated Regulations 13. Article 3 of Regulations 13 states that "the use for packaging distilled spirits for sale at retail of containers of one-half pint capacity or greater, other than liquor bottles as herein defined and otherwise conforming to these regulations, is prohibited * * *." Appendix B of Regulations 13, as originally promulgated in 1934, and as revised in April of 1935, sets forth the following standards of fill, namely, 1 gallon, ½ gallon, 1 quart, 4/5 quart, 1 pint, and ½ pint, and provided that certain types of liquor might also be bottled in 4/5 pint bottles.² The standards of fill set forth in Appendix B were exclusive for all liquor bottles of greater than ½ pint capacity. As Article 3 of Regulations 13 indicated,...