Palladinetti v. Penn Distributors, Inc.

• Decision Date: 17 June 1997
• Citation: 695 A.2d 855
• Parties: Lucy J. PALLADINETTI, t/a Bell's Beverage, Appellee, v. PENN DISTRIBUTORS, INC., Appellant. (Two Cases)
• Court: Pennsylvania Superior Court

Page 855

695 A.2d 855

Lucy J. PALLADINETTI, t/a Bell's Beverage, Appellee, v. PENN DISTRIBUTORS, INC., Appellant. (Two Cases)

Superior Court of Pennsylvania.

Argued March 11, 1997.

Filed June 17, 1997.

Jerome J. Shestack, Philadelphia, for appellant.

Arnold E. Cohen, Philadelphia, for appellee.

Before McEWEN, President Judge, and EAKIN, J., and CERCONE, President Judge Emeritus.

McEWEN, President Judge:

These consolidated appeals, taken from the final decree ¹ which granted a permanent injunction and awarded damages ² in the amount of $1,133,042.84 to Lucy J. Palladinetti, t/a Bell's Beverage (hereinafter "appellee"), present, in essence, a single but nonetheless perplexing query: When is a beer distributor, licensed as an "importing distributor" under the Liquor Code, 47 P.S. §§ 1-101 et seq., not an "importing distributor" but a "manufacturer" for purposes of the provisions of the Liquor Code. The trial court found that, despite the fact that all parties concede that Penn Distributors, Inc. (hereinafter "appellant") is a licensed importing distributor of brewed and malt beverages, holding LCB license # ID175, and is the exclusive importing distributor of certain brands of malt and brewed beverages, including Anheiser-Busch and Stroh's, in a territory consisting of Philadelphia and sections of the contiguous counties, appellant was, in fact, a "manufacturer" for certain limited purposes. As a result of its finding that appellant was a "manufacturer", the trial court held that appellant was subject to the "good cause" provisions of Section 4-431(d)(1) of the Liquor Code in its dealings with appellee, who is also a licensed importing distributor of brewed and malt beverages, holding LCB license # ID603, and who is appellant's subdistributor or secondary distributor to trade customers inside appellant's territory. The trial court then found that since appellant was a "manufacturer" which could not, without "good cause", modify an oral distribution agreement whereby appellee had acted as a secondary or sub-distributor of appellant's products to the tavern trade within appellant's exclusive territory, ³ appellee was entitled to injunctive relief to preclude any modification of the subdistribution agreement as well as money damages. We find that the trial court committed an error of law in concluding that the definition of "manufacturer" contained in 47 P.S. § 4-431(b.1)(3) could be applied to the provisions of 47 P.S. § 4-431(d) despite the express restrictions contained in paragraph (3) of subsection 4-431(b.1), which limits the application of the special definition of "manufacturer" to subsection (b.1). We are, therefore, constrained to vacate the Permanent Injunction and the money judgment entered by the trial court.

Our scope of review on an appeal from a final decree upholding the grant of a permanent injunction is limited. We are bound to accept the chancellor's findings of fact and accord them the weight of a jury verdict where supported by competent evidence. We are not, however, bound by conclusions drawn from those facts or by legal conclusions and may reverse for abuse of discretion or error of law. Den-Tal-Ez, Inc. v. Siemens Capital Corporation, 389 Pa.Super. 219, 566 A.2d 1214 (1989).

Tony Savatt Inc. v. Latrobe Brewing Co., 400 Pa.Super. 296, 303-05, 583 A.2d 796, 799 (1990), allo. denied, 527 Pa. 668, 593 A.2d 843 (1991), cert. denied, 502 U.S. 982, 112 S.Ct. 586, 116 L.Ed.2d 611 (1991).

Appellant is a licensed importing distributor of malt and brewed beverages which entered into an agreement in August of 1984, ⁴ with appellee whereby appellee would act as its designated subdistributor to the tavern trade inside appellant's territory, with certain exceptions ⁵ subject to certain resale restrictions imposed by appellant. Pursuant to that agreement, appellee distributed appellant's products to certain taverns, hotels, and restaurants inside appellant's territory until late in 1990 when appellee indicated that it was contemplating severing its relationship with appellant. Appellant provided a new schedule of discounts to appellee which were to take effect in January of 1991 and the distribution arrangement continued. Appellant, however, early in 1991, informed appellee that it intended to start servicing the tavern trade customers in its territory in Center City and in South Philadelphia. Appellee objected and the parties entered into negotiations but failed to reach an agreement. Appellant, in April of 1991, terminated its subdistribution agreement with appellee, discontinued the previous discounts it had extended to appellee, and began directly soliciting the trade accounts. Appellee sought and was granted a preliminary injunction, pursuant to 47 P.S. § 4-431(d)(4), which was affirmed by the Superior Court on March 4, 1993, in a memorandum decision. Palladinetti v. Penn Distributors, Inc., 429 Pa.Super. 659, 628 A.2d 461 (1993). The trial court subsequently entered a permanent injunction and an award of money damages and this timely appeal followed.

The Liquor Code, 47 P.S. §§ 1-101 et seq., was enacted for the purpose of, inter alia, prohibiting

the manufacture and transactions in liquor, alcohol and malt or brewed beverages which take place in this Commonwealth except by and under the control of the board as herein specifically provided, and every section and provision of the act shall be construed accordingly; to provide a structure in this Commonwealth for a distribution system, including the establishment of Pennsylvania liquor stores and licensing of importing distributors and distributors, and to preserve manufacturers of liquor and alcohol and malt and brewed beverages selling those products within this Commonwealth.

47 P.S. § 1-104(c) (emphasis supplied). As a result of the enactment of the Liquor Code, "(t)he conduct of the liquor business in the Commonwealth is lawful only to the extent and manner permitted by statute. Replogle v. Commonwealth, PLCB, 514 Pa. 209, 523 A.2d 327 (1987)." Tony Savatt, Inc. v. Latrobe Brewing Co., supra at 304, 583 A.2d at 799.

Section 1-102 of the Liquor Code sets forth definitions for those terms used throughout the Code, and provides, inter alia:

"The following words or phrases, unless the context clearly indicates otherwise, shall have the meanings ascribed to them in this section [emphasis supplied]:

* * * * * *

"Importing distributor" shall mean any person licensed by the board to engage in the purchase from manufacturers and other persons located outside this Commonwealth and from persons licensed as manufacturers of malt or brewed beverages and importing distributors under this act, and the resale of malt or brewed beverages in the original sealed containers as prepared for the market by the manufacturer at the place of manufacture, but not for consumption on the premises where sold, and in quantities of not less than a case or original containers containing one hundred twenty-eight ounces or more which may be sold separately.

* * * * * *

"Distributor" shall mean any person licensed by the board to engage in the purchase only from Pennsylvania manufacturers and from importing distributors and the resale of malt or brewed beverages, except to importing distributors and distributors, in the original sealed containers as prepared for the market by the manufacturer at the place of manufacture, but not for consumption on the premises where sold, and in quantities of not less than a case or original containers containing one hundred twenty-eight ounces or more which may be sold separately.

"Manufacturer" shall mean any person, association or corporation engaged in the producing, manufacturing, distilling, rectifying or compounding of liquor, alcohol or malt or brewed beverages in this Commonwealth or elsewhere.

"Manufacturer of malt or brewed beverages" shall mean any person holding a license issued by the board to engage in the manufacture, transportation and sale of malt or brewed beverages; also, any person engaged in the legal manufacture of malt or brewed beverages within the territorial limits of the United States, outside the Commonwealth of Pennsylvania.

47 P.S. § 1-102.

The trial court found, and the parties agree, that both appellee and appellant are licensed as "importing distributors" under the Liquor Code, and there is no contention that appellant has ever "engaged in the producing, manufacturing, distilling, rectifying, or compounding of liquor, alcohol or malt or brewed beverages." In fact, the Liquor Code specifically prohibits any entity or person holding an importing distributor's license from engaging in manufacturing or holding a manufacturing license, 47 P.S. § 4-438(c). ⁶ The trial court, however, entered a preliminary injunction as well as the subsequent permanent injunction pursuant to the authority granted to trial courts by subsection 4-431(d)(4) of the Code, a statutory provision which affords such authority to the trial court, but only where one of the parties to the distribution agreement is a manufacturer (4) The court of common pleas of the county wherein the licensed premises of the importing distributor or distributor are located is hereby vested with jurisdiction and power to enjoin the modification, rescission, cancellation or termination of a franchise or agreement between a manufacturer and an importing distributor or distributor at the instance of such importing distributor or distributor who is or might be adversely affected by such modification, rescission, cancellation or termination, and in granting an injunction the court shall provide that no manufacturer shall supply the customers or customers through other importing distributors or distributors or any other means while the injunction is in effect: Provided, however, that any injunction issued under this subsection shall require the posting of sufficient bond against damages arising from an injunction improvidently granted and a showing...