Ralphs Grocery Co. v. Reimel

Decision Date12 August 1968
Citation70 Cal.Rptr. 407,69 Cal.2d 172,444 P.2d 79
CourtCalifornia Supreme Court
Parties, 444 P.2d 79 RALPHS GROCERY CO. et al., Plaintiffs and Respondents, v. James O. REIMEL, as Director of the Department of Alcoholic Beverage Control, et al., Defendants and Appellants. L.A. 29530.

Thomas C. Lynch, Atty. Gen., and Lynn Henry Johnson, Deputy Atty. Gen., for defendants and appellants.

Albert G. Evans, San Francisco, as amicus curiae on behalf of defendants and appellants.

Steck & Marston and Emil Steck, Jr., Pasadena, for plaintiffs and respondents.

Miller, Groezinger, Pettit, Evers & Martin and James T. Caleshu, San Francisco, as amici curiae on behalf of plaintiffs and respondents.

TOBRINER, Justice.

In 1951 the Department of Alcoholic Beverage Control, claiming to act pursuant to authority conferred upon it by section 22 of article XX of the California Constitution and sections 25006 and 25750 of the Business and Professions Code, 1 promulgated rule 105(a) (Cal.Admin.Code, tit. 4, § 105, subpar. (a)). With minor modifications, this rule has been in effect continuously since 1951 and today reads as follows: '105. Beer Price Posting. (a) The schedule of prices for the sale of beer, as required by Section 25000 of the Alcoholic Beverage Control Act, shall be filed with the department on a form prescribed by the department * * *. Contract prices for future deliveries of beer and quantity discounts shall not be filed with the department.'

Plaintiffs, operators of large chain grocery stores offering beer for sale, petitioned the department to eliminate that part of the rule proscribing quantity discounts. After a hearing, the department denied the petition. Plaintiffs then sought and obtained a writ of mandate in the superior court requiring the deletion of the reference to quantity discounts in rule 105(a). The department has appealed from that ruling.

As we shall explain, the judgment of the trial court must be reversed because rule 105(a) lies within the scope of the authority granted to the department in section 25006 to 'adopt such rules * * * as will foster and encourage the orderly wholesale marketing and wholesale distribution of beer.' In reviewing the propriety of administrative regulations allegedly promulgated pursuant to a grant of power by the Legislature, this court undertakes a two-pronged inquiry. As we pointed out in Morris v. Williams (1967) 67 A.C. 755, 771, 63 Cal.Rptr. 689, 699, 433 P.2d 697, 707, we first determine whether the regulation lies within the scope of authority conferred, and, second, '(i)f we conclude that the Administrator was empowered to adopt the regulations we must also determine whether the regulations are 'reasonably necessary to effectuate the purpose of the statute.' (Gov.Code, § 11374.)' 2 Furthermore, these issues do not present a matter for the independent judgment of an appellate tribunal; rather, both come to this court freighted with the strong presumption of regularity accorded administrative rules and regulations. Reviewed in this posture, rule 105(a) is clearly valid.

Plaintiffs urge that we reject these well established doctrines of limited judicial review because, they allege, rule 105(a) provides for price fixing, and, in the absence of explicit statutory language, courts traditionally hesitate to attribute to the Legislature an intentional grant of the power to fix prices. As we shall point out, however, rule 105(a) does not constitute a price-fixing measure because its prohibition against discrimination in the posting of a price is not a fixing of the price for the sale of the commodity.

1. Rule 105(a), which in effect prohibits manufacturers, importers, and wholesalers from granting discounts for quantity purchases, lies within the authority delegated to the department by section 25006 to promulgate rules that 'foster and encourage the orderly wholesale marketing and wholesale distribution of beer' and reasonably effectuates the purpose of the statute.

Our issue turns upon whether a rule prohibiting quantity discounts in the sale of beer lies within the scope of the power delegated by the Legislature to the department and whether the rule reasonable effectuates the statutory purposes.

Section 25006 provides that '(t)he department may adopt such rules, including but not limited to rules respecting beer price posting, as will foster and encourage the orderly wholesale marketing and wholesale distribution of beer.' Section 11373 of the Government Code establishes the principle that '(e)ach regulation adopted, to be effective, must be within the scope of authority conferred in accordance with standards prescribed by other provisions of law.'

In determining whether a specific administrative rule falls within the coverage of the delegated power, the sole function of this court is to decide whether the department reasonably interpreted the legislative mandate. Although 'final responsibility for the interpretation of the law rests with the courts' (Whitcomb Hotel, Inc. v. California Emp. Co., supra, 24 Cal.2d 753, 757, 151 P.2d 233, 235), we nevertheless do not exercise an independent judgment as to what constitutes promotion of 'orderly wholesale marketing and distribution.' The Legislature, in enacting section 25006, clearly intended to commit that decision to the expertise of the Department of Alcoholic Beverage Control. '(T)he very delegation of such a rulemaking power recognizes an area of discretion in defining the term and restricts a court to the question whether the definition is consistent with the statutory term and purpose.' (Jaffe, Judicial Control of Administrative Action (1965) 564--565.)

The cases have said, '(t)he construction of a statute by the officials charged with its administration must be given great weight.' (Whitcomb Hotel, Inc. v. California Emp. Com., supra, 24 Cal.2d 753, 756, 151 P.2d 233, 235; Morris v. Williams, supra, 67 A.C. 755, 771, 63 Cal.Rptr. 689, 433 P.2d 697.) Thus the courts recognize that the Legislature must be permitted to rely on the peculiar ability of an administrative agency to achieve continuous, flexible, and expert regulation; this court's role is limited to determining whether the delegee has reasonably interpreted the power which the Legislature granted it. 3

The department maintains that rule 105(a) promotes 'orderly wholesale marketing and distribution of beer' in the following two respects, Inter alia: (1) Many small retailers will take advantage of quantity discounts even if they lack either the turnover or the storage space to assure that all the beer bought at the discount rate can be sold while it is still fresh. Prohibition of quantity discounts removes this inducement to sell inferior beer. (2) In the absence of rule 105(a) chain stores could force suppliers to grant quantity discounts by conditioning the continuation of their lucrative large volume of business on the grant of such rebates. As a result, those retailers unable to buy in such quantities would suffer severe competitive disadvantage and could be eliminated.

We believe that the department could reasonably conclude that the legislative purpose of encouragement of the orderly wholesale marketing and distribution of beer warranted rule 105(a) on either of these two bases. Thus, in the first instance, the department might reasonably conclude that the suppression of the sale of stale beer promotes orderly marketing and distribution. A regulation designed to eliminate inferior products from the marketplace, especially if, as in the instant case, the consumer's external inspection would not reveal the internal defects of the commodity, promotes 'orderly marketing.'

Second, as we have said, the department might reasonably conclude that the protection and preservation of small retailers promotes orderly marketing. Indeed, the grant of discounts to giant multiple retailers in return for huge purchases emperils the vitality of the small retailers who are unable to buy in sufficient quantity to compete with the chain stores. In addition, distributors and manufacturers of slow-moving brands might also suffer competitively from the availability of volume discounts; the department might reasonably conclude that some retailers, unable to turn over such brands at a rapid rate, would be unwilling to deal with these producers and distributors on a volume basis and would thus promote those more popular brands on which a discount was, for practical purposes, available.

The quantity discount, in the long run, thus tends to decrease the number of competitors at all three levels, the manufacturer, wholesaler, and retailer, and, concurrently, to reduce competition. In Wilke & Holzheiser, Inc. v. Department of Alcoholic Bev. Control (1966) 65 Cal.2d 349, 362, 55 Cal.Rptr. 23, 32, 420 P.2d 735, 744, we premised the constitutionality of the retail price maintenance provisions of the Alcoholic Beverage Control Act, in part, upon the Legislature's design to preserve the small retail outlet. We said: 'The Legislature may likewise have concluded that giant retailers and chain markets should be afforded no opportunity to use loss leaders in branded liquor to attract customers in disregard of Business and Professions Code section 17044 and thus ultimately to force smaller retailers out of business. Such tactics, the Legislature may have thought, would disrupt orderly distribution by endangering the continued vitality of one method of marketing: the corner grocery store.'

The department's authority to prohibit discounts which it believes to be discriminatory becomes all the more clear when we test it against some hypothetical examples involving discriminatory pricing. As we have explained, rule 105(a) in part sought to preserve existing channels of distribution. Thus we would not doubt that the department could prohibit the wholesaler from giving a discount to one selected retailer or to those...

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