Rice v. Alcoholic Bev. etc. Appeals Bd.

• Citation: 21 Cal.3d 431,579 P.2d 476,146 Cal.Rptr. 585
• Decision Date: 30 May 1978
• Docket Number: S,S.F. 23631
• Court: United States State Supreme Court (California)
• Parties: , 579 P.2d 476, 96 A.L.R.3d 613, 1978-1 Trade Cases P 62,054 Baxter RICE, as Director, etc., Petitioner, v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD, Respondent; Christine T. CORSETTI et al., Real Parties in Interest. YOUNG'S MARKET COMPANY et al., Petitioners, v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD, Respondent; Christine T. CORSETTI et al., Real Parties in Interest. F. 23632.

Page 585

146 Cal.Rptr. 585

21 Cal.3d 431, 579 P.2d 476, 96 A.L.R.3d 613,

1978-1 Trade Cases P 62,054

Baxter RICE, as Director, etc., Petitioner, v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD, Respondent;

Christine T. CORSETTI et al., Real Parties in Interest.

YOUNG'S MARKET COMPANY et al., Petitioners, v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD, Respondent;

Christine T. CORSETTI et al., Real Parties in Interest.

S.F. 23631, S.F. 23632.

Supreme Court of California.

May 30, 1978.

Rehearing Denied June 29, 1978.

Evelle J. Younger, Atty. Gen., L. S. Porter, Asst. Atty. Gen., Hal Teasdale and Matthew P. Boyle, Deputy Attys. Gen., for petitioner in No. 23631.

Kurt W. Melchior, Edmund T. King II, Hale Kronenberg, Terry T. Lewis, Lawrence A. Hobel and Severson, Werson, Berke & Melchior, San Francisco, as amici curiae on behalf of petitioner in No. 23631.

Ball, Hunt, Hart, Brown & Baerwitz, Joseph A. Ball, Long Beach, Michael J. Maloney and E. Willcox Clarke, Jr., Los Angeles, for petitioners in No. 23632 and as amici curiae for petitioner in No. 23631.

Floyd R. Mitzner and William D. Figg-Hoblyn, San Francisco, for respondent.

Donald A. Tenenbaum and Allen Ruby, San Jose, for real parties in interest.

Stroock, Stroock & Lavan, Michael M. Umansky, Henry J. Silberberg, Linda T. Abrams, Harry M. Snyder, A. Kirk McKenzie, Los Angeles, Joseph P. Freitas, Jr., Dist. Atty., San Francisco, Raymond T. Bonner, Asst. Dist. Atty., Edwin L. Miller, Jr., Dist. Atty., San Diego, Robert C. Fellmeth, Deputy Dist. Atty., Wright & Thompson, Crispus A. Wright and Leon Thompson, Beverly Hills, as amici curiae.

MOSK, Justice.

Section 24755 of the Business and Professions Code requires that a manufacturer or brand owner file with the Department of Alcoholic Beverage Control (department) a minimum price schedule for distilled spirits which bear the brand name of the owner (subds. (a), (c)), and it prohibits an off-sale retail licensee from selling at less than that prescribed price (subd. (f)). ¹ In this proceeding, we are called upon to decide whether this provision and the regulations of the department implementing it (Cal.Admin.Code, tit. 4, § 99, subd. (a)) conflict with the Sherman Antitrust Act (15 U.S.C. § 1 et seq.), which declares combinations in restraint of trade illegal. ²

On November 25, 1975, real parties in interest, Christine and Richard Corsetti (Corsetti), doing business as Bob's Market, sold a bottle of Christian Brothers brandy to an employee of the department for $1.80 less than the posted price, and one of Courvoisier cognac for $1.75 less than the posted price. On December 4, they sold two bottles of Johnny Walker scotch whiskey and two bottles of Christian Brothers brandy for $2.30 and $2.58 less than the posted price, respectively. After a hearing, the department suspended Corsetti's license for 10 days. On appeal to the Alcoholic Beverage Control Appeals Board (the board), Corsetti sought to have the order of the department annulled, claiming that section 24755 is invalid as a violation of the Sherman Antitrust Act (Sherman Act), and that it violates equal protection of the laws. The board agreed with these contentions and reversed the decision of the department. ³ The department seeks to annul the board's order. ⁴

The two issues we must consider in deciding the constitutionality of section 24755 are whether the section violates the Sherman Act, and if so, whether the Twenty-first Amendment to the United States Constitution nevertheless affords the states sufficiently broad powers over the sale and distribution of alcohol that fair trade laws pertaining to alcohol are valid despite the conflict.

Section 2 of the Twenty-first Amendment provides, "The transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited." The Sherman Act, which derives its authority from the commerce clause (U.S.Const., art. I, § 8, subd. (3)) would, of course, prevail over state fair trade laws under the supremacy clause (U.S.Const., art. VI, § 2), unless the special powers granted to the states over alcohol by the Twenty-first Amendment allow the states to enact such laws.

I

Before reaching the merits of the issues before us, it is helpful to review the history of the federal and state statutes upon which our decision turns.

As originally enacted in 1890, section 1 of the Sherman Act contained a single simple sentence: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal." (26 Stat. 209.) In 1937 Congress passed the Miller-Tydings Act as an amendment to section 1. The amendment excepted from the provisions of the section "contracts . . . prescribing minimum prices for the resale" of certain commodities in intrastate commerce, if such contracts were lawful under state law. (50 Stat. 693.)

Some states, including California (Stats.1933, ch. 260, p. 793) and Louisiana (La.Gen.Stats. §§ 9809.1 et seq.) had enacted so-called nonsigner provisions. These statutes authorized the imposition of a minimum price upon a retailer who had not entered into a contract with a wholesaler or distributor specifying such a price, if the wholesaler or distributor had concluded a contract for a minimum price with any retailer, i. e., all retailers were bound by a minimum price agreed to by any retailer. In Schwegmann Bros. v. Calvert Distillers Corp. (1951) 341 U.S. 384, 71 S.Ct. 745, 95 L.Ed. 1035, the United States Supreme Court held a nonsigner provision in the Louisiana law invalid under the Sherman Act on the ground that the Miller-Tydings exception authorized states to allow the fixing of minimum prices only if a retailer consented by contract with a wholesaler to abide by such prices, whereas the Louisiana statute coerced retailers to abide by a price to which they had not agreed.

In the year following the Schwegmann decision, Congress responded by passing the McGuire Act (66 Stat. 632), which declared that nonsigner provisions were not unlawful under the Sherman Act.

California initially allowed resale price maintenance only by contract between a retailer and wholesaler (Stats.1931, ch. 278, p. 583) but, as we have seen, in 1933 a nonsigner provision was enacted. ⁵ It was not until 1961 that section 24755 was amended to allow control of the price of liquor by means of the filing with the department of a minimum retail price which all retailers are required to observe. The change from the nonsigner mode of controlling retail prices to the present price-posting system is one of form rather than substance. (Samson Market Co. v. Alcoholic Bev. etc. Appeals Bd. (1969) 71 Cal.2d 1215, 1220, 81 Cal.Rptr. 251, 459 P.2d 667.)

The board's determination that section 24755 violates the Sherman Act was based upon the repeal by Congress of the Miller-Tydings Act and the McGuire Act by the Consumer Goods Pricing Act of 1975 (89 Stat. 801), the public interest in free competition, and the "changed circumstances in law and fact" since this court upheld the validity of the retail price maintenance laws in Allied Properties v. Department of Alcoholic Beverage Control (1959) 53 Cal.2d 141, 346 P.2d 737 and Wilke & Holzheiser, Inc. v. Department of Alcoholic Beverage Control (1966) 65 Cal.2d 349, 55 Cal.Rptr. 23, 420 P.2d 735.

The board reasoned as follows: the repeal of the Miller-Tydings Act and McGuire Act exemptions to the Sherman Act, as well as the repeal of California fair trade laws relating to products other than liquor (Stats.1975, ch. 402, p. 878), reflects a growing apprehension that fair trade laws are not in the public interest. Price fixing for whatever purpose requires close scrutiny, and a number of recent studies have cast doubt upon the underlying justification for fair trade laws. These studies reveal that the absence of fair trade laws does not harm small business and has no significant effect upon the consumption of alcohol or temperance. The California consumer pays more than the residents of any other state for alcoholic beverages because of the fair trade laws; liquor distributors reap the benefit of these high prices. Price fixing among producers has "resulted in the elimination of any semblance of competition within the industry." In view of these factors, which demonstrate that there has been a change in circumstances since Allied Properties and Wilke & Holzheiser, Inc. were decided (citing Brown v. Merlo (1973) 8 Cal.3d 855, 106 Cal.Rptr. 23, 506 P.2d 212; Li v. Yellow Cab Co. (1975) 13 Cal.3d 804, 119 Cal.Rptr. 858, 532 P.2d 1226), the retail price maintenance provision set forth in section 24755 is no longer justified. ⁶

The board also determined that the Twenty-first Amendment does not "negate the commerce clause" and that under our decision in Sail'er Inn, Inc. v. Kirby (1971) 5 Cal.3d 1, 11, 95 Cal.Rptr. 329, 485 P.2d 529 the objectives of the Sherman Act and the Twenty-first Amendment must be weighed against one another in order to determine which shall prevail. It concluded that, in view of the matters referred to above, the Sherman Act should govern, and that, since section 24755 is in conflict with the Sherman Act, it is invalid.

II

Our first inquiry is whether retail price maintenance provisions of section 24755 violate the Sherman Act in its present form, i. e., without the exemptions previously afforded by the Miller-Tydings Act and the McGuire Act.

We begin with the propositions that if the conduct of the liquor producers in fixing minimum retail prices did not have governmental sanction or if the imposition of minimum prices upon retailers was not required by the state, but was discretionary with the producer, there would be a clear violation of the Sherman Act. Justice Douglas, writing in Schwegmann, could hardly have...