Schenley Affiliated Brands Corp. v. Kirby

• Citation: 21 Cal.App.3d 177,98 Cal.Rptr. 609
• Court: California Court of Appeals
• Decision Date: 15 November 1971
• Parties: SCHENLEY AFFILIATED BRANDS CORP. et al., Petitioners, v. Edward J. KIRBY, as Director, etc., et al., Respondents. Civ. 12893.

Page 609

98 Cal.Rptr. 609

21 Cal.App.3d 177

SCHENLEY AFFILIATED BRANDS CORP. et al., Petitioners, v. Edward J. KIRBY, as Director, etc., et al., Respondents.

Civ. 12893.

Court of Appeal, Third District, California.

Nov. 15, 1971.

Rehearing Denied Dec. 13, 1971.

Hearing Denied Jan. 13, 1972.

Anthony M. Kennedy, of Evans, Jackson & Kennedy, Sacramento, for petitioners.

Miller, Groezinger, Pettit & Evers, San Francisco, amicus curiae.

Thomas C. Lynch, Atty. Gen. by Michael H. Fabian, Deputy Atty. Gen., Sacramento, for respondents.

George K. Hartwick, Edwin L. Currey, Jr., Bronson, Bronson & McKinnon, San Francisco, for Schenley Affiliated Brands Corp., a New York corp., and National Distillers and Chemical Corp., a Virginia corp., and Schenley Distillers, Inc., a Delaware corp.

William K. Coblentz, Jacobs, Sills & Coblentz, San Francisco, for Max Sobel Wholesale Liquors, Inc., a California corp.

Edward Allison, Erlich & Allison, San Francisco, for Juillard, Inc., a California corp.

Ronald Golan, Baker & Golan, Santa Monica, for Southern Wine & Spirits of California, Inc., a California corp.

FRIEDMAN, Acting Presiding Justice.

Petitioners are a group of liquor distillers and wholesalers. In their petition for mandate they seek alternative kinds of relief, either a writ restraining the Director of Alcoholic Beverage Control from enforcing an amended administrative regulation of his department or a writ directing the superior court to hear and determine a lawsuit directed to the same end. Appearing as amici curiae in petitioners' support is the California Grocers Association, which states that it represents 5800 California retail stores. At the inception of this action we issued a Pendente lite order staying enforcement of the regulation.

The regulation in question is Rule 100, found in Title IV, chapter 1, California Administrative Code, as amended December 10, 1970. For some years the rule had dealt with the mechanics by which distilled spirits producers and wholesalers posted their wholesale price lists with the department. The central aim of the 1970 amendments was to restrict wholesalers in the varieties and rates of discounts offered from the basic single-case price. ¹ Petitioners make a dual attack upon the discount restrictions, charging that amended Rule 100 exceeds the department's statutory power and was adopted through improper procedures. We consider the substantive attack first.

SUBSTANTIVE VALIDITY OF AMENDED REGULATION

Substantive review is guided by well-established principles: The regulation comes before the court shielded by a presumption of regularity; focus of judicial inquiry is whether the regulation would alter or amend the statute or enlarge or restrict the agency's statutory powers. (Ralphs Grocery v. Reimel (1968) 69 Cal.2d 172, 175, 70 Cal.Rptr. 407, 444 P.2d 79; Morris v. Williams (1967) 67 Cal.2d 733, 748--749, 63 Cal.Rptr. 689, 433 P.2d 697.)

Six provisions of the Alcoholic Beverage Control Act (in the Business and Professions Code) form the statutory setting. Four of these provisions are in chapter 10 of the act, entitled 'Alcoholic Beverage Fair Trade Contracts and Price Posting.' Section 24749 declares the state's policy to impose restrictions and regulations in order to eliminate price wars which unduly stimulate the sale and consumption of alcoholic beverages and disrupt orderly sale and distribution. Section 24755 requires producers to post with the Department of Alcoholic Beverage Control price lists establishing the minimum retail (i.e., consumer) prices of branded distilled spirits. Section 24756 requires manufacturers and wholesalers to post with the department and adhere to the (wholesale) prices at which they will sell to retailers. Section 24757 authorizes the department to adopt such rules 'as it determines to be necessary' for the administration of certain other sections. ² Not included in Chapter 10 is a fifth relevant provision, section 25503, subdivision (e), which prohibits producers and wholesalers from price discrimination among retailers. (See fn. 3, infra.) A sixth provision, section 25750, is a general grant of authority to the department to adopt rules to carry out article XX, section 22, of the State Constitution and to enable the department to exercise its statutory powers and duties.

Statutes forcing retailers of branded liquor to adhere to manufacturers' posted consumer prices are constitutional. (Samson Market Co. v. Alcoholic Bev. etc. Appeals Bd. (1969) 71 Cal.2d 1215, 81 Cal.Rptr. 251, 459 P.2d 667; see also, Wilke & Holzheiser, Inc. v. Dept. of Alcoholic Bev. Control (1966) 65 Cal.2d 349, 55 Cal.Rptr. 23, 420 P.2d 735; Allied Properties v. Dept. of Alcoholic Bev. Control (1959) 53 Cal.2d 141, 346 P.2d 737.) In the present controversy over wholesale pricing, the parties abstain from constitutional argument. Although somewhat different constitutional and economic arguments are available, the statutory demand for adherence to posted wholesale prices is supported in part by the constitutional and economic considerations which validated the consumer price maintenance law. Thus, for the purpose of this litigation, we assume the validity of section 24756, the basic command for adherence to posted wholesale prices.

While the parties disagree over the merits of the wholesale price-discount practices pursued by segments of the industry, there is general agreement as to the nature of these practices. In general the market consists of three kinds of retailers: large dealers having multiple stores or outlets; single-outlet or 'family' liquor stores; taverns or bars. Over the years wholesalers have established a number of discount practices, some designed to fit retailers' characteristic needs, others designed primarily as promotional devices. Quantity or 'brand' discounts covering a single item appeal to the desires of the multioutlet retailers who can economically handle large quantities of a single item. Assortment or 'line' discounts are designed for small retailers and tavern operators, who wish to stock a relatively heavy inventory of items in high demand but to maintain a rounded inventory of lesser-known items.

Several varieties of these two basic discounts have evolved. There are bottlesize discounts aimed to stimulate sale of quarts and half-gallons; unit discounts offered for designated assortments of brands; multiple brand discounts for a minimum quantity of any two or more brands; the family plan discount, which permits all brands and sizes to assort for quantity; the qualifying discount, described as a 'discount on a discount for quantity of any brand or size in the line discount.' The nomenclature and the number of these discounts vary from one distiller's line to another and from wholesaler to wholesaler.

The disputed amendments are all part of subdivision (f) of Rule 100. Subdivision (f)(1) continues a preexisting statement permitting quantity discounts on two or more cases, whether original cases or assorted cases. The amendment added subdivision (f)(3), whose first paragraph prohibits more than one discount for the same quantity of the same item of distilled spirits, but permits quantity discounts upon assortments of different brands (see fn. 1, Ante); subdivision (f)(4), declaring that quantity discounts allowed for assortments may not be conditioned upon inclusion of any specific item or items; and subdivisions (f)(5) through (f)(8), which have the general objective of preventing a wholesaler from informing a retailer of only part of his array of available discounts.

Petitioners contend that they are able to provide a higher discount rate on a quantity sale of a single item than on a sale of an equal quantity of assorted brands; that, by prohibiting multiple discount rates, subdivision (f)(3) would abolish 'traditional' assortment discounts and restrict wholesalers to a straight quantity discount; that (f)(3) thus favors the large retailer who buys heavy quantities of a single brand and disadvantages the small retailer and tavern operator, who are prevented from seeking the deeper discounts otherwise offered for assortment purchases; that, by prohibiting separate discount rates conditional on bottle sizes, subdivision (f)(3) prevents producers from promoting the sales of quarts and half-gallons; that, by preventing assortment of designated brands as a prerequisite for discounts, subdivision (f)(4) prevents producers from promoting their lesser-known brands.

The department contends that its rule is designed to enforce simplification of discount practices. It argues that discount schedules posted by some wholesalers have become voluminous, complex and incomprehensible; that one petitioner's discount schedules occupy 44 pages; another's 35 pages and another's 28 pages; that these schedules are a source of confusion and perplexity to retailers; that a retailer, for example, might buy 25 cases at a $4 per case discount or 50 cases at a $6 per case discount without knowing that 27-case or 52-case purchases were available at deeper discounts, for example, $6 or $8 per case, respectively; that to obtain discounts on fast-selling brands retailers are forced to order undesirable brands; that salesmen for wholesalers display different pages of the discount schedules to different retailers, thus allowing greater discounts to favored customers.

In part these arguments deal with the desirability of amended Rule 100, rather than its lodgment on a statutory foundation. The latter is the focus of inquiry. At this point it must be observed that the department is not consistent in assessing the effect of its own amendments. Thus an affidavit of the Director of Alcoholic Beverage Control states that it was his objective to promulgate a rule which would simplify discount postings by permitting a single net price after discount on any specified product in a specified order, but permitting assortment of different items offered by the...