Ted Sharpenter, Inc. v. Illinois Liquor Control Com'n

• Citation: 148 Ill.App.3d 936,499 N.E.2d 669,102 Ill.Dec. 112
• Decision Date: 20 October 1986
• Docket Number: No. 2-85-0583,2-85-0583
• Parties: , 102 Ill.Dec. 112 TED SHARPENTER, INC., Plaintiff-Appellee, v. ILLINOIS LIQUOR CONTROL COMMISSION, Ronald Nichols, James McCue, Patrick Burke, Richard Ernzen, and George Zobrest, Defendants-Appellants.
• Court: United States Appellate Court of Illinois

Page 669

499 N.E.2d 669

148 Ill.App.3d 936, 102 Ill.Dec. 112

TED SHARPENTER, INC., Plaintiff-Appellee, v. ILLINOIS LIQUOR CONTROL COMMISSION, Ronald Nichols, James

McCue, Patrick Burke, Richard Ernzen, and George

Zobrest, Defendants-Appellants.

No. 2-85-0583.

Appellate Court of Illinois,

Second District.

Oct. 20, 1986.

Rehearing Denied Nov. 21, 1986.

Neil F. Hartigan, Atty. Gen., Roma Jones Stewart, William D. Frazier, Chicago, for Liquor Control Comn.

Halfpenny Hahn & Roche, George W. Keeley, Chicago, for other defendants-appellants.

Winston & Strawn, James J. Long, David S. Acker, Chicago, for plaintiff-appellee.

Justice UNVERZAGT delivered the opinion of the court:

The defendants, the Illinois Liquor Control Commission and the named individual defendants, appeal from an order of the circuit court of Kane County, entered in an administrative review proceeding, that reversed the commission's determination that the plaintiff's, Ted Sharpenter, Inc.'s, policy of offering different promotional discounts to on-and off-premises beer retailers constituted a violation of sections 6-5 and 6-17 of the Illinois Liquor Control Act of 1934. (Ill.Rev.Stat.1985, ch. 43, pars. 122 and 133.) The defendants argue the trial court's order must be reversed because it erred in finding as a matter of law that the commission exceeded its authority when it ordered plaintiff to cease and desist its dual promotional discount program.

Plaintiff, Ted Sharpenter, Inc., is the exclusive distributor of G. Heileman Brewing Company products within its designated geographic territory which includes Kendall and parts of Kane, DuPage and DeKalb Counties. Exclusive distributorships such as Sharpenter's are permitted by the Beer Industry Fair Dealing Act. (Ill.Rev.Stat.1983, ch. 43, par. 301 et seq.) Heileman products distributed by Sharpenter are Old Style, Old Style Light, Old Style L.A., Special Export, Tuborg, Drewry's, Black Label, Schmidt, Mickey's Malt, Colt 45, Malt Duck, and Kingsbury Near Beer. Retail licensees located within Sharpenter's registered territory who wish to sell Heileman products must purchase them from Sharpenter. They may not purchase Heileman products from another retailer (Ill.Rev.Stat.1985, ch. 43, par. 115(d) ), nor may a Heileman distributor who has been granted a sales territory sell or deliver to a retail liquor licensee whose place of business is not within that sales territory. Ill.Rev.Stat.1985, ch. 43, par. 305(5).

Sharpenter sells Heileman products to three types of retail operations: "off-premise" type accounts, including liquor store chains and other package stores selling beer for off-premise consumption; "on-premise" type accounts, including bars and taverns; and "combo" stores that operate under the same roof both for on-and off-premise sales, such as a tavern with a liquor store attached. Individual defendants James McCue, Patrick Burke, and George Zobrest are owners or operators of licensed retail on-premise liquor establishments in Aurora. Convenience sales of beer to their customers for off-premise consumption account for about 5 to 10% of their businesses. Defendant Ronald Nichols has a "combo" operation in Aurora: 60% off-premise and 40% on-premise. Defendant Richard Ernzen currently has two off-premise establishments, one in Batavia and one in North Aurora, and formerly owned 50% of an on-premise establishment in Batavia. This three-way categorization of retailers is not reflective of any statutory classification formulated by the Illinois legislature. The State issues the same type of license to all retail licensees and does not distinguish between on-premise versus off-premise retail operations in its issuance of licenses. The three categories of retail operations are used by Sharpenter in administering its dual pricing practice. Under this practice, a lesser promotional discount is offered to retailers determined by Sharpenter to be "on-premise" operations than is offered to retailers determined by Sharpenter to be "off-premise" operations. Off-premise retailers are offered a $1.10 per case discount if the retailer meets certain conditions, to-wit: purchase of a certain minimum quantity of product and a promise to make a "good faith promotional effort" in relation to that product. A "good faith promotional effort" may include such practices as having an "every day low price," displaying an "in-store price card" indicating the cost of the item or placing the product on a reduced-price sale.

On-premise operations are offered a lesser discount of $.50 per case on the same items that are offered to the off-premise establishments at a $1.10 per case discount. The discount offered to on-premise operations is not conditioned on them making a "good faith promotional effort" in order to obtain the discount. Regardless of promotions, volume of sales is generally greater for off-premise stores than for on-premise stores. However, off-premise discount promotions generate 2 to 20 times the normal volume, whereas on-premise discount promotions show only the average volume of sales. In some instances, combo stores are offered these varying deals in proportion to the percentage of their business reflected by each type of operation. Generally, retail licensees whose off-premise sales amount to only 5 to 10 percent of the total business of the establishment are not offered the off-premise discounts.

On September 26, 1984, the Illinois Liquor Control Commission held a hearing to consider whether Sharpenter's discount policy violated the Liquor Control Act of 1934. (Ill.Rev.Stat.1983, ch. 43, par. 93.9 et seq.) Robert Sharpenter testified regarding his corporation's discount system, noting that the goal of the promotional schemes directed at off-premise operations was to increase volume, whereas the object of the discount at on-premise places was to create good will, not to increase volume. The retail licensees also testified at the hearing. They testified that their on-premise operations had never been offered a discount under the same terms as off-premise licensees had been. Several retailers testified that they had attempted to get the favorable off-premise discount from Sharpenter but were refused. All the retail licensees purchase other brands of beer from various distributors, but none of those distributors maintains a dual pricing policy which depends on the type of retail operation. The other distributors charge all of their retail licensee customers the same price for their products. One of the retail licensees testified that one result of the exclusive sales territories enjoyed by distributors is that taverns down the street from his package store, which purchase their beer from an Elgin distributor, can sell Heileman products for less than he can in his package store because he is in Sharpenter's Aurora territory.

After considering the evidence introduced at the hearing and the briefs submitted, the Illinois Liquor Control Commission concluded on January 30, 1985, that the offering of different discount terms to different retailers constituted a violation of sections 6-5 and 6-17 of the Illinois Liquor Control Act. (Ill.Rev.Stat.1985, ch. 43, pars. 122 and 133.) The commission determined:

"That a distributor is free to establish the price, terms of sale and discounts they offer to retail licensees so long as they conflict with no other law, however, once established they must be offered under the same terms and conditions to all retail licensees regardless of the nature of the operation, and may not discriminate.

That to fail to do so, and offer the promotion under differing terms to different retailers as Sharpenter does constitutes a violation of sections 122 and 133 of the Illinois Liquor Control Act."

The commission ordered that Sharpenter "cease and desist immediately in its preferential/discriminatory pricing policies" in conformity with the order.

Sharpenter filed a petition for rehearing which was denied on March 13, 1985. It subsequently filed a complaint for administrative review on April 4, 1985, and Sharpenter also filed a motion for stay of the commission's order which motion was denied on April 23, 1985. Pleadings filed in opposition to the motion for stay alleged that Sharpenter had not yet ceased its dual pricing practice.

On June 19, 1985, the circuit court of Kane County reversed the ruling of the Illinois Liquor Control Commission and remanded for any further proceedings which were not inconsistent with its opinion. In its order, the court held that while the commission was "empowered to review the practice of its licensees," the commission exceeded its authority in entering its order.

The commission and the retail licensees preface their argumentswith reference to section 1-2 of the Illinois Liquor Control Act of 1934 (the Act) (Ill.Rev.Stat.1985, ch. 43, par. 94) which provides that the Act is to be liberally construed "to the end that the health, safety and welfare of the People of the State of Illinois shall be protected and temperance in the consumption of alcoholic liquors shall be fostered and promoted by sound and careful control and regulation of the manufacture, sale, and distribution of alcoholic liquors." The commission then notes that in order for it to effectuate the provisions of the Act, it is empowered to adopt rules and regulations in accordance with the Act which it finds necessary to carry on its function and duties (Ill.Rev.Stat.1985, ch. 43, par. 108(2) ), and has jurisdiction to fine, and to suspend or revoke licenses for any violation of the Act. (Ill.Rev.Stat.1985, ch. 43, par. 108(1).) Thus, it concludes, it necessarily has the power to review the activity of a licensee to determine whether or not the licensee is in violation of the Act. Sharpenter does not contest the right of the commission to investigate the activities of its licensees, but believes that power does not automatically confer upon the commission the power to...