Wisconsin Wine & Spirit Institute v. Ley, 86-2028

• Decision Date: 15 October 1987
• Docket Number: No. 86-2028,86-2028
• Citation: 416 N.W.2d 914,141 Wis.2d 958
• Parties: WISCONSIN WINE & SPIRIT INSTITUTE, Plaintiff-Appellant, v. Michael LEY and Wisconsin Department of Revenue, Defendants-Respondents.
• Court: Wisconsin Court of Appeals

Page 914

416 N.W.2d 914

141 Wis.2d 958

WISCONSIN WINE & SPIRIT INSTITUTE, Plaintiff-Appellant, v. Michael LEY and Wisconsin Department of Revenue Defendants-Respondents.

No. 86-2028.

Court of Appeals of Wisconsin.

Submitted on Briefs Oct. 5, 1987.

Opinion Released Oct. 15, 1987.

Opinion Filed Oct. 15, 1987.

Alan Marcuvitz and Andrea Roschke and Peregrine, Marcuvitz & Peltin, S.C., Milwaukee, for plaintiff-appellant.

Donald J. Hanaway, Atty. Gen., and James C. Mc Kay, Jr., Asst. Atty. Gen., for defendants-respondents.

Before GARTZKE, P.J., and EICH and SUNDBY, JJ.

SUNDBY, Judge.

The parties agree that the issue presented for review is: Does the classification of liquor wholesalers maintained by sec. 125.69(1)(a), Stats., violate the equal protection requisites of the fourteenth amendment to the United States Constitution and art. I, sec. 1, of the Wisconsin Constitution ¹? Because we conclude that it does, we reverse the declaratory judgment in favor of the respondents.

I. BACKGROUND OF THE CASE

Section 125.69(1)(a), Stats., ² prohibits an intoxicating liquor wholesaler, among others, from holding a direct or indirect interest in a retail "Class A" liquor license or establishment, and a retail "Class A" liquor licensee from holding a direct or indirect interest in a liquor wholesale permit or establishment, except that if such prohibited interest existed on October 3, 1963, licenses and permits which would otherwise be in violation of the restriction shall continue to be renewed unless other cause is shown for nonrenewal.

The appellant, Wisconsin Wine & Spirit Institute, is a voluntary trade association comprised of eighteen members holding intoxicating liquor wholesaler's licenses. Seventeen of its members were in existence before October 3, 1963, but held no interest in a retail "Class A" liquor license. Twelve corporations, one cooperative and one individual who hold a liquor wholesaler's license also hold a retail "Class A" liquor license under the grandfather clause contained in sec. 125.69(1)(a), Stats.

II. STANDARD OF REVIEW

Our scope of review is limited where the constitutionality of a statute is involved. State ex rel. Grand Bazaar v. Milwaukee, 105 Wis.2d 203, 208, 313 N.W.2d 805, 808 (1982). A statute is presumed to be constitutional and will be held unconstitutional only if it appears so beyond a reasonable doubt. State ex rel. Hammermill Paper Co. v. La Plante, 58 Wis.2d 32, 46, 205 N.W.2d 784, 792 (1973). The burden of establishing the unconstitutionality of the statute is on the person attacking it, who must overcome the strong presumption in favor of its validity. Id., 205 N.W.2d at 793. If there is any reasonable basis upon which the legislation may constitutionally rest, the court must assume that the legislature had such fact in mind and passed the act accordingly. Id. We do not consider the economic, social, and political matters dealt with in statutes. Id.

The Institute contends that the statute in question violates the rights of its members to the equal protection of the laws. A party challenging a statute on equal protection grounds must demonstrate beyond a reasonable doubt that the legislative choice is without a rational basis. Clark Oil & Refining Corp. v. Tomah, 30 Wis.2d 547, 553, 141 N.W.2d 299, 302 (1966). In this case, the legislature has not articulated its rationale for permitting certain liquor wholesalers to hold retail liquor licenses while excluding others. We, however, are obligated to construct such a rationale if possible. Milwaukee Brewers v. DH & SS, 130 Wis.2d 79, 101, 387 N.W.2d 254, 264 (1986).

While the rational-basis standard of review forbids us from substituting our notions of good public policy for those of the legislature, and, if necessary, requires that we construct a rational basis for a statute, this does not mean that our evaluation is limited to form and not substance. Grand Bazaar, 105 Wis.2d at 209, 313 N.W.2d at 808-09. The rational-basis standard of review is "not a toothless one." Id., 313 N.W.2d at 809, quoting Schweiker v. Wilson, 450 U.S. 221, 234, 101 S.Ct. 1074, 1082, 67 L.Ed.2d 186 (1981).

III. RATIONALE FOR STATUTE AND GRANDFATHER CLAUSE

The Institute does not attack the constitutionality of the prohibition against liquor wholesalers having an interest in a retail liquor establishment. It is necessary, however, that we examine the rationale of sec. 125.69(1)(a), Stats., if we are to correctly assess the validity of the grandfather clause which exempts some liquor wholesalers from the statutory restriction.

Section 125.69(1)(a), Stats., is one of the statutes which collectively form what has been called the "tied house" law. 66 Op.Att'y.Gen. 276, 278 (1977). Tied house statutes are aimed at preventing the integration of manufacturing, wholesale, warehouse, and retail outlets in the liquor industry. State v. Black Steer Steak House, Inc., 102 Wis.2d 534, 537, 307 N.W.2d 328, 330 (Ct.App.1981); Borman's, Inc. v. Michigan Liquor Control Com'n, 37 Mich.App. 738, 195 N.W.2d 316, 319 (1972). ³ Such statutes are not a recent development. Washington sustained the validity of its tied house law in 1913. Lewer v. Cornelius, 72 Wash. 124, 129 P. 911, 914 (1913). A number of courts, including the Michigan Court of Appeals, have held variations of the "tied house" statute valid against constitutional attack. Borman's, 195 N.W.2d at 319-20. See also Opinion of the Justices to the House of Rep., 368 Mass. 857, 333 N.E.2d 414, 418 (1975) ("Legislation on these lines cannot be pronounced unconstitutional.").

Liquor wholesalers holding retail liquor licenses, by functioning as vertically integrated economic units, have a competitive advantage over other retail liquor licensees. Borman's, 195 N.W.2d at 321. By employing economics of scale in its marketing techniques, a wholesaler holding a retail license can sell its beverages at lower prices. Id. In Affiliated Distillers Brands Corp. v. Sills, 56 N.J. 251, 265 A.2d 809, 814 (1970), amended on rehearing, 60 N.J. 342, 289 A.2d 257 (1972), the New Jersey Supreme Court also cites the dangers that would result from concentration of liquor retailing in the hands of economically powerful interests.

The legislature has not suggested a rationale for the grandfather exception in sec. 125.69(1)(a), Stats., which requires that permits and licenses which would otherwise violate the tied-house restriction issued to liquor wholesalers and "Class A" liquor retailers before October 3, 1963 be renewed unless other cause is shown for nonrenewal. The usual rationale for this type of grandfather clause is economic, and it is on that basis that the trial court found the clause constitutional. The trial court stated:

It is a reasonable assumption that wholesalers, who also possessed retail licenses prior to the cutoff date, had already invested significant resources to develop and maintain a retail business. Such equitable or reliance interest is a substantial distinction between the subject classes, consideration of which is an appropriate part of the legislative function.

We reject the proposition that purely economic reasons justify a perpetual exception from a police power regulation. The court in Grand Bazaar, 105 Wis.2d at 214-15, 313 N.W.2d at 811, rejected the city's argument that the grandfather clause of the ordinance was reasonable because it protected the substantial investments the "grandfathered" licensees had made in their licenses. The court applied the five-fold test for viewing equal protection challenges to classification schemes set forth in Omernik v. State, 64 Wis.2d 6, 19, 218 N.W.2d 734, 742 (1974), as follows:

(1) All classification must be based upon substantial distinctions; (2) the classification must be germane to the purpose of the law; (3) the classification must not be based on existing circumstances only; (4) the law must apply equally to each member of the class; and (5) the characteristics of each class should be so far different from those of other classes as to reasonably suggest the propriety of substantially different legislation.

Grand Bazaar, 105 Wis.2d at 215, 313 N.W.2d at 811.

We utilize those portions of the Grand Bazaar court's analysis of the five-fold test which are dispositive of the validity of the grandfather clause contained in sec. 125.69(1)(a), Stats.

In Grand Bazaar, the city had argued that part (3) of the Omernik test was satisfied because, as time went on, various members of the exempted class would fail to renew their licenses, and the class size would diminish. The trial court herein rested its conclusion in part on this same reasoning. However, as to this reasoning the Grand Bazaar court stated:

We note, however, that the grandfather clause contains a perpetual right, not a temporary one. If one held a Class "A" license on June 30, 1977, it could be renewed ad infinitum regardless of the percentage of liquor sales. As we stated in State ex rel. Ford Hopkins Co. v. Mayor [226 Wis. 215, 224, 276 N.W. 311, 315 (1937) ], "[t]he distinction cannot be based on time." We conclude that [the grandfather clause] is based solely on existing circumstances on June 30, 1977, and therefore the classification is a denial of equal protection.

Grand Bazaar, 105 Wis.2d at 217, 313 N.W.2d at 812.

Section 125.69(1)(a), Stats., creates a perpetual class of privileged wholesalers-retailers based solely on existing circumstances on October 3, 1963. We conclude that Grand Bazaar is controlling and that the classification is a denial of equal protection.

Part (5) of the Omernik test requires that the characteristics of each class shall be so far different as to reasonably suggest the propriety of substantially different legislation. Omernik, 64 Wis.2d at 19, 218 N.W.2d at 742. The grandfather clause establishes two separate classes of liquor wholesalers whose only distinguishing feature is that on October 3, 1963 one class had an interest in a retail liquor...