HARRIS v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD

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District Court of Appeal, Third District, California.

Malcolm E. HARRIS, Director of the Department of Alcoholic Beverage Control of the State of California, Appellant, v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD of the State of California, et al., Respondents.

Civ. 10586.

Decided: October 18, 1963

Stanley Mosk, Atty. Gen., by Wiley W. Manual, Deputy Atty. Gen., San Francisco, for petitioner-appellant. Charles P. Just, Chief Counsel, Alcoholic Beverage Control Appeals Board, Sacramento, for real party in interest. Bronson, Bronson & McKinnon by George K. Hartwick, San Francisco, and Anthony J. Kennedy, Sacramento, for respondent.

Malcolm E. Harris, Director of the Department of Alcoholic Beverage Control, has appealed from an order of the Sacramento Superior Court denying the department's petition for a writ of mandate. The writ was sought to set aside a decision of the Alcoholic Beverage Control Appeals Board of the State of California which reversed certain orders of the department denying a petition for transfer of a distilled spirits wholesaler's license and a distilled spirits importer's license and revoking the licenses.

This case si concerned with the question whether a corporation (Park & Tilford, a New York corporation, also called ‘grandfather’) whose stock is owned by a distiller, Schenley Industries, Inc., is entitled to have a distilled spirits wholesaler's license issued to it under the provisions of section 23774 of the Business and Professions Code.

Under the provisions of the Alcoholic Beverage Control Act a manufacturer of distilled spirits may not hold any license except a manufacturer's license. However, there is an exception. The statutes (all references are to the Business and Professions Code) which discuss the licensing limitations and with which we are concerned are:

Section 23771 which provides, in effect, that a manufacturer of distilled spirits may hold only a distilled spirits manufacturer's license.

Section 23772 which provides, in effect, that a manufacturer may not have an interest, directly or indirectly, in a wholesaler's license.

Section 23774 which provides for an exception to both of the foregoing sections. It reads: ‘The provisions of Section 23771 and 23772 do not prevent the issuance of a distilled spirits wholesale license to any person who, on July 1, 1937, owned or operated a business which for five years immediately preceding that date had maintained and operated in this State a bona fide jobbing and distributing establishment for the sale to retail dealers of goods, wares, and merchandise, the major portion of which business * * * was * * * other than alcoholic beverages.’

There was a stipulation as to the facts which shows that prior to 1950 Park & Tilford, Inc., a Delaware corporation, owned several corporations which were distillers: Park & Tilford, a New York Corporation, which admittedly qualified under section 23774, hereinafter called ‘grandfather;’ and Park & Tilford Import Company, which held a wholesale and import license. Park & Tilford Import Company held these licenses because of its affiliation with grandfather. In 1950 all the Park & Tilford corporations, except grandfather, were merged into Park & Tilford Distillers Corporation, and the licenses were transferred to it. In 1955 Schenley Industries, Inc., purchased all the stock of Park & Tilford Distillers Corporation. The licenses continued to be renewed. In 1958 Park & Tilford Distillers Corporation was merged into Schenley Industries, Inc. Grandfather alone remained as a separate corporation. Both grandfather and Schenley Industries, Inc., applied for a transfer of the licenses held by Park & Tilford Distillers Corporation. Both applications were rejected. Then both petitioned in the alternative for a transfer of the licenses to one or the other, along with a request for a renewal. The licenses were renewed in the name of Park & Tilford Distillers Corporation, though it was not physically issued. The petitions for transfer were denied.

In order to revoke the licenses the department on August 18, 1958, filed an accusation against Park & Tilford Distillers Corporation. It charged the licensee in four counts of having not been the sole and true owner of its distilled spirits wholesaler's and distilled spirits importer's licenses since March 26, 1958, and that in fact Schenley Industries, Inc., had been permitted to hold the ownership and to exercise the privileges of said licenses without being licensed to do so by the department. The accusation further charged the licensee with having quit and abandoned its premises and failing to surrender its license within the required time in violation of rule 65 of the department. (Cal.Admin.Code, tit. 4, sec. 65.) The licensee was further charged with allowing Schenley Industries, Inc., to hold an interest through stockholders in the distilled spirits wholesaler's and distilled spirits importer's licenses issued to the licensee.

The licensee was further charged with allowing Schenley Industries, Inc., a manufacturer of distilled spirits, to hold an ownership in the licenses held by it in violation of sections 23771 and 23772 of the Business and Professions Code.

The solution to the basic problem presented requires an interpretation of sections 23771, 23772 and 23774. These sections have never been construed by an appellate court of this state, but a persuasive interpretation is found in Opinion No. 55–61 of the attorney general (25 Ops.Cal.Atty.Gen. 288), which was concerned with the question whether the exemption of a corporation within the terms of section 23774 could extend to a subsidiary. The opinion reads in part at pages 289–290:

‘At first blush, it would appear that the exemptions found in 23774 do not relate to a corporation formed as late as 1955. However, such a view is quickly dispelled when one reads section 23772 (as well as sec. 23771) and notes that the law explicitly recognizes the ‘alter-ego’ theory of corporate control. The sections must be read together and ‘liberally construed’ (see sec. 23001). If one corporation is merely an agency of another, we must pierce the corporate veil and recognize that in the eyes of the law the parent corporation and all of its affiliates must be considered as one (see Watson v. Commonwealth Ins. Co., 8 Cal.2d 61, 68, 63 P.2d 295; Stark v. Coker, 20 Cal.2d 839, 846, 129 P.2d 390, 394; Lisle v. Shipp, 96 Cal.App. 264, 273 P. 1103). Further, the word ‘person’ as defined in section 23008, and thus as used in section 23774, relates to ‘any group or combination acting as a unit.’

‘Therefore, the rights or exemptions that the parent corporation entertains under section 23774 are also rights and exemptions running to its ‘alter-ego,’ namely, the affiliate corporation. We therefore resolve that, since the parent corporation fully meets the requirements of section 23774, it may have whatever licenses are permitted to be issued by virtue of theprovisions of that section, issued directly to the newly formed corporation.'

The trial judge in his memorandum of decision affirming the action of the Alcoholic Beverage Control Appeals Board stated:

‘* * * I am of the view that the provisions of Business & Professions Code section 23771 and section 23772 which prohibit the owner of a distiller's license from also owning a wholesaler's or retailer's license are not applicable to the factual situation here since both the respondent Schenley Industries, Inc. and Park & Tilford are within the exception prescribed by section 23774 of the same Code. The Department vigorously argues that the issuance of the wholesaler's license to Park & Tilford under AB–1449 would be in effect in the issuance of such a license to Schenley since Park & Tilford is now a wholly owned subsidiary of Schenley. This contention is, of course, true in a broad sense. The Legislature, however, has by the enactment of section 23774 authorized and permitted such a condition to exist and such a condition has in fact existed for many years since Park & Tilford Distillers Corporation, one of the respondents here, had been long engaged in the business of manufacturing liquor and has at the same time been the owner of the subsidiary Park & Tilford who has been exempt from the provisions of 23771 and 23772 as a ‘person’ who on July 1, 1937, owned and operated a business which for five years immediately preceding that date had maintained and operated in the State of California a bona fide jobbing and distributing establishment for the sale to retail dealers of goods, wares, and merchandise, the major portion of which business at a time five years preceding July 1, 1937, was goods, wares, and merchandise other than alcoholic beverages as prescribed by section 23774. The Department's evident concern because of the proposed operation of the business by Schenley rather than by Park & Tilford Distillers Corp. might be detrimental to liquor law enforcement in California may or may not be well taken. In any event, this is an argument which, in my view, should be directed to the Legislature and not to the Court.'

The record here shows that grandfather (Park & Tilford, New York) has at all times since 1933 been a part of a distilled spirits complex consisting of several corporate entities, and the exemption for which it qualified has been utilized in an approved manner since the enactment of section 23774. The fact that its stock is now owned by a different distiller can not preclude issuance of the licenses. The reasoning of the attorney general and the learned trial judge, as squoted above, is clearly correct. We agree with and adopt it.

This, however, does not dispose of the case. One more point requires discussion. The Department of Alcoholic Beverage Control found that Park & Tilford Distillers Corporation permitted Schenley, Inc. to hold the ownership and exercise the privileges of its licenses. The department revoked the licenses on this ground. This issue was not specifically decided by the appeals board, though the accusation was ordered dismissed. It should be obvious that a corporation which has outstanding capital stock has little, if any, control over the ownership of its stock. Normally, shareholders may transfer securities without the consent of the corporation. If Schenley's ownership were the sole basis of the charge, the failure of the appeals board to specifically determine this issue would be immaterial.

But the permissive use of the licenses by one not the owner would be a ground for disciplinary action by the Department of Alcoholic Beverage Control. While the appeals board may have been correct in its implied finding that the charges in the accusation were not supported since the accusation charged in the conjunctive, it should not have ordered the accusation dismissed. It should have reversed the decision for reconsideration by the department. (See Martin v. Alcoholic Bev. etc. Appeals Bd., 52 Cal.2d 238, 340 P.2d 1.) The power of the appeals board is limited. Ordinarily, it may only enter an order either affirming or reversing the decision. ‘* * * When the order reverses the decision of the department, the board may direct the reconsideration of the matter in the light of its order and may direct the department to take such further action as is specially enjoined upon it by law, but the order shall not limit or control in any way the discretion vested by law in the department.’ (Cal.Const. art. XX, sec. 22.) This mandate was not followed by the appeals board, but instead the appeals board ordered the accusation dismissed. It should have ordered the cause remanded to the department for further proceedings. (Macfarlane v. Dept. Alcoholic Bev. Control, 51 Cal.2d 84, 330 P.2d 769.)

The decision of the superior court denying appellant's petition is reversed. The superior court is directed to order the appeals board to remand the cause to the department for further proceedings not inconsistent with the views expressed herein.

SCHOTTKY, Justice.

PIERCE, P. J., and FRIEDMAN, J., concur.