RICE v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD

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Court of Appeal, First District, Division 4, California.

Baxter RICE, Director of the Department of Alcoholic Beverage Control of the State of California, Petitioner, v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD of the State of California, Respondent;

Christine T. and Richard E. CORSETTI dba Bob's Liquors, Real Party in Interest. YOUNG'S MARKET COMPANY, a corporation, et al., Petitioners, v. ALCOHOLIC BEVERAGE CONTROL APPEALS BOARD of the State of California, Respondent; Christine T. and Richard E. CORSETTI dba Bob's Liquors, Real Party in Interest.

Civ. 40507, 40523.

Decided: March 10, 1977

Evelle J. Younger, Atty. Gen., L. S. Porter, Asst. Atty. Gen., Harold W. Teasdale, Matthew P. Boyle, Deputy Attys. Gen., San Francisco, for petitioner Baxter Rice, Director of Dept. of Alcoholic Beverage Control. Floyd R. Mitzner, Sacramento, for respondent, Alcoholic Beverage Control Appeals Bd. Donald A. Tenenbaum, Allen Ruby, San Jose, for real party in interest. Harry M. Snyder, A. Kirk McKenzie, Consumers Union of United States, Inc., California Citizen Action Group, San Francisco Consumer Action, amicus curiae. Joseph P. Freitas, Jr., Dist. Atty., Raymond T. Bonner, Asst. Dist. Atty., City and County of San Francisco, San Francisco, Edwin L. Miller, Jr., Dist. Atty., Robert C. Fellmeth, Deputy Dist. Atty., County of San Diego, San Diego, amicus curiae for respondent. Kurt W. Melchior, Edmund T. King, II, Hale Kronenberg, Severson, Werson, Berke & Melchior, San Francisco, amicus curiae for petitioner. Ball, Hunt, Hart, Brown & Baerwitz, Michael J. Maloney, E. Willcox Clarke, Jr., Los Angeles, for petitioners, Young's Market Co., et al. Stroock & Stroock & Lavan, Michael M. Umansky, Los Angeles, for The Fed-Mart Corp., amicus curiae. Harry M. Snyder, A. Kirk McKenzie, San Francisco, for Consumers Union of United States, Inc., California Citizen Action Group, San Francisco Consumer Action, amicus curiae. Linda T. Abrams, Los Angeles, for Ass'n of Liberterians, amicus curiae. Wright & Thompson, Beverly Hills, for Cal-State Package Store & Tavern Owners Ass'n, amicus curiae.

The issues presented by these petitions for writ of review relate to the legality of the retail price maintenance provisions of the Alcoholic Beverage Control Act. We have concluded that the provisions are lawful.

The Alcoholic Beverage Control Appeals Board (Board) found that the retail price maintenance provisions were unconstitutional in view of the recent amendment of the Sherman Antitrust Act and that the provisions violate the equal protection clauses of the state and federal Constitutions. The Board reversed a disciplinary order of the Department of Alcoholic Beverage Control (Department), suspending the license of Christine T. and Richard E. Corsetti. Following the Board's decision, the director of the Department initiated this proceeding (1 Civil 40507). Young's Market Company, and several other corporations engaged in the wholesale distribution and sale of alcoholic beverages, have also filed a petition for writ of review (1 Civil 40523). We will consider the two petitions together.

The Sherman Antitrust Act

The retail price maintenance provisions of the Alcoholic Beverage Control Act are found in chapter 10 of division 9 of the Business and Professions Code, entitled ‘Alcoholic Beverages Fair Trade Contracts and Price Posting.’

Business and Professions Code section 24750 provides: ‘No contract relating to the sale or resale of any alcoholic beverage which bears, or the label or container of which bears, the trade-mark, brand, or name of the producer or owner of the alcoholic beverage and which is in fair and open competition with alcoholic beverages of the same general class produced by others violates any law of this State by reason of either of the following provisions which may be contained in such contract: (a) That the buyer will not resell the alcoholic beverage except at the price stipulated by the vendor. (b) That the producer or vendee of the alcoholic beverage require, upon the sale of the alcoholic beverage to another, that the purchaser agree that he will not, in turn, resell except at the price stipulated by the producer or vendee.’

Section 24755 formerly provided, prior to its amendment in 1961, that ‘[a]ll distilled spirits sold at retail shall be . . . sold pursuant to . . . [such a fair trade] contract . . ..’ That section now provides, in pertinent part: ‘(a) No package of distilled spirits which bears the brand, trademark or name of the owner or person in control shall be sold at retail in this State for consumption off the license premises unless a minimum retail price for such package first shall have been filed with the department in accordance with the provisions of this section. . . . (f) No offsale licensee shall sell any package of distilled spirits at any price less than the effective filed price of such package unless written permission is granted by the department, for good cause shown and for reasons not inconsistent with this division.’

The Sherman Antitrust Act states: ‘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 declared to be illegal.’ (15 U.S.C., § 1.)

Section 1 of the Sherman Act formerly included a proviso, known as the Miller-Tydings Amendment, which permitted ‘fair trade’ contracts in states in which such contracts were legal.1 That proviso was repealed on December 12, 1975 (Public Law 94–145, known as the Consumer Goods Pricing Act). California's Fair Trade Act (Bus. & Prof.Code, §§ 16900–16905) which allowed such contracts, was also repealed in 1975 (Stats. 1975, ch. 429; AB No. 1109).2

The Board reasoned that when Congress repealed the fair trade proviso of section 1 of the Sherman Act, sections 24750 and 24755 became invalid, since they result in activity which is illegal under the first sentence of section 1. This conclusion is erroneous.

The retail price restrictions imposed by chapter 10 are part of a state economic regulatory scheme, and therefore not subject to the Sherman Act. (Parker v. brown, 317 U.S. 341, 350–351, 63 S.Ct. 307, 87 L.Ed. 315; Olsen v. Smith, 195 U.S. 332, 344–345, 25 S.Ct. 52, 49 L.Ed. 224; Goldfarb v. Virginia State Bar, 421 U.S. 773, 95 S.Ct. 2004, 44 L.Ed.2d 572.) In Parker, the United States Supreme Court considered the validity of the California Agricultural Prorate Act, the purpose of which was to ‘conserve the agricultural wealth of the State.’ The act authorized state officials, on petition of 10 raisin producers, to organize a committee of producers to sell raisins in a noncompetitive manner. The marketing program was administered by the producers, subject to approval of the State Director of Agriculture. The appellee, a raisin producer who was required to participate in a noncompetitive marketing plan, brought suit in federal court, claiming that the combinations were in violation of the Sherman Act. The Supreme Court assumed, for purposes of its decision, that the prorate program would violate the Sherman Act if it were organized and carried out solely by a contract, combination, or conspiracy of private persons or corporations. It held, however, that ‘in view of . . . [the Sherman Act's] words and history, it must be taken to be a prohibition of individual and not state action.’ (317 U.S. at p. 352, 63 S.Ct. at p. 314.) The court noted that the California prorate plan ‘derived its authority and its efficacy from the legislative command of the state and was not intended to operate or become effective without that command. We find nothing in the language of the Sherman Act or in its history which suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature. In a dual system of government in which, under the Constitution, the states are sovereign, save only as Congress may constitutionally subtract from their authority, an unexpressed purpose to nullify a state's control over its officers and agents is not lightly to be attributed to Congress.

‘The Sherman Act makes no mention of the state as such, and gives no hint that it was intended to restrain state action or official action directed by a state. The Act is applicable to ‘persons' including corporations (§ 7), and it authorizes suits under it by persons and corporations (§ 15). A state may maintain a suit for damages under it, Georgia v. Evans, 316 U.S. 159, 62 S.Ct. 972, 86 L.Ed. 1346, but the United States may not, United States v. Cooper Corp., 312 U.S. 600, 61 S.Ct. 742, 85 L.Ed. 1071—conclusions derived not from the literal meaning of the words ‘person’ and ‘corporation’ but from the purpose, the subject matter, the context and the legislative history of the statute.

‘There is no suggestion of a purpose to restrain state action in the Act's legislative history. The sponsor of the bill which was ultimately enacted as the Sherman Act declared that it prevented only ‘business combinations.’ 21 Cong.Rec. 2562, 2457; see also at 2459, 2461. That its purpose was to suppress combinations to restrain competition and attempts to monopolize by individuals and corporations, abundantly appears from its legislative history. See Apex Hosiery Co. v. Leader, 310 U.S. 469, 492–93 and n. 15, 60 S.Ct. 982, 84 L.Ed. 1311; United States v. Addyston Pipe & Steel Co., 6 Cir., 85 F. 271, affirmed 175 U.S. 211, 20 S.Ct. 96, 44 L.Ed. 136; Standard Oil Co. v. United States, 221 U.S. 1, 54–58, 31 S.Ct. 502, 55 L.Ed. 619.' (Parker, at pp. 350–351, 63 S.Ct. at p. 313.)

In Goldfarb v. Virginia State Bar, supra, 95 S.Ct. 2004 at page 2015, the Supreme Court stated that anticompetitive activity required by a state, acting as sovereign, is not proscribed by the Sherman Act. California's retail liquor price provisions clearly fall within the category of state-required anticompetitive activity which the United States Supreme Court has exempted from Sherman Act strictures. The state has obviously acted as sovereign in establishing price maintenance plan;3 the plan ‘derives its authority and efficacy’ from the legislature, and it would not ‘operate or become effective’ without the legislation in question. (Parker, supra, 317 U.S. at p. 350, 63 S.Ct. 307.)

Cantor v. Detroit Edison Company, 428 U.S. 579, 96 S.Ct. 3110, 49 L.Ed.2d 1141, cited by the Attorney General as a ‘modification’ of Parker v. Brown, does not itiate the effect of Parker v. Brown in the case before us. There, a public utility provided light bulds to its costomers at no extra charge. The practice was authorized by the Michigan Public Service Commission as part of the utility's rate structure, which could not be changed without commission approval. The Supreme Court ruled that no exemption from federal antitrust laws existed because (1) the state's participation in the alleged anticompetitive act was not domionant, and (2) an exemption from federal and antitrust laws was not necessary to implement the state's regulatory program. As pointed out by the court in Cantor, ‘[r]egardless of the outcome of this case, Michigan's interest in regulating its utilities' distribution of electricity will be almost entirely unimpaired.’ (428 U.S., at p. 598, 96 S.Ct., at p. 3120.) In contrast, California's participation in the price control of liquor is obviously dominant; the price control provisions, furthermore, are the crux of the state's program of liquor regulation, which has been upheld by the courts of his state on numerous occasions. (Samson Market Co. v. Alcoholic Bev., etc., Appeals Bd., 71 Cal.2d 1215, 18 Cal.Rptr. 251, 459 P.2d 667; Wilke & Holzheiser, Inc. v. Dept. of Alcoholic Bev. Control, 65 Cal.2d 349, 55 Cal.Rptr. 23, 420 P.2d 735; Allied Properties v. Dept. of Alcoholic Beverage Control, 53 Cal.2d 141, 346 P.2d 737; Reimel v. Alcoholic Bev., etc., Appeals Bd., 256 Cal.App.2d 158, 64 Cal.Rptr. 26, 65 Cal.Rptr. 251.) We conclude, therefore, that the retail price fixing required by Business and Professions Code sections 24750 and 24755 is not prohibited by the Sherman Act.

In addition, it is clear that Congress did not intend, by its repeal of the Miller-Tydings and McGuire Acts, to invalidate any state statute affecting the price fixing of liquor. The report of the Senate Judiciary Committee (1975) No. 94–466; U.S.Code Cong. & Admin.News p. 1569, which recommended repeal, explicitly stated: ‘Liquor will not be affected by the repeal of the fair trade laws in the same manner as other products because the Twenty-First Amendment to the Constitution gives the States broad powers over the sale of alcoholic beverages. Thus, while repeal of the fair trade laws generally will prohibit manufactures from enforcing resale prices, alcohol manufacturers may do such in States which pass price fixing statutes pursuant to the Twenty-First Amendment.’ (2 U.S.Code, Cong. and Admin.News (1975) p. 1571.) While the Board's decision quotes extensively from other portions of this report, it pointedly omits this paragraph. Extension of the Sherman Act to California's price maintenance provision was obviously not contemplated by Congress.

Even if Congress had had such an intention, a state has broad powers, under section 2 of the Twenty-First Amendment,4 to regulate liquor traffic within its boundaries, the state's prerogatives with respect to liquor destined for use, distribution or consumption within its borders, take precedence over conflicting federal legislation, including legislation such as the Sherman Act, arising under the Commerce Clause of the United States Constitution. (National Railroad Passenger Corporation v. Miller, D.C., 358 F.Supp. 1321, 1325–1329, affirmed 414 U.S. 948, 94 S.Ct. 285, 38 L.Ed.2d 205; Joseph E. Seagram & Sons, Inc. v. Hostetter, 384 U.S. 35, 41–42, 45–46, 86 S.Ct. 1254, 16 L.Ed.2d 336; Hostetter v. Idlewild Liquor Corp., 377 U.S. 324, 330, 84 S.Ct. 1293, 12 L.Ed.2d 350.) The Board relied on statements to the contrary in Sail'er Inn, Inc. v. Kirby, 5 Cal.3d 1, 12, 95 Cal.Rptr. 329, 485 P.2d 529. There, our Supreme Court held that Business and Professions Code section 25656, which imposed a penalty on a bar owner who employed a female bartender, was unconstitutional. The court, rejecting an argument that the Twenty-First Amendment rendered the 1964 Civil Rights Act inapplicable, stated that some ‘balancing and accommodation’ must take place between the Twenty-First Amendment and the Commerce Clause. The court concluded that since the statute in question was ‘not even tangentially related to ‘transportation or importation’ of liquor into California,' but merely affected to employment at the retail level, the Twenty-First Amendment was inapplicable. (5 Cal.3d at pp. 12–13, 95 Cal.Rptr. at p. 336, 485 P.2d at p. 536.) Thus, Sail'er Inn does not conflict with the rules of the federal cases stated above.

Equal Protection

The board adopts an interesting argument that because of ‘changed circumstances,’ the retail price maintenance provisions ‘are not currently reasonable,’ ‘can no longer be justified,’ and that the classification of liquor retailers under the law therefore results in a denial of equal protection. This conclusion needs little discussion, since our Supreme Court has, on three occasions, upheld the constitutionality of sections 24750 and 24755 (Samson Market Co. v. Alcoholic Bev., etc., Appeals Bd., supra, 71 Cal.2d 1215, 81 Cal.Rptr. 251, 459 P.2d 667; Wilke & Holzheiser, Inc. v. Dept. of Alcoholic Bev. Control, supra, 65 Cal.2d 349, 55 Cal.Rptr. 23, 420 P.2d 735; Allied Properties v. Dept. of Alcoholic Beverage Control, supra, 53 Cal.2d 141, 346 P.2d 737.

Since the retail price maintenance law is an economic regulation which neither creates a ‘suspect classification’ nor affects a ‘fundamental interest,’ it is vested with a presumption of constitutionality and will be upheld if the distinctions drawn by it bear some rational relationship to a conceivable legitimate state purpose. (Westbrook v. Mihaly, 2 Cal.3d 765, 784–785, 87 Cal.Rptr. 839, 471 P.2d 487; Sail'er Inn, Inc. v. Kirby, supra, 5 Cal.3d 1, at pp. 16–17, 95 Cal.Rptr. 329, 485 P.2d 529.) While the Supreme Court has never expressly ruled on this equal protection argument, it has considered the contention that the law was an unconstitutional exercise of the police power. (Allied Properties, supra, 53 Cal.2d at p. 146, 346 P.2d 737; Wilke & Holzheiser, supra, 65 Cal.2d at pp. 357–360, 55 Cal.Rptr. 23, 420 P.2d 735.)

In Allied Properties, the court stated that the test of a proper exercise of the police power is ‘whether the object of the statute is one for which that power may legitimately be invoked and, if so, whether the statute bears a reasonable and substantial relation to the object sought to be obtained.’ (53 Cal.2d at p. 146, 346 P.2d at p. 739.) The court concluded that: ‘The statutory provisions also operate to remove some factors which may lead to intemperance because the elimination at the retail level of price cutting, bargain sales, and advertising of low prices tends to reduce excessive purchases of alcoholic beverages. It is true, as Allied points out, that there is nothing in the Alcoholic Beverage Control Act to prevent producers and wholesalers from setting low prices that may induce a large consumption of such beverages. It was not the purpose of the legislation, however, to reduce intemperance by establishing high prices generally but only by preventing the increase of consumption of alcoholic beverages resulting from retail price cutting and bargain sales, and the Legislature may take reasonable measures to eliminate some of the causes of an evil without attacking all of them. (Railway Express Agency v. New York, 336 U.S. 106, 110, 69 S.Ct. 463, 93 L.Ed. 533.) The classification made by the Legislature in regulating retail prices without regulating wholesale prices is reasonable since the Legislature could properly conclude that competition among the relatively few producers and wholesalers would not result in disorderly marketing conditions but that price stabilization with respect to the far larger number of retailers, who sell directly to the consumers, was necessary to prevent selling practices tending to increase sales and consumption of alcoholic beverages.’ (53 Cal.2d at pp. 148–149, 346 P.2d at p. 741.) The court reiterated its support of the retail price maintenance provision in Wilke & Holzheiser, Inc., supra, 65 Cal.2d 349, at pages 360–365, 55 Cal.Rptr. 23, 420 P.2d 735, and Samson Market Co. v. Alcoholic Bev., etc., Appeals Bd., supra, 71 Cal.2d at pages 1218–1219, 81 Cal.Rptr. 251, 459 P.2d 667. Thus, our Supreme Court has already concluded that the challenged law has a legitimate purpose, and that the means chosen by the Legislature bear a rational relationship to that purpose. The ‘changed circumstances' cited by the Board are that liquor prices are essentially ‘fixed’ horizontally as well as vertically, and that the public is not ‘protected’ by horizontal price competition. While the Board speaks of a change in economic circumstances since 1939, when the price maintenance laws took effect, it cites no change since 1969, when the Supreme Court, in Samson Market, last upheld the statutes. Under Auto Equity Sales, Inc. v. Superior Court, 57 Cal.2d 450, 455, 20 Cal.Rptr. 321, 369 P.2d 937, this court has no alternative but to accept the holding of our Supreme Court on the validity of this statute.

The Petition Filed By Young's Market

The Board asserts that Young's Market, et al., are not entitled to file a petition for writ of review with this court because they were not parties to the action below.

The California Constitution, article XX, section 22, provides: ‘Orders of the [Alcoholic Beverage Control Appeals] board shall be subject to judicial review upon petition of the director or any party aggrieved by such order.’ Business and Professions Code section 23090, entitled ‘Parties Applying for Writ of Review,’ states: ‘Any person affected by a final order of the board, including the department, may, . . . apply . . . for a writ of review of such final order.’ Section 23090.3 states in part: ‘The board, the department, and each party to the action or proceeding before the board shall have the right to appear in the review proceeding.’ Section 23090.4 provides in part: ‘A copy of every pleading filed pursuant to this article shall be served on the board, the department, and on each party who entered an appearance before the board.’

The language used in article XX, section 22, clearly limits the right of review to parties. This limitation is consistent with the rule followed by appellate courts in cases reviewing actions of trial courts: one who is not a party of record to the proceeding below has no standing to appeal. (Eggert v. Pac. States S. & L. Co., 20 Cal.2d 199, 124 P.2d 815; City of Downey v. Johnson, 263 Cal.App.2d 775, 782, 69 Cal.Rptr. 830; People v. United Bonding Ins. Co., 272 Cal.App.2d 441, 442, 77 Cal.Rptr. 310.)

A broad interpretation of section 23090, which purports to authorize ‘any person affected’ to file a petition for writ of review would be inconsistent both with the constitutional restriction and with section 23090.3, which permits only ‘the board, the department, and each party to the action or proceeding before the board’ to appear before the court, and with section 23090.4, which provides for service of pleadings on parties who appeared before the board, not on ‘any person affected by a final order of the board.’ While petitioners, as wholesalers of liquor, are certainly ‘persons affected’ by the Board's decision, thousands of others throughout the state are also affected. Had the Board upheld the retail price maintenance law, it could not seriously be contended that every individual in the state who wishes to purchase liquor at a lower price, and is therefore ‘a person affected’ by the decision, could file an individual petition for a writ of review of the Board's action. In reading the constitutional provisions and the above code sections together, we find it was the intent of the Legislature to limit appellate review to parties who appeared before the Board.

The other issues raised by the parties need not be discussed.

In Rice v. Alcoholic Beverage Control Appeals Board, the order of the Board is hereby annulled and the decision of the Department affirmed.

In Young's Market Company v. Alcoholic Beverage Control Appeals Board, the writ of review is discharged and the petition is dismissed.

FOOTNOTES

1.  The proviso stated: ‘Provided, That nothing contained in sections 1 to 7 of this title shall render illegal, contracts or agreements prescribing minimum prices for the resale of a commodity which bears, or the label or container of which bears, the trademark, brand, or name of the producer or distributor of such commodity and which is in free and open competition with commodities of the same general class produced or distributed by others, when contracts or agreements of that description are lawful as applied to intrastate transactions, under any statute, law, or public policy now or hereafter in effect in any State, Territory, or the District of Columbia in which such resale is to be made, or to which the commodity is to be transported for such resale, and the making of such contracts or agreements shall not be an unfair method of competition under section 45 of this title.’

2.  The legislative history of Assembly Bill No. 1109 does not reveal whether repeal was in response to the anticipated repeal of the Miller-Tydings and McGuire Acts or not.

3.  The state policy for the act is stated in Business and Professions Code section 24749:‘It is the declared policy of the State that it is necessary to regulate and control the manufacture, sale, and distribution of alcoholic beverages within this State for the purpose of fostering and promoting temperance in their consumption and respect for and obedience to the law. In order to eliminate price wars which unduly stimulate the sale and consumption of alcoholic beverages and disrupt the orderly sale and distribution thereof, it is hereby declared as the policy of this State that the sale of alcoholic beverages should be subjected to certain restrictions and regulations. The necessity for the enactment of provisions of this chapter is, therefore, declared as a matter of legislative determination.’

4.  ‘Sec. 2. 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.’

CALDECOTT, Presiding Justice.

RATTIGAN, and CHRISTIAN, JJ., concur.