RALPH GROCERY CO v. REIMEL (1967)

The question is whether the Department of Alcoholic Beverage Control and its Director, appellants, may forbid the posting of quantity discounts on wholesale sales of beer. To forbid the posting of quantity discounts is to forbid such discounts altogether, because the statute requires strict adherence to the posted prices. (Bus. & Prof. Code, § 25004.) The Department has a rule which has existed since 1951 and which reads: ‘The schedule of prices for the sale of beer, as required by Section 25000 of the Alcoholic Beverage Control Act, shall be filed with the department on a form prescribed by the department, in accordance with instructions thereon. All prices filed shall be for immediate delivery. Contract prices for future deliveries of beer and quantity discounts shall not be filed with the department.’ (Cal.Admin.Code, tit. 4, § 105(a); emphasis added.)

Respondents, operators of retail stores, petitioned the Department to eliminate from the rule the proscription of quantity discounts, but after hearing, the Department denied the petition. Thereupon, respondents sought and obtained writ of mandate in the superior court, requiring the deletion from the rule of the prohibition of quantity discounts.

The Department contends that it has the right to forbid such quantity discounts on wholesale sales of beer by reason of (1) section 22 of article XX of the Constitution of California; (2) section 25006 of the Business and Professions Code; and (3) ratification by the Legislature. The ratification, says the Department, is shown by the fact that the Legislature, although informed of rule 105(a), has not proceeded to abrogate it. Respondents contend that the challenged part of rule 105(a) is a price-fixing decree which is not authorized in any of the three ways proposed by appellants.

The California Grocers Association has filed an amicus curiae brief in support of respondents, and the California Beer Wholesalers Association, Inc., which appeared as amicus in the superior court also, has filed one on behalf of the Department.

The Constitution

That part of section 22, article XX, of the California Constitution upon which appellants rely provides: ‘The Department of Alcoholic Beverage Control shall have the exclusive power, except as herein provided and in accordance with laws enacted by the Legislature, to license the manufacture, importation and sale of alcoholic beverages in this State, and to collect license fees or occupation taxes on account thereof. The department shall have the power, in its discretion, to deny, suspend or revoke any specific alcoholic beverage license if it shall determine for good cause that the granting or continuance of such license would be contrary to public welfare or morals * * *.’

That this part of the Constitution is not the source of the authority to fix prices, and that the forbidding of quantity discounts does constitute price fixing, has been established in Schenley Industries, Inc. v. Munro, 237 Cal.App.2d 106, 111–112, 46 Cal.Rptr. 678. The Schenley case had to do with the Department's rule 100, which restricted quantity discounts on wholesale sales of distilled spirits, while rule 105(a) deals with sales of beer. But whatever suggestions may be made of distinctions between the statutes relating to sales of distilled spirits and those regulating sales of beer, the section of the Constitution is the same. It cannot be said of wholesale sales of beer, any more than of wholesale sales of distilled spirits, that the prevention of quantity discounts is a proscription of conduct or conditions which, in the wording of the Constitution, ‘would be contrary to public welfare or morals.’ In fact, since certain evidence cited by appellants is to the effect that the discounts would not be passed on to the consumer if the rule were abolished, appellant cannot rely on the proposition (as expressed in Allied Properties v. Dept. of Alcoholic Beverage Control, 53 Cal.2d 141, 346 P.2d 737, and Wilke & Holzheiser, Inc. v. Dept. of Alcoholic Beverage Control, 65 A.C. 385, 55 Cal.Rptr. 23, 420 P.2d 735, sustaining the Fair Trade Act as applied to alcoholic beverages) that the rule promotes temperance by eliminating price cutting to the consumer.

Business & Professions Code Section 25006

This section reads as follows: ‘The department may adopt such rules, including but not limited to rules respecting beer price posting, as will foster and encourage the orderly wholesale marketing and wholesale distribution of beer, but no such action shall be taken by the department except after public hearing and ten (10) days notice to all licensed manufacturers of beer in California of the time and place of the hearing and of the character of the action intended to be taken by the department.’ Since 1937 there has been a statute, giving rule-making authority to the Department or to its predecessor, the State Board of Equalization, to adopt such rules as will foster and encourage the orderly wholesale marketing and wholesale distribution of beer. The predecessor section to 25006 was section 38e of the Alcoholic Beverage Control Act. (Stats. 1937, ch. 758, p. 2159.) In 1953 the words ‘such rules' were modified by addition of the clause, ‘including but not limited to rules respecting beer price posting.’ (Stats. 1953, ch. 152, p. 1009.)

We conclude that section 25006 does not confer on the Department the power to forbid quantity discounts in wholesale sales of beer. Our reasons are:

1. The fixing of prices by governmental agencies is a large intervention by government into the economy. The delegation of such power by the Legislature ought to be explicit and not to be inferred from a statute which provides in a general way for rules relating to orderly marketing and distribution.

2. When the Legislature wished to limit (although it did not completely forbid) quantity discounts in the wholesale purveying of wine, it did so explicitly by the terms of section 24871 of the Business and Professions Code.

3. When, in 1953, the Legislature added the words, ‘including but not limited to rules respecting beer price posting’ (emphasis added), it would be expected that if the Legislature intended to grant the power to prevent quantity discounts, it would have said so.

4. The whole pattern of price regulation in respect of alcoholic beverages, with the exception of the limitation on quantity discounts in the wholesale marketing of wine, as expressly provided for by statute, is a conjunction of posting of prices by the seller at his own choice as he views the state of the market and of competition with a prohibition against sales at prices which depart from the posted ones, and the use, wherever applicable, of the Fair Trade Act. It is true that the outlawing of quantity discounts does not fix prices in the same manner as would exist if the government were to declare the exact price at which a commodity could be sold, but it does fix prices by making it impossible for a seller to choose a lower price for a larger sale.

5. The Schenley case is also an authority for our conclusion, but by no means an exclusive one, for we have stated our reasons given independently of that case, although some of them correspond with the reasoning to be found therein. Appellants argue that the Schenley case, which invalidated the rule limiting quantity discounts in wholesale sales of distilled spirits, is distinguishable from the case before us in several respects. In the first place, appellants say, section 24749 of Business and Professions Code, upon which the Department and its director relied in Schenley, merely announces the declared policy of the state that the sale of alcoholic beverages should be subjected to certain restrictions and regulation for the purpose of fostering temperance and eliminating price wars which disrupt orderly sale and distribution. Section 25006 of Business and Professions Code, say appellants, is not a mere declaration of policy but a grant of power. Although we agree that there is a distinction between the two statutes, we do not find the distinction between the Schenley case and the one before us to be so great as appellants would have it. In the Schenley case the Department did not rely solely on section 24749, but also on several other sections: section 24756, which requires posting of a price list for wholesale sales; section 24757, which allows the Department to make rules which it deems necessary for the administration of other sections, including section 24756; section 25750, which directs the Department to make reasonable rules to carry out the purposes and intent of section 22, article XX of the Constitution and which will enable the Department to exercise the powers and perform the duties conferred upon it by that section or by the entire division of the Business and Professions Code which relates to alcoholic beverages. A reading of the Schenley case shows that the decision was not based on the nature of section 24749 as an expression of policy but on the fact that the Legislature has seen fit to remain silent as to the subject of permissible discounts on quantity sales of distilled spirits and has not delegated the authority to act in this respect to the Department. (Schenley Industries, Inc. v. Munro, 237 Cal.App.2d at p. 114, 46 Cal.Rptr. at p. 683.)

It is argued by appellants that an essential distinction exists between the marketing of distilled spirits and the marketing of beer, and that this distinction abrogates the authority of the Schenley case. The distinction, they say, is this: distilled spirits do not deteriorate on the shelves of the retailer, but beer does deteriorate rather rapidly. Thus, they say, the small retailer must buy from the wholesaler in small lots, paying a higher price than his bigger and more affluent competitors need do, or purchase in too great quantity in order to obtain the discount and risk the spoiling or deterioration of the beer and the probable loss of customers. But we think the trial judge was correct in saying that the test is not one of the desirability or undesirability of the rule, but of what power the Legislature has chosen to give to the Department. The evidence as to the advantage of the rule was substantial; but so was the contrary evidence. In the Schcnley case, too, there was sharp disagreement as to the desirability of the rule. The Court of Appeal decided, as we do in sustaining the trial court, that statutory authority to forbid quantity discounts presently is lacking.

The Subject of Legislative Ratification of the Rule

Appellants argue that the Legislature demonstrated its approval of rule 105(a) by re-enacting section 25006 or its predecessors after the Legislature had been informed of the existence of the rule and, as appellants state, judicial approval of wholesale price fixing of beer. We shall consider first the cases referred to by appellants. They antedate rule 105(a). Appellants make reference to Adolph Coors Co. v. Corbett (Cal. App.) 123 P.2d 74, a case in which hearing by the Supreme Court was granted. The case was subsequently dismissed. This case is not authority at all. The mind cannot conceive anything so nearly approaching complete annihilation as an opinion of the Court of Appeal after hearing has been granted by the Supreme Court. (See Ponce v. Marr, 47 Cal.2d 159, 301 P.2d 837.) Of course, since even this obliterated decision preceded the disputed rule by some nine years,, it had nothing directly to do during its brief lifetime with quantity discounts. The second cited case is Blatz Brewing Co. v. Collins, 69 Cal.App.2d 639, 160 P.2d 37; In the Blatz case, the court declared invalid a rule which required out-of-state beer manufacturers to file a certificate of compliance, which amounted to a license. But in the course of its reasoning, the court uttered this dictum upon which appellants rely: “From the foregoing review of section 38e it will be seen that what the legislature dealt with therein was the wholesale selling price of beer; the publication of prices; the maintenance of such prices and strict adherence to them.” (69 Cal.App.2d at p. 651, 160 P.2d at p. 44) But even this dictum, antedating by some six years the rule against quantity discounts does not purport to say that the Legislature has given the Department the power to fix prices, but to deal with prices, their posting and maintenance. It seems that the court was referring merely to the terms of the statute, which at that time was section 38e of the Alcoholic Beverage Control Act (Stats.1937, ch. 758, p. 2159), which did then, as its successor statute, Business and Professions Code section 25006, does now, require posting of prices which are fixed by the wholesalers and adherence to the prices as posted.

Appellants also point to the principle that the interpretation of a statute made by the agency which must enforce it is entitled to weight, as stated in California Motor Express v. State Bd. of Equalization, 133 Cal.App.2d 237, 240, 283 P.2d 1063; Mauro v. Dept. of Mental Hygiene, 207 Cal.App.2d 381, 387, 24 Cal.Rptr. 505; and Peck's Liquors, Inc. v. Superior Court, etc., 221 Cal.App.2d 772, 784–785, 34 Cal.Rptr. 735. But administrative interpretation cannot give to the agency substantial powers which are not conferred by law. Where the administrative construction is erroneous it does not govern the interpretation of the statute even though the statute is subsequently re-enacted without change. (Louis Stores, Inc. v. Dept. of Alcoholic Beverage Control, 57 Cal.2d 749, 759–760, 22 Cal.Rptr. 14, 371 P.2d 758.)

The mere filing of rule 105(a) with the Legislature, as required by section 11380 of the Government Code, does not, simply because no legislative action followed, constitute a ratification by the Legislature. Appellants have not pointed to any instance within the record where the Legislature has had before it a clear presentation, with demand or petition for legislative action, one way or the other, of prohibition of quantity discounts on wholesale sales of beer.

The judgment is affirmed.

DEVINE, Presiding Justice.

RATTIGAN and CHRISTIAN, JJ., concur.