Allied Properties v. Department of Alcoholic Beverage Control

346 P.2d 737, 53 Cal. 2d 141, 1959 Cal. LEXIS 329

• Court: California Supreme Court
• Decided: November 30, 1959
• Docket: S. F. 20236
• Status: Published

Opinions

GIBSON, C. J.

Allied Properties was accused of violating sections 55.5, 55.6 and 55.65 of the Alcoholic Beverage Control Act and rule 99 of the State Board of Equalization by advertising and offering to sell at retail distilled spirits and wines at prices less than the minimum resale prices provided for by fair trade contracts filed with the board.¹ (Subsequently the Department of Alcoholic Beverage Control became the constitutional successor of the board with regard to liquor control (Const., art. XX, § 22, as amended in 1954), and it has been substituted as the defendant herein. For convenience we shall refer to the statutes as they appeared before codification, and we shall use the word “department” in referring to the administrative body in charge of liquor control.) Allied’s off-sale general license was suspended for 15 days, and in mandamus proceedings to review the suspension order the superior court-determined that the provisions of the act and the rule cited above were invalid. This appeal followed. The facts are not disputed, and the sole question raised is whether the provisions are constitutional.

Section 55.5 (Stats. 1937, ch. 758, p. 2173, now Bus. & Prof. Code, §§ 24750-24753) authorizes fair trade contracts prohibiting the buyer from reselling, except at the price stipulated by the seller, alcoholic beverages which bear the trade-mark or name of the producer and are in open competition with others of the same general class. The section further provides that wilfully advertising, offering to sell, or selling, at less than the price stipulated in such contracts, whether or not the actor is a party to the contract, is unfair competition and actionable at the suit of any person damaged thereby. The statute expressly excludes from its operation any agreement between producers, between wholesalers, or between retailers as to sale or resale prices.²

Section 55.6 (Stats. 1947, ch. 657, p. 1698, now Bus. & Prof. Code, §§ 24754-24757) provides that all retail sales of distilled spirits shall be made pursuant to fair trade contracts entered into under section 55.5 and prohibits the violation of such contracts. The section also provides that all manufacturers and wholesalers of distilled spirits shall file and maintain with the department a list of the prices at which their product will be sold to retailers and that all their sales to retailers shall be in compliance with those lists.

Section 55.65 (Stats. 1949, ch. 574, p. 1064, now Bus. & Prof. Code, §§24850-24881), sets forth numerous provisions applicable to the sales of wine. It includes provisions like those governing the sales of distilled spirits except that the prices at which retailers are required to sell to consumers are to be determined either by fair trade contracts or by resale price lists filed by the manufacturer or wholesaler with the department.³

Rule 99 provides in part that no manufacturer or wholesaler shall sell distilled spirits except pursuant to a fair trade contract as provided for by section 55.5 of the act, that copies of such fair trade contracts shall be filed with the department, and that no licensee shall advertise or offer for sale alcoholic beverages at retail at a price less than the minimum resale price provided for by a fair trade contract filed with the department pursuant to this rule. (Cal. Admin. Code, tit. 4, § 99, subds. (a), (b), (f).)

Under section 22 of article XX of the Constitution the department has power in its discretion to revoke any liquor license if it determines for good cause that the continuance of such license will be contrary to public welfare or morals. The power to revoke includes the lesser power to suspend. (Reynolds v. State Board of Equalization, 29 Cal.2d 137, 140 [173 P.2d 551, 174 P.2d 4].) In the exercise of its discretion the department can properly consider substantial violations of statutory provisions concerning alcoholic beverages or of rules of the department as good cause for suspension of licenses, and in the present case there is no contention that, if the statutes and rules violated are valid, the suspension constitutes an abuse of discretion. Moreover, with respect to wine, it is provided by statute that the department can suspend licenses in the event of a prohibited sale and can, upon a third violation, revoke them. (Alcoholic Beverage Control Act, § 55.65, subd. (n), now Bus. & Prof. Code, § 24880.)⁴ Further, a rule of the department provides that a violation of its rules and regulations by a licensee will be deemed contrary to public welfare and morals and grounds for suspension or revocation of a license. (Cal. Admin. Code, tit. 4, § 1.) Although no criminal prosecution is involved here, it should be noted that the act contains a general provision, applicable to prohibited sales of alcoholic beverages, that violations for which another penalty is not specifically provided in the act constitute misdemeanors punishable by a fine, a jail term, or both. (Alcoholic Beverage Control Act, § 65, now Bus. & Prof. Code, § 25617.)

In passing upon the fair trade provisions we must be guided by the well-settled principles that the presumption is in favor of constitutionality and that the invalidity of an act of the Legislature must be clear before the statute can be declared unconstitutional. It is not our province to weigh the desirability of the social or economic policy underlying the statute or to question its wisdom; they are purely legislative matters.

Where, as here, it is urged that a statute does not constitute a proper exercise of the police power, the inquiry of the court is limited to determining 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 attained. (Wholesale Tobacco Dealers Bureau v. National etc. Co., 11 Cal.2d 634, 643 [82 P.2d 3, 118 A.L.R. 486].) Acting under this rule, the courts have upheld statutes regulating prices and restricting the freedom to bargain. (Wholesale Tobacco Dealers Bureau v. National etc. Co., 11 Cal.2d 634, 651-656 [82 P.2d , 118 A.L.R. 486] ; Max Factor & Co. v. Kunsman, 5 Cal.2d 446, 459-462 [55 P.2d 177] ; Nebbia v. New York, 291 U.S. 502, 529 et seq. [54 S.Ct. 505, 78 L.Ed. 940, 89 A.L.R. 1469].) A state has particularly wide powers with respect to the manufacture of and traffic in alcoholic beverages and may provide for their prohibition or impose such conditions and regulations as it may deem proper. (Ziffrin, Inc. v. Reeves, 308 U.S. 132, 138-139 [60 S.Ct. 163, 84 L.Ed. 128]; Crowley v. Christensen, 137 U.S. 86, 91 [11 S.Ct. 13, 34 L.Ed. 620].) The same broad powers are recognized in section 22 of article XX of the California Constitution.⁵ (Sandelin v. Collins, 1 Cal.2d 147, 153 [33 P.2d 1009, 93 A.L.R. 956].)

Many states have adopted price-regulating measures intended to prevent retail price cutting and bargain sales of alcoholic beverages and the evils considered to follow from those practices, namely, excessive purchase and use of liquor and disruption of orderly marketing conditions. Where the constitutionality of such measures has been challenged, most courts have upheld them. (Gipson v. Morley, 217 Ark. 560 [233 S.W.2d 79, 83]; Schwartz v. Kelly, 140 Conn. 176 [99 A.2d 89, 91] ; Reeves v. Simons, 289 Ky. 793 [160 S.W.2d 149, 151]; Supreme Malt Products Co. v. Alcoholic Beverages C. Com’n, 334 Mass. 59 [133 N.E.2d 775, 778] ; Dundalk Liquor Co. v. Tawes, 201 Md. 58 [92 A.2d 560, 561] ■ Butler Oak Tavern v. Division of Alcoholic Bev. Control, 20 N.J. 373 [120 A.2d 24, 30]; Gaine v. Burnett, 122 N.J.L. 39 [4 A.2d 37, 39]; Pompei Winery v. Board of Liquor Control, Ohio App., 149 N.E.2d 733, 748. But cf. Scarborough v. Webb’s Cut Rate Drug Co., 150 Fla. 754 [8 So.2d 913, 921]; Schwegmann Bros. v. Louisiana Board, etc. Control, 216 La. 148 [43 So.2d 248, 259,14 A.L.R.2d 680].)

The Alcoholic Beverage Control Act states that it was enacted “for the protection of the safety, welfare, health, peace, and morals of the people of the State to eliminate the evils of unlicensed and unlawful manufacture, selling, and disposing of alcoholic beverages, and to promote temperance in the use and consumption of alcoholic beverages.’ ’ (Alcoholic Beverage Control Act, § 1, now Bus. & Prof. Code, § 23001.) The fact that the act provides for fair trade contracts indicates that its purposes include those of the general Fair Trade Act (Stats. 1931, ch. 278, p. 583, now Bus. & Prof. Code, §§16900-16905), particularly the prevention of price cutting in retail sales. (Max Factor & Co. v. Kunsman, 5 Cal. 2d 446, 455 [55 P.2d 177]; see Wholesale Tobacco Dealers Bureau, v. National etc. Co., 11 Cal.2d 634, 655 [82 P.2d 3, 118 A.L.R. 486].) The Max Factor and Wholesale Tobacco Dealers cases held that the Legislature may take measures against price cutting, and there can be no doubt that the prevention of intemperance is a proper legislative objective.

The means provided in a statute must be accepted as being reasonably designed to accomplish its objective unless it is unquestionable that they are improper. (Wholesale Tobacco Dealers Bureau v. National etc. Co., 11 Cal.2d 634, 646 [82 P.2d 3, 118 A.L.R. 486]; Miller v. Board of Public Works, 195 Cal. 477, 490 [234 P. 381, 38 A.L.R. 1479].) The legislative purpose of preventing price cutting and price wars among retailers is, of course, effectively attained under the fair trade provisions of the Alcoholic Beverage Control Act by having each producer or wholesaler establish the retail price of his own brand, and it was held in the Max Factor case (5 Cal.2d at p. 455) that the Legislature could reasonably proceed on the theory that the public will be adequately protected against excessive prices by the ordinary play of competition between manufacturers.

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.

Allied contends that the fair trade provisions of the Alcoholic Beverage Control Act unlawfully delegate legislative power insofar as they provide that each producer and wholesaler must set the price at which retailers must sell his product. The question of unlawful delegation under the general Fair Trade Act was decided in Scovill Mfg. Co. v. Skaggs etc. Drug Stores, 45 Cal.2d 881 [291 P.2d 936], where prices set by a fair trade contract were held to be binding on a retailer who had not signed the contract. We there stated: “Here the acts of private parties in entering into contracts for the sale of commodities constitute the facts in contemplation of which the Legislature acted, and upon the existence of which the provisions of the enactment were to be applicable. The private contracts are no more legislative in character than are other acts or conduct of private parties undertaken as a prerequisite to the application of a statute. The consequence that the statute has become applicable, and conduct in violation thereof has become actionable, is in no way due to the exercise of any assumed legislative power on the part of the contracting parties. [Citation.] We conclude that there is no delegation of the legislative function in violation of constitutional prohibitions.” (45 Cal.2d at p. 888.)

Whether the same conclusion applies to the provisions involved here depends upon whether the function performed by the persons who assertedly exercise delegated legislative powers is the same under the general Fair Trade Act and the Alcoholic Beverage Control Act. Under both statutes the function of such a person is to set the price of his own product on the basis of his personal interest, as affected by free competition in the market, and the result in each case is that all retailers, whether or not they have signed fair trade contracts, are bound by the prices set.

Although there are additional features in sections 55.6 and 55.65 of the Alcoholic Beverage Control Act that are not contained in the general Pair Trade Act, they do not warrant a different conclusion from the one reached in the Seovill case (45 Cal.2d 881, 888), namely, that there was no delegation of legislative power. One of the new features is that the Alcoholic Beverage Control Act requires, rather than permits, producers and wholesalers to set retail prices. This fact, however, does not render the function of a producer or wholesaler legislative in character but, to the contrary, decreases his discretion since he is not free to determine whether fair trading should occur. While mandatory fair trading means that retailers cannot obtain merchandise free from price restrictions, this is due to the determination of the Legislature, not the action of the producers and wholesalers.

A second difference is that, in addition to the civil remedies common to both statutes, the Alcoholic Beverage Control Act provides for administrative and criminal sanctions, but this aspect of the act does not involve any delegation of power, the sanctions being prescribed by the Legislature, not by the producers or wholesalers. The Legislature, of course, has power to provide for administrative sanctions with respect to a'licensee who violates a regulation deemed to be in the public, interest. We need not determine whether the criminal sanctions are proper since such penalties were not imposed in this case, and the provision authorizing them is severable.

The general Pair Trade Act, although designed in part to reduce cutthroat competition, is primarily intended to protect the property rights of producers and wholesalers (Max Factor & Co. v. Kunsman, 5 Cal.2d 446, 462 [55 P.2d 177]), whereas the primary purpose of the fair trade provisions of the Alcoholic Beverage Control Act is to promote orderly marketing conditions and temperance. This difference in primary purpose, however, has no significant bearing on the question of delegation of legislative power because it does not change the functions of the persons to whom a delegation is assertedly made. The producers and wholesalers of alcoholic beverages are not called upon to set the retail prices for their products on the basis of what will promote temperance and orderly marketing conditions, but, as we have seen, it is contemplated that, in setting prices, they will seek to promote their own business interests in the light of competition, which was also the case under the general Pair Trade Act, and that they will thus indirectly carry out the purpose of the Legislature. Here, as in the Seovill case, the determinations to be made by the producers and wholesalers are not legislative in character but merely “the facts in contemplation of which the Legislature acted, and upon the existence of which the provisions of the enactment were to be applicable.” (Seovill Mfg. Co. v. Skaggs etc. Drug Stores, 45 Cal.2d at p. 888.)

Upon the same reasoning as was used in the Seovill ease, the Supreme Court of Connecticut decided that provisions which were substantially similar to those before us did not constitute an unlawful delegation of legislative power. (Schwartz v. Kelly, 140 Conn. 176 [99 A.2d 89, 93].) A similar statute was held invalid in Scarborough v. Webb’s Cut Rate Drug Co., 150 Fla. 754 [8 So.2d 913, 921], on the ground, among others, that it provided for an improper delegation of power, but the ease is not persuasive because it contains no reasoning in support of this conclusion.

State Board of Dry Cleaners v. Thrift-D-Lux Cleaners, 40 Cal.2d 436 [254 P.2d 29], relied on by Allied, is distinguishable from the present case. The court there declared unconstitutional a statute which delegated to the State Board of Dry Cleaners the power to fix minimum price schedules. The principal ground of the decision was that the price-fixing provision could not be upheld as a proper exercise of the police power, but, as we have seen, the statutes involved here come within that power. The court also relied on the ground that there was a delegation of legislative power without ascertainable standards to an administrative board composed mainly of members of the industry who would participate in fixing prices to be charged by their competitors. The Thrift-D-Lux ease does not hold that all types of price fixing are legislative in character, but that there was a delegation of legislative power under the special facts present in that case. On the other hand it was held in Scovill Mfg. Co. v. Skaggs etc. Drug Stores, supra, 45 Cal.2d 881, 887-888, that there was no delegation of legislative power where manufacturers, acting in their private capacity under the general Fair Trade Act, fixed the prices for which their own products were to be sold at retail by persons who were not their competitors. The distinguishing factor is that the dry cleaners ’ board was directed to fix uniform minimum prices for the services of all dry cleaners in limited areas on the basis of what it believed was required by public health and safety, whereas under the general Pair Trade Act each manufacturer is to fix retail prices for his own products in accord with his personal interest. The functions of the producers and wholesalers under the Alcoholic Beverage Control Act, as we have seen, are the same as those of manufacturers under the general Pair Trade Act, and the controlling decision is Scovill Mfg. Co. v. Skaggs etc. Drug Stores rather than State Board of Dry Cleaners v. Thrift-D-Lux Cleaners.

The judgment is reversed.

Traynor, J., Spence, J., and White, J., concurred.

1 The Alcoholic Beverage Control Act (Stats. 1935, ch. 330, p. 1123, as amended; 2 Deering’s Gen. Laws, 1944, Act 3796) is now contained in division 9 of the Business and Professions Code. The codification did not alter the substantive law in any respect material to this case, and no relevant changes have been made in rule 99, which is now a rule of the Department of Alcoholic Beverage Control.

2 The provisions of this section correspond exactly with those of the general Fair Trade Act enacted in 1931. (Stats. 1931, ch. 278, p. 583, now Bus. & Prof. Code, §§ 16900-16905.)

3 No violation of the provision for price lists is involved here.

4 There was no comparable provision with respect to distilled spirits in January 1953, when the accusation was filed, but there is now a general suspension and revocation provision which is applicable to prohibited sales of distilled spirits. (Bus. & Prof. Code, § 24200, subd. (b).)

5 Seetion 22 of article XX of the California Constitution reads in part: "The State of California, subject to the Internal Revenue Laws of the United States, shall have the exclusive right and power to license and regulate the manufacture, sale, purchase, possession and transportation of intoxicating liquor within the State, and subject to the laws of the United States regulating commerce between foreign nations and among the states shall have the exclusive right and power to regulate the importation into and exportation from the State, of intoxicating liquor. . . . The Legislature may authorize, subject to reasonable restrictions, the sale in retail stores of liquor contained in the original packages, where such liquor is not to be consumed on the premises where sold. ..."