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Canada Dry Ginger Ale Inc. v. F & A Distributing Co.

Decided: December 15, 1958.


On appeal from final decision and order of the Division of Alcoholic Beverage Control to the Superior Court, Appellate Division, certified by the Supreme Court on its own motion prior to hearing in the Appellate Division.

For affirmance without prejudice -- Chief Justice Weintraub, and Justices Burling, Jacobs, Francis and Proctor. For affirmance in toto -- Justice Heher. For reversal -- Justice Wachenfeld. The opinion of the court was delivered by Proctor, J. Francis, J. (concurring). Heher, J. (concurring in affirmance). Wachenfeld, J. (dissenting). Francis, J., concurring in result.


[28 NJ Page 447] This is an appeal by Canada Dry Ginger Ale, Inc., under R.R. 4:88-8, from an order of the Director of the Division of Alcoholic Beverage Control granting relief on three separate petitions filed pursuant to N.J.S.A. 33:1-93.1 et seq. This section of the Alcoholic Beverage Law, N.J.S.A. 33:1-1 et seq., prohibits a distiller of alcoholic liquors from arbitrarily refusing to sell to any licensed wholesaler. The petitioners, F & A Distributing Co., Gillhaus Beverage Co., Inc., and Merchants Wine and Liquor Co., are duly licensed New Jersey wholesalers of alcoholic liquors. Canada Dry is engaged in the manufacture, distilling and importing of nationally advertised brands of alcoholic liquors. Each petition sought the same relief under the statute, alleging that the refusal of Canada Dry to sell its products to the petitioner was "arbitrary, unreasonable and discriminatory." The issue being the same in each case, the hearer consolidated the three petitions by consent and after a hearing filed a single report in which he concluded that the petitioners had established that the action of Canada Dry was arbitrary and discriminatory. Exceptions to the hearer's report were filed with the Director by Canada Dry and also by Joseph E. Seagrams & Sons, Inc., which had been permitted to intervene. The Director accepted the recommendation of the hearer and entered an order directing Canada Dry to "sell and continue to sell

to each of the three petitioners alcoholic beverages on terms usually and normally required by respondent [Canada Dry]." We certified Canada Dry's appeal on our own motion prior to its consideration by the Appellate Division.

The present case arises from Canada Dry's decision to reduce the number of its New Jersey wholesale distributors from 11 to 5. The petitioners were among the six eliminated. Complete lines of Canada Dry products have been carried by F & A Distributing Co. for over 20 years, by Gillhaus Beverage Co., Inc. since 1955, and by Merchants Wine and Liquor Co. since 1953. No written contracts were entered into between the petitioners and the company, and so far as it appears there were no territorial restrictions within the State in which Canada Dry products might be sold by any of the original 11 wholesalers.

In 1956 Paul J. Burnside was advanced by Canada Dry to the position of national sales manager. He informed Alfred P. LaPorte, Canada Dry's Eastern Division sales manager, that the company was displeased with the sale of its products, particularly non-scotch items, in New Jersey and he asked him to survey the market and submit recommendations to improve the situation. Accordingly, LaPorte visited each of the 11 wholesalers a number of times and discussed with them future plans regarding advertising and increased sales crews. Thereafter, he recommended to Burnside "for the betterment of our brand" a reduction of Canada Dry's New Jersey wholesalers from 11 to 5. It was LaPorte's belief that the reduction would increase sales by concentrating distribution outlets and that "the remaining five would have a great deal more interest in our line and would do a much better selling job on our items." Such procedure had been successful in other major United States markets. He also specified his choice of the five wholesalers who should be retained. In explaining how he made this selection he stated:

"A. It was a very difficult decision but in making the decision I felt, just through my experience in the business, of the type of organization that we would retain would be types that seemed to show

aggressiveness in the few conferences that I had with them, that had an ample selling force in order to sell our line. Those were factors that I took into consideration."

He later testified:

"Q. Now I am asking you specifically, what factors entered into your determination to retain these five and to drop these six?

A. Well, the factors as outlined before, consideration of other lines within the houses, the sales force, the aggressiveness, my reaction to the aggressiveness of their sales force, the attitude of their executives towards discussions of advertising and sales potential for our brands. All of this together made me consider this move."

Past sales were considered but more emphasis was placed on the future potential. LaPorte admitted on cross-examination that no wholesaler had shown a greater increase in purchases of non-scotch items than the petitioner F & A Distributing Co. Canada Dry was selling all the scotch items it was able to allocate to New Jersey.

Burnside agreed with LaPorte that the reduction in the number of wholesalers from 11 to 5 should be made because "we are just cutting the pie in too many pieces." As to the specific wholesalers to be dropped and the others to be retained, Burnside said:

"A. Well, we considered several factors. One was our relationship with the five jobbers we proposed to retain; we also considered their sales executives, their sales personnel and feeling of these people towards our organization; the other competitive brands which they carry.

A. We picked the wholesalers that we thought we could work best with and I might say at this time, as an example, if we had eleven applicants for a position and we picked five, that doesn't mean the other six are not any good. But in our opinion and our considered judgment we felt that the five we selected could do the best job for our company."

He further testified:

"Q. Do I understand, Mr. Burnside, then that you used no standard in determining which of these wholesalers were going to be continued and which were going to be dropped?

A. We don't have any chart or there is no particular standard that you can set for determining which distributor you may retain in a given market.

Q. Now, in reaching this conclusion, Mr. Burnside, were there any requirements that you set up which the wholesalers were to meet in order to be retained?

A. No."

After Burnside reached his decision he discussed it with his superior, John W. Red, Jr., a vice-president of the company, who agreed with the reasons listed by LaPorte and Burnside for their selection of the five wholesalers. He testified:

"Q. Will you give me those reasons that were listed?

A. Well, there are a number of them which I have touched on, Mr. Green. One is the attitude of the organizations themselves as indicated to our men; the attitude of the management of the organization; the number of competitive lines; the number of salesmen; the general aggressiveness of the organization; our opinion, our considered business judgment of their ability to do a good job on the Canada Dry line; their general interest in being a Canada Dry distributor."

On March 14, 1957 LaPorte advised petitioners that they were being discontinued as distributors as of May 1st. The only reason given was that throughout the country the company was reducing the number of its distributors and that it was for the best interest of the company to reduce the number in New Jersey from 11 to 5. The petitioners' ability to pay for any merchandise was not questioned. On April 11 this decision was confirmed by a letter from Burnside. Subsequent discussions between the parties concerning a reconsideration proved fruitless.

The hearer determined that Canada Dry's method of selecting the retained wholesalers was "arbitrary and discriminatory." He rejected the argument that the selection was not arbitrary because it resulted from sound business judgment. The Director concurred, holding that Canada Dry's "refusal to continue to sell its nationally advertised products to the petitioners, while continuing to sell such

products to other wholesalers similarly situated, was without reasonable or adequate cause and constituted arbitrary discrimination within the meaning of the statute."

The statute here involved was added by chapter 264 of the Laws of 1942 (N.J.S.A. 33:1-93.1 to 93.5), as a supplement to the Alcoholic Beverage Law, N.J.S.A. 33:1-1 et seq., and provides as follows:

"1. There shall be no discrimination in the sale of alcoholic liquors by distillers, importers, and rectifiers of nationally advertised brands of alcoholic liquors to duly licensed ...

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