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Gillhaus Beverage Co. v. Lerner

Decided: January 11, 1979.

GILLHAUS BEVERAGE COMPANY, INC., T/A FAVIN IMPORTERS & JAMES SLEIGH, LTD., ET AL., PLAINTIFFS,
v.
JOSEPH H. LERNER, DIVISION OF ALCOHOLIC BEVERAGE CONTROL, ET AL., DEFENDANTS. IRVING HEIR, INDIVIDUALLY AND ON BEHALF OF A CLASS, PLAINTIFF-APPELLANT, V. JOSEPH H. LERNER, DIRECTOR, DIVISION OF ALCOHOLIC BEVERAGE CONTROL, ET AL., DEFENDANTS-RESPONDENTS. JOHN J. GARRITY ET AL., PLAINTIFFS, V. JOSEPH H. LERNER, DIRECTOR, DIVISION OF ALCOHOLIC BEVERAGE CONTROL, ET AL., DEFENDANTS



On appeal from the Superior Court, Appellate Division.

For modification and affirmance -- Chief Justice Hughes and Justices Mountain, Sullivan, Clifford, Schreiber and Handler. For reversal -- Justice Pashman. The opinion of the court was delivered by Sullivan, J. Pashman, J., concurring and dissenting.

Sullivan

[78 NJ Page 503] The appeal herein, taken as of right, by plaintiffs, involves a class action filed by Irving Heir, the holder of a solicitor's permit issued by the New Jersey Division of Alcoholic Beverage Control (Division). Plaintiff

represents a class consisting of the members of the Wine and Liquor Salesmen of New Jersey Local 19, later expanded to include all licensed solicitors whether or not they were members of the union.*fn1 The complaint challenges the legality of an investigation being conducted by the Director of the Division into certain alleged illegal practices in the liquor business in this State. Specifically, the challenge is directed to a questionnaire and letter distributed by the Director to all licensed solicitors in the wholesale liquor industry.

The investigation stems from a federal Securities and Exchange Commission proceeding in the spring of 1976 which disclosed the existence of kickbacks and commercial bribery in the liquor business throughout the nation, including New Jersey. As a result of these disclosures, the Director of the Division began an investigation of the wholesale liquor industry in order to ascertain the nature and extent of unlawful trade practices in this State. As part of his investigation, the Director, on February 23, 1977, sent questionnaires to all licensees and solicitors in the wholesale liquor, wine and beer industry seeking sworn answers to inquiries about a variety of trade practices. The questionnaires were to be returned no later than March 21, 1977.

In a covering letter the Director urged cooperation with the investigation and added that a failure to return the completed questionnaire or to provide "complete and accurate answers to all questions" might subject "your license or permit to suspension or revocation." The Director also warned:

I realize that, if you answer all of the questions truthfully and forthrightly, you may be revealing unlawful activity in which you were engaged. In disciplinary proceedings which may result, your admission, and cooperation with respect thereto, will be a mitigating factor, which will be taken into consideration in the imposition of penalty.

However, with respect to violations committed by you which the Division prosecutes based upon its own information, or through information supplied by others, particularly where you have withheld information, or have given false and misleading information in your answers to the questionnaire, they will be dealt with accordingly.

Copies of the questionnaire and covering letter sent to Heir and all other licensed salesmen and solicitors, are appended to this opinion.

The questionnaires sent to wine and liquor wholesalers, and malt beverage wholesalers, were also challenged in separate suits. The Gillhaus suit was filed on behalf of wine and liquor wholesalers. The Garrity suit was brought on behalf of the malt beverage wholesalers. All three suits, Heir, Gillhaus and Garrity, were consolidated before the trial judge who issued temporary restraints against enforcement of the questionnaires pending resolution of the litigation.

On cross-motions for summary judgment, the trial judge ruled in favor of defendants and entered judgment dismissing the complaints and vacating the temporary restraints. He held (1) that use of a questionnaire was within the statutory authority of the Director in conducting an investigation into possible violations of the Alcoholic Beverage Law; (2) that the questionnaire in and of itself did not represent a violation of any notion of fair play or due process; (3) that plaintiffs fifth amendment claims were being raised prematurely. Plaintiffs in all three suits filed appeals with the Appellate Division.

After the trial court dismissed the complaints and vacated the restraints, the Director sent a second letter to licensees setting another deadline of August 15, 1977 for answering the questionnaire. The letter further stated:

In order to insure that there is no misunderstanding regarding the questionnaire, you are asked to complete and return the questionnaire by August 15, 1977, under your statutory obligation to facilitate a Division investigation. Rule 35 of State Regulation 20, N.J.S.A. 33:1-35. If you feel that you may claim a privilege in answer

to a particular question asked, you may respond to that specific question by asserting the privilege which you claim. In determining whether or not you have failed to facilitate or hindered the investigation on the basis of your answers to the questionnaire, a claim of privilege to a specific question will be considered an appropriate response.

This new deadline was stayed by the Appellate Division pending appeal which was heard on an accelerated basis. Following argument, the Appellate Division, in an unreported per curiam opinion, affirmed the dismissal of the Heir and Gillhaus complaints essentially for the reasons expressed by the trial judge. As to the Garrity suit, the Appellate Division reversed the dismissal of the complaint and remanded to the Director of the Division with direction to give further consideration to the questionnaire as it related to the malt beverage industry. It noted that the industry activities under scrutiny were not unlawful in the case of malt beverages and that it might be unreasonably burdensome to require malt beverage wholesalers to answer all of the questions in the absence of a demonstrable need.

The Garrity ruling by the Appellate Division has not been appealed. Likewise, the Gillhaus plaintiffs have not appealed the Appellate Division affirmance of the dismissal of their complaint. The sole matter before us is the Heir complaint, plaintiffs therein having filed an appeal as of right. R. 2:2-1(a)(1).

Plaintiffs' basic contention is that the questionnaire and covering letter are violative of fifth amendment rights in that the Division seeks to compel licensees to disclose possible illegal and incriminating activities under the threat of sanctions and recriminations if they fail to comply. They are critical of the trial and appellate rulings which did not consider the merits of plaintiffs' fifth amendment claims, but merely held that they had been raised prematurely.

Plaintiffs also challenge the technique of investigation by the use of questionnaires as ultra vires, unreasonable and violative of due process. Finally, they argue that the

questionnaire violates their right of privacy and also that since they are a suspect class by virtue of an investigation into criminal activities, they are entitled to declaratory and injunctive relief that they need not answer the questionnaire.

The Alcoholic Beverage Control Act, N.J.S.A. 33:1-1 et seq., vests the Director with extensive regulatory and investigative power over the liquor industry. The language of Section 35 authorizing the Director to investigate activities involving intoxicating beverage is broad in its sweep:

The Director of the Division of Alcoholic Beverage Control and each other issuing authority may make, or cause to be made, such investigations as he or it shall deem proper in the administration of this chapter and of any and all other laws now or which may hereafter be in force and effect concerning alcoholic beverages, or the manufacture, distribution or sale thereof * * *.

N.J.S.A. 33:1-35.

The Legislature has also imposed strict requirements upon licensees:

Every applicant for a license, and every licensee, and every director, officer, agent and employee of every licensee, shall, on demand, exhibit to the director * * * all of the matters and things which the director of the division * * * is hereby authorized or empowered to investigate, inspect or examine, and to facilitate, as far as may be in their power so to do, in any such investigation, examination or inspection, and they shall not in any way hinder or delay or cause the hindrance or delay of same, in any manner whatsoever.

Id.

The Director is empowered in conducting the investigation to

examine, under oath, any and all persons whatsoever and compel by subpoena the attendance of witnesses and the production of books, records, accounts, papers and documents of any person or persons and the director * * * may take any oath or affirmation of any person to any deposition, statement, report or application required in the administration of this chapter * * *.

Id.

To insure, however, that the expansive reach of the Director's authority would not be indirectly circumscribed by the express listing of his powers, the statute further provides:

The above enumerations of purposes and powers shall not be construed as exclusive and shall not limit such power to investigate, examine and subpoena for any purpose consonant with the administration and enforcement of this chapter.

Id.

Moreover, the Legislature has mandated that the chapter is to be liberally construed in order to effectuate the objective of remedying the "abuses inherent in liquor traffic." N.J.S.A. 33:1-73.

While Section 35 does not specifically refer to the use of questionnaires, we conclude that the use of this investigative tool is well within the statutory authority granted to the Director. The Director's statutory authority to use a questionnaire as an investigative tool can only be adequately considered in light of the broad regulatory power exercised by the State over the liquor industry. Under the twenty-first amendment to the federal constitution the states are granted extensive regulatory power. See California v. La Rue, 409 U.S. 109, 115, 93 S. Ct. 390, 34 L. Ed. 2d. 342, 350 (1972); Seagram & Sons v. Hostetter, 384 U.S. 35, 41-42, 86 S. Ct. 1254, 16 L. Ed. 2d 336, 342 (1966). In Blanck v. Mayor and Borough Council of Magnolia, 38 N.J. 484, 490 (1962), this Court described the police power of the State as "practically limitless" in this area. See Borough of Fanwood v. Rocco, 33 N.J. 404, 411 (1960).

The abuses inherent in the trade and the need for effective and comprehensive measures for controlling the attendant evils have been recognized in many decisions. See e.g., Colonnade Catering Corp. v. United States, 397 U.S. 72, 76-77, 90 S. Ct. 774, 25 L. Ed. 2d 60, 64-65 (1970); Grand Union Co. v. Sills, 43 N.J. 390, 398 (1964); Butler Oak Tavern v. Division of Alcoholic Beverage Control, 20 N.J. 373, 384 (1956); X-L Liquors, Inc. v. Taylor, 17 N.J. 444, 449

(1955); Kasser Distillers Product Corp. v. Sills, 85 N.J. Super. 351, 355 (Ch. Div. 1964). The State may prohibit the trade entirely or permit it to continue only under severe restrictions. See Grand Union Co. v. Sills, supra, 43 N.J. at 398. As noted earlier, the statute authorizes a broad power; the right to fully and completely investigate possible illegalities through any lawful and reasonable means is permitted under N.J.S.A. 33:1-35.

The purpose of the instant investigation is to ascertain the nature and extent of certain unlawful trade practices in the liquor industry in New Jersey. In view of the number of licensees therein, use of a questionnaire addressed to all licensees is a practical way of proceeding with the investigation.

Of course it is axiomatic that the State, in exercising its plenary power to regulate the liquor industry, cannot trespass on a licensee's constitutional rights. Craig v. Boren, 429 U.S. 190, 206, 97 S. Ct. 451, 50 L. Ed. 2d 397, 412 (1976). Due process is a basic requirement in the regulatory scheme. Fifth amendment rights must be given full protection. On this score, it can be said that plaintiffs' fifth amendment claims are technically premature in the sense that no claims of privilege have been asserted in response to the questions contained in the questionnaire, nor have sanctions been imposed. See N. J. Builders, Owners and Managers Association v. Blair, 60 N.J. 330, 340 (1972). Nevertheless, the letter accompanying the questionnaire improperly sought to have licensees waive their fifth amendment rights by stating that failure to provide complete and accurate answers "to all questions" might subject "your license or permit to suspension or revocation." It continued that if the licensee answered all the questions, and in doing so revealed unlawful activity, "your admission and cooperation thereto will be a mitigating factor which will be taken into consideration in the imposition of penalty." The letter added that with respect to violations committed by the licensees which the Division learns about from other sources,

"particularly where you have withheld information, * * * they will be dealt with accordingly."

This was improper, no matter how well-intentioned the Division may have been. The portions of the letter referred to above, had a chilling effect on a licensee's fifth amendment rights. If the answer to certain questions required a licensee to admit unlawful activity on his part, he had the right to assert the privilege without subjecting himself to a threat of sanctions for so doing. Lefkowitz v. Turley, 414 U.S. 70, 75, 94 S. Ct. 316, 38 L. Ed. 2d 274, 281 (1973); Spevack v. Klein, 385 U.S. 511, 514-515, 87 S. Ct. 625, 17 L. Ed. 2d 574, 577 (1967).

The portions of the letter which thus intruded on plaintiffs' fifth amendment rights were improper and unenforceable. The Director's subsequent letter of July 18, 1977, stating that a claim of privilege to a specific question "will be considered an appropriate response," was inadequate to erase the harm contained in the original communication. Accordingly, the judgment of the Appellate Division upholding the questionnaire must be modified so as to strike down as illegal the offending parts of the covering letter.

This does not mean that a licensee is free to claim privilege to any and all questions propounded in the questionnaire. The claim must be asserted in good faith and some basis therefor must exist. The Division would always have the right to seek judicial review of the validity of a claim of privilege. N.J.S.A. 33:1-35. It also is free to pursue other means of investigation and examination, as authorized by law. Id.

Use of the questionnaire as an investigative tool does not violate due process, intrude on plaintiffs' constitutional rights of privacy or constitute a "fishing expedition" without any lawful, defined purpose.

The controlling standard for an administrative investigation was announced in United States v. Morton Salt Co., 338 U.S. 632, 653, 70 S. Ct. 357, 369, 94 L. Ed. 401, 416 (1950):

* * * [I]t is sufficient if the inquiry is within the authority of the agency, the demand is not too indefinite and the information sought is reasonably relevant. "The gist of the protection is in the requirement, expressed in terms, that the disclosure sought shall not be unreasonable." Oklahoma Press Publishing Co. v. Walling, 327 U.S. 186, 208, 66 S. Ct. 494, 90 L. Ed. 614, 629.

Plaintiffs as licensees under the act are subject to the control of the Director in his supervision of the liquor industry. Among the powers vested in the Director is the right to make such investigations as he shall deem proper in the administration of all alcoholic beverage laws. Licensees are required to cooperate in such investigations.

Plaintiffs seem to concede that the Director has the power to subpoena them and examine them under oath as to the same matters contained in the questionnaire, subject to their right to claim privilege. We do not see how conducting the same examination by questionnaire makes the inquiry illegal. The purpose of the investigation is clear. As stated in the covering letter, its focus is the existence of price discrimination by wholesalers among retailers, and the giving of rebates, kickbacks, unlawful discounts, allowances or other inducements by wholesalers to retailers. The questions are directed to the matters under investigation. Subject to a legitimate claim of privilege, plaintiffs have a statutory obligation as licensees to answer pertinent questions regarding their activities as licensees.

The contention that the investigation makes plaintiffs a "highly suspect group," giving rise to a constitutional privilege not to respond at all to the questionnaire lacks merit. It is true, as plaintiffs assert, that an individual may be privileged from responding to a governmental inquiry initially, and may invoke the privilege against self-incrimination as a defense in an enforcement action against him for failure to respond to the government's demand. The privilege may be asserted against an inquiry ...


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