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Heir v. Degnan

Decided: February 11, 1980.

IRVING HEIR, INDIVIDUALLY AND ON BEHALF OF A CLASS CONSISTING OF ALL LICENSED WHOLESALE SOLICITORS OF ALCOHOLIC BEVERAGES OF THE STATE OF NEW JERSEY, WINE AND LIQUOR SALESMEN OF THE STATE OF NEW JERSEY, LOCAL 19, AND ALFRED M. D'AGOSTINI, INDIVIDUALLY, APPELLANTS,
v.
JOHN J. DEGNAN, ATTORNEY GENERAL OF THE STATE OF NEW JERSEY, JOSEPH H. LERNER, DIRECTOR, DIVISION OF ALCOHOLIC BEVERAGE CONTROL, DEPARTMENT OF NEW AND PUBLIC SAFETY, AND DIVISION OF ALCOHOLIC BEVERAGE CONTROL, DEPARTMENT OF LAW AND PUBLIC SAFETY, RESPONDENTS. WINE & SPIRITS RETAILERS OF NEW JERSEY, INC., A NOT-FOR-PROFIT NEW JERSEY CORPORATION, THE PACKAGE SHOP, INC., A NEW JERSEY CORPORATION, JOCAR, INC., A NEW JERSEY CORPORATION, AND V.J.F. LIQUOR RETAILERS, INC., A NEW JERSEY CORPORATION, APPELLANTS, V. JOHN J. DEGNAN, ATTORNEY GENERAL OF THE STATE OF NEW JERSEY, JOSEPH H. LERNER, DIRECTOR, DIVISION OF ALCOHOLIC BEVERAGE CONTROL, DEPARTMENT OF LAW AND PUBLIC SAFETY, AND DIVISION OF ALCOHOLIC BEVERAGE CONTROL, DEPARTMENT OF LAW AND PUBLIC SAFETY, RESPONDENTS



On certification to the Division of Alcoholic Beverage Control, Department of Public Safety, State of New Jersey.

For modification and affirmance -- Justices Sullivan, Pashman, Clifford, Schreiber and Handler. For reversal -- none. The opinion of the Court was delivered by Sullivan, J.

Sullivan

These appeals are before this Court on direct certification granted while the matters were pending unheard in the Appellate Division. Involved is the validity of regulations adopted by the Director of the Division of Alcoholic Beverage Control (ABC). These regulations eliminate retail price maintenance in the alcoholic beverage industry except for sales below cost and otherwise modify significantly the previous policy of the ABC regarding price controls and competition.

Two appeals have been filed from the adoption of the new regulations, one on behalf of liquor retailers, and the other on behalf of wholesale solicitors. Both appeals challenge the power of the Director to make these changes in the absence of specific legislative authorization. Furthermore, it is alleged that the procedures utilized in adopting the new regulations violated due process. Finally, specific attack is made on six of the regulations that (1) authorize quantity discounts, (2) regulate credit practices, (3) require purchases from New Jersey wholesalers, (4) ban cooperative advertising, (5) prohibit sales below cost and (6) provide emergency measures for the collection of sales tax. Our conclusion is that elimination of retail price maintenance and allowance of price competition, the basic thrust of the new regulations, is well within the powers granted to the Director by the Legislature. We find that the procedures employed in the adoption of the regulations satisfy due process and that the challenges to specific regulations are without merit except as to the regulations prohibiting cooperative advertising and providing emergency measures for the collection of sales tax.

It is undisputed that the liquor industry is affected with a public interest. Consequently, it has been subject to intense State regulation and control for the purpose of curbing relationships and competitive practices which improperly stimulate sales and thereby impair the State's policy favoring trade stability and the promotion of temperance. A succinct outline of the history of State regulation of the sale of liquor is given by Justice Jacobs in Grand Union Co. v. Sills, 43 N.J. 390, 398-402 (1964).

The present system of control in this State commenced in 1933 following repeal of national prohibition. L. 1933, c. 436. However, it was not until 1938 that price maintenance was established through the use of fair trade contracts. N.J.S.A. 33:1-23.1. Regulation 30 adopted at that time provided for manufacturers and wholesalers to file fair trade contracts and price lists with the ABC which published the information and generally enforced the price lists against all retailers, whether signers or non-signers. See Gaine v. Burnett, 122 N.J.L. 39, 41 (Sup.Ct.), aff'd, 123 N.J.L. 317 (E. & A. 1939).

This method of retail price regulation was changed as a result of a decision by the United States Supreme Court in Schwegmann v. Calvert Distillers Corp., 341 U.S. 384, 71 S. Ct. 745, 95 L. Ed. 1035 (1951). In Schwegmann the Supreme Court held that non-signers of a fair trade contract could not be held to its terms and that a law so providing was invalid. Accordingly, in 1951 the director, by regulation changed the method of retail price control from fair trade contract*fn1 to a price posting system which survives without significant change to this day. N.J.S.A. 33:1-93; see N.J.A.C. 13:2-1.

The price regulation system, still in effect by virtue of a stay of the new regulations granted by this Court, is as follows. Every manufacturer of wine or distilled spirits who sells to a New Jersey wholesaler must file a price schedule with the ABC on a quarterly basis for such products offered to wholesalers. N.J.A.C. 13:2-36.1 to -36.2. Once filed, the prices are binding for that period on both manufacturers and wholesalers. N.J.A.C. 13:2-36.1. Also, every manufacturer must "affirm" that its prices for distilled products in New Jersey are at the lowest price at which such products are being sold anywhere in the United States. N.J.A.C. 13:2-36.2(c). Manufacturers also file with the ABC a quarterly schedule of "minimum consumer re-sale prices" for all package alcoholic beverages sold within the State. N.J.A.C. 13:2-33.1(a). This schedule is binding on all retailers who are prohibited from selling below the listed price. N.J.A.C. 13:2-33.5.

The regulations do not establish any standards or guidelines for the manufacturer when it fixes its wholesale and retail prices, except for the affirmation heretofore noted. N.J.A.C. 13:2-36.2(c). Thus, the manufacturer has almost absolute control of its prices to wholesalers in this State and is also free to set the minimum price at which its product is sold to the consumer. The ABC's function is only to oversee the filing and publication of the wholesale and retail price lists and to enforce adherence to them.

At the wholesale level, prices from wholesaler to retailer in this State are fixed by the wholesaler who must file quarterly price listings for all of its alcoholic beverages other than malt alcoholic beverages. N.J.A.C. 13:2-36.2(f). However, the regulations allow wholesalers to inspect price lists filed by other wholesalers and to raise or lower their own prices "to meet a higher or lower and competing price." N.J.A.C. 13:2-36.5. In practice these regulations have resulted in the functional equivalent of horizontal price fixing among wholesalers carrying the same brand products.

The present regulations also limit the extension of credit to a retailer by requiring the retailer to pay for delivered goods within one month after delivery. N.J.A.C. 13:2-39.1. If payment is not made within that time, the wholesaler must notify the ABC and the retailer is placed on a "default list." N.J.A.C. 13:2-39.3. Until removed from the list the retailer may purchase alcoholic beverages on a cash basis only. N.J.A.C. 13:2-39.4. A retailer who is on the list for 39 consecutive weeks is placed on the "non-delivery" list and may not purchase any alcoholic beverages. N.J.A.C. 13:2-39.3 to -39.4. Additional regulations severely restrict numerous sales activities by retailers and wholesalers. See N.J.A.C. 13:2-24.1 et seq. These regulations deal with equipment signs and other advertising material and their use for sales promotion. N.J.A.C. 13:2-24.1 et seq. In essence, the regulations use a price regulation anti-competitive approach in the interest of trade stability and temperance.

In 1976 the Attorney General began an investigation into persistent reports of widespread disregard and abuse of the ABC regulations, and illegal trade practices at every level of the alcoholic beverage industry. He sought to determine whether or not the reports were true and, if so, whether the present regulations were a contributing factor. The investigation disclosed the existence of widespread abuses and resulted in administrative charges being filed against numerous wholesale licensees.

Also, in August 1977, the Attorney General established a "Task Force" to determine whether existing regulations should be modified to improve control over the trade practices of the alcoholic beverage industry. In January 1979 the Task Force released its findings in a comprehensive report. The report found illicit trade practices not only among wholesale licensees, but at all levels of the industry, and identified present ABC regulations as a contributing factor. Major changes in these regulations in the area of industry marketing and pricing practices were recommended, the most salient of which were the

elimination of retail price maintenance and the existing method of wholesale price posting. Changes in the regulation of credit and greater latitude in marketing and promotional activities were also recommended.

On the basis of his investigation and the Task Force Report, the Attorney General submitted a "Statement of Policy Concerning Price Deregulation of the Alcoholic Beverage Industry" to the Governor. The statement seriously questioned the legality of the retail price maintenance system in New Jersey in the light of recent court decisions that similar kinds of retail price maintenance, in which the state played no role in setting the retail prices, were invalid under the Sherman Antitrust Act. See Rice v. Alcoholic Bev. Control Appeals Bd., 21 Cal. 3d 431, 146 Cal.Rptr. 585, 579 P. 2d 476 (1978).*fn2 However, the Attorney General found it unnecessary to decide the question of the legality of New Jersey's retail price maintenance system since he concluded that from a public policy standpoint it was in the public interest to abandon retail price maintenance. This, he stated, could be accomplished by a revision of the ABC regulations. See Annotation, "Validity of state statute or regulation fixing minimum prices at which alcoholic beverages may be sold at retail," 96 A.L.R. 3d 639 (1979).

Public informational hearings were held on February 8 and 9, 1979 on the subject of price deregulation. Numerous expert witnesses testified on the issue and its impact on the industry. The Task Force Report and its findings and recommendations were discussed extensively.

Following the hearings, proposed amendments and supplements to the ABC regulations were drafted and notice of intention to adopt the same ...


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