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Joseph H. Reinfeld Inc. v. Schieffelin & Co.

Decided: October 6, 1983.

JOSEPH H. REINFELD, INC., MAJESTIC WINE & SPIRITS, INC., FLAGSTAFF LIQUOR CO., AND BANNER LIQUOR CO., ALL NEW JERSEY CORPORATIONS, RESPONDENTS,
v.
SCHIEFFELIN & CO., A NEW YORK CORPORATION, M-H U.S.A. CORP., D/B/A SCHIEFFELIN & CO., A DELAWARE CORPORATION, AND MOET-HENNESSY U.S. CORP., A DELAWARE CORPORATION, APPELLANTS. THE JAYDOR CORPORATION, T/A J & J DISTRIBUTING CO., RESPONDENT, V. SCHIEFFELIN & CO., MOET-HENNESSY, S.A., AND M-H U.S.A. CORP., APPELLANTS. F & A DISTRIBUTING CO., GILLHAUS BEVERAGE CO., INC., AND MERCHANTS WINE & LIQUOR CO., RESPONDENTS, V. M-H U.S.A. CORP., SCHIEFFELIN & CO., AND FEDWAY ASSOCIATES, INC., APPELLANTS. REITMAN INDUSTRIES, RESPONDENT, V. SCHIEFFELIN & CO., MOET-HENNESSY, S.A., AND M-H U.S.A. CORP., APPELLANTS. AMERICAN B.D. COMPANY, RESPONDENT, V. SCHIEFFELIN & CO., MOET-HENNESSY, AND U.S.A. CORP., APPELLANTS



On certification to the Superior Court, Appellate Division.

For affirmance -- Justices Clifford, Schreiber, Handler, Pollock and O'Hern. For reversal -- None. The opinion of the Court was delivered by Clifford, J.

Clifford

The Director of the Division of Alcoholic Beverage Control (Director and ABC) determined that Schieffelin & Co., a liquor importer, violated N.J.S.A. 33:1-93.6, which prohibits discrimination in the sale of most nationally advertised liquors by importers to authorized wholesalers. In addition to challenging that determination, appellants claim that N.J.S.A. 33:1-93.6 deprives them of due process and equal protection and mandates a group boycott in violation of the Sherman Act, 15 U.S.C.A. ยง 1. We uphold the Director's finding of discrimination and conclude that appellants' other claims lack merit.

I

Moet-Hennessy, S.A. ("Moet") is a French distiller of alcoholic beverages. For some time before the events giving rise to these proceedings, Moet's products were distributed in the United States through an exclusive importer, Schieffelin & Co., a New York corporation (Schieffelin, N.Y.). Schieffelin, N.Y. in turn authorized several wholesalers, including the respondents herein, to distribute the beverages in New Jersey.

In the fall of 1980 Moet began a series of maneuvers aimed at reducing its distribution network in the United States. Moet's goal was to import its product through a subsidiary and have the subsidiary distribute it through a single wholesaler. On September

15, 1980 Moet and a wholly-owned subsidiary, Moet-Hennessy Newco Corporation, entered into an agreement with Schieffelin, N.Y., whereby Moet-Hennessy Newco Corp. would merge into Schieffelin, N.Y., the latter retaining its name and business. The parties consummated the merger on January 6, 1981, with Moet paying $48 million for all the outstanding Schieffelin, N.Y. common stock. The merger agreement noted that 18 states, among them New Jersey, had regulations forbidding Schieffelin, N.Y. from cancelling its distribution agreements. The agreement's list of wholesalers protected from cancellation included the respondents in this case.

On December 29, 1980 M-H U.S.A. corporation, a wholly-owned indirect subsidiary of Moet, was incorporated in Delaware. Moet had intended, apparently for tax reasons, to liquidate Schieffelin, N.Y. and transfer its assets to M-H U.S.A. on January 6, 1981, the date of the above-mentioned merger, but federal licensing delayed this. It was not until July 1, 1981 that M-H U.S.A. absorbed Schieffelin, N.Y. The new corporation called itself Schieffelin (Delaware) -- hereafter referred to as Schieffelin -- and retained the officers, directors and salespeople of the "old" Schieffelin, N.Y.

Even after Moet acquired Schieffelin, N.Y., the latter continued to sell to respondents. Schieffelin, N.Y. did not surrender its New Jersey liquor license or the solicitor's permits for its salespersons until June 26, 1981 and July 1, 1981, respectively. Meanwhile, on May 29, 1981, Schieffelin, N.Y. sent letters informing the respondents that their contracts with Schieffelin, N.Y. would be cancelled as of July 1, 1981. Thereafter a bidding match ensued between at least two wholesalers for the favor of Schieffelin, spurred in part by Schieffelin's comment that it would decide who would "be on their team" based on "what [the respondents] could do for them." Fedway Associates, Inc. (Fedway), an authorized wholesaler, apparently could do the most for Schieffelin and Moet, for on June 26, Fedway filed "brand registrations" with the ABC, pursuant to N.J.A.C. 13:2-33.1. By this means Fedway sought to designate itself and its subsidiaries

and affiliates as the sole authorized wholesale distributors of Moet products in New Jersey. An authorization letter from M-H U.S.A. accompanied those registrations.

Respondents filed petitions with the Director of the ABC, pursuant to N.J.S.A. 33:1-93.7, alleging discrimination against them by Schieffelin. It was stipulated that the products involved were nationally advertised brands, that Schieffelin, N.Y. had authorized the respondents to distribute Moet products in New Jersey, and that the respondents could pay for and had not disparaged those products. Schieffelin's evidence consisted solely of an affidavit of its vice-president that set out the steps Moet had taken to overhaul the distribution network; it did not submit any proof, however, of the effect those steps had on Schieffelin's or Moet's business or on competition for liquor in this state. Schieffelin also claimed that since it then distributed its products in New Jersey through the so-called "brand registration" method, see N.J.A.C. 13:2-33.1, Schieffelin was no longer under the jurisdiction of the ABC and its termination of the respondent wholesalers was not prohibited by the anti-discrimination statute.

The Director concluded that Schieffelin had violated the anti-discrimination statute. The loss of Schieffelin's products, the Director found, would seriously harm the respondent wholesalers and would cause a "significant competitive disruption." His order prohibited all New Jersey wholesalers from buying and Fedway from selling any alcoholic beverage (except for malt liquors, which are not covered by the statute) from Moet or Schieffelin. Schieffelin could apply to vacate the order at any time by showing that it had resumed sales to the respondents. The Appellate Division affirmed substantially on the basis of the Director's opinion. We granted certification, 91 N.J. 563 (1982), and now affirm.

II

The anti-discrimination statute, N.J.S.A. 33:1-93.6, reads:

There shall be no discrimination in the sale of any nationally advertised brand of alcoholic beverage other than malt alcoholic beverage, by importers, blenders, distillers, rectifiers and wineries, to duly licensed wholesalers of alcoholic beverages who are authorized by such importers, blenders, distillers, rectifiers and wineries to sell such nationally advertised brand in New Jersey.

The statement accompanying that law explained, "The purpose of this bill is to ensure an equitable basis for competition between supplier franchised wholesalers of alcoholic beverages in New Jersey." In examining the predecessor to the current law, this Court, in Canada Dry Ginger Ale, Inc. v. F. & A. Distributing Co., 28 N.J. 444 (1958), noted a second purpose of the legislation:

The ultimate goal sought to be attained by the statute in question, as in the entire scheme of liquor legislation, is the protection of the public through the promotion of temperance and elimination of the racketeer and bootlegger. N.J.S.A. 33:1-3. In order to accomplish this purpose the statute seeks to achieve as far as necessary the independence of wholesalers from distillers. A wholesaler dependent upon a distiller for a supply of sought-after merchandise might be tempted to comply with the non-legitimate desires of the distiller if the latter were free to discontinue the supply at will. For the purpose of strengthening the wholesaler's resistance if confronted with a distiller's wish to over-stimulate sales and thus negate the public policy in favor of temperance or a desire to engage in other prohibited acts, e.g., tie-in sales, the statute seeks to prevent the distiller from arbitrarily closing the source of supply to a wholesaler. [ Id. at 455.]

If, before its transformation into Schieffelin (Delaware) and before its acquisition by Moet, Schieffelin, N.Y. had terminated the respondent wholesalers while retaining Fedway, it clearly would have violated the anti-discrimination statute. See American B.D. Co. v. House of Seagrams, Inc., 107 N.J. Super. 264 (App.Div.1969), aff'd o.b., 56 N.J. 164 (1970), in which the court decided that a distiller violated the anti-discrimination law when, for admittedly legitimate business reasons, it terminated all its authorized wholesalers and attempted to distribute the liquor itself. However, the metamorphosis of Schieffelin, N.Y. into Schieffelin (Delaware) complicates this case.

Schieffelin asserts that Schieffelin, N.Y. terminated all its wholesalers and went out of business; that "new" Schieffelin authorized only Fedway to sell Moet products; and that N.J.S.A. 33:1-93.6, which protects only authorized wholesalers, cannot

protect the respondents. This argument cannot stand. The "old" and "new" Schieffelin companies had the same directors, officers and salespeople. Only the state of incorporation changed. Were we to allow Schieffelin to avoid the anti-discrimination statute through such corporate legerdemain, we would plainly frustrate the statute's purpose.

Schieffelin also argues that Moet, in acquiring a supplier to the New Jersey market, should not be required to adhere to that supplier's distribution system. We note that Moet and Schieffelin continued to use the prior distribution system for six months following Moet's acquisition of Schieffelin. Additionally, Moet acquired Schieffelin, N.Y. with full knowledge of the existing distributorship agreements and of the prohibition against terminating them without cause, but violated that prohibition anyway. The anti-discrimination statute is to be liberally construed to achieve its objectives. Canada Dry, supra, 28 N.J. at 455. It would frustrate the purpose of the statute to permit Moet to terminate the respondents without cause. The Director found that the discrimination against respondents in favor of Fedway would cause a significant competitive disruption, which the statute, whose purposes include the ensuring of competitive stability, seeks to avoid. See Heir v. Degnan, 82 N.J. 109, 114 (1980). Moreover, Schieffelin tried to pit the respondents against each other to see which could do more for Schieffelin, reminiscent of the practice this Court censured in Canada Dry, supra. However inconvenient the statute might be to Moet's and Schieffelin's trade, even "bona fide business policy in the field of liquor traffic must yield to the policy of the State." Canada Dry, supra, 28 N.J. at 456. Were we to permit Moet and Schieffelin to circumvent the statute in this instance, we would encourage the very evils the act was designed to prevent.

We are not deciding that the distiller invariably violates the anti-discrimination statute when it takes control of its distribution network. This case does not involve any deficiency in the petitioners as wholesalers. The circumstances of this case relate

to the continuation of the distribution chain of nationally advertised brands of alcoholic beverages through only one of a group of ...


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