Opinion
Rehearing Denied Jan. 15, 1971.
Opinion on pages 575 to 586 omitted.
HEARING GRANTED
Hearing Granted Feb. 10, 1971.
Albert G. Evans, San Francisco, for petitioners California Beer Wholesalers Association, Inc., Albert G. Evans, Executive Secretary, Pasadena Beverage Co., Vincent P. Burcham, President, Bay Beverage, Inc., James Straley, President, Shoreline Beverage Distributing, Inc., Martin H. Schinnerer, President, and all other beer and wine wholesalers similarly situated.
Thomas C. Lynch, Atty. Gen., and David W. Halpin, Deputy Atty. Gen., for petitioner Edward J. Kirby, as Director of Department of Alcoholic Beverage Control of State of California.
Leo K. Gallant, Loomis, for respondent Alcoholic Beverage Control Appeals Board of State of California.
Steck & Marston, Pasadena, for real party in interest Thriftimart, Inc., doing business as Smart and Final Iris Co.
Assigned by the Chairman of the Judicial Council.
Factual Background
Petitioners seek annulment of the order of the Alcoholic Beverage Control Appeals Board which reverses the decision of the Department of Alcoholic Beverage Control denying the application of Thriftimart, Inc., for the issuance of a beer and wine wholesaler's license.
Thriftimart, Inc., is a corporation consisting of two divisions, both of which are [91 Cal.Rptr. 625] managed and controlled by the same officers and board of directors: (1) the retail division, 'Thriftimart' which operates 77 grocery store retail outlets, primarily in Southern California, and (2) the wholesale division, 'Smart & Final Iris Company', which operates a wholesale grocery warehouse and 85 cash-and-carry wholesale outlets, serving primarily institutional buyers, small retail grocery outlets, and others. Thriftimart, Inc., holds the ownership directly of 73 off-sale general licenses for its retail stores.
An off-sale general license permits the holder to sell packaged beer, wine, and distilled spirits for consumption off the premises where sold (Business and Professions Code, §§ 23393 and 23394).
An application was filed by Thriftimart, Inc., (dba Smart & Final Iris Company) for the issuance of a beer and wine wholesaler's license for the use of its wholesale division 'Smart & Final Iris Co.' at 4700 Boyle Avenue, Vernon, California. Protests against the issuance of this license were filed by California Beer Wholesalers Association, Inc., Pasadena Beverage Company and California Retail Liquor Dealers Institute.
On August 18, 1969, a hearing was held in the matter of the petition for said license, and in the matter of the protests (File 46490, Reg. 1464). The hearing officer made a number of findings, recommended that the protests be sustained, and determined that the petition be denied. On November 7, 1969, the hearing officer's proposed decision was adopted by the Department of Alcoholic Beverage Control (hereinafter referred to as 'Department'). In denying the application it was found, inter alia, that 'If Thriftimart, Inc., obtained a beer and wine wholesaler's license, it would be a wholesaler holding the ownership directly of 73 off-sale general licenses for 73 separate premises' locations', with the conclusion that 'The granting of the petition would create a tied house relationship in violation of Section 25502 of the Business and Professions Code' and 'would be contrary to public welfare and morals.'
There was also a determination that 'Applicant intends to carry on a bona fide wholesale beer and wine distributing business through applicant's wholesale division in conformance with section 23779 of the Business and Professions Code.' This was a finding to the effect that applicant did not intend, as a wholesaler, to sell to itself.
Upon appeal by applicant, the Alcoholic Beverage Control Appeals Board (hereinafter referred to as 'Board') reversed the decision of the Department upon the ground that section 25502 of the Business and Professions Code 'has no application to the facts here presented since that statute relates to an entirely different set of circumstances.' In its decision, the Board states: 'To permit appellant the actual bona fide use of the wholesaler's license would not constitute a wrong or a violation of any statutory prohibition. The beer and wine wholesaler's license is to be used for a lawful purpose. In this respect thd instant case is readily distinguishable from the Louis Stores and Borun Bros. cases as the beer and wine license will not be used for sale to itself. Appellant cannot operate beyond the rights and restrictions granted under the beer and wine wholesaler's license. In the instant matter the value of the wholesaler's license is not dependent on sales made to Thriftimart stores. Thriftimart stores will not purchase beer and wine from its wholesale division. Accordingly, any profit made on beer and wine sales by Smart and Final Iris Company will not be based upon sales made to Thriftimart stores. The two divisions are not acting as a single unit in the purchasing and distribution and sale of beer and wine. A license will be used by the Smart and Final Iris Company for the legitimate purpose of wholesaling to others.' The [91 Cal.Rptr. 626] Board made the further determination: 'Finally, we do point out that there has been no showing made in any respect as to how the issuance of this license would in any way establish a so-called 'tied house' violation. The evidence presented in this matter by the applicant was uncontradicted and clearly sets forth the intended use of the license. In this regard it must be recognized that all parties concede that if Thriftimart had been issued off-sale beer and wine licenses, there would be no prohibition as to the issuance of a beer and wine wholesaler's license or a distilled spirits wholesaler's license. It only seems logical that the reverse would also be true; that is, the wholesaler's beer and wine license could be issued to a person holding an off-sale general license.'
The Board here has reference to Louis Stores, Inc. v. Department of Alcoholic Beverage Control, 57 Cal.2d 749, 22 Cal.Rptr. 14, 371 P.2d 758 and Borun Bros. v. Department of Alcoholic Beverage Control, 215 Cal.App.2d 503, 30 Cal.Rptr. 175.
The Board, in concluding that the Department had decided the matter incorrectly, states: 'We agree with appellant that the question here presented should be resolved by applying section 25506 to the issue raised by the application for a wholesaler's beer and wine license. When the complete picture is examined, there can be no question but that Thriftimart, the holder of numerous off-sale general licenses, is applying for a wholesaler's beer and wine license. Section 25502 in unmistakably clear language prohibits the wholesaler from holding the ownership, directly or indirectly, of any interest in an off-sale general license. Section 25506, in equally clear language, prohibits an off-sale general licensee from holding any ownership, interest, directly or indirectly, in the business, property, or license of any distilled spirits wholesaler. Section 25502 is the usual 'tied-house' provision prohibiting ownership of a retailer by a wholesaler and does not prohibit ownership of a wholesaler by a retailer. Section 25506 enacted in 1947 prohibits an off-sale general licensee from having an interest in the business, property, or license of any distilled spirits wholesaler. It seems clear enough that the Legislature intended that the prohibition against ownership of a wholesaler by a retailer be limited to the distilled spirits situation. As to the ownership of a wholesaler by a retailer, section 25506 is specific, whereas section 25502 is at most general and consequently section 25506 would control even if it were thought that section 25502 might otherwise have some application in this matter.'
Petitions for review have been filed by the Director of the Department (#37199) and by the protesters ($37178). These two petitions are considered together because of their common issues. Both petitions seek annulment of the same decision of the appeals board.
Discussion
The problem presented to us by these facts is derived from the seemingly inconsistent provisions of sections 25502 and 25506 of the Business and Professions Code in attempting to prevent 'tied house' relationships between wholesalers and retailers of alcoholic beverages.
The California Legislature has 'inferentially declared that the public policy is best served if all persons engaged in the handling of alcoholic beverages, whether manufacturing, wholesaling, importing or retailing be kept distinct and apart. * * * Among the purposes of such prohibitions is the prevention of integration of wholesale and retail outlets, and the imposition of quotas on retailers' (Harris v. Alcoholic Beverage Control Appeals Board, 61 Cal.2d 305, 309, 38 Cal.Rptr. 409, 411, 392 P.2d 1, 3). In resolving the matter before us, we must determine whether the license application sought by Thriftimart, Inc., violates the express provisions of any statute or would in fact result in a 'tied house' relationship which would be against the public interest.
Section 25506 of the Business and Professions Code controls the issuance of a wholesale license to a retailer holding an off-sale general license. Section 25506 provides as follows: 'Except as authorized by this division, no off-sale general licensee, or any officer, director, employee, or agent of such licensee, shall hold any ownership [91 Cal.Rptr. 627] or interest, directly or indirectly, in the business, property, or license of any distilled spirits wholesaler, rectifier, distilled spirits manufacturer, or distilled spirits manufacturer's agent.'
Under section 25506 an owner of an off-sale general license is expressly prohibited from owning an interest in a distilled spirits wholesaler. However, the statute contains no prohibition against a holder of an off-sale general license from acquiring the ownership of a wholesale license. If we were to construe section 25506 to prohibit an off-sale general licensee from holding an interest in a wine and beer wholesaler we would be guilty of speculating that the legislature meant something other than what it said. We cannot depart from a literal construction of the statute (Bakersfield Home Building Company v. McAlpine Land and Development Company, 26 Cal.App.2d 444, 448-449, 79 P.2d 410) nor may we rewrite section 25506 to express an intention to cover a subject which is not expressed therein (Armstrong v. Smith, 49 Cal.App.2d 528, 536, 122 P.2d 115).
Petitioners ask that we interpret section 25502 so as to deny the issuance of the wholesaler's license to Thriftimart, Inc. Section 25502 provides in pertinent part as follows: 'No * * * wholesaler, or any officer, director, or agent of any such person, shall, except as authorized by this division, hold the ownership, directly or indirectly, of any off-sale general license for any premises, or own or control any interest, directly or indirectly, by stock ownership, interlocking directors, trusteeship, or mortgage of the premises or fixtures covered by an off-sale general license.
'Any wholesaler in counties not to exceed 15,000 population who holds both a beer and wine wholesaler's license and an off-sale general license and who held such licenses prior to September 19, 1947, may continue to hold such licenses or may transfer either or both licenses to another individual, individuals, partnership, corporation or other legal entity. Where both licenses are simultaneously transferred to an individual, individuals, partnership, corporation or other legal entity, the transfer shall be a person to person transfer only. * * *'
Thus it would appear that section 25506 permits the holding of an interest in a wholesale wine and beer license by an offsale general license such as Thriftimart, Inc. On the other hand while section 25502 says nothing about the ownership of an interest in a wholesale wine and beer license by an off-sale general licensee, it expressly prohibits the ownership of an interest in an off-sale general license by any wholesaler. It is quite possible that, by enacting sections 25502 and 25506 the legislature may have intended to bar the type of retailer-wholesaler relationship involved under these facts. However, these statutes fail to express any such intention. On the contrary section 25506 authorizes such a business relationship. If we were to interpret section 25506 to prohibit the holding of an interest in a wine and beer wholesale license by an off-sale general licensee we would not only be making law in violation of the concept of the separation of powers, but in addition, our judicial fiat would constitute a repressive interference with an otherwise lawful business enterprise in a competitive field without adequate notice and elementary due process.
We recognize that our decision in this matter will leave undisturbed the seemingly incongruous paradox that while the legislature permits an off-sale general licensee to hold an interest in a wine and beer wholesaler, a wine and beer wholesaler may not hold an interest in a off-sale general license. However, the legislature is free to enact new clarifying language if this enigmatic result was unintended.
Pending such clarification these sections can be harmonized without dissipating the strength of the statutory scheme aimed at preventing tied house relationships. Where, as here, a retailer seeks to purchase a wine and beer wholesale license as permitted by section 25506, such dual ownership [91 Cal.Rptr. 628] of both a retail and wholesale license is not prohibited by section 25502 where the Department of Alcoholic Beverage Control finds that no 'tied house' relationship will result because no sales are to be made to the licensee's retail outlets.
Our conclusion that section 25506 permits the ownership of an interest in a wine and beer wholesaler by an off-sale general licensee will not result in any harm to the public interest under the facts of the instant matter.
The Department adopted the finding of the administrative hearing officer that Thriftimart, Inc., 'intends to carry on a bona fide wholesale beer and wine distributing business through its wholesale division in conformance with Section 23799 of the Business and Professions Code.' This finding is supported by the evidence presented to the hearing officer. Thriftimart, Inc., also presented evidence that the ownership of a beer and wine license by its wholesale division Smart & Final is necessary in order to provide a full line of grocery products to its retailer customers to meet the competition of its chief competitor Certified Grocers, which now has a wholesale beer and wine license. Section 23799 provides in pertinent part: 'No wholesale license shall be issued to any person who does not in good faith actually carry on or intend to carry on a bona fide wholesale business by sale to retail licensees of the alcoholic beverage designated in the wholesale license, * * * Sale by a wholesale licensee to himself as a retail licensee is not the transaction of a bona fide wholesale business.' Under section 24200, a license may be suspended or revoked for 'the violation * * * of this division' or for the 'misrepresentation of a material fact by any applicant in obtaining a license' (section 23779 is in the same division as section 24200(b)).
Petitioners contend that Borun Bros. v. Department of Alcoholic Beverage Control requires that we rule against the issuance of the license in this matter. We disagree. Borun Bros., can be distinguished on its facts. Further, the court in Borun Bros., did not discuss section 25506. Borun Bros., involved the propriety of the revocation of a wholesale beer and wine license which was being used exclusively for the benefit of the wholesaler's wholly controlled retail outlets. The court in Borun determined that the revocation was proper under sections 25502 and 23779 since 'it appears that the department and the court properly determined that sales by Borun were sales to itself.'
In the instant matter the facts show that Thriftimart, Inc., intends to use the wine and beer wholesale license for a lawful purpose. Should the wholesale division of Thriftimart, Inc., sell the wine and beer to its retail division contrary to section 23779 and contrary to its representation that it would not sell to its retail division the Department of Alcoholic Beverage Control may take appropriate action under section 24200 to revoke or suspend the wholesale wine and beer license and in accordance with the decision in Borun Bros.
It may be contended that if and when Thriftimart acquired the wholesale license they will then be a wholesaler holding an interest in a general off-sale license in contravention of section 25502, and that we should not base our decision on the fortuitous fact that Thriftimart obtained its retail licenses first.
However, it appears to us that Thriftimart's predominant interest is as a retailer and the acquisition of the wholesale license will not change that picture.
In the final analysis, while the entities here are part of one corporation, as a practical matter the wholesaling of beer and wine will be such a distinct and separate operation from the operation of the general retail outlets that we view it as two unrelated entities. Thus, the objective [91 Cal.Rptr. 629] of the regulatory scheme will not be circumvented.
The order of the Alcoholic Beverage Control Appeals Board is affirmed.
COMPTON, J., concurs.
FLEMING, Associate Justice.
I dissent from a ruling which would permit Thriftimart, the owner of 73 off-sale general licenses, to acquire a beer and wine wholesaler's license.
The question involves the proper construction of two sections of the Alcoholic Beverage Control Act, Business and Professions Code ,ss 25502 and 25506, both of which were adopted in 1953 as part of the same act. (Stats.1953, ch. 152.)
If we analyze these sections schematically and let
WL = wholesaler, liquor,
WB = wholesaler, beer and wine,
R = retailer, liquor, i. e., owner of off-sale general license
then for pertinent purposes, section 25502 provides:
No W (L or B) may own R license.
And section 25506 provides:
No R may own WL license.
The issue here is whether:
R may own WB license.
The majority opinion relies entirely on the argument that because § 25506 declares no R may own a WL license, it follows by implication that R can own a WB license. Adoption of this argument would permit a single entity to own both a WB license and an R license, and thus squarely conflict with the prohibition against common ownership found in § 25502. Acceptance of the implication would produce the ludicrous situation of the following conjunctive propositions:
No WB may own R license (§ 25502)
but
R may own WB license (ABCAB decision).
The only feasible way to reconcile these contradictory propositions is to sever the license from the licensee and declare that Thriftimart's ownership of a beer and wine wholesaler's license does not make it a wholesaler. But since the owner of a wholesaler's license is required to function as a wholesaler and may lose his license if he does not (Bus. & Prof.Code, § 23779), Thriftimart as the owner of a wholesaler's license must be classified as a wholesaler. What then will happen when Thriftimart applies for its 74th off-sale general license? Do we read the prohibition of section 25502 against ownership of off-sale general licenses by a wholesaler out of the books? Do we refuse to issue further off-sale general licenses to Thriftimart? For me these logical inconsistencies merely highlight the impropriety of the proposed ruling and furnish cogent reasons for following the law as heretofore construed by this court in Borun Bros. v. Dept. of Alcoholic Beverage Control, 215 Cal.App.2d 503, 510, 30 Cal.Rptr. 175. There Borun Bros.' license as a beer and wine wholesaler was revoked, one of two specific grounds for revocation being the fact that its parent, Thrifty Drug, owned off-sale general licenses.
The conclusion of the majority opinion also conflicts with the specific amendment to § 25502 adopted in 1959. That amendment declared that in counties under 15,000 population a wholesaler holding both a beer and wine wholesaler's license and an off-sale general license prior to September 1947 could continue to hold and transfer both licenses. If it were generally true that the same person could hold both a beer and wine wholesaler's license and an off-sale general license, specific authorization for such common ownership in counties under 15,000 population would not have been necessary. Significantly, when § 25502 was again amended in 1969 the provision authorizing common ownership of a beer and wine wholesaler's license and an off-sale general license in counties [91 Cal.Rptr. 630] under 15,000 population was continued in effect.
As I construe the provisions of the Alcoholic Beverage Control Act, adopted in 1953, § 25502 prohibits common ownership of wholesale licenses and retail liquor licenses, a general prohibition which is reinforced by the more stringent prohibition in § 25506 against any interests in common between liquor retailers and liquor wholesalers. Section 25502 is a no; section 25506 is a no-no. Concededly, the two sections overlap to some extent, but reconciliation between sections does not present an insurmountable problem. § 25502, as adopted, restricts a wholesaler from owning an interest in an off-sale general license. This restriction is somewhat less comprehensive than that found in § 25506, which prohibits a liquor retailer from having any interest in the business, property, or llcense a liquor wholesaler. The historical reasons which brought about a stricter prohibition against interests in common between liquor wholesalers and liquor retailers than between beer and wine wholesalers and liquor retailers provide rational support for a construction of the two sections which will preserve meaning and content for both of them, a construction I find fully supported by the legislative history outlined in the Attorney General's brief. This construction also avoids the foolishness of a ruling to the effect that although a beer and wine wholesaler cannot own an interest in a retail liquor license, a liquor retailer can own an interest in a beer and wine wholesaler's license.
I would vacate the order of the ABC Appeals Board and reinstate the decision of the Department of Alcoholic Beverage Control.