Case Title: R & R Marketing LLC v. Brown-Forman Corp.

Citation: 

Docket Number: a-206-97

State: new-jersey

Court: New Jersey Supreme Court

Date: 1999-04-22T00:00:00Z

Document:
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). O'HERN, J., writing for a unanimous Court. This appeal concerns the right of two wholesale distributors of alcoholic beverages to assign their existing franchise rights to distribute certain brands of alcoholic beverages to a wholly-owned limited liability company (LLC). Reitman Industries, Inc. (Reitman), whose operations were centered in North Jersey, and Royal Distributors and Importers, Ltd., Inc. (Royal), whose operations were in South Jersey, sought to combine their business operations. Each had been authorized to distribute certain products sold by Brown-Forman. In an attempt to best preserve their protections under the anti-discrimination law, which entitles a wholesaler to continue to distribute a product absent exceptional circumstances once a supplier authorizes sales of a nationally advertised brand, the two decided to form a new entity, a limited liability company. Under their agreement, Reitman and Royal would each transfer their operating assets to the new entity, R & R Marketing, L.L.C. (R & R), and in return obtain an ownership interest in R & R. The founding corporations were to maintain a separate existence, while agreeing to refrain from competition with R & R. Reitman and Royal first sought to transfer their supplier authorizations to R & R with the consent of the supplier, if necessary. In the alternative, however, they agreed that they would purchase the alcoholic beverages required by R & R, and then transfer those beverages to R & R at cost. After the business combination commenced operations on July 1, 1994, Brown-Forman refused to honor orders placed by the companies. The companies then sought protection from the Director of the Division of Alcoholic Beverage Control (Director) pursuant to N.J.S.A. 33:1-93.6, and requested interim relief compelling sales by Brown-Forman, which was granted as to Royal and Reitman, but not as to R & R. After reviewing the submissions, the Director found that the statute affords no protection to a New Jersey wholesaler until a manufacturer has designated it as an authorized distributor, reasoning that the objectives of the law do not include forcing a distiller to distribute its products to unauthorized wholesalers. While recognizing that the anti-discrimination law is to be liberally construed, the Director characterized the plan to transfer products to R & R at cost as a sham agreement. He further found that Reitman and Royal forfeited their protection under the statute once they entered into an agreement obligating them to front for R & R. Finally, the Director did not consider the formation of the LLC to constitute a de facto merger. On appeal, the Appellate Division ruled that the Director's decision inappropriately elevated form over substance. The panel found that where the new entity is composed of previously approved wholesalers, the supplier's control of its distribution system is not dissipated. The Supreme Court granted the petitions for certification of Brown-Forman and the Director. HELD: While it is not the form of a transaction that will govern a wholesaler's right to restructure its organization and maintain its protections under the anti-discrimination law, essential economic issues have not been addressed or clarified in the record below, and the matter is therefore remanded to the Director for a clearer statement of findings and for future guidance in this area. 1. Courts generally give substantial deference to the interpretation an agency gives to a statute that the agency is charged with enforcing. Because the conclusions and not the facts are in dispute, review of the Director's decision should focus on whether denying the protection of the anti-discrimination law to the newly formed LLC conflicts with or is consistent with legislative policies. (pp. 6-7) 2. The legislative policies underlying the anti-discrimination law seek to ensure an equitable basis for competition between supplier franchised wholesalers of alcoholic beverages in New Jersey, thus protecting the public through the promotion of temperance and the elimination of the racketeer and bootlegger. (pp. 7-8) 3. Because none of the economic issues presented by this case have been clarified in the record, the matter should be remanded to the agency for a clearer statement of findings. Specifically, the agency should articulate the reasoning why the anti-discrimination law does or does not protect R & R's interests in this situation. (pp. 9-12) 4. The Division should provide future guidance concerning policies that will apply to transactions similar to that presented in this case. In particular, the agency should clarify the scope of distributorship rights and the form of reorganization that will contravene the policies of the anti-discrimination law. (pp. 12-13) 5. The economic reality, and not the form of the restructured organization, will determine a wholesaler's rights under the anti-discrimination law. (pp. 13-14) 6. Pending further action by the Director concerning the present status of the enterprise, the rights of the parties shall remain subject to the same conditions as were implemented under the Director's stay order. (p. 14) Judgment of the Appellate Division is REVERSED and the matter is REMANDED to the Director for any further proceedings concerning the present structure of the enterprise. JUSTICE HANDLER, POLLOCK, GARIBALDI, STEIN and COLEMAN join in JUSTICE O'HERN's opinion. CHIEF JUSTICE PORITZ did not participate. SUPREME COURT OF NEW JERSEY A-206/ 207 September Term 1997 R & R MARKETING, L.L.C.; ROYAL DISTRIBUTORS AND IMPORTERS, LTD., INC., and REITMAN INDUSTRIES, INC., Petitioners-Respondents, v. BROWN-FORMAN CORPORATION, Respondent-Appellant. Argued February 1, 1999 -- Decided April 22, 1999 On certification to the Superior Court, Appellate Division, whose opinion is reported at 307 N.J. Super. 474 (1998). Ross A. Lewin argued the cause for appellant Brown-Forman Corporation (Jamieson, Moore, Peskin & Spicer, attorneys). David N. Bregenzer, Jr., Deputy Attorney General, argued the cause for appellant New Jersey Division of Alcoholic Beverage Control (Peter Verniero, Attorney General of New Jersey, attorney). Edward G. D'Alessandro argued the cause for respondents (D'Alessandro, Jacovino & Gerson, attorneys; Mr. D'Alessandro and Frederick E. Gerson, on the brief). The opinion of the Court was delivered by O'HERN, J. This appeal concerns the right of two wholesale distributors of alcoholic beverages to assign their existing franchise rights to distribute certain brands of alcoholic beverages to a wholly-owned limited liability company (LLC). The founding members of the LLC sought as well to retain the franchise rights to themselves. The Director of the Division of Alcoholic Beverage Control (Director and ABC) ruled that the restructuring was an attempt by the two wholesalers to force their suppliers to distribute through an unauthorized wholesaler, thereby causing the two wholesalers to lose their franchise rights protected by the anti-discrimination law. The anti-discrimination law provides: 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. [Ibid. (citing Canada Dry Ginger Ale, Inc. v. F.& A. Distributing Co., 28 N.J. 444, 455 (1958) (examining the predecessor to the anti-discrimination statute)).] It is not so easy to reconcile the promotion of temperance with the parallel goal of consumerism that is reflected in recent deregulation of the alcoholic beverages industry. See Heir v. Degnan, 82 N.J. 109 (1980) (sustaining regulations that substantially expanded competition in pricing for alcoholic beverages). Economics of scale that may reduce the cost of alcoholic beverages might have the effect of increasing consumption, not promoting temperance. Nonetheless, it is in this subtle and difficult area that we are most inclined to defer to the Director: would recognition of protected rights for R & R conflict with the legislative policies that undergird our alcoholic beverage control laws? [In re Vey, 124 N.J. 534, 543-44 (1991).] We do so here. Specifically, the agency should relate its findings in this case to the statutory [policies] of the anti-discrimination law. Id. at 536. It should articulate the reasoning why the anti-discrimination law does or does not protect R & R's interests in this situation. As noted, Reitman has acquired Royal and we shall assume that under existing law Reitman would be entitled to retain the scope of protection previously afforded to Royal under the anti-discrimination law. Any further disputes between the parties should be resolved by the Director. JUSTICES HANDLER, POLLOCK, GARIBALDI, STEIN, and COLEMAN join in JUSTICE O'HERN's opinion. CHIEF JUSTICE PORITZ did not participate. NO. A-206/207 R & R MARKETING, L.L.C.; ROYAL DISTRIBUTORS AND IMPORTERS, LTD., INC., and REITMAN INDUSTRIES, INC., Petitioners-Respondents, v. BROWN-FORMAN CORPORATION, Respondent-Appellant. DECIDED