Opinion ID: 1374138
Heading Depth: 1
Heading Rank: 1

Heading: Constitutionality of the retail price maintenance provisions

Text: At the outset we note that several states in addition to our own have adopted measures requiring that each producer of liquor establish a price below which retail distributors may not sell his brand. The courts which have passed on the constitutionality of such measures have reached divergent conclusions. [2] In this court the matter is not one of first impression: In Allied Properties v. Department of Alcoholic Beverage Control (1959) 53 Cal.2d 141 [346 P.2d 737], we held that the retail price maintenance provisions here involved were constitutional. In so deciding, we rejected the arguments which plaintiff asks us to accept now. Plaintiff urges us to reconsider Allied Properties on the ground that the majority of other state courts which have subsequently passed on the constitutionality of general fair trade legislation authorizing retail price maintenance agreements have held such legislation unconstitutional as applied to nonsigners. [3] Not one of these subsequent decisions, however, has brought to light any relevant consideration which was not thoroughly argued when we decided Allied Properties. Under such circumstances, we would ordinarily be most reluctant to reopen a matter so recently and so unequivocally settled by a decision of this court. We have decided to do so here only because of the importance of the issue raised and because of plaintiff's contention as to the contrary trend of the decisions in other jurisdictions; we seek to foreclose any possibility that our silence might engender unwarranted speculation about the continued vitality of Allied Properties. [1a] Having reconsidered Allied Properties, we reaffirm its holding that the mandatory retail price maintenance provisions of the Alcoholic Beverage Control Act are constitutional. The provisions in question operate as follows: Section 24750 of the Business and Professions Code authorizes fair trade contracts prohibiting the buyer from reselling, except at the price stipulated by the seller, alcoholic beverages which bear the trade-mark, brand, or name of the producer or owner and are in fair and open competition with others of the same general class. Section 24752 declares that wilfully and knowingly advertising, offering for sale, or selling any alcoholic beverage at less than the price stipulated in any such contract, whether the person so doing is or is not a party to the contract, constitutes unfair competition and founds an action by any person damaged thereby. Section 24755, as it read at the time of the transactions under consideration, required that any branded liquor sold at retail be sold pursuant to a contract executed under the above provisions and prohibited the violation of such contracts by liquor licensees. [4] Section 24757 authorizes the Department of Alcoholic Beverage Control to adopt such rules as it finds necessary for the administration of section 24755. Rule 99, as adopted and effective at the time of the instant transactions, provided in part that no manufacturer or wholesaler should sell branded liquor except pursuant to a fair trade contract as provided for by sections 24750 and 24755, that copies of such contracts should be filed with the department, and that no licensee should advertise, offer for sale, or sell alcoholic beverages at a retail price less than the minimum resale price stipulated in a contract filed with the department pursuant to this rule. (Cal. Admin. Code, tit. 4, § 99, subds. (a), (b), (f).) Business and Professions Code section 24200 provides in relevant part that the department may suspend or revoke a license when the licensee has violated any rule promulgated by the department pursuant to the Alcoholic Beverage Control Act or any other penal prohibition or regulation of the sale of alcoholic beverages. [5] [2] Plaintiff first contends that these provisions are unconstitutional because they exceed the police power of the state. In passing upon the validity of that contention, we exercise an extraordinary power over a coordinate branch of government and perform a correspondingly narrow function: we simply determine whether the statute reasonably relates to a legitimate governmental purpose. In so doing, we find the requisite relationship in the absence of an unquestionable contrary showing. ( Los Angeles Met. Transit Authority v. Public Utilities Com. (1963) 59 Cal.2d 863, 867 [31 Cal. Rptr. 463, 382 P.2d 583]; Wholesale Tobacco Dealers v. National etc. Co. (1938) 11 Cal.2d 634, 646 [82 P.2d 3, 118 A.L.R. 486].) We must not confuse reasonableness in this context with wisdom. `The doctrine ... that due process authorizes courts to hold laws unconstitutional when they believe the legislature has acted unwisely ... has long since been discarded ...' Ferguson v. Skrupa, 372 U.S. 726, 728-730 [10 L.Ed.2d 93, 83 S.Ct. 1028, 95 A.L.R.2d 1347]. ( Joseph E. Seagram & Sons, Inc. v. Hostetter (1966) 384 U.S. 35, 47 [16 L.Ed.2d 336, 86 S.Ct. 1254].) [6] To incant these precepts in form and ignore them in substance is to disregard the most basic postulates of representative government; yet, as one court has observed, the courts of last resort that have rejected fair trade acts on Constitutional grounds seem to have ... done so because of an unwillingness to accept the legislative judgment as to the economic facts. ( Home Utilities Co. v. Revere, etc., Inc., supra, 209 Md. 610, 617.) [7] On such debatable matters the Legislature properly serves as the court of last resort. [3] When, as in this case, appeal is made to liberties which derive merely from shifting economic arrangements ( Kovacs v. Cooper (1949) 336 U.S. 77, 95 [93 L.Ed. 513, 69 S.Ct. 448, 10 A.L.R.2d 608] (Frankfurter, J., concurring)), the judgment of the Legislature reaches this tribunal with a momentum for respect lacking when the Legislature tampers with those liberties of the individual which history has attested as the indispensable conditions of an open as against a closed society. ( Ibid. ) With these admonitions in mind, we turn to plaintiff's contention that the retail price maintenance provisions of the Alcoholic Beverage Control Act bear no reasonable relation to any legitimate governmental purpose. [4] The Legislature adopted the Alcoholic Beverage Control Act for the protection of the safety, welfare, health, peace, and morals of the people of the State, to eliminate the evils of unlicensed and unlawful manufacture, selling, and disposing of alcoholic beverages, and to promote temperance in the use and consumption of alcoholic beverages. (Bus. & Prof. Code, § 23001.) With regard to the retail price maintenance provisions specifically, the Legislature made its purpose plain: It is the declared policy of the State that it is necessary to regulate and control the manufacture, sale, and distribution of alcoholic beverages ... for the purpose of fostering and promoting temperance in their consumption and respect for and obedience to the law. In order to eliminate price wars which unduly stimulate the sale and consumption of alcoholic beverages and disrupt the orderly sale and distribution thereof, it is hereby declared as the policy of this State that the sale of alcoholic beverages should be subjected to certain restrictions and regulations. The necessity for the enactment of provisions of this chapter is, therefore, declared as a matter of legislative determination. (Bus. & Prof. Code, § 24749.) The promotion of temperance in the consumption of alcoholic beverages and of orderly conditions in their marketing clearly constitute proper legislative objectives. The declared purposes of the Alcoholic Beverage Control Act in general and of its retail price maintenance provisions in particular are therefore entirely legitimate, and we must sustain the price maintenance provisions if they bear a reasonable relationship to any of those purposes. We turn first to the purpose of promoting temperance. The retail price maintenance provisions proceed on the assumption that the elimination at the retail level of price cutting, bargain sales, and advertising of low prices tends to reduce excessive purchases of alcoholic beverages. ( Allied Properties v. Department of Alcoholic Beverage Control, supra, 53 Cal.2d 141, 148.) We cannot call such an assumption irrational. In upholding the validity of a state statute limiting retail liquor licenses to two per person, the New Jersey Supreme Court held that in formulating its policy the Legislature could properly accept widely held views as to sound liquor control, including the beliefs that the consumption of liquor is elastic rather than inelastic, [and] that price cuttings and their advertisement, along with comparable practices, are undesirable in the liquor field as tending to stimulate consumption.... ( Grand Union Co. v. Sills (1964) 43 N.J. 390 [204 A.2d 853, 859].) Our Legislature may have sought to prevent the special inducement to purchase liquor which results from loss leaders, price-cutting, and bargain sales at the retail level. ( Allied Properties v. Department of Alcoholic Beverage Control, supra, 53 Cal.2d 141, 148-149.) [5] That the Legislature did not also seek to prevent intemperance by limiting the volume of liquor sales, by regulating competition among producers and wholesalers, or by establishing high liquor prices generally, creates no constitutional infirmity. [6] As we said in Board of Education v. Watson (1966) 63 Cal.2d 829, 833 [48 Cal. Rptr. 481, 409 P.2d 481], The Legislature is not bound, in order to adopt a constitutionally valid statute, to extend it to all cases which might possibly be reached, but is free to recognize degrees of harm and to confine its regulation to those classes of cases in which the need is deemed to be the most evident. The selectivity of our Legislature's approach to the problem of intemperance might reflect a variety of entirely legitimate considerations. Thus the Legislature could have reasoned that some people might respond more impulsively to bargain sales of their preferred brand than to bargains offered by competing brands. Or the Legislature might have concluded that unregulated competition among the relatively few liquor producers and wholesalers would not unduly stimulate liquor consumption but that similar competition among the large number of retailers, who come into direct contact with consumers and who are more vulnerable to economic pressure, would stimulate selling practices calculated to induce intemperance. [8] We cannot say that all of these suppositions would have been `palpably arbitrary and beyond rational doubt erroneous.' ( In re De La O (1963) 59 Cal.2d 128, 153 [28 Cal. Rptr. 489, 378 P.2d 739, 98 A.L.R.2d 705]; State of California v. Industrial Acc. Com. (1957) 48 Cal.2d 365, 371 [310 P.2d 7].) Plaintiff calls our attention to the fact that the New York Moreland Commission (see New York State Legislative Annual (1964) 401-408, 484-489, 498-500) found that mandatory retail price maintenance did not significantly reduce the consumption of alcoholic beverages. We note, however, that the response to the Moreland Commission Report in New York came from the Legislature (Session Laws of New York, 1964, ch. 531, § 11), not the courts. [7] Legislative revision of a statute cannot be equated to its death knell by judicial decree. We turn to the second legislative purpose: the promotion of the orderly sale and distribution of alcoholic beverages. Retail price wars among liquor distributors may encourage retailers, struggling to withstand the pressure of ruinous competition, to sell liquor below cost in violation of Business and Professions Code section 17043 or to transgress the regulatory laws governing retail liquor distribution (Bus. & Prof. Code, §§ 25600-25666). [9] To the extent that the retail price maintenance provisions eliminate retail price wars in the liquor industry, they undeniably discourage such disruptive practices. The Legislature may likewise have concluded that giant retailers and chain markets should be afforded no opportunity to use loss leaders in branded liquor to attract customers in disregard of Business and Professions Code section 17044 and thus ultimately to force smaller retailers out of business. Such tactics, the Legislature may have thought, would disrupt orderly distribution by endangering the continued vitality of one method of marketing: the corner grocery store. The Legislature may have decided not to expose these channels of distribution to possible economic destruction through manipulation, by powerful competitors, of so highly volatile and attractive a product as branded liquor. Plaintiff answers that the instant legislation reaches unnecessarily far in this respect because the kinds of marketing disruptions that we have described may be curtailed by present statutes. [8] But, in the first place, even assuming that the Legislature did no more than fashion further means of proscribing previously prohibited practices (Bus. & Prof. Code, §§ 25600-25666; Id., §§ 17000-17101), we see no ground for unconstitutionality in such duplication. The possibility that other less stringent ... regulations might have sufficed is not our concern; that is a matter lying within the discretion of the legislative body. ( Natural Milk etc. Assn. v. City & County of San Francisco (1942) 20 Cal.2d 101, 115 [124 P.2d 25].) [10] In the second place, the Legislature may have intended more than the fortification of existing statutory regulations. It may have sought to fill the gap between price-cutting procedures pursued in practice and those proscribed by law. The Unfair Practices Act (Bus. & Prof. Code, §§ 17000-17101) does not offer a facile means for the prevention of all below cost and loss leader selling; the requirements of proof of such selling under the act are stringent and for this reason the act is rarely invoked. [11] The Legislature could certainly have concluded that such legislation would be of small comfort and little aid to independent retailers in their struggle against large-scale price-cutting competitors. Whatever dangers the Legislature thought implicit in disorderly marketing, we cannot question the wisdom of its concern. As we said in another context, Where the Legislature has determined that a defined condition or activity is a nuisance, it would be a usurpation of the legislative power for a court to arbitrarily deny enforcement merely because in its independent judgment the danger caused by a violation was not significant. ( City of Bakersfield v. Miller (1966) 64 Cal.2d 93, 100 [48 Cal. Rptr. 889, 410 P.2d 393].) Finally, plaintiff contends that the retail price maintenance provisions, even if reasonably related to either or both of their declared objectives, cannot be justified as an exercise of the police power because their real purpose and effect is not to regulate the sale of alcoholic beverages in the public interest but to swell the profits of the liquor industry. Insofar as plaintiff's contention focuses on the legislative purpose, it amounts to a suggestion that we should not take the Legislature at its word but should instead decide for ourselves, by a process which remains unexplained, what the Legislature really intended to achieve by enacting the provisions in question. Although several courts have acceded to that suggestion, [12] we do not believe that we are either authorized or equipped to undertake so ill-defined and hazardous an inquiry. [9] [T]his court may not presume that in reaching its decision [the Legislature] acted upon improper motives. `... a judiciary must judge by results, not by the varied factors which may have determined legislators' votes ...' [citations]. ( Werner v. Southern Cal. etc. Newspapers, supra, 35 Cal.2d 121, 129.) [10] Nor can legislation be set aside by courts because of the fact, if it be such, that it has been sponsored and promoted by those who advantage from it [footnote omitted]. ( Cohen v. Beneficial Loan Corp. (1949) 337 U.S. 541, 551 [93 L.Ed. 1528, 69 S.Ct. 1221].) Insofar as plaintiff's contention focuses on the legislative effect, we cannot fail to recognize it as an invitation to hold the law invalid because we disagree with its desirability. As we have said, we cannot invalidate legislation merely because we do not approve of its potentially beneficent impact upon a particular segment of society. At its base, the argument that the statute is unconstitutional because of its supposed bias in favor of the liquor industry rests upon a wholly unrealistic view of the legislative process. As our social and economic life grows in complexity, legislation necessarily increases in the differentiation of its techniques and in the specialization of its objectives. Thus the endeavor to achieve the general welfare of the whole through the special welfare of each part becomes ever more necessary. By protecting the interests of complaining constituents through legislation tailored to meet their particular needs, the Legislature can seek to maximize the satisfaction of society as a whole. Surely courts should not inject themselves into this inherently pluralistic process of compromise by attempting to reserve to themselves a power to veto the balance struck because of a bare belief in its undesirability. Plaintiff's second basic challenge to the constitutionality of the retail price maintenance provisions is that they unlawfully delegate legislative power by enabling each producer and wholesaler to set the price below which retailers may not sell his product. We rejected precisely that contention in Allied Properties v. Department of Alcoholic Beverage Control, supra, 53 Cal.2d 141, 149-152, just as we rejected a similar contention in sustaining the general Fair Trade Act (Bus. & Prof. Code, §§ 16900-16905) against a challenge of unlawful delegation in Scovill Mfg. Co. v. Skaggs etc. Drug Stores, supra, 45 Cal.2d 881, 888. We see no reason to depart from those holdings. To contend that the Alcoholic Beverage Control Act unlawfully delegates legislative power is to misconceive the nature of the power which is purportedly delegated. The power we analyze here finds expression in the private act of the producer in entering into a contract setting a price for the resale of his own brand. Scovill tells us that this act is not the performance of a legislative function and not the exercise of an unlawfully delegated power. Nor does plaintiff directly question Scovill. Yet, if the producer's contractual designation of a resale price binding on all retailers is not the exercise of an unlawfully delegated legislative power, the statutory requirement that he designate that price cannot transform his act into the exercise of such a power. The statutory requirement clearly confers no power on the producer that he would not have possessed without it. Allied Properties makes this point abundantly clear. In describing the alleged delegation, the opinion in Allied Properties states that the function performed by the persons who assertedly exercise delegated legislative powers is the same under the general Fair Trade Act and the Alcoholic Beverage Control Act. (P. 149.) The opinion points out that the act of designating a resale price binding on all retailers is `no more legislative in character than are other acts ... of private parties undertaken as a prerequisite to the application of a statute.' (P. 149.) To argue that the Alcoholic Beverage Control Act unlawfully delegates legislative power because it is a price-fixing act is to overlook the crucial distinction between the fixing of a price for all products in a given market and the setting by the producer of the retail price at which his own product is to be sold. [13] As Allied Properties explains (pp. 151-152), this distinction finds dramatic illustration in the difference between the instant legislation and the statute involved in State Board of Dry Cleaners v. Thrift-D-Lux Cleaners, Inc. (1953) 40 Cal.2d 436 [254 P.2d 29]. The court in Thrift-D-Lux declared unconstitutional a statute which delegated to the State Board of Dry Cleaners the power to fix minimum prices. (Bus. & Prof. Code, §§ 9560-9567, repealed by Stats. 1957, ch. 1691, § 11.) The statute entrusted the board with the power to decide, in terms of the public health and safety, which cities should have minimum price schedules, which services should be included in those schedules, and what prices should be charged for the services. As Allied Properties points out, the court in Thrift-D-Lux, in holding the statute unconstitutional, relied on the ground that there was a delegation of legislative power without ascertainable standards to an administrative board composed mainly of members of the industry who would participate in fixing prices to be charged by their competitors.... On the other hand it was held in Scovill Mfg. Co. v. Skaggs etc. Drug Stores, supra, 45 Cal.2d 881, 887-888, that there was no delegation of legislative power where manufacturers, acting in their private capacity under the general Fair Trade Act, fixed the prices for which their own products were to be sold at retail by persons who were not their competitors. The distinguishing factor is that the dry cleaners' board was directed to fix uniform minimum prices for the services of all dry cleaners in limited areas on the basis of what it believed was required by public health and safety, whereas under the general Fair Trade Act each manufacturer is to fix retail prices for his own products in accord with his personal interest. ( Allied Properties v. Department of Alcoholic Beverage Control, supra, 53 Cal.2d 141, 151-152.) When the power which the Legislature purports to confer is the power to regulate the business of one's competitors, as in Thrift-D-Lux, or the power to exclude potential competitors from an entire industry or occupation, as in Blumenthal v. Board of Medical Examiners (1962) 57 Cal.2d 228, 235-236 [18 Cal. Rptr. 501, 368 P.2d 101], a real danger of abuse arises, and the courts accordingly insist upon stringent standards to contain and guide the exercise of the delegated power. [14] A similar insistence upon stringent standards would serve little if any purpose in the case of the Alcoholic Beverage Control Act. As we noted in Allied Properties (pp. 151-152), that act authorizes no individual or group to exercise either regulatory or exclusionary power over any competitor, actual or potential. The Legislature has not authorized anything resembling price-fixing in the traditional, horizontal sense: it has authorized no one to fix the price charged by a competitor. Thus the Alcoholic Beverage Control Act does not create the special danger threatened by a statute which delegates industry-wide regulatory power to interested members of the regulated industry. [11] To the extent that the retail price maintenance provisions enable a producer to control the bargaining process between those who sell and those who buy his own product, the Legislature could reasonably assume that competition among producers, [15] coupled with the bargaining power of those low-overhead retailers who desire lower retail prices, would provide a safeguard against excessive prices. In all probability, that safeguard is at least as effective as any which the Legislature could be expected to provide by promulgating explicit standards for the setting of retail prices, enforcible by an administrative or judicial agency. [16] To impose a requirement of expressed legislative standards would here reflect little more than a judicial fetish for legislative language, the recitation of which [would provide] no additional safeguards to persons affected by the exercise of the delegated authority. ( Warren v. Marion County (1960) 222 Ore. 307, 314 [353 P.2d 257]; see also 1 Davis, Administrative Law Treatise, § 2.15, pp. 148-151 and 1965 Supp., pp. 52-55; Jaffe, Law Making by Private Groups (1937) 51 Harv.L.Rev. 201, 248-251.) In light of these observations, we find transparently erroneous the arguments that the statute unlawfully delegates price-fixing power because (1) the producer must set the price which will be observed in resale; (2) the law imposes an obligation upon all people in this state to observe that price; and (3) the violation of the act is a public offense. All three arguments ignore the basic difference between a statute requiring the unilateral designation by each producer of the resale price of his own product and a statute requiring the multilateral observance by all competitors of a fixed minimum price of a commodity. [12] That the private act of specifying a resale price is lifted by the statute beyond the contracting producer and retailer to a publicly enforced observance by all retailers within the state does not convert the legislation into a price-fixing statute, since the law still empowers no one to regulate the retail price of any commodity. [13] Although the Alcoholic Beverage Control Act requires (Bus. & Prof. Code, § 24755), whereas the Fair Trade Act merely permits (Bus. & Prof. Code, § 16902), producers and wholesalers to set retail prices, this mandatory aspect of the Alcoholic Beverage Control Act does not render the function of a producer or wholesaler legislative in character but, to the contrary, decreases his discretion since he is not free to determine whether fair trading should occur. [14] While mandatory fair trading means that retailers cannot obtain merchandise free from price restrictions, this is due to the determination of the Legislature, not the action of the producers and wholesalers. ( Allied Properties v. Department of Alcoholic Beverage Control, supra, 53 Cal.2d 141, 150.) The mandatory feature of the act endangers none of the interests which the anti-delegation doctrine seeks to protect, [17] since it threatens neither the principle that truly fundamental issues should be resolved by the Legislature nor the precept that a grant of authority should be accompanied by safeguards adequate to prevent its abuse. Thus it provides no reason to hold that the act unconstitutionally delegates legislative power. [15] Similarly, the fact that the Alcoholic Beverage Control Act authorizes public enforcement in the form of administrative sanctions (Bus. & Prof. Code, § 24200) and criminal penalties (Bus. & Prof. Code, § 25617) does not furnish a basis for finding an unlawful delegation of legislative power. As we said in Allied Properties, this aspect of the act does not involve any delegation of power, the sanctions being prescribed by the Legislature, not by the producers or wholesalers. (53 Cal.2d at p. 150.) A rule does not assume a legislative character because the violation thereof is punished as a public offense. ( United States v. Grimaud (1911) 220 U.S. 506, 521 [55 L.Ed. 563, 31 S.Ct. 480].) So long as the Legislature itself prescribes the terms of the sanctions and defines the circumstances in which they apply, their presence in a statute in no way undermines either the concern for legislative resolution of basic questions of policy or the concern for legislative restriction of the opportunity for abuse. Accordingly, the provision of public sanctions can hardly convert an otherwise constitutional grant of authority into an unconstitutional delegation of legislative power. [1b] It follows, then, that we could not hold the retail price maintenance provisions unconstitutional on delegation grounds without overruling not only Allied Properties but also Scovill, with the result that the entire fair trade program of this state would be rendered unenforceable by judicial fiat. We are convinced that such an assertion of judicial power would gravely misplace the locus of responsibility in our form of government. We therefore hold the retail price maintenance provisions of the Alcoholic Beverage Control Act constitutional.