Opinion ID: 1126771
Heading Depth: 1
Heading Rank: 4

Heading: The statutory implementation of the tied-house restriction.

Text: California's alcoholic beverage control laws and tied-house provisions [10] effectuate the legislative objectives outlined above. See section 23001. In Harris v. Alcoholic Bev. etc. Appeals Bd. (1964) 61 Cal.2d 305 [38 Cal. Rptr. 409, 392 P.2d 1], we noted that the California Legislature had 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. (61 Cal.2d at p. 309.) Similarly, the California Legislature drafted its tied-house restrictions in a manner that foresaw the growth of large retail concerns such as Thriftimart, Inc. [11] The Legislature first enacted section 25502 of the Business and Professions Code as section 54(f) of the Alcoholic Beverage Control Act of 1937, designing it to establish a triple-tiered licensing scheme for California. (1) In its present form, section 25502 prohibits any substantial integration between commercial interests holding wholesale beer and wine or distilled spirits licenses and interests holding general off-sale retail liquor licenses. This legislative bar to a consolidated operation was not conditioned upon the means by which such a consolidation might be accomplished. Rather, it was to be operative regardless of whether the impetus for the integration came from the wholesaler's or the retailer's side; it was the end result, rather than the method of its attainment, that the Legislature exorcised. We recognize that the Legislature carved out some exceptions to this blanket prohibition. [12] For example, section 25502 exempts all businesses which held both wholesale and retail licenses prior to 1947 and are located in counties with less than 15,000 population. Section 25508 exempts certified cooperatives, allowing them to admit both wholesale and retail licensees to their membership rolls. [13] We note first, however, that if it were generally permissible for the same party to hold both a beer and wine wholesaler's license and an off-sale retail license, these specific authorizations would be unnecessary. Second, even these few exceptions are severely narrowed by the restriction contained in section 23779. [14] Section 23779 prohibits a licensee's wholesale department from dealing exclusively with its retail department: Sale by a wholesale licensee to himself as a retail licensee is not the transaction of a bona fide wholesale business. (2) Contrary to the board's assertion, section 25502 and section 25506 are neither inherently nor fundamentally in conflict. As it stood at the time of the application of Thriftimart, Inc.  prior to its amendment in November 1969  section 25502 prohibited, in general terms, integration between wholesale and retail interests dealing in alcoholic beverages. [15] Section 25506, on the other hand, placed more stringent and particular restraints upon those interests dealing in distilled spirits. Thus, although section 25502 prohibited a general wholesaler of beer, wine, or distilled spirits from owning an interest in the license or premises of an off-sale retailer, section 25506 prohibited an off-sale retailer from having any interest in the business, property, or license of a distilled spirits wholesaler. In other words, the Legislature framed the ban that forbade the retailer from holding an interest in a distilled spirits wholesaler in much stronger and more formidable terms than the direct prohibition against the retailer's ownership of an interest in the license or premises of a wholesaler. (3) Section 25506 therefore was not drawn to limit in any way the more general policy of segregation announced in section 25502. That the Legislature later amended and expanded the prohibitions of section 25502 to correlate them with section 25506 does not serve to impair the legislative design or to diminish the effect of the ban of section 25502. (4) We therefore reject the contention that because section 25506 does not specifically prohibit a retailer from possessing an interest in a beer and wine wholesale license, it creates an inference that it permits a retailer to possess an interest in such a license. To argue that section 25506 should be interpreted to sanction such dual licensing because the section does not specifically prohibit the retail off-sale licensee from holding a wholesale beer and wine license is to overlook the legislative prohibition of such consolidation of licenses in section 25502. The Legislature was not required to repeat that prohibition in section 25506. Further, as we have noted, the attempt to use section 25506 to nullify the general prohibition of section 25502 would also nullify the Legislature's basic objective of erecting a triple-tiered system of distribution and licensing and would thereby weaken the entire framework of the statutory structure. Our interpretation of section 25502 finds support in the only California case which has dealt with a factual situation similar to that presented by the instant application: Borun Bros. v. Department Alcoholic Beverage Control (1963) 215 Cal. App.2d 503 [30 Cal. Rptr. 175]. In that case, Borun Brothers, a corporation, held a beer and wine wholesaler's license. Thrifty Drug Stores, Borun Brothers' alter ego, owned an off-sale general retailer's license. Both corporations were controlled by essentially the same executives and board of directors. When California Beer Wholesalers Association filed an accusation with the Department of Alcoholic Beverage Control, alleging that Borun Brothers was in violation of section 25502 and section 23779, the department revoked Borun Brothers' wholesale beer and wine license. The board affirmed, finding Borun Brothers in violation of sections 25502 and 23779 [16] severally and separately. (215 Cal. App.2d at p. 509.) In upholding the board's decision, the Court of Appeal adopted almost verbatim the board's reasoning. The court did not concern itself with whether the Borun-Thrifty conglomerate was primarily a retailer or wholesaler. Rather, it held that Borun Brothers was in violation of section 25502 regardless of whether it was a retailer holding a beer and wine wholesaler's license or a beer and wine wholesaler holding a general off-sale retailer's license. The board's decision in the instant case seeks to distinguish Borun Brothers on the ground that the court found Borun Brothers had violated section 23779, and that this violation differentiates the cases. A close examination of Borun Brothers, however, reveals that the Court of Appeal rested its affirmance of the revocation of Borun Brothers' license on either of the two grounds  a violation of section 23779 or a violation of section 25502. The fact that the present case does not involve a violation of section 23779 does not erect a difference in substance from Borun Brothers. The grant of a wholesaler's license to Thriftimart, Inc., would entail the same undesirable consequences that would have attended the Borun Brothers situation; the dual licensing would necessarily impose a serious administrative burden upon the department. Periodically, it would be required to peruse that firm's accounts in order to insure that violations of section 23779 did not develop or go undetected and that the firm did not use profits realized by its wholesale division to finance unfair competitive activities on the part of its retail division. We conclude that if we were to adopt the board's method of reconciling section 25502 and section 25506, we would create a paradox in which a firm's ability to hold both licenses would depend upon the sequence in which it applied for the wholesale and retail licenses. If we were to allow Thriftimart, Inc., as a retailer to obtain a wholesaler's license, we would face the anomalous situation that when Thriftimart, Inc., applies for its 74th off-sale retail license, it, as a wholesaler, unquestionably would be prohibited by section 25502 from obtaining an additional retail license. Thus a firm that obtained a beer and wine wholesaler's license prior to a retailer's license would be barred from securing a retailer's license; yet a firm ingenious enough to have first obtained an antecedent retailer's license would thereafter be absolutely free to procure a wholesaler's license. Surely the Legislature could not have intended to enact a licensing scheme so easily and ridiculously circumvented. (5) The fortuity of the acquisition of a retail license before a wholesale license cannot logically or sensibly determine the right of a licensee to hold both licenses. The decision of the Alcoholic Beverage Control Appeals Board is annulled; the cause is remanded for proceedings consistent with the views expressed herein.