The opinion of the court was delivered by PROCTOR, J.
Plaintiff, Affiliated Distillers Brands Corporation (Affiliated), is a wholly owned subsidiary of Schenley Industries, Inc., a Delaware corporation. The latter has been engaged for many years in distilling, blending, importing and marketing distilled spirits and wines. Affiliated brought this action in the Chancery Division seeking to
The two chapters which plaintiff attacks are amendments to certain statutes dealing with the regulation of the distribution of alcoholic beverages. Chapter 58 is an extension of New Jersey's "tied house" prohibition (N.J.S.A. 33:1-43) and deals with the manufacturer-wholesaler relationship. Chapter 59 deals with the separate problem of manufacturers discriminating among wholesalers. Affiliated's attacks on the legislation are primarily grounded on provisions of the United States and New Jersey Constitutions. It contends that the legislation is not in the public interest and was enacted for the "private, anti-competitive interests" of an organized group of wholesalers, the New Jersey Wine and Spirit Wholesalers Association (Association). In support of its claim, Affiliated produced evidence of the events leading up to the enactment of the challenged legislation.
For many years Affiliated has been the marketing agent for the various alcoholic beverages which Schenley manufactures and imports, and has held a plenary wholesale license under N.J.S.A. 33:1-11(1). The license allowed Schenley, through Affiliated, to promote the sales of its products with the various retail outlets. Had Affiliated filed a price list for the wholesale to retail sales of alcoholic
In accordance with its plan, Affiliated rented a warehouse, entered into a trucking contract, hired a sales manager, and began to interview prospective salesmen. On April 1, 1966, Affiliated submitted for filing to the Division of Alcoholic Beverage Control its "Price and Discount Listings" for sale from wholesaler to retailer so that it might begin selling Schenley products to retailers immediately. Association objected to the filing because the regular quarterly filing date had passed. The Director rejected the filing.
Prior to the next quarterly filing date, the Association's attorney drafted legislation to block Schenley and others from entering the wholesale to retail business. We need not recount the events leading up to the passage of
Chapter 58 (with the new language italicized) provides in pertinent part:
It shall be unlawful for any owner, part owner, stockholder or officer or director of any corporation, or any other person whatsoever interested in any way whatsoever in any brewery, winery, distillery or rectifying and blending plant, or any wholesaler of alcoholic beverages,
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It shall be unlawful for any owner, part owner, stockholder or officer or director of any corporation, or any other person or corporation whatsoever interested in any way whatsoever in any winery, distillery, or rectifying and blending plant, to conduct, own either whole or in part, or be directly or indirectly interested in the business of any licensee for the sale at wholesale to licensed retailers in New Jersey of any alcoholic beverages, other than malt alcoholic beverages, and such interest shall include any payments or delivery of money or property by way of loan or otherwise accompanied by an agreement to sell the product of said winery, distillery or rectifying and blending plant; except that the foregoing shall not apply in the case of a licensee for the sale at wholesale who on July 1, 1965, and thereafter until the effective date of this act, shall have filed for publication by the Division of Alcoholic Beverage Control price listings for brands of alcoholic beverages pursuant to the rules and regulations of the Division of Alcoholic Beverage Control.
It shall be unlawful for any owner, part owner, stockholder or officer or director of any corporation, or any other person whatsoever, interested in any way whatsoever in the retailing of alcoholic beverages to conduct, own either in whole or in part, or to be a shareholder, officer or director of a corporation or association, directly or indirectly, interested in any brewery, winery, distillery, rectifying and blending plant, or wholesaling or importing interests of any kind whatsoever outside of the State.
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It shall be unlawful for any owner, part owner, stockholder or officer or director of any corporation, or any other person or corporation whatsoever interested in any way whatsoever in the wholesaling of alcoholic beverages, other than malt alcoholic beverages, to own either in whole or in part, or to be a stockholder, officer or director of a corporation or association, directly or indirectly, interested in, any winery, distillery or rectifying and blending plant, or wholesaling or importing interests of any kind whatsoever outside of the State, unless such relationship with respect to such winery, distillery or rectifying and blending plant or wholesaling or importing interests of any kind whatsoever outside the State shall have been in existence on July 1, 1965 and shall have continued to be in effect on the effective date of this act. N.J.S.A. 33:1-43.
Plaintiff initially attacks the first amendatory paragraph of Chapter 58 as a denial of due process in that it bears no relation to the public health, safety or welfare. The
Affiliated concedes that "there is ample historical and logical justification for legislative prohibition of tied-house relationships between distillers and retailers and between wholesalers and retailers" since "such tied-houses inevitably result in excessive sales stimulation at the retail level, creating a direct conflict with the promotion of temperance." Indeed, it would be difficult not to make such a concession
In fixing its policy the Legislature accepted widely held views as to sound liquor control. These include beliefs that the consumption of liquor is elastic rather than inelastic, that price cuttings and their advertisement, along with comparable practices, are undesirable in the liquor field as tending to stimulate consumption * * *
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In the absence of more compelling data, our Legislature remains at liberty to continue the course it has set for our State, and this is particularly so because its course has thus far soundly served the public interest. 43 N.J. at 402-403.
Plaintiff contends that it cannot cut prices because of certain powers of price regulation which are vested in the Director. N.J.S.A. 33:1-93 gives him the power to promulgate rules and regulations on the "maintenance and publication of invoice prices, discounts, rebates, free goods, allowances and other inducements." Our cases have held that the Director has broad powers in fixing liquor prices and in promulgating price regulations. E.g., Gaine v. Burnett, 122 N.J.L. 39 (Sup. Ct.), aff'd 123 N.J.L. 317 (E. & A. 1939). These powers are discretionary, however, and the Legislature is free to enact prophylactic measures to insure against the possibility of price cutting.
Finally, we note that many other states have statutes prohibiting tied houses between manufacturers and wholesalers. E.g., Deerings Cal. Codes, Bus. & Prof. Ch. 5, Art. 1 § 23772; Kan. Stat. Ann. Ch. 41, Art. 7 § 704; Ky. Rev. Stat. Vol. 2 § 243.110; Tenn. Code Ann. Vol. 10A § 57-140; Wis. Stat. Ann. Vol. 21 § 176.05(5a).
We are satisfied that the first amendatory paragraph of Chapter 58 is not violative of due process. Nor do we believe that there is any merit to Affiliated's contention that
Affiliated contends that even if the first amendatory paragraph of Chapter 58 is valid, it should still be able to deal with retailers since it is protected by the following grandfather clause which is included in the paragraph:
* * * the foregoing shall not apply in the case of a licensee for the sale at wholesale who on July 1, 1965, and thereafter until the effective date of this act, shall have filed for publication by the Division of Alcoholic Beverage Control price listings for brands of alcoholic beverages pursuant to the rules and regulations of the Division of Alcoholic Beverage Control.
We think that the trial judge's finding that Affiliated was not protected by this clause, 106 N.J. Super. at 489-490 was correct and should not be disturbed.
Affiliated contends that if the grandfather clause does not apply to it, the clause is invalid because it irrationally limited the chapter's effect to Schenley-Affiliated and was thus special legislation and constituted a denial of equal protection. The State answers that Schenley-Affiliated was the only major distiller planning wholesale activities and the Legislature attacked the evil where it was most felt. The trial judge agreed with Affiliated and held that the grandfather clause was invalid even if the rest of the legislation were "otherwise valid." 106 N.J. Super. at 482-488. The effect of the grandfather clause was to create three classes of wholesalers: 1) those who are not now and never have been connected with manufacturers; 2) those
There are two general rationales for upholding grandfather clauses. The first is that past business experience or practical training is a substantial equivalent of any licensing or examination requirement which might validly be imposed on a new entry into a trade. Independent Electricians and Elec. Contractors' Ass'n v. N.J. Bd. of Examiners, 54 N.J. 466 (1969). This rationale has no relevance here since we are not dealing with a skill and since the statute prohibits any later entries into the field. The second rationale is that when an initial regulatory scheme is adopted, existing businesses must sometimes be preserved in order to satisfy the dictates of fairness and avoid hardships. United States v. Maher, 307 U.S. 148, 153, 59 S.Ct. 768, 83 L.Ed. 1162, 1167 (1939); Commonwealth Air Transport v. Stuart, 303 Ky. 69, 196 S.W.2d 866 (1946). In the present case, the State does not dispute that Affiliated and Schenley had the proper license (for which they paid a substantial annual fee) and had made the investments necessary to commence sales to retailers. But they were precluded from engaging in such sales by the grandfather clause's back-dated filing requirements. Thus, if the Legislature sought to protect investments, it failed to afford the protection of the grandfather clause to all of those who had licenses and who made the necessary investments. This unequal treatment would be an invidious discrimination sufficient to invalidate the clause if its basis was solely the preservation of existing businesses. But defendants and amicus curiae contend that the discrimination is not invidious because the clause operates to make a rational distinction based on the size of the manufacturers. They argue that the handful of manufacturers who had, prior to the cutoff date, sold directly to retailers and who would otherwise be barred by Chapter
The grandfather clause does not contain any language which would indicate that size was a factor considered by the Legislature. Nevertheless, if size does form a valid basis for the clause, we would, of course, uphold it. We are not, however, satisfied that size was the motivating factor because the clause does not deal in the slightest with the share of the market held by a manufacturer-wholesaler combination. Moreover, there is nothing in the clause to withdraw its protection in the event that a presently protected combination increases its share of the market. Nor is there anything to prohibit a protected small manufacturer-wholesaler combination from being acquired by a major manufacturer. Finally, if small combinations in general pose no threat to the stability of the market, there is no reason why future combinations with a small share of the market are barred. But the entire basis of the defendants' argument is that manufacturer-wholesaler combinations are a serious threat to the industry. If this threat is as serious as defendants contend, perhaps any grandfather clause would be invalid whether drawn in terms of either protecting investment or of size. See Zullo v. Board of Health, Woodbridge Tp., 9 N.J. 431, 440 (1952). But we need not pursue this point. It is clear that the present legislation did not protect existing investments. Nor did it deal with the problems of size. Thus, we conclude that the discrimination the clause permits is invidious and violates equal protection.
Having decided that the grandfather clause is invalid, we must still determine whether that clause can be
Finally, Affiliated attacks the second amendatory paragraph of Chapter 58 and all of Chapter 59 of the Laws of 1966. N.J.S.A. 33:1-93.6. The trial judge found it unnecessary to determine the validity of these sections because
For the foregoing reasons, the judgment of the Chancery Division declaring the first amendatory paragraph of Chapter 58 of the Laws of 1966 invalid, is reversed insofar as it holds the main body of the paragraph unconstitutional. We affirm, however, the judgment of unconstitutionality of the grandfather clause and further hold that that clause is severable from the remainder of the paragraph. The judgment is in all other respects affirmed.
Affirmed in part and reversed in part. No costs.
For affirmance in part and reversal in part — Justices PROCTOR, HALL, SCHETTINO and HANEMAN and Judge GOLDMANN — 5.
Opposed — None.