STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

JAX LIQUORS, INC., )

)

Petitioner, )

)

vs. ) CASE NO. 79-1657RX

) STATE OF FLORIDA, DEPARTMENT OF ) BUSINESS REGULATION, DIVISION OF ) ALCOHOLIC BEVERAGES AND TOBACCO, )

)

Respondent, )

and )

) BEER INDUSTRY OF FLORIDA, INC., ) ("BIF"), )

)

Intervenor. )

)

FINAL ORDER

On November 13, 1979, a hearing in this case was held before Charles C. Adams, a Hearing Officer with the Division of Administrative Hearings. The hearing was conducted in Tallahassee, Florida, after notice and in keeping with the terms and conditions of the Prehearing Stipulation entered into between the parties.

APPEARANCES

For Petitioner: Theodore L. Tripp, Jr., Esquire

Tobias Simon, P.A.

1492 South Miami Avenue Miami, Florida 33130

For Respondent: Harold F.X. Purnell, Esquire

General Counsel

Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301

For Intervenor: C. Gary Williams, Esquire

Lee L. Willis, II, Esquire James Dawson Beasley, Esquire Ausley, McMullen, McGehee,

Carothers & Proctor Post Office Box 391

Tallahassee, Florida 32302

ISSUE

This is an action filed by the Petitioner pursuant to Section 120.56, Florida Statutes, challenging the validity of the existing Rule 7A-4.13, Florida Administrative Code, by alleging that the Rule is an invalid exercise of delegated legislative authority.

FINDINGS OF FACT

1. On August 2, 1979, the Petitioner, Jax Liquors, Inc., filed its Petition pursuant to Section 120.56, Florida Statutes, challenging the validity of Rule 7A-4.13, Florida Administrative Code. This Rule is a rule promulgated by the State of Florida, Department of Business Regulation, Division of Alcoholic Beverages and Tobacco, Respondent. Subsequent to the filing of the Petition, the Director of the Division of Administrative Hearings assigned the case to this Hearing Officer for consideration. On August 17, 1979, the Intervenor, Beer Industry of Florida, Inc., ("BIF") filed a Motion for Leave to Intervene and that intervention was allowed.

   
   

2. On November 13, 1979, a formal hearing in this matter was conducted through the process of the introduction of a Prehearing Stipulation entered into between the parties, the introduction of supplemental evidence, and the presentation of oral argument designed to augment the legal Memoranda submitted by the parties.

   
   

3. One of the aspects of the Prehearing Stipulation was the submittal of an agreed statement of admitted facts. These facts are in Section V. In accordance with the Stipulation, the facts are established as follows:

   
   

   1. Jax Liquors, Inc., has standing to attack the validity of Rule 7A- 4.13, Florida Administrative Code. State of Florida, Department of Business Regulation, Division of Alcoholic Beverages and Tobacco and Beer Industry of Florida, Inc., have standing to participate in this action and defend Rule 7A- 4.13.

      
      

   2. Exhibit A attached hereto is an accurate copy of Rule 7A-4.13, Florida Administrative Cede, which makes the wholesale price of malt beverages sold by any one distributor a matter of public record.

      
      

   3. Rule 7A-4.13, Florida Administrative Code (hereinafter "the Rule"), requires that a distributor of malt beverages file his selling price with the Division ten days in advance of the effective date of such price. In other words, if a distributor wishes to sell beer at a certain price, he must file that price in the central office of the Division of Alcoholic Beverages and Tobacco and also in the appropriate (his distribution area) district office, and then wait ten days before actually selling at that price.

      
      

   4. Wholesalers, including but not limited to the members of BIF, routinely change the price at which retail vendors may purchase beer for resale. These changes may occur on a daily basis and result from shifts in supply and demand for the product, special promotions by the manufacturer, volume purchases by vendors, and other circumstances occurring in the marketplace. The price posted by a distributor must be available to all retailers who wish to purchase similar quantities at the same time.

      
      

   5. The Rule does not require a retailer to sell at any particular price. The retailer is free to sell at any price he may set.

   6. Rule 7A-4.13 is used by the Division to monitor the price at which beer wholesalers sell to retailers. The posted price provides a record of wholesale prices. Therefore, the Division can compare a wholesaler's or retailer's invoices, checks, etc., to the posted price to determine if a violation of Rule 7A-4.13 has occurred. This system also gives retailers a way in which to discover if prohibited transactions have occurred.

      
      

   7. Subject to the time restriction set forth in Rule 7A-4.13, JAX is free to negotiate the price at which it may buy beer from the wholesaler, provided that the product must be made available by the wholesaler to all retail vendors buying similar quantities of the product at the same time.

      
      

   8. Intervenor's exhibits of rules and statutes are accurate exhibits of such rules and statutes which were validly enacted and uniformly enforced for the period during which same were in effect.

      
      

   9. During license year October 1, 1977, to September 30, 1978, the State of Florida had issued 6,710 retail liquor licenses and 27,918 retail beer licenses.

      
      

   10. During calendar year 1978, 25,267,559 gallons of liquor were sold in Florida.

       
       

   11. During fiscal year 1978-79, 19,349,229.78 gallons of wine were sold in Florida.

       
       

   12. During calendar year 1978, 225,855,202 gallons of beer (based on

       2.25 gallons per case of 24-12 ounce and 15.5 gallons per 1/2 bbl.) were sold in Florida.

       
       

4. In the Prehearing Stipulation there was another category of facts to which the parties stipulated as being uncontroverted, but relevancy was not admitted. Of the statement of facts, the following facts stipulated to are herein reported and made a part of the Findings of Fact section of this Order. They are:

packaged.

1. Beer generally begins to deteriorate 60 to 120 days after it is

   
   

2. Beer that has reached its expiration date is removed from the

   shelves of the retailer by the wholesaler and is destroyed.

   
   

3. In its original sealed container, wine has a shelf life of from

   120 days to many years.

   
   

4. In its original sealed container, liquor has a shelf life of many

   years.

   
   

5. Wine and liquor are generally presold (i.e., contract between the

wholesaler and retailer is entered in advance of delivery). Beer is sometimes presold, but usually is sold by a truck driver who makes sales from his vehicle at the time he calls upon a retailer.

1. The parties by their Prehearing Stipulation further agree that there are no issues of fact which remain to be litigated and there are no issues of fact which remain for determination by the Hearing Officer. Therefore, the

   legal conclusions reached in this matter are premised upon a consideration of the fact stipulations reported above; the items of evidence presented as exhibits to the Prehearing Stipulation, as amended November 14, 1979, by correction to Exhibit J, and other exhibits presented in the course of the hearing, to include the Petitioner's Composite Exhibit No. 2 not presented as a part of the Prehearing Stipulation.

   
   

2. The facts related in the Petitioner's Exhibit No. 1 and the Petitioner's Composite Exhibit No. 2 are made a part of the Findings of Fact section of this Order by incorporating the exhibits by reference and attaching copies to this Order.

   
   

   CONCLUSIONS OF LAW

   
   

3. The Division of Administrative Hearings has jurisdiction over the subject matter and the parties to this action.

   
   

4. The parties have stipulated that there is no disagreement as to the applicability of the Florida Rules of Evidence or the Florida Rules of Civil Procedure and this Stipulation is accepted.

   
   

5. It is concluded as a matter of law that the Petitioner, Jax Liquors, Inc., is substantially affected by Rule 7A-4.13, Florida Administrative Code, and for that reason has standing to attack the validity of that rule on the ground that the rule is an invalid exercise of delegated authority. Likewise, the Respondent, State of Florida, Department of Business Regulation, Division of Alcoholic Beverages and Tobacco, and the Intervenor, Beer Industry of Florida, Inc. ("BIF") have standing to participate in this action and to defend Rule 7A- 4.13, Florida Administrative Code. See Subsection 120.56(1), Florida Statutes.

   
   

6. Rule 7A-4.13, Florida Administrative Code, has been duly promulgated and adopted in accordance with the provisions of Section 120.54, Florida Statutes, and is not subject to attack on the basis that it fails to comply with the aforementioned statutory provision related to the promulgation and adoption of rules.

7. The language of Rule 7A-4.13, Florida Administrative Code, states: 7A-4.13 Malt beverages, differential prices or

   change of prices.

   
   

   1. If a manufacturer or distributor of malt beverages shall establish differential prices or change of prices on such beverages according to the quantity sold, such manufacturer or distributor must file the differential prices or changes of prices with the Division giving ten (10) days notice before change of price becomes effective.

   2. If any such manufacturer or distributor operates branches and manitains (sic) a price structure that establishes different prices in said branches than the prices established at the parent place of business, price list for such branches and the parent place of

      business must be filed with the Division.

   3. If any such manufacturer or distributor

      establishes price differentials on the same quantity but in different counties, price lists should be filed by county.

   4. All price lists required to be filed in the following manner: original to central office of the Division at Tallahassee; duplicate to the appropriate district office.

      
      

      The general authority for the passage of this Rule is Subsection 561.11(1), Florida Statutes. This provision allegedly grants the Division of Alcoholic Beverages and Tobacco the authority to establish rules that carry out the purposes of the Beverage Law. Within the Beverage Law is found Subsection 561.42(1), Florida Statutes, and this is the provision which the Rule purportedly implements.

      
      

8. The language of Subsection 561.42(1), Florida Statutes, is as follows:

   
   

   561.42 Tied house evil; financial aid and assistance to vendor by manufacturer or distributor prohibited; procedure for enforcement; exception.--

   
   

   (1) No licensed manufacturer or distributor of any of the beverages herein referred to shall have any financial interest, directly or indirectly, in the establishment or business of any vendor licensed under the Beverage Law, nor shall such licensed manufacturer or distributor assist any vendor by any gifts or loans of money or property of any description or by the giving of any rebates of any kind whatsoever. No licensed vendor shall accept, directly or indirectly, any gift or loan of money or property of any description or any rebates from any such licensed manufacturer or distributor; provided, however, that this shall not apply to any bottles, barrels, or the containers necessary for the legitimate transportation of such beverages, or advertising materials, and shall not apply to the extension of credit, for liquors sold, made strictly in compliance with the provisions of this section.

   
   

   Clearly, in keeping with the authority of Subsection 561.11(1), Florida Statutes, the Division of Alcoholic Beverages and Tobacco is granted the necessary power and authority to effect the purposes of the Beverage Law through the promulgation and adoption of rules. Moreover, Subsection 561.42(1), Florida Statutes, is an integral part of the Beverage Law and the regulatory scheme set out in this Subsection would allow for the passage of rules designed to effectuate the purposes of that regulatory provision, referred to as the "Tied House Evil Law".

   
   

9. The issue then is whether Rule 7A-4.13, Florida Administrative Code, constitutes an invalid exercise of delegated legislative authority found in Subsections 561.11(1) and 561.42(1), Florida Statutes. In this instance, Rule 7A-4.13, Florida Administrative Code, is in keeping with the regulatory scheme

   authorized by the above-referenced provisions of Chapter 561, Florida Statutes, and as such does not constitute an invalid exercise of delegated legislative authority within the meaning of Subsection 120.56(1), Florida Statutes.

   
   

10. The substance of Subsection 561.42(1), Florida Statutes, is such that it is designed to prohibit any financial interest between manufacturers or distributors and licensed vendors and to prohibit those former entities from assisting vendors through gifts, loans or money or property or the granting of rebates. The provision further prohibits the vendors from accepting this assistance, except as is allowed by law. In order to carry out the intent of this legislation, the Respondent has fashioned Rule 7A-4.13, Florida Administrative Code. The purpose of the Rule is to assist the Respondent in the police power function by allowing the Respondent to determine if the prohibited connection between manufacturers or distributors and vendors has occurred. In practice, a knowledge of the price structure in the beer industry aids the Division in performing its audit function and the audit function is the primary investigative tool which would reveal violations of the "Tied House Evil Law". Specifically, the "price posting" rule assists the Division in discovering any elicit gifts or loans of money or rebates frost manufacturers or distributors to vendors.

    
    

11. The terms "rebate" and "gift" are further defined by rule. Rule 7A- 1.09, Florida Administrative Code, defines rebate as:

    
    

    7A-1.09 Rebate. The term 'rebate' (often referred to as accumulative promotion or retroactive discount) shall include any refund or discount made or allowed other than such discounts as are permitted under Section 461.42, Florida Statutes; and as such they are prohibited.

    Gift is defined in Rule 7A-1.10, Florida Administrative Code, to be: 7A-1.10 'Gift'. The term 'gift' shall apply

    to the giving of free goods or things of value as a discount not otherwise permitted by law or reward for purchasing any given quantity of alcoholic beverages either at one time or over a period of time; and as such they are prohibited.

    
    

12. By the terms of these rules, all classes of rebates and gifts are considered to be improper, with the exception of trade discounts allowed in the usual course of business. Subsection 561.42(6), Florida Statutes, controls the question of trade discounts allowed in the usual course of business and per the language of this provision those categories of beverages found in the provision are not perceived to be trade relations which warrant the scrutiny and the imposition of the prohibition set forth in Subsection 561.42(1), Florida Statutes. Discounts in the usual course of business are defined in Subsection 561.01(10), Florida Statutes. That definition states:

    
    

    (10) 'Discount in the usual course of business' means a cash or spirituous or vinous beverage merchandise discount given pursuant to an agreement made at the time of sale. However, such agreement shall not result in an accrued,

    accumulated, or retroactive discount. The same discounts shall be offered to all vendors buying similar quantities. Any discount which is in violation of this section shall be considered an arrangement for financial assistance by gift.

    
    

    In summary, although the Rule in question would inappropriately inhibit the giving of "trade discounts in the usual course of business" by postponing those discounts, it does not pertain to the class of beverages regulated by the Rule.

    
    

13. The conclusion reached herein is made notwithstanding the Petitioner's argument that the cases Castlewood International Corp. v. Wynne, 294 So.2d 321 (Fla. 1974) and Castlewood International Corp. v. Wynne, 305 So.2d 733 (Fla. 1974) would prohibit regulatory discrimination between the categories of beer and malt beverages; spirituous beverages, and wine or vinous beverages as being unconstitutional and require that Subsection 461.42(6), Florida Statutes, by its terms includes malt beverages in its proscription. (For reasons of convenience, these decisions will be referred to as Castlewood I and Castlewood II in keeping with the date of their rendition.) The Castlewood cases do not control the outcome on this occasion.

    
    

14. Castlewood I is a decision in which Section 562.21, Florida Statutes, was declared unconstitutional and in the course of arriving at its decision the Court concluded that it was a violation of constitutional principles to have a regulatory scheme which discriminated between the various classes of vendors on the question of the granting of credit. Although this opinion might be persuasive to the lower tribunal within the court system of the State of Florida, to the extent that that lower court would declare Subsection 561.42(6), Florida Statutes, unconstitutional; the executive branch of government, of which the Division of Administrative Hearings is an extension, is not empowered to make constitutional determinations on the validity of a statute and the Hearing Officer must proceed as if the subject provision is constitutional. Pursuit of the question on the constitutionality of the subject provision, i.e., Subsection 561.42(6) Florida Statutes, must be made through an appeal from the decision made in the case sub judice or separate action at the trial court level. It is not necessary to comment on the argument of the Intervenor to the effect that the United States Supreme Court in the City of New Orleans v. Nancy Dukes, 427

    U.S. 297 (1976) overruled Castlewood I or undermined its effect. This forum does not provide the occasion to weigh the relative merits of Castlewood I and City of New Orleans, supra.

    
    

15. Unlike Castlewood I, Castlewood II does have a potentially immediate effect on the determination to be reached on the import of Subsection 561.42(6), Florida Statutes. Castlewood II deals with the question of the meaning of Subsection 561.42(2), Florida Statutes, which considers the extension of credit for the sale of liquors and in the course of the decision it is determined that the word "liquors" is synonymous with the term "intoxicating liquors" as found in the definition related to Subsection 561.01(5), Florida Statutes, and in view of the fact that the definition includes all alcoholic beverages containing more than 3.2 percent of alcohol by weight, it would necessarily include malt beverages or beer containing that weight of alcohol. The Court also held that wine would be included in the term "liquors" as found in Subsection 561.42(2), Florida Statutes, and the result reached was made after considering the interchangeability of the definitions related to the substances regulated by the Beverage Law. Castlewood II did not construe the constitutionality of Section 561.42, Florida Statutes, and for that reason the applicability of Castlewood II

    to the facts of the current case is limited to insuring that the definitions of regulated substances will be consistently carried out in resolving the present conflict.

    
    

16. In contrasting the provision of Subsection 561.42(2), Florida Statutes, with that of 561.42(6), Florida Statutes, it can be seen that the former provision uses the term "liquors" to indicate the parameters of its application and this term, "liquors," is taken in the generic sense to include distilled spirits or spirituous beverages; wine and vinous beverages; and beer or malt beverages, as opposed to the single category, distilled spirits or spirituous beverages. On the other hand, Subsection 561.42(6), Florida Statutes, contains two categories, wine and liquor, and refers to trade discounts which are further defined in Subsection 561.01(10), Florida Statutes (1978), as dealing with spirituous or vinous beverages only. The legislature by its action found in Subsections 561.01(10) and 561.42(6), Florida Statutes, has unequivocally expressed the desire to treat the question of trade discounts for wine (vinous beverages) and liquor (spirituous beverages) vendors differently than for malt beverage and beer vendors. The use of the word "liquor" in Subsection 561.42(6), Florida Statutes, is not meant to be generic and to hold otherwise would be contrary to the obvious intent of the legislature and would suggest acts of redundancy on the part of the legislature when they included the terms "wine" or "vinous beverages" in the related provisions discussed above.

    
    

17. It is also noteworthy that the current definition of "discount in the usual course of business" found in Subsection 561.01(10), Florida Statutes, became effective subsequent to the Castlewood II decision and is change from the language found in the former law defining "discount in the usual course of business" which definition in Subsection 561.01(10), Florida Statutes (1977), did not categorize the types of vendors that would receive the cash discounts. The 1977 law merely left it to the reader to consider that definition in pari materia with Subsection 561.42(6), Florida Statutes, to conclude what class of vendors would be entitled to receive the trade discounts. The new definition of "discount in the usual course of business" found in Subsection 561.01(10), Florida Statutes (1978) is the legislature's attempt at alleviating any concern that members of the industry would have on the subject of the applicability of "discounts in the usual course of business" by referring to spirituous or vinous beverages.

There being no showing that the Rule 7A-4.13, Florida Administrative Code, is an invalid exercise of delegated legislative authority, the Petition to have that Rule so declared is DENIED.

DONE AND ORDERED this 13th day of December, 1979 in Tallahassee, Florida.

CHARLES C. ADAMS, Hearing Officer Division of Administrative Hearings Room 101, Collins Building Tallahassee, Florida 32301

(904) 488-9675

COPIES FURNISHED:

Theodore L. Tripp, Jr., Esquire Tobias Simon, P.A.

1492 South Miami Avenue Miami, Florida 33140

Harold F.X. Purnell, Esquire General Counsel

Department of Business Regulation 725 South Bronough Street Tallahassee, Florida 32301

C. Gary Williams, Esquire Lee L. Willis, II, Esquire

James Dawson Beasley, Esquire

Ausley, NcMullen, McGehee, Carothers & Proctor Post Office Box 391

Tallahassee, Florida 32302

Carroll Webb, Executive Director Administrative Procedures Committee

120 Holland Building Tallahassee, Florida 32301

Ms. Liz Cloud Department of State Room 1802, The Capitol

Tallahassee, Florida 32301

Docket for Case No: 79-001657RX

Orders for Case No: 79-001657RX