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Craft Beer Guild, LLC v. Alcoholic Beverages Control Commission

Superior Court of Massachusetts, Suffolk

September 29, 2017

Craft Beer Guild, LLC dba Craft Brewers Guild
v.
Alcoholic Beverages Control Commission

          MEMORANDUM OF DECISION AND ORDER ON PLAINTIFF'S MOTION FOR JUDGMENT ON THE PLEADINGS

          Douglas H. Wilkins Associate Justice, Superior Court

         The plaintiff Craft Beer Guild, LLC d/b/a Craft Brewers Guild (" Craft" ) is appealing an adjudicatory decision, dated February 12, 2016 (" Decision" ) of the Alcoholic Beverages Control Commission (" ABCC" or " Commission" ) under G.L.C. 30A, § 14. After the ABCC filed the Administrative Record (A.R.) and a Supplemental Administrative Record (S.A.R.) on September 22, 2016, Craft filed its " Plaintiff Craft Beer Guild, LLC d/b/a Craft Brewers Guild's Motion for Judgment on the Pleadings" (" Motion" ) on June 29, 2017, pursuant to Superior Court Standing Order 1-96 as amended.[1] After a hearing on the Motion on September 12, 2017, at which the Court heard from both parties, the Court DENIES THE MOTION.

         BACKGROUND

         Craft is a wholesaler of alcoholic beverages licensed under G.L.C. 138, § 18. It distributes about 200 craft beer brands to, among others, retailers such as restaurants and bars licensed under G.L.C. 138, § 12 for consumption of alcohol. In October 2014, one of the owners of a Crafts-distributed brand tweeted allegations that its brand had been removed from the tap at Boston location because Massachusetts suppliers and wholesalers were making unlawful payments to retail licensees in exchange for those retailers carrying Craft brands. The Commission began an investigation, which lasted about seven months and resulted in a Violation Report.

         The Violation Report led to administrative charges against Craft for violation of the price discrimination law (G.L.C. 138, § 25A(a)) and of 204 Code Mass. Regs. § 2.04(1), quoted below. The ABCC had not previously brought such a proceeding against any licensee under § 2.08.

         During the proceedings, Craft stipulated to the facts in the Violation Report. After adjudicatory hearings, the ABCC found that Craft violated 204 CMR 2.08 and G.L.C. 138, § 25A. Based on the stipulated facts, the Commission found that in 2013 and 2014, Craft negotiated and implemented a series of schemes between itself, numerous retail licensees and certain third-party management companies that managed the retail licensees. Craft negotiated payment arrangements with the third-party management companies in exchange for tap lines committed to Craft brands at retail licensees that those companies managed. Generally, the payments were either on the basis of $1,000 to $2,000 per draft line payable every six months or rebates paid every six months of $15 or $20 per keg. The third-party management companies issued invoices to Craft billing for fictitious services that were never performed. Once invoiced, Craft would pay the fictitious service fee to the management company. Craft paid at least $120,000 during the pendency of this scheme.

         The rebates and payments were not reported to the Commission or reported in the Boston Beverage Journal. They were not available to all retail licensees. Even among those who received rebates, not all licensees received the same level of rebate or payment.

         The ABCC found two violations, for which it imposed the following penalties:

On the first violation, 204 C.M.R. 2.08, the Commission suspends the license for fifteen (15) months, with ninety (90) days to be served and the balance of 12 months held in abeyance for two years provided no further violations of Chapter 138 of Commission Regulations occur.
On the second violation, M.G.L.C. 138, § 25A, the Commission suspends the license for fifteen (15) months with ninety (90) days to be served and the balance of 12 months held in abeyance for two years provided no further violations of Chapter 138 or Commission Regulations occur. This suspension is to run concurrently with the penalty imposed for 204 C.M.R. 2.08.

         Craft avoided serving the suspension by paying a $2,623,466.70 fine in lieu of suspension pursuant to G.L.C. 138, § 23. It timely appealed the decision by filing a complaint in this court on March 10, 2016.

         DISCUSSION

          Under Section 14(7) of G.L.C. 30A, this Court may reverse, remand, or modify an agency decision if the substantial rights of any party may have been prejudiced because the agency decision is based on an error of law or on unlawful procedure, is arbitrary and capricious or unwarranted by facts found by the agency, or is unsupported by substantial evidence. G.L.C. 30A, § 14(7)(c)-(g). The appealing party bears the burden of demonstrating the invalidity of the agency decision. See Bagley v. Contributory Ret. Appeal Bd., 397 Mass. 255, 258, 490 N.E.2d 1177 (1986).

         I.

         Craft first challenges the finding that it violated 204 Code Mass. Regs. § 2.08. It argues that this finding was based on two errors of law and lacked substantial evidence. The substantial evidence argument depends heavily upon accepting Craft's view of the law.

         A.

         First, Craft argues that the Legislature withdrew any statutory authority for that regulation when it repealed G.L.C. 138, § 25A(b).

         As amended by St. 1946, § 304, section 25A contained two clauses. The first, which remains in effect, prohibits price discrimination. The second, later repealed, provided:

No licensee authorized under this chapter to sell alcoholic beverages to wholesalers or retailers shall--
* * *
(b) Grant, directly or indirectly, any discount, rebate, free goods, allowance or other inducement, except a discount not in excess of two per centum for quantity of alcoholic beverages except wines, or a discount not in excess of five per centum for quantity of wines.

         The overlap between clause (b) and the regulation in question is obvious:

No licensee shall give or permit to be given money or any other thing of substantial value in any effort to induce any person to persuade or influence any other person to purchase, or contract for the purchase of any particular brand or kind of alcoholic beverages, or to persuade or influence any person to refrain from purchasing, or contracting for the purchase of any particular brand or kind of alcoholic beverages.

204 Code Mass. Regs. § 2.08. The ABCC enacted the predecessor of this regulation, then known as Regulation 47, at some time after enactment of St. 1946, c. 304, but before 1970. The Court agrees with Craft that it is logical to infer that the ABCC relied upon § 25A to adopt this regulation, although there is no reason to believe that it relied solely upon paragraph (b).

         By its terms, Regulation 47 had the capacity to serve as a tool to implement the price discrimination prohibition of § 25A(a) if inducements were part of a price discrimination scheme. This was consistent with the entire legislative purpose in 1946. The emergency preamble to St. 1946, § 304 found that " [t]he practice of manufacturers and wholesalers in granting discounts, rebates, allowances, free goods and other inducements to favored licensees contributes to a disorderly distribution of alcoholic beverages" and that deferred operation of the amendment would " delay the proper regulation thereunder of the alcoholic beverage industry and be contrary to the interests of temperance . . ." [emphasis added]. The concept of inducements to favored licensees was therefore central to section 25A as amended. There is no reason to believe that this policy applied only to clause (b).

         By St. 1970, c. 140, § 1, the Legislature struck out clause (b) of G.L.C. 138, § 25A. It did not strike or amend clause (a). The title of the 1970 amendment reads: " An act relative to the filing of schedules of prices of alcoholic beverages and repealing the law relative to discounts in the sale of such beverages." The title of this act may " act as an aid for the application of its test." Anheuser-Busch, Inc. v. ABCC, 75 Mass.App.Ct. 203, 208, 912 N.E.2d 1034 (2009). In the title the words " the law" refer to out clause (b) of G.L.C. 138, § 25A. The Legislature meant to repeal the rule against all discounts beyond those expressly allowed in that clause. There is no reason to believe that it intended to allow discounts (or rebates) employed in a price discrimination scheme. The decision not to repeal clause (a) of G.L.C. 138, § 25A proves that it did not. As amended, " Section 25A . . . " does not address the legality of discounts based on sales between a wholesaler and a retailer." See generally Van Munching Co. v. Alcoholic Beverages Control Commission, 41 Mass.App.Ct. 308, 310-11, 670 N.E.2d 401 (1996) (quoting motion judge). " The subject of § 25A is discrimination . . ." Id. (no allegation that the licensee in that case engaged in price discrimination).

         There is apparently no other legislative history for the 1970 Act. No statement by the Legislature or the ABCC addresses the continued validity of 204 Code Mass. Regs. § 2.08. If complete repeal of that regulation were intended, it is strange that there is no record of any attempt to repeal it, or even any request by regulated industry members to do so. Silence may reflect an understanding by the public and private sectors most involved at the time that the 1970 Act did not require repealing the regulation. Nevertheless, the repeal of former G.L.C. 138, § 25A(b) would be meaningless if the ABCC could simply prohibit all discounts by regulation. See generally Van Munching Co., 41 Mass.App.Ct. 308, 310-11, 670 N.E.2d 401 (1996). The Court agrees with Craft that the 1970 Act therefore implicitly but necessarily withdrew all authority for a broad regulation that prohibited discounts generally.

         Importantly, however, that conclusion arises not from any express legislative statement but only by implication. The scope of this implied repeal necessarily requires consideration not only of what was repealed, but also what was retained. In asserting complete invalidation of the regulation, Craft skips this logical step. Repeal does not necessarily mean that the Legislature intended to preclude application of the regulation as written to, for instance, § 25A(a) which was not repealed. The Court must ask whether implied repeal of the regulation was total or partial.

          A regulation is invalid on its face only if it cannot be applied lawfully to any set of facts. Cf. Massachusetts Coalition for the Homeless v. Secretary of the Executive Office of Health & Human Servs., 422 Mass. 214, 226-27, 661 N.E.2d 1276 (1996) (distinction between validity of a regulation on its face and as-applied). The question is whether 204 Code Mass. Regs exceeded the ABCC's " statutory authority" and therefore is " arbitrary and capricious on [its] face in that [it] would by definition be unrelated to the achievement of any statutory goals." Mass. Fed'n of Teachers, AFT, AFL-CIO v. Board of Education, 436 Mass. 763, 776, 767 N.E.2d 549 (2002) (citation omitted; emphasis added). More precisely, the Court must determine whether 204 Code Mass. Regs. § 2.08 is related to achieving " any" statutory goals, not just whether it served the repealed statutory goals of former § 25A(b).

         In this case, unlike Van Munching, the relevant facts include ABCC's allegation and finding of price discrimination under G.L.c. 138, § 25A(a). The Legislature never intended to preclude regulatory enforcement of the anti-discrimination prohibition. The 1970 Act left § 25A(a) intact. When applied in the context of price discrimination, 204 Code Mass. Regs. § 2.08 therefore does not conflict with the 1970 repeal. On the contrary, when so applied, it regulates an area specifically preserved in 1970, even as the Legislature repealed clause (b) of the same section. As will be seen, it answers some of Craft's objections to the finding of a § 25A(a) violation. It serves an important and meaningful purpose, for example, in articulating what practices, by which licensees, qualify as methods by which licensees might perpetrate price discrimination. It makes clear that, for purposes of determining discrimination, the retail price may reflect discounts, deductions or credits. See, e.g., M.H. Gordon & Son, Inc. v. Alcoholic Beverages Control, 371 Mass. 584, 591, 358 N.E.2d 778 (1976) (" 'Price' means the actual amount paid to the supplier for goods furnished to the buyer" ); G.L.C. 138, ยง 25D(d) (calculation of price accounts for " all discounts . . . and all rebates" ). Section 2.08 is therefore not invalid in all its applications, even though it does lack any ...


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