Does The California Department Of Alcoholic Beverage Control Have Exclusive Jurisdiction Over All Disputes Involving The Sale Of Alcohol?
By Mulcahy LLP on March 19, 2018
The Department of Alcoholic Beverage Control has the “exclusive power […] to license the manufacture, importation and sale of alcoholic beverages in this State.” The law expressly prohibits California trial courts from interfering with the Department in the performance of these duties. Courts have interpreted this to mean that matters involving the sale and dispensation of alcohol in California fall within the jurisdiction of the Department and not the courts.
But, does the same hold true for contract disputes that directly implicate the sale of alcohol? Do these disputes also fall within the exclusive jurisdiction of the Department? A California trial court recently answered this in the affirmative, only to later be overturned on appeal.
In Wiseman Park, LLC v. Southern Glazer’s Wine and Spirits, LLC, 16 Cal.App.5th 110 (2017), a retailer of alcoholic beverages sued its distributor Southern Wine and Spirts of America, Inc. over a dispute that directly implicated the sale of alcohol and a specific provision of the Alcoholic Beverage Control Act (the ABC Act).
According to the complaint, the retailer entered into a “credit agreement” with Southern Wine to facilitate the purchase of alcoholic beverages. Paragraph 2 of the credit agreement imposed a 1% penalty on all past-due invoices “in accordance with state law, including provisions of the Alcoholic Beverage Law.” This reference to the Alcoholic Beverage Law was aimed at California Business and Professions Code § 25509, which allows alcohol distributors to charge retailers a 1% late fee on past-due invoices.
A separate provision of the credit agreement imposed an additional 1% penalty on past-due invoices – identified as a “carrying charge.” Because the retailer often paid the invoices late, it had been charged (and paid) both the 1% penalty and separate 1% carrying charge. These charges added up over the course of the parties’ decade-long relationship.
In June 2014, the retailer filed suit in California Superior Court in Los Angeles alleging, among other things, that Southern Wine had (i) breached paragraph 2 of the credit agreement by charging the additional 1% carrying charge; and (ii) violated California’s unfair competition law by imposing this carrying charge in contravention of the late-fee limitation imposed by Business and Professions Code § 25509.
Southern Wine moved to dismiss (known as a “demurrer” in California state court) the lawsuit on the ground that the Department has exclusive jurisdiction over all matters relating to the sale of alcohol, including the interpretation and implementation of Business and Professions Code § 25509. In other words, if the retailer was entitled to a remedy, it was to be decided by the Department, not the trial court. The trial court agreed and dismissed the action. The retailer appealed.
The California Court of Appeal reversed the trial judge’s decision and, in a lengthy and informative decision, detailed the legislative history of the ABC Act and the role and authority of the Department.
In short, the appellate court found that the ABC Act focuses on licensing, labeling, manufacturing, possession, sale, and the general regulation of the three-tier system of alcohol distribution in California. It does not contain language to suggest that a contract dispute that touches on these issues is to be resolved exclusively by the Department.
Similarly, the court found no reference in the legislative history of the ABC Act to any express or implied repeal of the California Constitution’s guarantee to the right to trial by jury – a right that is not available in administrative proceedings before the Department. Had the legislature intended “to remove this basic and fundamental part of our system of jurisprudence, again, there would be specific references to that intention both in the text of the section to be adapted and in the ballot materials submitted to the voters for their consideration of such an amendment.” Because no such language exists, the court found that the retailer was free to bring its contract claim in court, even though it directly implicated the sale of alcohol.
The court also pointed to language of the ABC Act to show (i) implicit recognition that the Department is not the exclusive forum for matters affecting the sale of alcohol (referring to criminal prosecution and punishment), and (ii) that it did not preempt parties from seeking court intervention to enjoin a nuisance under the Unlawful Liquor Sale Abatement Law.
The appellate court then turned its attention to the retailer’s unfair competition law claim under California Business and Professions Code § 17200 (UCL). Because the retailer’s UCL claim was being pursued under the “unlawful” prong of California’s unfair competition law, the retailer was required to show a separate statutory violation. In this case, it was Southern Wine’s alleged violation of the 1% late-fee limitation set forth in the ABC Act at Business and Professions Code § 25509.
Because any decision on the retailer’s UCL claim would require a determination as to the meaning and effect of Section 25509, Southern Wine argued that this claim falls squarely within the exclusive jurisdiction of the Department. Again, the appellate court disagreed.
The court made clear that, even when a state agency has the exclusive jurisdiction to decide the statute underlying the UCL claim, the UCL was intended to grant private plaintiffs a means to prosecute unfair competition claims that they may not otherwise have the ability or authority to pursue. Even when the underlying statute does not provide a private right of action, private citizens are still permitted to seek relief in court under California’s unfair competition law.
Also, finding no language in the ABC Act to the contrary, the appellate court made clear that California courts may exercise their independent judgment when confronted with statutory interpretation. Or, in the court’s words, “an agency’s interpretation of statutory language is entitled to little deference.”
Applying the above rationale, the appellate court found that the retailer’s claim, although based on an underlying violation of the ABC Act, was not foreclosed by the Department’s exclusive jurisdiction over violations of the ABC Act.
Ultimately, the appellate court reversed the trial court's order sustaining Southern Wine's demurrer and remanded the matter for further proceedings.
This article was prepared by Kevin A. Adams (firstname.lastname@example.org), a partner at the Irvine law firm of Mulcahy LLP. Mulcahy LLP is a boutique litigation firm that provides legal services to distributors, manufacturers and other companies in the alcohol beverage industry concerning areas of antitrust, trademark, copyright, trade secret, unfair competition, franchise, and distribution laws.
Disclaimer: While every effort has been made to ensure the accuracy of this article, it is not intended to provide legal advice as individual situations will differ and should be discussed with an attorney experienced alcohol and distribution law. For specific technical or legal advice on the information provided and related topics, please contact the author.
California Constitution, Article XX, section 22.
California Business & Professions Code § 23090.5.
See e.g., City of Oakland v. Superior Court, 45 Cal. App. 4th 740, 760 (1996) (“The state Constitution grants the state Department of Alcoholic Beverage Control the exclusive power to tax alcoholic beverage sales.”); Korean American Legal Advocacy Foundation v. City of Los Angeles, 23 Cal.App.4th 376, 385 (1994) (“Article XX, section 22 of the California Constitution gives the state Department of Alcohol Beverage Control exclusive jurisdiction to regulate alcohol.”); Samson Market Co. v. Kirby, 261 Cal.App.2d 577, 581 (1968) (court construed section Business & Professions Code § 23090.5 to deprive the superior court of jurisdiction where the department was acting in its “administrative” capacity); In Dept. of Alcoholic Bev. Control v. Superior Court 268 Cal.App.2d 67 (1968) (court sustained the ABC Act’s constitutionality and authority of Department in a case involving a license suspension, i.e., a quasi-judicial action); see also, Kirby v. Superior Court, 275 Cal.App.2d 975 (1969) (court viewed the legislative restriction upon superior court jurisdiction of the sale of alcohol as a reasonable implementation of the alcoholic beverage provision of the State Constitution); California v. LaRue, 409 U.S. 109, 119 (1972) (A State has broad power under the Twenty-first Amendment to specify the times, places, and circumstances where liquor may be dispensed within its borders.); Joseph E. Seagram & Sons v. Hostetter, 384 U.S. 35 (same); Hostetter v. Idlewild Bon Voyage Liquor Corp., 377 U.S. 324, 330 (same); Dept. of Revenue v. James B. Beam Distilling Co., 377 U.S. 341, 344, (same); California v. Washington, 358 U.S. 64 (same); Ziffrin, Inc. v. Reeves, 308 U.S. 132 (same); Mahoney v. Joseph Triner, Corp., 304 U.S. 401 (same); State Board of Equalization v. Young's Market Co., 299 U.S. 59 (same); Sail'er Inn, Inc. v. Kirby, 5 Cal. 3d 1, 20 (1971) (“The Legislature may, of course, pass laws to prevent ‘improprieties’ in connection with the sale of alcoholic beverages.”).
The ABC Act commences at section 23000 of the Business and Professions Code.
Id. at 114.
Id. Additionally, Business and Professions Code § 25509 provides, in pertinent part, that: A distilled spirits manufacturer, a brandy manufacturer, a beer manufacturer, a winegrower, a wine blender, a distilled spirits rectifier, a wine rectifier, a distilled spirits wholesaler or a beer and wine wholesaler who sold and delivered beer, wine, or distilled spirits to a retailer and who did not receive payment for such beer, wine, or distilled spirits by the expiration of the 42nd day from date of delivery shall charge the retailer 1 percent of the unpaid balance for such beer, wine, and distilled spirits on the 43rd day from date of delivery and an additional 1 percent for each 30 days thereafter. Bus. & Prof. Code § 25509(a).
Wiseman Park, LLC, 16 Cal.App.5th at 114-15.
Id. at 115.
The wholesaler was renamed Southern Glazer’s Wine and Spirits, LLC later in the proceeding. Id. at fn 1.
Id. at 115-116.
Id. at 116.
Id. at 121.
Id. at 122.
Id. (internal quotes and citations omitted).
Id. at 127.
Id. at 129.
Id. at 130.
Id. at 132.