The Department of Alcoholic Beverage Control has the “exclusive power […] to license the manufacture, importation and sale of alcoholic beverages in this State.”[1] The law expressly prohibits California trial courts from interfering with the Department in the performance of these duties.[2] 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.[3]
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).[4]
According to the complaint, the retailer entered into a “credit agreement” with Southern Wine to facilitate the purchase of alcoholic beverages.[5] 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.[6]
A separate provision of the credit agreement imposed an additional 1% penalty on past-due invoices – identified as a “carrying charge.”[7] Because the retailer often paid the invoices late, it had been charged (and paid) both the 1% penalty and separate 1% carrying charge.[8] 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.[9]
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.[10] The trial court agreed and dismissed the action.[11] 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.[12]
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.[13] 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.”[14] 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...
