SC Administrative Law Court Decisions

STATEMENT OF THE CASE

This case comes before me pursuant to S.C. Code Ann. §§ 61-2-260 (Supp. 2004) and 1-23-600(B) (2005) upon the request for a contested case hearing by Coors Brewing Company (Respondent or Coors). Coors was cited by the South Carolina Department of Revenue (Department or Petitioner) on January 19, 2005 with an administration violation of S.C. Code Ann. § 61-4-940(E) (Supp. 2004). Section 61-4-940, captioned “Practices between manufacturer, wholesaler and retailer,” is commonly referred to as the “Three Tier Law.”

Coors provided a consumer rebate program to retailers in South Carolina that involved sales of its beer to consumers. The program allowed for participation by retailers that owned and used electronic scan technology and for those that did not. In its Final Determination, the Department asserted that the scan-back portion of the program did not comply with the provisions of Section 61-4-940(E). Pursuant to S.C. Code Ann. § 61-4-250 (Supp. 2004), the Department assessed a fine against Coors in the amount of one thousand and no/100 ($1,000.00) dollars.

A hearing was held before me on August 3, 2005 in Columbia, South Carolina. At the conclusion of the Department’s presentation of its case, Coors made a Motion for Summary Judgment. The Court deemed the motion as a Motion for an Involuntary Non-suit pursuant to Rule 68 of the Rules of Procedure for the Administrative Law Court (ALC or Court) and SCRCP 41(b). Based upon the following findings of fact and conclusions of law, Coors’ Motion is granted.

FINDINGS OF FACT

Having observed the applicable law, exhibits, and witnesses presented at the hearing, and having closely passed upon their credibility, taking into consideration the burden of persuasion by the parties, I make the following findings of fact by a preponderance of evidence:

1. Notice of the time, date, place and subject matter of the hearing was timely given to both parties.

2. Coors Brewing Company is a manufacturer and brewer of beer in the United States. It sells beer through wholesalers to numerous retail locations, including grocery and convenience stores in this State. It is a licensed manufacturer/producer in South Carolina (License No. 32018886-PBP).

3. During calendar year 2004, Coors provided notice via bulletin to its retailers in South Carolina of a consumer rebate program that would be implemented through retailer participation with the consumer. The program allowed retailers to use electronic scanning technology (scan-back discount) or paper coupons (instant redeemable/refund discount coupons or IRDC). ^[1]

4. The program provided an instant rebate or refund to consumers on the price of Coors beer purchased at participating retail locations. During the time this program was operational, Coors paid approximately 15,000 discounts on scan-back purchases and supplied approximately 34,000 IRDC to consumers.^[2]

5. Those retailers using electronic scanning equipment scanned the label that was stamped into the paper packaging; other retailers scanned the IRDC. Consumers may or may not be aware that they are receiving this discount on the purchase price.

6. The purchase price of the beer was reduced when the clerk checked the item and payment was tendered. The consumer received a discounted purchase price through use of either the IRDC or the scan back discount.

7. Retailers were subsequently reimbursed for discounts they provided to consumers. To get reimbursed for the discount, retailers presented Respondent with sales data on the number of packages of beer sold under the program and Respondent reimbursed the retailer for the discount given to the purchasers.

When IRDC’s were used, retailers had to perform various additional functions to collect from the manufacturer the discounts it gave to its consumers. For instance, the coupons had to be identified, checked for accuracy, and then sent to the manufacturer or its agent for reimbursement.

8. In both cases, retailers received the dollar value of the discount together with a processing fee.

9. The usage by retailers of instant scanning technology to provide its consumers instant price discounts is more efficient for manufacturers, retailers and consumers. The consumer does not have to clip and tender a paper coupon to the clerk at time of purchase, the retailer does not have to check paper coupons for effective dates or forward them to the manufacturer or its agent for payment, and the manufacturer does not have to review the paper coupons upon receipt. Everything is done electronically.

10. Whether the IRDC or the scan-back discount is used, the process involves the manufacturer, retailer and consumer.^[3]

CONCLUSIONS OF LAW

General

1. The Administrative Law Court has jurisdiction over this matter pursuant to S.C. Code Ann. §§ 61-2-260 (Supp. 2004) and 1-23-600 (B) (2005).

2. In civil cases, generally the burden of proof rests upon the party who asserts the affirmative of an issue. 29 Am.Jur.2d, Evidence § 127 (1994); Alex Sanders, et al., Trial Handbook for South Carolina Lawyers, 2^nd Ed., § 9:3 Party with burden, civil cases (2001). The standard of proof in contested cases is the preponderance of the evidence. National Health Corp. v. DHEC, 298 S.C. 373, 380 S.E.2d 841 (Ct. App. 1989). A preponderance of the evidence means “the greater weight of the evidence,” or “superior evidentiary weight that, though not sufficient to free the mind wholly from all reasonable doubt, is still sufficient to incline a fair and impartial mind to one side of an issue rather than the other.” Black’s Law Dictionary 120 (7^th ed. 1999). As the moving party, the Department bears the burden of proving that Coors is in violation of Section 61-4-940 (E).

Relevant Statute and the “Tied house” concept

3.                  S.C. Code Ann. § 61-4-940 (Supp. 2004), entitled “Practices between manufacturer, wholesaler and retailer,” commonly called the “Three-Tier Law,” addresses the relationship of beer sales between manufacturers, wholesalers and retailers. Section 61-4-940 (E) of the statute reads:

A manufacturer, brewer, importer, or wholesaler of beer may discount product price based on quantity purchases if all discounts are on price only, appear on the sales records, and are available to all customers.

In addition, Section § 61-4-940(B) (Supp. 2004) of the statute prevents a manufacturer, brewer, importer, or wholesaler of beer, or their agent, to furnish, give, rent, lend or sell, directly or indirectly, to the holder of a retail permit any equipment, fixtures, free beer, or service. It also prevents the retailer from accepting any of these items or services. Section 61-4-940(D) provides that the manufacture, brewer, and importer of beer are on one tier, the wholesaler is on another tier and the retailer is on another. Also, this subsection prohibits a party on one tier from having any ownership interest or financial interest in the beer business operation on another tier.

This statute is aimed at the evil known as the “tied house.” Many states have enacted statutes to prevent these activities. They control price-cutting by various houses or tiers and offerings by them of benefits, free goods and other inducements. The purpose of the statutes is to prevent the integration of retail and wholesale outlets, manufacturers, wholesalers, or distributors (different houses or businesses) from owning or controlling retail outlets and gaining advantage or control of the industry. They also prevent large firms from dominating local markets through vertical or horizontal integration and the excessive sales of alcoholic beverages, and they remove the retail dealer from financial or business obligations to the wholesaler, with the exception of ordinary commercial credit for liquors sold. 48 C.J.S. Intoxicating Liquors § 226 (1981).

Furthermore, these statutes exist to remove influence by the manufacturer over the wholesaler and influence by the wholesaler over the retailer, which might result in preference for a particular product. Some provisions may prohibit a manufacturer or wholesaler from offering a retailer or other purchaser a bonus, premium, or compensation to induce the purchase of its products to the exclusion of those products of competitors. Other provisions might prevent wholesalers from offering equipment or advertising signs, as well as preventing wholesalers from offering financial assistance to retailers in the form of loans or the extension of credit.

Tied houses between manufacturers and wholesalers and between wholesalers and retailers can affect the sales price of goods to the ultimate consumer and can result in increased sales to the detriment of other houses. Manufacturers who own or have an interest in a wholesaler or those that discriminate in price reductions or promotions in favor of a specific wholesaler violate these three tier laws. Likewise, wholesalers who own an interest in a retailer, or discriminate in price reductions or other benefits to the benefit of a retailer, violate these laws. Price cutting practices at any tier affects the stability for the market. It could result in a larger share of the market for one manufacturer or wholesaler and perhaps drive marginal operators out of the business altogether. Affiliated Distillers Brands Corp, et al. v. Sills, 56 N.J. 251, 265 A.2d 809 (N.J. Sup. Ct. 1970). Without such laws, manufacturers and/or wholesalers would have to position themselves into a price-cutting mode to stay competitive, which could play havoc with the market.

Statutory Construction

4. The cardinal rule in statutory construction is that a Court must ascertain and effectuate legislative intent whenever possible. Joint Legislative Comm. v. Huff, et al., 320 S.C. 241, 245, 464 S.E.2d 324, 326 (1995). Legislative intent must prevail if it can reasonably be discovered in language used and construed in light of its intended purpose. Glover by Cauthen v. Suitt Const. Co., 318 S.C. 465, 458 S.E.2d 535 (1995).

Our appellate courts have held that words used in a statute are to be given their plain and

ordinary meaning. Worthington v. Belcher, 274 S.C. 366, 368, 264 S.E.2d 148, 149 (1980); Hughes v. Edwards, 265 S.C. 529, 220 S.E.2d 231 (1975). When the terms and language of a statute are plain and unambiguous and convey a clear and definite meaning, there is no occasion for employing rules of statutory interpretation and the court has no right to look for or impose another meaning. Miller v. Doe, 312 S.C. 444, 441 S.E.2d 319 (1994); City of Columbia v. American Civil Liberties Union of South Carolina, Inc., 323 S.C. 384, 475 S.E.2d 747 (1996). Courts must apply the terms of a statute according to its literal meaning, without resort to subtle or forced construction in an attempt to limit or expand the scope of the statute. Holley v. Mount Vernon Mills, Inc., 312 S.C. 320, 440 S.E.2d 373 (1994). Where the language of the statute is clear and explicit, the court cannot rewrite the statute and inject matters into it which are not in the legislature’s language. Timmons v. Tricentennial Comm’n, 254 S.C. 378, 175 S.E.2d 805 (1970). However, when a statute is not plain on its face, the Court must construe it by applying applicable decisional law. Statutes as a whole must receive a practical, reasonable, and fair interpretation which is consonant with the purpose, design and policy of lawmakers. Rosenbaum v. S-M-S 32, 311 D.C. 140, 427 S.E.2d 897 (1993). In interpreting a statute, the language of the statute must be read in a sense which harmonizes with its subject matter and accords with its general purpose. Koenig v. South Carolina Dep’t of Pub. Safety, 325 S.C. 400, 480 S.E.2d 98 (Ct. App. 1996). A court is not governed by the apparent meaning of words in one clause, sentence, or part of the statute, but rather by the statute as a whole. City of Spartanburg v. Leonard, 180 S.C. 491, 186 S.E. 395 (1936). When a statute applies to a particular agency, the rule is that the construction of the statute by that agency which is charged with its administration is entitled to the most respectful consideration and should not be overruled absent compelling reasons. Home Health Service, Inc., v. South Carolina Tax Comm’n, 312 S.C. 324, 440 S.E.2d 375 (1994). Our Supreme Court has held, however, that when the agency interpretation affords no basis for the perpetuation of a patently erroneous application of the statute, its interpretation must be rejected. Monroe v. Livingston, 251 S.C. 214, 161 S.E.2d 243 (1968). Furthermore, our Court of Appeals has held that while it typically defers to an agency’s interpretation of a statute or regulation, where the plain language of the statute is so contrary to the Department’s interpretation, it will reject the agency’s interpretation. Richland County School Dist. Two v. South Carolina Dep’t of Educ., 335 S.C. 491, 517 S.E.2d 444 (Ct. App. 1999).

Analysis

5. The Department issued its Final Determination on January 19, 2005, finding that the scan-back discount was “in essence an inducement to retailers to sell beer, in effect, based partially on consignment.” It also found that the program provided a beer price reduction, the discount did not appear on the sales records between the wholesaler and the retailer, the program was not offered by Coors to all its retailers, and the discount on beer price was based upon the quantity sold. As such, it found that Coors was in violation of Section 61-4-940 (E) and assessed the penalty. Coors, however, asserts that the intent of its promotional program was to provide to consumers a reduction of price on its beer when purchased and the promotion did not involve a price reduction to wholesalers or retailers on the quantity of beer purchased for resale.

The inquiry is whether this statute that prohibits “tied houses” or business relationships between manufacturers, breweries, wholesalers and retailers is implicated in the facts presented herein. The Court notes that manufacturers use various marketing tools to entice consumers to purchase their products. Beer manufacturers are not an exception. Two of their marketing programs involve the use of IRDC and instant scan-back discounts. In each, beer manufacturers provide to the consumer a discount on the purchase price of beer at the moment it is purchased from a retailer. Coors argues that this long-standing industry practice of using supplier (manufacturer) coupon promotions is consumer-driven. It asserts that Section 61-4-940(E) has no relevance to these programs, noting that this statute relates solely to relationships between manufacturers, wholesalers and retailers. Furthermore, it avers that the focus of its program is between it and the consumer. It notes that there is no price reduction passed down between the manufacturer and wholesaler, nor between the wholesaler and retailer. The wholesaler and retailer pay the normal price for beer when the promotion is operational. The reduction in price is given to the consumer and the retailer receives a processing fee in addition to its normal profit on sales. The wholesaler and the retailer function merely as intermediaries.

6.                  Two South Carolina Revenue Rulings issued by the Department that conclude that the use of paper coupons and plastic discount cards used by retailers is permissive were admitted into the Record at the hearing.^[4] Notwithstanding these Revenue Rulings, both in its Determination and at the hearing, the Department argued that the electronic discount program violates Section 61-4-940(E). Conversely, Coors argues that the legislative intent of Section 61-4-940 (E) is clearly limited to control price discounts between manufacturers, brokers, importers and wholesalers and thus not applicable to its electronic scanning discount promotion.

The Department argues that the scan-back program has the potential for abuse, questioning whether the price discounts were actually provided to the consumer. It argues that when consumers present IRDC for discounts they are assured (have knowledge) they are receiving a price discount. However, it contends that when consumers purchase beer in packages that have the scanning label, there is no assurance they receive the price discount. The Department made no offer of proof in support of their positions at the hearing.

The Department also argues that the electronic scan-back program favors certain retailers and offered some testimony at the hearing that several retailers were not advised of the program, referring to S.C. Revenue Ruling 94-8 which states that the program must be offered to all customers (retailers). However, the Record contains evidence that Coors provided notice, through mailings, of the program to its retailers, and I find that the more credible evidence is that notice of this program was provided to all its retailers.

The Department also asserts that Coors is in violation of Section 61-4-940(E) because no sales records or data was kept by the retailer or manufacturer on price discounts provided to consumers at retail locations where the electronic scan-back program was used. However, I find that this program provided for the payment of a processing fee by the manufacturer to the retailer on each sale; accordingly, such sales data and proof of any discount should be ascertainable upon request by the Department.

Also, there is no evidence in the Record to support the Department’s argument that the discounts provided to consumers were based upon quantity purchased. It contended that the discount was based on the quantity sold instead of the normal discount of the quantity purchased as required by Section 61-4-940(E), and that the scan-back program was essentially an inducement to retailers to sell beer, in effect, based partially on consignment. Furthermore, the Department argues that the promotion involves a scanback discount that is kept by the retailer and not ultimately passed on to the consumer, and argues that this is essentially the same as giving a retailer free beer which is prohibited by Section 61-9-410(B). The evidence in the Record shows that the normal price for beer was paid by both the wholesalers to Coors and the retailers to the wholesalers. No offer was made by the Department to show that consumers failed to receive the price discount at purchase, and the Department offered no evidence that quantity sales were made between any “house” or that any discounts were given to any “house” based upon quantity sales.^[5]

The Department further argues there are no sales records when the electronic scanning discount is used. Again, the evidence in the Record shows that retailers pay the normal price for beer to wholesalers when the program is operational. There is no discount or credit in sales between manufacturers, wholesalers and retailers.

Furthermore, whether the program was offered to all retailers of Coors beer in South Carolina or the sales price of the beer is shown on the sales invoice between the wholesaler and retailer is of no import because the statute is not implicated. The program does not provide discounts to wholesalers or retailers; the discounts in price are provided solely to the consumer. Consumers are price conscious. They collect paper coupons and are aware of scan-back coupons. The relationship concerning the coupon, whether by a paper coupon discount or an electronic scan-back discount, is between the manufacturer and the consumer.^[6]

I find Section 61-4-940(E) is plain on its face and unambiguous. It addresses relationships between manufacturers, wholesalers and retailers in beer sales to prevent undue and unfavorable treatment between them. It does not address relationships between manufacturers and consumers in beer sales matters.

The fact that the Department does not find that promotions by manufacturers that use paper coupons is a violation of this section further supports this conclusion. Also, the Department’s witness, Richard Bridges, who is the owner of B & B Distributors in Rock Hill, South Carolina (a beer wholesaler) and chairman of the South Carolina Wholesalers Association, testified as an expert in the “beer wholesaler distribution industry” that this statutory provision only addressed sales between manufacturers and wholesalers and wholesalers and retailers. He further testified that after beer is sold by a retailer to a consumer, the retailer collects the discounts provided via paper coupons by mailing the coupons to an agent of the manufacturer. The final result is that the consumer pays less for the beer (receives a discount in the price of the beer) and the retailer pays less for the beer (receives a rebate from the manufacturer).

From a review of its Determination, it appears that the Department has a concern that retailers may not provide the discount to consumers and receive a windfall. However, this statute does not address that issue. Accordingly, I find and conclude that the relationship in Coors’ electronic scan back program is solely between the manufacturer and the consumer. Furthermore, I find and conclude that S.C. Code Ann. § 61-4-940 (E) (Supp. 2004) is not implicated and does not prohibit these promotions and the usage of electronic scanning discounts.

7. At the conclusion of the Department’s presentation of its case, Coors moved for dismissal of the case on the ground that the Department had not met its burden in showing that Coors was in violation of Section 61-4-940 (E). The Court deems the motion as a Motion for an Involuntary Non-suit pursuant to ALC Rule 68 and SCRCP 41(b).

8. ALC Rule 68 provides that the South Carolina Rules of Civil Procedure may be applied in proceedings before the Administrative Law Court where its rules do not specifically address the issue at hand. The Court’s rules do not address the procedure for motions to dismiss following the presentation of the Petitioner’s case. Therefore, I find that applying SCRCP Rule 41(b) to the motion is proper in this case. Rule 41(b) sets forth, in part:

After the plaintiff in an action tried by the court without a jury has completed the presentation of his evidence, the defendant, without waiving his right to offer evidence in the event the motion is not granted, may move for a dismissal on the ground that upon the facts and the law the plaintiff has shown no right to relief…The court as the trier of facts may then determine them and render judgment against the plaintiff or may decline to render any judgment until the close of all the evidence.

Since Petitioner has shown no right to relief in the instant matter, I find that Respondent's Motion for Involuntary Non-Suit is proper and should be granted. Accordingly, the Department's allegations against Respondent as set forth in its Final Determination dated January 19, 2005, are hereby dismissed with prejudice.

ORDER

Based on the foregoing Findings of Fact and Conclusions of Law,

IT IS HEREBY ORDERED that Respondent's Motion for Involuntary Non-Suit is granted and Petitioner's allegations against the Respondent as set forth in its Final Determination dated January 19, 2005 are hereby dismissed with prejudice.

AND IT IS SO ORDERED.

______________________________________

Marvin F. Kittrell

Chief Administrative Law Judge

November 28, 2005

Columbia, South Carolina