HEUBLEIN, INC. vs. CAPITAL DISTRIBUTING COMPANY, INC.

CORDY, J. Heublein, Inc. (Heublein) [Note 1], is a Connecticut corporation engaged in the business of manufacturing, producing, and distributing a number of nationally known wines and spirits [Note 2]. Benziger Family Ranch Associates (Benziger) was a smaller, partner-owned, and largely family-operated wine business based in California, which, in just over one decade, had managed to build several successful wine brands, including Glen Ellen and M.G. Vallejo (Vallejo). By 1993, the Glen Ellen and Vallejo wines had outgrown Benziger's facilities, and Heublein offered to purchase the two wines in order to fill a gap in their table wine offerings and to achieve cost savings from combining crushing facilities and grape supply contracts.

Heublein paid $135 million to Benziger in an arm's-length transaction to acquire all its assets and operations related to the production and sale of the Glen Ellen and Vallejo wines, including all the physical equipment, inventory, bulk wine and grape supply contracts, trademarks, accounts receivable, and certain other contracts and leases necessary to produce the products. Following the sale of the products, Benziger retained no further interest in the Glen Ellen and Vallejo wines, but continued to produce other wines.

Massachusetts law requires that alcohol products sold in this State by manufacturers or suppliers be sold initially to licensed Massachusetts wholesalers. Those wholesalers in turn sell to retailers who sell to consumers. G. L. c. 138, s.s. 12, 15, 18, 18B, 19. Prior to Heublein's purchase of Glen Ellen and Vallejo, Benziger had distributed these products in Massachusetts through Capital Distributing Company, Inc. (Capital), a licensed Massachusetts wholesaler of alcoholic beverages, and four other licensed Massachusetts wholesalers [Note 3]. Those distribution relationships were governed by G.L. c. 138, s. 25E, which makes it an

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unfair trade practice for a manufacturer (or other supplier), absent good cause, to refuse to sell a brand of alcohol to a wholesaler if the manufacturer has made regular sales of such brand to the wholesaler during the preceding six-month period [Note 4]. When Heublein purchased the wines from Benziger, it agreed to assume some of Benziger's distributor agreements (with wholesalers) for the wines, but not those in Massachusetts and nine other States [Note 5].

Heublein notified Benziger's Massachusetts wholesalers that it had acquired the Glen Ellen and Vallejo wines, and, while it had not assumed Benziger's local wholesaler relationships, it would review those relationships over a three-month period, and would make wholesaler announcements in early 1994. The wholesalers objected to this intended review, claiming that because they had purchased Glen Ellen and Vallejo wines from Benziger for more than six months, s. 25E required Heublein (the successor owner of those products) to continue to sell the

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wines to them unless and until there was "good cause" (as narrowly defined in the statute) to terminate them. The wholesalers each applied to the Alcoholic Beverages Control Commission (commission) for an order requiring Heublein to continue to sell the wines to them [Note 6].

1. Procedural background. In January, 1996, the commission issued its decision interpreting s. 25E to mean that, if a product and its distribution rights are transferred from one supplier (in this case a manufacturer) to another, any wholesaler with existing s. 25E rights is entitled to purchase the product from the new supplier, and ordered Heublein to sell the products to the wholesalers.

Heublein appealed from the commission's order to the Superior Court pursuant to G. L. c. 30A, s. 14, where it was reversed following a review of the administrative record. The Superior Court judge ruled that the commission had committed an error of law and that when a product is transferred from one supplier to another, the previous supplier's obligations to its wholesalers (protected by s. 25E) do not automatically travel with the product to the successor supplier.

Only Capital appealed to the Appeals Court. Heublein, Inc. v. Capital Distrib. Co., 50 Mass. App. Ct. 339, 340 n.2 (2000). The commission initially filed an appeal, but withdrew it, and has not offered an appellate argument in support of its 1996 decision. In fact, the commission's subsequent decisions appear to take the opposite position. See discussion, infra. The Appeals Court reversed the judgment of the Superior Court. Id. at 340. We granted Heublein's application for further appellate review [Note 7]. We conclude that a former supplier's obligations under s. 25E

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to continue to sell a product to its wholesalers is not imputed to a successor supplier who obtains ownership of the product through an arm's-length asset acquisition. The judgment of the Superior Court is therefore affirmed.

2. Administrative action. In its decision requiring Heublein to sell Glen Ellen and Vallejo wines to Capital and others, the commission pointed out that since 1985 it had "consistently held that where distribution rights to a product are transferred from one supplier to another, the transfer is subject to existing [s.] 25E rights: i.e., unless otherwise agreed by the wholesaler, the wholesaler has a right to purchase [the] product from the new supplier." The commission acknowledged that this interpretation departed from its earlier construction of the statute, which did not automatically impose such an obligation on the new supplier. In Pastene Wine & Spirits Co. v. Alcoholic Beverages Control Comm'n, 401 Mass. 612, 618-619 (1988) (Pastene), we upheld a 1983 commission decision that was based on that earlier construction, and rejected a wholesaler's argument that a liquidated supplier's s. 25E obligations to wholesalers should as a matter of policy be imputed to a successor supplier. We concluded that such an argument "overstates the intended scope of s. 25E." Id. at 618. The commission's revised view of the statute apparently resulted from an "evolution of [its] interpretation" of s. 25E, and its related "finding" that our Pastene decision should be limited to its facts [Note 8]. Based on this reasoning, the commission found, concerning the Glen

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Ellen and Vallejo products, that "the [s. 25E] obligations traveled with the [product distribution] rights, which were transferred despite Heublein's efforts to avoid them [Note 9]." Accordingly, the commission ordered Heublein to sell the products to Capital and Benziger's other former Massachusetts wholesalers.

3. Superior Court ruling. In reviewing the commission's order pursuant to G. L. c. 30A, s. 14 (7) [Note 10], the judge noted that the agreement between Heublein and Benziger "was an arm's length asset purchase," and that the question raised by the case was whether, in the context of such a purchase, Benziger's s. 25E obligations could be properly imputed to Heublein. Relying on our Pastene opinion, the judge answered in the negative, reasoning that this was not a case such as Heublein, Inc. v. Alcoholic Beverages Control Comm'n, 30 Mass. App. Ct. 611, 614-616 (1991), where the court upheld the imputation of s. 25E obligations to a new supplier, noting that the previous supplier and the new supplier were linked financially by a joint venture. To the contrary, the judge found that:

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"[T]here was no evidence and, thus, no finding that Heublein acquired Benziger for the purpose of circumventing s. 25E. . . . [F]urther[more], none of Benziger's owners or partners were affiliated in any way with Heublein or the [p]roducts after the acquisition. Seeking to avoid obligations under s. 25E, if any exist, is quite different [from] acquiring distribution rights for the specific purpose of circumventing s. 25E [Note 11]."

In effect, the judge recognized that there are legitimate business reasons for a new supplier, who is not an agent of or affiliated with the previous supplier, to want to evaluate its prospective wholesalers for the six-month trial period provided by the Legislature in s. 25E [Note 12], and that structuring the execution of an arm's-length acquisition to ensure that possibility did not convert the purpose of the transaction to one intended to circumvent s. 25E.

4. Discussion. Like the courts below, we review the commission's decision pursuant to G. L. c. 30A, s. 14 (7), to determine whether, as Heublein claims, it was based on an error of law, and whether the decision is supported by substantial evidence, that is, "such evidence as a reasonable mind might accept as adequate to support the agency's conclusion." Seagram Distillers

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Co. v. Alcoholic Beverages Control Comm'n, 401 Mass. 713, 721 (1988), citing Labor Relations Comm'n v. University Hosp., Inc., 359 Mass. 516, 520-521 (1971) (defining "substantial evidence"). In our review of administrative agency decisions, we generally defer to the experience, technical competence, specialized knowledge, and discretionary authority of the agency. Seagram Distrillers Co. v. Alcoholic Beverages Control Comm'n, supra, citing G. L. c. 30A, s. 14 (7). See Somerset Importers, Ltd. v. Alcoholic Beverages Control Comm'n, 28 Mass. App. Ct. 381, 385 (1990) ("An interpretation of s. 25E made by the administrative agency charged with administering the statute is one to which we accord weight").

It was inappropriate, however, for the commission in its decision to "find," based on its then current interpretation of s. 25E, that our Pastene decision should be limited to its facts. See Police Comm'r of Boston v. Cecil, 431 Mass. 410, 413 (2000), quoting Cleary v. Cardullo's, Inc., 347 Mass. 337, 344 (1964) ("duty of statutory interpretation is for the courts"); M.H. Gordon & Son v. Alcoholic Beverages Control Comm'n, 371 Mass. 584, 589 (1976) (ultimate responsibility for interpreting provisions of G.L. c. 138 rests with court, not commission); Arnone v. Commissioner of the Dep't of Social Servs., 43 Mass. App. Ct. 33, 34 (1997) (approach of reviewing court to agency determinations is one of deference and restraint, not abdication). When we intend to limit one of our decisions to its particular facts, we say so explicitly. See, e.g., Franklin v. Spadafora, 388 Mass. 764, 768 (1983); Duby v. Baron, 369 Mass. 614, 625 (1976).

The commission's decision to limit our Pastene decision strictly to its facts was apparently prompted by its 1985 "depart[ure]" from its earlier construction of s. 25E, a construction that did not automatically impute to the successor supplier an obligation to retain wholesalers chosen by the previous supplier after a six-month period of regular sales. A reading of two of the commission's recent decisions that followed the Superior Court judge's ruling in this case [Note 13] indicates that this "departure" has now come to an end.

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In United Liquors, Ltd. V. Brown-Forman Corp., ABCC decision, June 16, 1998, the commission found that termination of the United States distributor of a vodka product by its Finland manufacturer, who then assigned the distribution rights of the product to a new United States distributor, did not impute the s. 25E wholesaler obligations to the new distributor. There was no imputation of such obligations because the commission found no agency relationship between the prior United States distributor and the Finland manufacturer, that is, the foreign manufacturer had not exerted any control over the national distributor's choice of wholesalers to distribute the vodka product in the various States. Nor was there any connection (such as ownership interest) between the prior national distributor and its successor. In the absence of such control or connection, there was no reason to assume that the termination and subsequent assignment of the national distribution rights of the product to a new national distributor had been done in order to circumvent the s. 25E obligations owed by the prior national distributor to Massachusetts wholesalers. The commission also found "that [s.] 25E obligations do not run with the product . . . but only with the manufacturer, winegrower, farmer-brewer, importer or wholesaler. If the legislature intended the obligation to run with the product, it would have said it. See Pastene, [supra] at 618-619 . . . ." (Emphasis added; citation omitted.) Id.

In Charles E. Gilman & Sons v. Bacardi-Martini USA, Inc., ABCC decision, December 29, 1999 (Gilman), the commission attempted to reconcile its s. 25E decisions from 1986 onward in light of its current understanding of our Pastene ruling. In reviewing all the decisions in which it had imputed s. 25E obligations to successor suppliers, the commission noted that their one common factor was the presence of a continuing affiliation or agency relationship between the new supplier and the former supplier:

"The matter[s] in which the [c]ommission and the courts affirmed imputing [s.] 25E obligations to a new supplier under a theory of assignment of distribution[] rights involved product that [was still] being manufactured and/or [remained] under the control of the former supplier, its parent company or a combination of the parent and/or

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former supplier and the new supplier. The manufacturing and distributing of the product was not sold to a new supplier." (Footnotes omitted.)

Id. The commission concluded in Gilman that an arm's-length sale of product lines between suppliers, that is, one in which the right to control the product had been sold to a new supplier, did not result in a transfer of s. 25E obligations between those suppliers. Id.

While we give deference to "long consistent administrative interpretations of an agency's governing statute," Saccone v. State Ethics Comm'n, 395 Mass. 326, 335 n.12 (1985), in the absence of such consistency, as here, such deference is not required. We note, however, that the commission's recent Gilman decision is in accord with our own cases interpreting s. 25E [Note 14]. In the Pastene case, we noted that "[w]hile s. 25E apparently was adopted to counteract a tendency toward vertical integration in the liquor distribution industry . . . and to redress economic imbalances in the relationship of wholesalers and their suppliers, we do not believe the statute was intended to 'generate inequities against suppliers' " (emphasis added). Pastene, supra at 618-619, quoting Amoco Oil Co. v. Dickson, 378 Mass. 44, 50 (1979). The commission's Gilman decision does not produce such inequities, but rather provides principles "by which the commission may reconcile the competing equities between suppliers and wholesalers of liquor in the Commonwealth." Seagram Distillers Co. v. Alcoholic Beverages Control Comm'n, supra at 717.

Applying the principles of our Pastene decision, we conclude that Heublein cannot be ordered to sell the products to Benziger's former wholesalers, and Benziger's s. 25E obligations

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cannot be imputed to Heublein, where the acquisition of the product assets and their distribution rights were made at arm's length and there was no evidence before the commission of any agency relationship or continuing affiliation between Heublein and Benziger following the completion of the sale. As the commission explicitly found, at the conclusion of the sale Heublein had "sole control" over the products, and Benziger had none.

This result is in conformance with the literal wording of the statute, which imposes termination restrictions on manufacturers who have made continuous sales to wholesalers for six months. Heublein never sold Glen Ellen and Vallejo wines to Benziger's Massachusetts wholesalers, and therefore the statutory limitations with regard to terminating them do not apply to Heublein unless some other principle of law imputes Benziger's obligations to it. No such principle is present in this case.

The judgment of the Superior Court is affirmed.

So ordered.