Appendix — Hospitality Investments of Philadelphia, Inc. v. Pennsylvania State Police

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In the Supreme Court of the RuitedStates

OCTOBER TERM, 1994

941247 JAN 20 1995

HOSPITALITY INVESTMENTS OF PRULABEIGE i BE oes

loner,

Vv.

PENNSYLVANIA STATE POLICE,

BUREAU OF LIQUOR CONTROL ENFORCEMENT,

Respondent.

NIGHTTIME CONCEPTS, INC..,

7 Petitioner,

PENNSYLVANIA STATE POLICE,

BUREAU OF LIQUOR CONTROL ENFORCEMENT,

Respondent.

HOSPITALITY INVESTMENTS OF PHILADELPHIA, INC.,

7 Petitioner,

PENNSYLVANIA STATE POLICE,

BUREAU OF LIQUOR CONTROL ENFORCEMENT,

Respondent.

Petition for a Writ of Certiorari to the

Supreme Court of Pennsylvania

APPENDIX TO

PETITION FOR A WRIT OF CERTIORARI

Of Counsel: JOHN J. WALSH *

P. CAMERON DEVoRE STEVEN G. BRODY

DAVIS WRIGHT TREMAINE MARY ELIZABETH TAYLOR

2606 Century Square CADWALADER, WICKERSHAM

1501 Fourth Avenue & TAFT

Seattle, WA 98101 100 Maiden Laie

(206) 622-3150 New York, NY 10038

(212) 504-6000

Gaky F. DIVITo

234 N. Columbus Boulevard

Philadelphia, PA 19106

(215) 418-2600

Counsel for Petitioner

* Counsel of Record

WILSON - Eras Printing Co., Inc. - 789-0096 - WAsHiNGTON, D.C. 20001 \\ 0 y

TABLE OF CONTENTS

Supreme Court of Pennsylvania Decision in Pennsyl-

vania State Police, Bur. of Liquor Cont. Enforcement

v. Hospitality Invs. of Phila., Inc. (No. 77 E.D.

1992) dated November 3, 1994 (“Hospitality I’’) ....

Supreme Court of Pennsylvania Per Curiam Order in

Pennsylvania State Police, Bur. of Liquor Cont. En-

forcement v. Nighttime Concepts, Inc. (No. 78 E.D.

1992) dated November 3, 1994 (“Nighttime’’) ........

Supreme Court of Pennsylvania Per Curiam Order in

Pennsylvania State Police, Bur. of Liquor Cont. En-

forcement v. Hospitality Invs. of Phila., Inc. (No. 80

E.D. 1992) dated November 3, 1994 Air tess stond

ge RSLS MRRN CEE EE. oe See Oe ee

Pennsylvania Court of Common Pleas Memorandum

Opinion in Hospitality IT (No. 9203-3772) dated June

RS al Er Rs ee tits

Pennsylvania Court of Common Pleas Memorandum

Opinion in Hospitality I and Nighttime (Nos, 9104-

$255, $256) dated June 26, 1992 ..................................

Pennsylvania Court of Common Pleas Oral Ruling in

Hospitality I and Nighttime (Nos. 9104-3255, 3256)

RR aS: of Ee

Pennsylvania Liquor Control Board Decision in Hos-

pitality IT (No. 91-0519) dated March 11, 1992 ........

Pennsylvania Liquor Control Board Decision in Night-

time (No. 90-0160) dated April 5, 1991...

Pennsylvania Liquor Control Board Decision in Hos-

pitality I (No. 89-2488) dated April 8, 1991 ..............

Pennsylvania Liquor Control Board Administrative

Law Judge Decision in Hospitality II (No. 91-

Ee a oe

Pennsylvania Liquor Control Board Administrative

Law Judge Decision in Nighttime (No. ee

dated January 28, 1991 .......................

Page

17a

19a

2la

23a

87a

4la

TABLE OF CONTENTS—Continued

Pennsylvania Liquor Control Board Administrative

Law Judge Decision in Hospitality I (No. 89-2488)

dated January 10, 1991 .............:ccecceeceseesesseereseneeesseeees

Pennsylvania Liquor Code, Pa. Stat. Ann. tit. 47,

§ 4-498 (1969 & Supp. 1994) 2.2... ccececececceeeeeeeneeneres

Report to the Pennsylvania Liquor Control Board on

Beer Price Advertising (Pa. Commw. Office of Att’y

Gen. Antitrust Section, July 31, 1985) -.......................

Pennsylvania Liquor Control Board Order re

Regulations (1985) ....---.-----sessssseecsseenesennnsnnrennennnnes

Pennsylvania Legislative Journal—Senate, June 17,

1987, Pp. T5961 .......-cecceececcceresessenennssenennsnnesnenensenssneennens

Tennessee Court of Appeals Decision in Wise v. Ten-

nessee Alco. Bev. Comm’n, No. 81-325-I dated April

18, 1982 ..........-....-<-a-crseccsorsssnresssesrenssarssnrenesssosssaronensesecees

Page

45a

49a

50a

APPENDIX

IN THE SUPREME COURT OF PENNSYLVANIA

EASTERN DISTRICT

J-197-1993

PENNSYLVANIA STATE POLICE,

BUREAU OF LIQUOR CONTROL ENFORCEMENT,

Appellant

HOSPITALITY INVESTMENTS OF PHILADELPHIA, INC.,

Appellee

No. 77 Eastern District Appeal Docket 1992

Appeal from the Order of the Court of

Common Pleas of Philadelphia County,

Entered at No. 9104-3255, Civil Division,

on July 23, 1991

SUBMITTED: October 18, 1993

OPINION OF THE COURT

MR. JusTICE PAPADAKOS DECIDED: NOVEMBER 3, 1994

This appeal arises from a finding by the Court of

Common Pleas of Philadelphia County that Section 498

of the Pennsylvania Liquor Code, 47 P.S. § 4-498, is

unconstitutional. This is an appeal as of right directly

to this Court, as authorized by 42 P.S. § 722(7), since,

under that section we have exclusive jurisdiction of appeal

from final orders of courts of common pleas in cases

where such a court has held any statute to be unconstitu-

tional. For the reasons set forth below, we reverse.

Appellant, the Bureau of Liquor Control Enforcement

(“Bureau”), is responsible for enforcing the Pennsylvania

Liquor Code, 47 P.S. § 1-101, et seq. Appellee (herein-

after the “Licensee”) is the holder of a restaurant liquor

license issued by the Pennsylvania Liquor Control Board

(“Board”). In late 1989, the Bureau issued a citation

against the Licensee charging a violation of Section 498

of the Liquor Code. Section 498 prohibits a licensee from

advertising in any manner whatsoever the price of any

malt beverage, cordial, wine or distilled liquor offered for

sale in this State. A hearing relative to the citation was

held before an administrative law judge and the following

fact was stipulated. A bureau enforcement officer read

the Licensee’s advertisement in the October 26, 1989,

edition of the daily Pennsylvania paper. The advertise-

ment stated, in part: “$1.00 Regular Drinks 9-12 mid-

night.” The Licensee admitted that its ad violated Sec-

tion 498. The only argument that the Licensee raised

was that Section 498 was unconstitutional.

The administrative law judge who heard the case found

that the Licensee had violated Section 498 and she im-

posed a fine of $250.00 for this violation. She also found

that she had no jurisdiction to address the constitutional

issue. The Pennsylvania Liquor Control Board affirmed.

The Licensee appealed to the Court of Common Pleas

of Philadelphia County and oral argument was held on

July 23, 1991. At that argument, the Licensee contended

that the Bureau failed to establish that the policy behind

the price advertising prohibition of Section 498 out-

weighed its constitutional right to commercial free speech.

The trial judge accepted this argument and, by order

dated July 23, 1991, granted the Licensee’s appeal and

reversed the order of the Board. On June 26, 1992, the

trial judge issued a one page memorandum opinion con-

cluding that Section 498 violated the Pennsylvania Con-

" WiMenx

stitution. The trial judge otherwise noted that his reason-

ing appeared on the record.’

The Bureau appealed to the Commonwealth Court and

the matter was subsequently transferred to this Court

pursuant to our exclusive jurisdiction under 42 P.S. § 722

(7), as noted above.

The Licensee herein argues that its right to commer-

cial free speech as guaranteed under the First Amendment

to the United States Constitution, is set forth in Central

Hudson Gas & Electric Corp. v. Public Service Commis-

sion of New York, 447 U.S. 557, 100 S.Ct. 2343, 65

L.Ed.2d 341 (1980); Virginia Pharmacy Board vy. Vir-

ginia Citizen Consumer Counsel, Inc., 425 U.S. 748, 96

S.Ct. 1817, 48 L.Ed.2d 346 (1976); Pennsylvania State

Board of Pharmacy v. Pastor, Pa. , 272 A.2d

487 (1971).* However, none of those cases involved the

sale of alcohol or alcoholic beverages. The sale or con-

sumption of alcohol or alcoholic beverages in this country

is governed initially by the Twenty-First Amendment to

the United States Constitution which repealed prohibition.

Regulation of the sale and consumption of alcohol is left

to the state under that amendment. A state has the

power to ban the purchase and sale of alcoholic beverages

within its borders. The manufacture, gift, purchase, sale,

possession or transportation of alcoholic beverages may

be prohibited. However, once having granted to its citi-

zens the privilege of selling and buying alcoholic bever-

ages, the state cannot impose restrictions which strangle

the trade. Restrictions may be imposed so long as they

bear a reasonable relation to the evil sought to be con-

trolled.

1A review of the record shows that the Judge's few remarks are

inadequate and contain no reference to any section of the Pennsyl-

vania Constitution.

2The Pennsylvania Constitution’s guarantee of free speech is

involved in the Pastor decision.

In Tahiti Bar, Inc. Liquor License Case, 395 Pa. 355,

150 A.2d 112, appeal dismissed, 361 U.S. 85, 80 S.Ct.

159, 4 L.Ed.2d 116 (1959), this Court held that an

individual has no constitutionally protected right to en-

gage in the business of selling alcoholic beverages. Rather,

the authority to sell alcoholic beverages is a privilege

granted by the State. Accordingly, a state may impose

conditions and limitations on that privilege. We held

that regulation of the liquor business is required only to

bear a reasonable relation to the evil sought to be con-

trolled. Since an individual who accepts the privilege of

holding a liquor license is deemed to consent to the con-

ditions and restrictions attached to that license, the usual

tests, still applicable in other situations and used to evalu-

ate constitutional challenges, are not involved. See also,

Replogle v. Commonwealth, Pa. Liquor Control Board,

514 Pa. 209, 523 A.2d 327 (1987).

It is clear here that Section 498, which prohibits price

advertising of alcoholic beverages, is reasonably related to

permissible goals of the legislature in the area of alcohol

control. The Bureau argues, and we have no reason to

doubt their contention, that Section 498, along with other

sections of the Liquor Code, is intended to restrain and

discourage the consumption of alcoholic beverages. This

is a legitimate legislative purpose. It is reasonable to

accept that banning price advertising is prima facie con-

sonant with such a purpose. By its very nature, price

advertising (typically discount price advertising) is de-

signed to encourage consumption by promoting and in-

creasing the sale of alcoholic beverages. A string of wit-

nesses or statistical studies are not needed to prove this

point. In short, we find that Section 498 bears a reason-

able relation to legitimate legislative goals in the area of

alcohol control and since this is so, the incidental curtail-

ment of the right of commercial free speech is justified

where acquisition of a liquor license is a privilege and

not a right. A careful balancing of competing interests

as is usually done in free speech cases is not required.

Three United States Supreme Court cases in the area

of liquor license control clinch the argument. In Califor-

nia v. LaRue, 409 U.S. 109, 93 S.Ct. 390, 34 L.Ed.2d

390 (1972); New York State Liquor Authority v. Bel-

lanca, 452 U.S. 714, 101 S.Ct. 2599, 69 L.Ed.2d 357

1981); and City of Newport, Ky. v. lacobucci, 479 U.S.

92, 107 S.Ct. 383, 93 L.Ed.2d 334 (1986), the United

States Supreme Court was faced with a challenge to a

local liquor licensing law or regulation prohibiting live

sexual entertainment or nude dancing in establishments

licensed to sell liquor. In each case, the court rejected

the licensees’ arguments based on the free speech guaran-

tees of the First and Fourteenth Amendments and the court

did not engage in the traditional First Amendment analy-

sis. Rather, the relevant liquor regulation was held not

to be irrational (LaRue); was held to be a valid attribute

of the state’s power to ban the sale of alcoholic beverages

entirely (Bellanca); or was held to be presumptively valid

(lacobucci).

The case instantly before this Court involves a restric-

tion on commercial speech as implicated in the enforce-

ment of the Liquor Code and we do not intend to dep-

recate the importance of the constitutionally protected

right to commercial speech in appropriate cases. Although

neither LaRue, Bellanca nor lacobucci involved such a

restriction, the applicability of those cases to the case

sub judice is most compelling because commercial speech

is generally accorded less protection than other forms of

expression. Central Hudson Gas & Electric Corp. v. Pub-

lic Service Commission of New York, supra. It seems un-

necessary to apply a rigorous First Amendment analysis

where a liquor regulation is attacked on commercial

speech grounds when such an analysis has not been uti-

lized relative to speech which is usually accorded greater

protection. The United States Supreme Court has held

that “the Twenty-first Amendment shields restrictions on

speech from full First Amendment review.” Jacobucci,

479 US. at 97.

6a.

In conclusion, upon carefully reviewing LaRue, Bel-

lanca and Iacobucci, two points stand out. First, the

Twenty-First Amendment gives a state broad authority

and, hence, there is an “added presumption of validity”

when the state regulates in the area of liquor sales. Second,

the reasonable relationship test is relevant to determining

constitutionality. Constitutionally protected speech may

be restricted because the law in question is related to the

regulation of liquor.

Accordingly, we find Section 498 to be a valid exercise

of Pennsylvania’s right to regulate the sale and consump-

tion of alcohol. The order of the Court of Common

Pleas of Philadelphia County is reversed.

MR. JUSTICE FLAHERTY files a Dissenting Opinion.

MR. JUSTICE CASTILLE files a Dissenting Opinion.

MR. JUSTICE MONTEMURO is sitting by designa-

tion.

Judgment entered

Dated: November 3, 1994

/s/ Patricia Johnson

PATRICIA JOHNSON

Chief Clerk

Supreme Court of Pennsyivania

Eastern District

DISSENTING OPINION

Mr. JUSTICE CASTILLE DECIDED: Noverber 3, 1994

I respectfully dissent. The majority opinion cites to

In re Tahiti Bar, Inc., 395 Pa. 355, 150 A.2d 112

(1959), to support its theory that since an individual who

accepts the privilege of holding a liquor license is deemed

to consent to the conditions and restrictions attached to

that license, the usual tests, still applicable in other areas

and used to evaluate constitutional challenges, are not

involved. The majority opinion goes on to assert that

the Twenty-first Amendment to the United States Con-

Stitution allows the Commonwealth to substantially regu-

late liquor advertisement in Pennsylvania without mean-

ingful regard for the free speech interests of those en-

gaged in the business. The majority opinion asserts that

because the U.S. Supreme Court in Newport v. Iacobucci,

479 U.S. 92 (1986), New York State Liquor Authority

v. Bellanca, 452 U.S. 714 (1981) and California v. La

Rue, 409 U.S. 109 (1972) failed to engage in a First

Amendment analysis for challenges to local liquor licens-

ing regulations prohibiting live sexual entertainment in es-

tablishments licensed to sell liquor, then no First Amend-

ment analysis is required here for a regulation limiting

pure commercial speech (“[i]t seems unnecessary to apply

a rigorous First Amendment analysis where a liquor reg-

ulation is attacked on commercial speech grounds when

such analysis has not been utilized relative to speech

which is usually accorded greater protection (i.e., live,

sexually-explicit entertainment).” Majority Opinion at 6).

The majority opinion would have the Court uphold the

challenged regulation merely because it is reasonably re-

lated to the regulation of liquor.

Restrictions on commercial speech, however, are gen-

erally much more rigorously scrutinized than the majority

opinion seems willing to concede. Commercial speech,

such as advertising, has been given substantial protection

under the First Amendment to the U.S. Constitution and

under Article 1, Section 7 of the Pennsylvania Constitu-

tion. See, e.g., Virginia Pharmacy Bd. v. Virginia Con-

sumer Council, 425 U.S. 748 (1976); Insurance Adjust-

ment Bureau v. Insurance Commissioner, 518 Pa. 210,

542 A.2d 1317 (1988). A constitutional free speech

analysis, then, is likewise required of us in the instant

matter.

Prior to 1976, Tahiti Bar, supra, was in keeping with

the traditional view that purely commercial advertising

was not entitled to any First Amendment protection and

could therefore be subjected to governmental regulation

in the same way as any other type of business activity.

See Valentine v. Chrestensen, 316 U.S. 52 (1942) (the

Constitution imposes no restraint on government with re-

spect to commercial advertising). However, after the

U.S. Supreme Court expressly extended rigorous First

Amendment protection to commercial speech in its 1976

Virginia Pharmacy decision, supra, the proposition as-

serted by this Court’s 1959 Tahiti Bar decision that reg-

ulation of the liquor business is required only to bear a

reasonable relation to the evil sought to be controlled is

therefore constitutionally suspect in the instant context.

To the extent Tahiti Bar is not in accordance with U.S.

Supreme Court caselaw, it should be overruled. In short,

a careful reading of that federal caselaw makes clear that

there is little basis to follow the majority opinion’s aban-

donment of the constitutional analysis in which this Court

would otherwise engage but for the implication of the

Twenty-first Amendment.

First, the Supreme Court has repeatedly affirmed the

principle that neither the text nor the history of the

Twenty-first Amendment suggests that it in any way limits

the exercise of established individual constitutional rights

where the sale or use of liquor is concerned. Craig v.

Boren, 429 U.S. 190 (1976) (equal protection rights not

limited by the implication of the Twenty-first Amend-

ment); Wisconsin v. Constantineau, 400 U.S. 433 (1971)

(the Twenty-first Amendment does not permit a state to

regulate alcohol consumption at the expense of procedural

due process). Indeed, the Twenty-first Amendment was

intended simply to insulate state regulation of liquor from

potential federal Commerce Clause objections: “[o]nce

passing beyond consideration of the Commerce Clause

the relevance of the Twenty-first Amendment to other

constitutional provisions becomes increasingly doubtful.”

Craig at 205-06. Further, in the cases cited by the ma-

jority opinion (La Rue, lacobucci and Bellanca, supra),

the Twenty-first Amendment served only to buttress the

States’ standing to regulate live, explicitly sexual enter-

tainment at establishments licensed to dispense liquor; the

Twenty-first Amendment did not function in those cases

to enhance the states’ ability to curtail expressly protected

contitutional rights. Jd. at 207 (distinguishing La Rue,

supra) .*

Second, the U.S. Supreme Court has never expressly

evaluated the impact of the Twenty-first Amendment on

the constitutional validity of state-imposed limitations on

liquor advertising. Therefore, the majority’s analysis in

the instant case is supported only by very rough analogy

to La Rue, lacobucci and Bellanca, supra. Moreover, the

majority opinion misinterprets the application of the

1The other cases upon which the majority relies (lacobucci

(1986) and Bellanca (1981), supra), in no way undermine this

notion that the Twenty-first Amendment is not an independent

repository of state power to abridge established First Amendment

protections. Like La Rue, the U.S. Supreme Court cases lacobucci

and Bellanca merely involved state regulation of live sexual enter-

tainment taking place in liquor establishments. Therefore, the

Craig Court’s assertion that La Rue did nothing to enhance the

states’ power to curtail explicitly protected constitutional rights

pursuant to the Twenty-first Amendment is still valid today.

Moreover, although this Court expressly upheld the regulation

of lewd, immoral ov improper entertainment on licensed premises

in Tahiti Bar, supra, that decision is not strictly in accordance

with the U.S. Supreme Court’s commercial speech caselaw. See

discussion supra.

10a

Twenty-first Amendment in those cases. La Rue, laco-

bucci and Bellanca, supra, merely stand for the proposi-

tion that the states have sufficient police power under the

Twenty-first Amendment to override the relatively weak

First Amendment interests of those providing sexually

provocative entertainment in a facility operating with a

liquor license. See Bellanca, 452 U.S. at 718 (whatever

artistic or communicative value may attach to topless

dancing is overcome by the state’s exercise of its broad

power arising under the Twenty-first Amendment). See

also Hude vy. Commonwealth, 55 Pa. Commw. 1, 423

A.2d 15 (1980) (liquor regulation preventing the use

of a loudspeaker whereby the sound of the music ema-

nating therefrom can be heard on the outside of liquor-

licensed premises did not operate to breach freedom of

expression in that the enjoyment of loud music in a

tavern is not a fundamental right of free expression).*

In none of those federal cases did the Supreme Court

rely exclusively on the state’s authority under the Twenty-

first Amendment to uphold the challenged regulations.

Notwithstanding this fact, however, the majority opinion

in the instant matter asserts the validity of the challenged

regulation precisely because it is reasonably related to the

Commonwealth’s authority to regulate liquor commerce

pursuant to the Twenty-first Amendment. Furthermore,

the regulations in La Rue, lacobucci and Bellanca, supra,

functioned primarily only as conditions upon the sale of

alcohol that only incidentally burdened expression. The

challenged regulation in the instant case, however, directly

targets otherwise constitutionally-protected expression it-

self. The regulations in the cases cited by the majority

sought to burden conduct containing only a minimal com-

municative element: i.e., live, sexually explicit entertain-

2 Hude is significant because it highlights the notion that in liquor

control cases, Pennsylvania courts must first determine the in-

herent value of the speech at issue and then evaluate whether the

state’s authority to regulate liquor commerce is sufficient to over-

ride that particular class of speech.

lla

ment. See Craig at 207 (distinguishing La Rue as a case

where conduct consisted “more of gross sexuality than of

communication”). In the instant case, however, the chal-

lenged regulation seeks to suppress constitutionally pro-

tected commercal information, or “pure” speech.*

Accordingly, the regulation in the instant case should

be analyzed no differently than are other governmental

burdens on commercial speech. See Posadas de Puerto

Rico Associates v. Tourism Company of Puerto Rico, 478

U.S. 328 (1986) (applying customary commercial speech

standards to casino gambling advertising.) In /nsurance

Adjustment Bureau, supra, this Court analyzed a com-

mercial speech constitutional challenge to an amendment

to the public adjuster and public adjuster solicitor law

prohibiting solicitation of business by public adjusters or

public adjuster solicitors within 24 hours of a disaster or

fire. The Court developed a method of analysis by which

it first scrutinized the challenged regulations pursuant to

the minimum standards of analysis and substantive pro-

tection as required by the U.S. Supreme Court and the

federal constitution. /d. at 215, 542 A.2d at 1319. The

Court then examined whether the resolution of the par-

ticular issue in question is more appropriately treated

pursuant to the Pennsylvania constitution or the United

States Constitution. /d.*

8 The majority opinion’s assertion that live, sexually-explicit

entertainment is generally accorded greater constitutional protec-

tion than commercial speech profoundly misinterprets federal case-

law. See Brian S. Steffey, Recent Development: Tension Between

the First and Twenty-first Amendments in State Regulation of

Alcohol Advertising, 87 Vand. L. Rev. 1421, 1448 (1984).

4 The Court determined that Article I, Section 7 of the Pennsyl-

vania constitution does not allow the prior restraint or other re-

striction of commercial speech by any governmental agency where

the legitimate, important interests of government may be accom-

plished practicably in another, less intrusive manner. /d. at 225,

542 A.2d at 1824. The Court applied that standard to strike down

12a

Proceeding with the I/nsurance Adjustment Bureau

Court’s method of analysis, the First Amendment requires

that the party seeking to uphold a restriction on com-

mercial speech carries the burden of justifying it. Bolger

v. Youngs Drug Products Corp., 463 U.S. 60, n.20

(1999) [sic]. The First Amendment also requires courts

to subject state limitations on commercial speech to an

intermediate standard of review and uphold those limita-

tions only if the state carries its burden of proving that

(1) the challenged regulation directly advances (2) a

substantial governmental interest (3) in a way that is no

more restrictive than necessary to achieve that objective.

Central Hudson Gas & Electric Corp. v. Public Service

Commission, 447 U.S. 557 (1980). Conceding the sec-

ond prong of the test that the Commonwealth has a sub-

stantial interest in promoting the public health, safety and

welfare, the Commonwealth in the instant case must first

have shown that the advertising limitation at issue directly

advances that interest. To succeed, the Commonwealth

must have demonstrated that its ban on advertising the

price of any malt beverage, cordial, wine or distilled liquor

directly reduces the consumption of such liquor and,

thereby, the evils associated with such consumption. To

satisfy the third prong of the Central Hudson test, the

Commonwealth must have shown that the regulation is

written or applied no more restrictively than necessary to

achieve its asserted interest.

In the instant case, however, a review of the record

shows that the Commonwealth merely made the bald

assertion that a ban on advertising liquor prices reduces

the consumption of such liquor; it offered no empirical

evidence or any other evidence to buttress its argument.

As such, the Commonwealth failed to carry its burden on

the first prong of the Central Hudson test. On the other

hand, the licensee challenging the regulation offered evi-

the prohibition of solicitation of business by public adjusters or

public adjuster solicitors within 24 hours of a disaster or fire as

violative of Pennsylvania constitutional free speech protections. /d.

l3a

dence to the contrary, showing that there is no direct

link between liquor advertising bans and reduced liquor

consumption. Moreover, the Commonwealth failed to

argue, much less prove, that the regulation is written or

applied no more restrictively than necessary to achieve

its asserted interest. As such, the Commonwealth failed

to carry its burden on the third prong of the Central

Hudson test as well.

In short, the Commonwealth failed to shoulder its

burden regarding even the minimum standards of analysis

and substantive protection as required by the U.S. Su-

preme Court and the federal constitution. Accordingly,

at a minimum, this case should be remanded back to the

trial court to allow the Commonwealth to develop the

record, if it can, with evidence that (1) a ban on adver-

tising liquor prices directly reduces the consumption of

such liquor and (2) the regulation is written or applied

no more restrictively than necessary to achieve its as-

serted interest.

Moreover, the litigants should utilize the analytical tool

defined by this Court in Commonwealth v. Edmunds, 526

Pa. 374, 586 A.2d 887 (1991) in order to allow the

trial court to thoroughly determine whether the resolution

of the particular issue in question is more appropriately

treated pursuant to the Pennsylvania constitution or the

United States constitution. Accordingly, the litigants

should brief and analyze (1) the text of Article I, Section

7 of Pennsylvania constitution; (2) the history of that

provision; (3) relevant caselaw from Pennsylvania and

from other jurisdictions regarding commercial speech and

state regulation of liquor advertising; (4) policy consid-

erations, including unique issues of state and local con-

cern; and (5) the impact on modern Pennsylvania juris-

prudence. Id. at 390, 586 A.2d at 895. If indeed the

Pennsylvania constitution should protect the speech at

issue in the instant matter more stringently than does the

federal constitution, the consideration of that proposition

should be thoroughly analyzed.

l4a

The majority opinion simply goes too far in sustaining

the challenged regulation without an analysis of the free

speech protections afforded the licensee under the First

Amendment of the federal constitution or under Article I,

Section 7 of the Pennsylvania constitution. Commercial

free speech warrants more protection than the majority

wishes to confer.

EOE ee

15a

DISSENTING OPINION

Mr. Justice FLAHERTY DECIDED: NOVEMBER 3, 1994

I dissent. The majority holds that a state has the power

under the Twenty-first Amendment to the United States

Constitution to regulate the sale and consumption of alco-

hol; that there is no constitutional right to engage in the

business of selling alcoholic beverages; that the state may

impose reasonable conditions and limitations on the sale

of alcoholic beverages; and that “the usual tests” concern-

ing the constitutional validity of these conditions and

limitations are not involved because “an individual who

accepts the privilege of holding a liquor license is deemed

to consent to the conditions and restrictions attached to

the license.” Since discouraging consumption of alcoholic

beverages is a legitimate legislative purpose, and since

banning price advertising “bears a reasonable relation to

legitimate legislative goals,” any curtailment of free speech

which results, the majority reasons, is “justified where

acquisition of a liquor license is a privilege and not a

right.”

While it is true that there may be no federally protected

right of commercial speech on the facts of this case under

the First Amendment to the United States Constitution,

it is equally certain under our decision in Insurance Ad-

justment Bureau v. Insurance Commissioner that there

are rights under Article I, Section 7 of the Fennsylvania

Constitution:

We hold, therefore, that the Pennsylvania Consti-

tution, Article I, Section 7, will not allow the prior

restraint or other restriction of commercial speech by

any governmental agency where the legitimate, im-

portant interests of government may be accomplished

practicably in another, less intrusive manner.

l6a

518 Pa. 210, 225, 542 A.2d 1317, 1324 (1988) (Em-

phasis added.) This holding is relevant to a considera-

tion of the majority’s view that the statute at issue in this

case is reasonably related to a legitimate governmental

purpose. In Pennsylvania, the reasonableness of tne rela-

tionship between the statute and the governmental purpose

must be answered within the context of the protections

the Pennsylvania Constitution provides to commercial

speech. And those protections, in a word, are that any

regulation restricting commercial speech must involve

legitimate, important governmental interests and that

there must be no less intrusive way practically to protect

those interests.

Moreover, there is no presumption of validity of a

liquor regulation or any governmental regulation which

restricts commercial speech. In Insurance Adjustment

Bureau, we stated:

We note our agreement with the Bureau that in

cases involving the constitutional challenge to a re-

striction on commercial speech which is not false or

deceptive, “The party seeking to uphold a restriction

of commercial speech carries the burden of justifying

it.”

Id. at 219, n.5, 542 A.2d 1321, n.5. (Citations

omitted. )

Thus, I would remand the case for a determination of

whether the Commonwealth has met its burden of justify-

ing its regulation of commercial speech by establishing

that there is no less intrusive way in which its legitimate

and important purpose practically can be achieved.

1 Article I, Section 7 provides, in pertinent part:

The free communication of thoughts and opinions is one of

the invaluable rights of man, and every citizen may freely

speak, write and print on any subject, being responsible for

the abuse of that liberty.

‘17a

SUPREME COURT OF PENNSYLVANIA

PENNSYLVANIA STATE POLICE,

BUREAU OF LIQUOR CONTROL ENFORCEMENT,

Appellant,

NIGHTTIME CONCEPTS, INC.,

Appellee.

Submitted Oct. 18, 1993

Decided Nov. 3, 1994

Appeal No. 78, Eastern District Appeal Docket 1992

from the Order of the Court of Common Pleas of

Philadelphia County, Entered at No. 9104-3256,

Civil Division, on July 23, 1991

Before NIX, C.J., and FLAHERTY, ZAPPALA,

PAPADAKOS, CAPPY, CASTILLE and MONTE-

MURO, JJ.

ORDER

PER CURIAM.

The order of the Court of Common Pleas of Philadel-

phia County is REVERSED. See, Pennsylvania State

Police, Bureau of Liquor Control Enforcement v. Hos-

pitality Investments of Philadelphia, Inc., Pa. ’

A.2d (1994), (slip opinion filed at No. 77

E.D. Appeal Docket 1992, on November 3, 1994).

FLAHERTY, Justice, dissenting.

I dissent based on my dissenting opinion filed in Penn-

sylvania State Police, Bureau of Liquor Control Enforce-

18a

ment v. Hospitality Investments of Philadelphia, Inc., ——

Pa. (No. 77 E.D. Appeal Docket 1992).

CASTILLE, Justice, dissenting.

I respectfully dissent based on my dissenting opinion

filed in Pennsylvania State Police, Bureau of Liquor Con-

trol Enforcement v. Hospitality Investments of Philadel-

phia, Inc. (No. 77 E.D. Appeal Docket 1992).

19a

SUPREME COURT OF PENNSYLVANIA

PENNSYLVANIA STATE POLICE,

BUREAU OF LIQUOR CONTROL ENFORCEMENT,

Appellant,

Vv.

HOSPITALITY INVESTMENTS OF PHILADELPHIA, INC.,

Appellee.

Submitted Oct. 18, 1993

Decided Nov. 3, 1994

Appeal No. 80 Eastern District Appeal Docket 1992

from the Order of the Court of Common Pleas of

Philadelphai County, Entered at No. 9203-3772,

Civil Division, on May 11, 1992

Before NIX, C.J., and FLAHERTY, ZAPPALA,

PAPADAKOS, CAPPY, CASTILLE and MONTE-

MURO, JJ.

PER CURIAM.

The order of the Court of Common Pleas of Philadel-

phia County is REVERSED. See, Pennsylvania State

Police, Bureau of Liquor Control Enforcement v. Hos-

pitality Investments of Philadelphia, Inc., Pa. .

— A.2d —— (1994), (slip opinion filed at No. 77

E.D. Appeal Docket 1992, on November 3, 1994).

ORDER

20a

FLAHERTY, Justice, dissenting.

I dissent based on my dissenting opinion filed in Penn-

sylvania State Police, Bureau of Liquor Control Enforce-

ment v. Hospitality Investments of Philadelphia, Inc.,

Pa. (No. 77 E.D. Appeal Docket 1992).

CASTILLE, Justice, dissenting.

I respectfully dissent based on my dissenting opinion

filed in Pennsylvania State Police, Bureau of Liquor Con-

trol Enforcement v. Hospitality Investments of Philadel-

phia, Inc. (No. 77 E.D. Appeal Docket 1992).

21a

IN THE COURT OF COMMON PLEAS

OF PHILADELPHIA COUNTY

FIRST JUDICIAL DISTRICT OF PENNSYLVANIA

CIVIL TRIAL DIVISION

No. 9203-3772

PENNSYLVANIA STATE POLICE,

BUREAU OF LIQUOR CONTROL ENFORCEMENT

HOSPITALITY INVESTMENTS OF PHILADELPHIA, INC.

MEMORANDUM

AVELLINO, J.

The Pennsylvania State Police, Bureau of Liquor Con-

trol Enforcement (“PSP”) has appealed from my order

dated May 11, 1992, which granted the appeal of Hos-

pitality Investments of Philadelphia, Inc. (“Hospitality”).

This case was transferred to me from Judge Edward

Bradley, because it involved an issue that I had previously

decided which is currently on appeal to the Common-

wealth Court. That issue is whether Section 498 of the

Liquor Code, 47 P. S. § 4-498, which prohibits the adver-

tising of liquor prices, violates the Pennsylvania Constitu-

tion. In Pennsylvania State Police, Bureau of Liquor

Control Enforcement v. Hospitality Investments of Phila.,

Inc., Commonwealth Court No. 1861 C.D. 1991, I de-

cided that the statute was invalid and that ruling is con-

trolling here.

Because the reasons for my decision appear of record

in the aforementioned case, N. T. 26-31, July 23, 1991,

22a

and because the record in this case is mercifully brief, I

won't bother filing a formal opinion. See Pa. R. App. ¢

1925 (sparing common pleas from having to file formal

opinions ).

By THE CourRT:

/s/ Bernard J. Avellino

Dated: 6-26-92

23a

IN THE COURT OF COMMON PLEAS

OF PHILADELPHIA COUNTY

FIRST JUDICIAL DISTRICT OF PENNSYLVANIA

CIVIL TRIAL DIVISION

No. 9104-3255

No. 9104-3256

PENNSYLVANIA STATE POLICE,

BUREAU OF LIQUOR CONTROL ENFORCEMENT

Vv.

HOSPITALITY INVESTMENTS OF PHILADELPHIA, INC.

and

NIGHTTIME CONCEPTS, INC.

MEMORANDUM

AVELLINO, J.

The Pennsylvania State Police, Bureau of Liquor Con-

trol Enforcement (“PSP”) has appealed from my orders

dated July 23, 1991, which granted the statutory appeals

of Hospitality Investments of Philadelphia, Inc. (“Hos-

pitality”) and Nighttime Concepts, Inc. (“Nighttime”).

The Hospitality and Nighttime cases involved the same

issue, namely, whether or not Section 498 of the Liquor

Code, 47 P. S. § 4-498 (“Section 498”), which prohibits

the advertising of liquor prices, contravenes the Pennsyl-

vania Constitution. On July 23, 1991, I entertained argu-

ment and, after contemplating the question over the lunch

hour, concluded that Section 498 was, in fact, invalid.

24a

Because the reasons for my decision appear of record,

N. T. 26-31, and because the record in these cases is

mercifully brief, I won’t bother filing a formal opinion.

See Pa. R. App. P. 1925 (sparing common pleas from

having to file formal opinions when the reasons for a rul-

ing appear of record).

By THE CourT:

/s/ Bernard J. Avellino

Dated: 6-26-92

25a

LCB APPEALS: CITATIONS

No. 9104-3255

No. 9104-3256

HOSPITALITY INVESTMENTS and NIGHTTIME CONCEPTS

vs.

P.S.P.

JULY 23, 1991

HONORABLE BERNARD AVELLINO '*!

ROOM 904

FIVE PENN CENTER

* * * *

[26] THE COURT: I thought about cases number !

and 2 and I am ready to make a ruling. I had an op-

portunity to review the Supreme Court decision in the

Pharmacy Board case. And there are two things about

the case that I think are worth mentioning. First and

most importantly the Supreme Court decided to base its

decision upon the Pennsylvania constitution as opposed

to the federal constitution. As the court suggested very

plainly I think, Pennsylvania probably provides all of us

{*} Petitioner has reproduced the Court Reporter’s original text,

without edits.

26a

with more rights and more process than the federal con-

stitution does. I’m happy about that. I’m happy about

that.

The second comment I want to make is that by making

its decision under the Pennsylvania constitution, there is

no higher authority on this subject. This decision is bind-

ing upon you. It’s simply beyond the scope of any other

court to reverse or modify a federal decision on the same

subject. It is simply unthinkable. The federal courts have

no authority to interpret the Pennsylvania constitution.

Thirdly, intriguingly I mentioned this because Gary

posited his argument on First Amendment grounds. At

the time the Pharmacy case was decided by the Pennsyl-

vania Supreme Court, commercial speech, [27] if I can

use that expression, was generally regarded as being be-

yond the pale of the First Amendment. It was simply

not protected. Commercial speech was not protected. The

doctrine of commercial free speech began to evolve, I

believe, in the mid 70’s in the United States Supreme

Court.

Perhaps for that reason the Pennsylvania Supreme

Court conducted a routine due process inquiry. It simply

examined the regulations prohibiting the pharmacists

throughout Pennsylvania from telling the public the price

of which they were prepared to sell prescription drugs.

Took that regulation and simply compared it to the

purposes for which it was ostensibly designed. The regu-

latory board had no reasonable relationship to those pur-

poses. At least none that was worth m-~tioning. None

that could outweigh the benefit to the consumers. The

court stressed the consumers. I think the consumers are

stressed in the federal cases that deal with commercial free

speech.

The Bates decision, for example, which authorized the

lawyers to advertise their prices and so on all stressed the

consumer in this calculus, this complicated constitutional

calculus or scrutiny to which a law is subjected. The

court gave the [28] example. I happen to be using the

27a

A.2d citation because that’s the one that Gary had given

me. He gave an example at page 494 in the A.2d. in

court of a survey that showed that the prices for the same

30 capsules of a well known antibiotic may range from

79 cents to $7.45. Gave that by way of an illustration.

I only mention that to emphasize that the court does

care about consumers. It does care about consumers.

I think the analogy is complete. I think it’s fair to draw

principles from this case ard apply them to the prices

of liquor. I think it’s fair because the same controls are

in place. The licensee like the pharmacist is heavily reg-

ulated. He is looked at in every conceivable direction.

It is illegal, for example, for a licensee to serve more

of a beverage regardless of its price to a person than a

person can fairly consume. By that I mean the licensee

may never serve a person who is visibly intoxicated. The

same prohibitions apply to a pharmacist in that he or

she may not give out drugs without a prescription. So

for these reasons I do think the analogy is a very fair

analogy.

Having said all of this, let me approach if I can just

for a moment the First Amendment argument. The argu-

ment has been made and rejected at least with [29] two

cases that I know of dealing with liquor. The Ohio Su-

preme Court upheld a restriction analogous to this one,

the one in Pennsylvania: prohibition against off-site pric-

ing. And also the Fifth Circuit in a 1983 decision, Duna-

gin v. City of Oxford, 518, A.2d [sic] 738, 1983. This is

the 5th Circuit. Examined Mississippi statutes against a

First Amendment inquiry. It concluded the Mississippi

statutes are analogous in the sense that they prohibited—

actually they went beyond pricing. There were certain

things. They included the prohibition against price ad-

vertising as well. The court concluded that those statutes

could withstand a First Amendment analysis.

This decision, of course, made under the federal con-

stitution whereas the decision of the Pharmacy Board case

was made under the Pennsylvania constitution. I should

28a

have mentioned, perhaps, that the Pharmacy court case

is hardly surprising in the sense that it goes off and finds

more protection in the Pennsylvania constitution than are

found in the federal constitution. I think that’s true

almost across the board. I can think of countless illus-

trations in matters of privacy.

For example, the Pennsylvania constitution [30] pro-

vides a great deal more privacy than you and I are en-

titled to under the federal decisions. The federal de-

cisions are babies as compared to the Pennsylvania de-

cisions on that subject. I could go on and on and on, but

I think I’ve said enough to explain the reasons for my

decision. I’m only the appellate court. I cannot afford

the luxury of spending nine months or the rest of my

career addressing those decisions. This is the best decision

I can make. I made it. Now we will go onto the next

case.

MR. DIVITO: I may have missed something. You've

upheld the ALJ?

THE COURT: No.

MR. DIVITO: I wasn’t clear. I’m sorry.

THE COURT: I’m bound by the Pharmacy decision.

I’m going to strike the statute. I just wanted to address

the First Amendment argument you made briefly by say-

ing that the federal—it’s been made in one state case

that I know of in Ohio and in one federal case that I

know of, the Fifth Circuit in 1984. Each time it failed.

As near as I can tell, the United States Supreme Court

has never addressed the subject. It had an opportunity

to address it in the Ohio case, but in substance de.zied to

entertain the case. It simply denied to entertain the case.

[31] It said in substance it was not a substantial question.

It’s almost inmaterial. It just doesn’t happen.

(Off the record discussion occurs. )

(Proceeding adjourned. )

29a

Mailing Date: March 11, 1992

PENNSYLVANIA LIQUOR CONTROL BOARD

HARRISBURG, PA 17124

Case No: 91-0519

PENNSYLVANIA STATE POLICE

BUREAU OF LIQUOR CONTROL ENFORCEMENT

vs.

HOSPITALITY INVESTMENTS OF PHILADELPHIA, INC.

1701 Locust STREET

PHILADELPHIA, PA 19103

License No: R-AP-6205

OPINION

Hospitality Investments of Philadelphia, Inc. (Licen-

see), appealed from the Opinion and Order of Adminis-

trative Law Judge Tania E. Wright (ALJ), wherein the

ALJ sustained the Citation and imposed a fine of Four

Hundred Dollars ($400.00).

Count | charged the Licensee with violation of Sections

471 and 493(24) of the Liquor Code [47 P.S. §§ 4-471

and 4-493(24)] and Section 5 of the Pennsylvania Hu-

man Relations Act [43 P.S. § 955] in that on November

14, 1990, the Licensee by its servants, agents or em-

ployes, offered and/or gave inducements to certain per-

sons by allowing them privileges not permitted to the

general public. Finding a violation, the ALJ imposed a

fine of Two Hundred Dollars ($200.00).

30a

Count 2 charged the Licensee with violation of Section

498 of the Liquor Code [47 P.S. § 4-498] in that on

November 14, 1990, the Licensee by its servants, agents

or employes, advertised or permitted the advertising in

any manner whatsoever, the price at which alcoholic

beverages would be sold. Finding a violation, the ALJ

imposed a fine of Two Hundred Dollars ($200.00).

Pursuant to Section 471 of the Liquor Code [47 P.S.

§ 4-471], the Appeal in this case must be based solely on

the record before the ALJ. Where the decision of the

ALJ is based upon substantial evidence, the Board must

affirm the decision.

The Commonwealth Court defined “substantial evi-

dence” to be such relevant evidence as a reasonable person

might accept as adequate to support a conclusion, requir-

ing something more than a scintilla creating mere sus-

picion of the fact to be established. McCauley vs. Penn-

sylvania Board of Probation and Parole, 98 Pa. Cmwith.

28, 510 A.2d 877 (1986); Chapman vs. Pennsylvania

Board of Probation and Parole, 86 Pa. Cmwlth. 49, 484

A.2d 413 (1984).

The facts in this case were stipulated as follows: On

November 21, 1990, a Pennsylvania State Police, Bureau

of Liquor Control Enforcement (Bureau) officer reviewed

an advertisement which appeared in the Philadelphia Daily

News on November 14, 1990. The advertisement read:

“Attention Hy Lit fans. Every Wednesday for the first

time in Center City, Legendary Radio Personality Hy Lit

will be appearing at Poio Bay tonight. No cover and

50 cent drinks for the ladies, 10 to 12 midnight.” The

name, location and phone number of the Licensee’s prem-

ises were noted in the advertisement.

The Appeal of the Licensee lacks any specificity, at-

tacking generally the ALJ’s decision. The record, as stip-

ulated, is clear that the Licensee committed sex discrim-

ination by offering inducements (no cover charge and

discounting the price of drinks), wthout offering these

3la

same privileges to men in violation of the Pennsylvania

Human Relations Act. Finally, it is beyond question that

liability attaches to Count 2 for directly advertising the

price at which drinks would be sold.

The ALJ’s decision was supported by substantial evi-

dence, and is correct as a matter of law.

ORDER

The decision of the ALJ is affirmed.

The Appeal of the Licensee is dismissed.

The Licensee is ordered to pay a fine of Four Hundred

Dollars ($400.00) within twenty (20) days of the mail-

ing date of this Order. Failure to do so will result in a

suspension or revocation of this license with Bond For-

feiture.

Licensee must adhere to all other conditions set forth

in the ALJ’s Order.

/s/ John Allen Reilly

Board Secretary

32a

Mailing Date: April 5, 1991

PENNSYLVANIA LIQUOR CONTROL BOARD

HARRISBURG, PA 17124

Case No.: 90-0160

PENNSYLVANIA STATE POLICE

BUREAU OF LIQUOR CONTROL ENFORCEMENT

NIGHTTIME CONCEPTS, INC.

600 SPRING GARDEN STREET

PHILADELPHIA, PA 19123

License No.: R-2039

OPINION

Nighttime Concepts, Inc. (Licensee), appealed the

Opinion and Order of Adm nistrative Law Judge Tanya

E. Wright (ALJ), wherein the ALJ sustained the Cita-

tion, and imposed a Fine of Two Hundred Dollars

($200.00).

Licensee was charged with violation of Section 498 of

the Liquor Code [47 P.S. § 4-498] in that on October 19,

1989, Licensee, by its servants, agents, or employes, ad-

vertised or permitted advertising in any manner whatso-

ever the price at which alcoholic beverages would be sold.

Pursuant to Section 471 of the Liquor Code [47 P. S.

§ 4-471], the Appeal in this case must be based solely

on the record before the ALJ. Where the decision of the

33a

ALJ is based upon substantial evidence, the Board must

affirm the decision.

The Commonwealth Court defined “substantial evi-

dence” to be such relevant evidence as a reasonable per-

son might accept as adequate to support a conclusion,

requiring something more than a scintilla creating mere

suspicion of the fact to be established. McCauley vs.

Pennsylvania Board of Probation and Parole, 98 Pa.

Cmwith. 28, 510 A.2d 877 (1986); Chapman vs. Penn-

sylvania Board of Probation and Parole, 86 Pa. Cmwith.

49, 484 A.2d 413 (1984).

In its Appeal, Licensee generally argues that the deci-

sion of the ALJ was contrary to the weight and sufficiency

of the evidence, and contrary to law. At the hearing,

Licensee’s counsel argued that Section 498 constituted

an abridgment of the Licensee’s First Amendment rights

of commercial free speech.

This Board does not have the power and authority to

constitutionally interpret its own statutes and regulations.

Notwithstanding, Section 468(d) specifically provides that

the license is a privilege and not a property right, the

latter conferring expanded constitutional rights. More-

over, the ALJ was correct in holding that promoting con-

sumption through off-premise advertising is inconsistent

with the purpose of the Liquor Coe in restraining the

sale of liquor. Pennsylvania Liquor Control Board vs.

Borough Food Systems, Inc., 508 A.2d 1308 (1986).

ORDER

The decision of the ALJ is affirmed.

The Appeal of the Licensee is dismissed.

The Licensee has paid the fine of Two Hundred Dol-

lars ($200.00).

Licensee must adhere to all other conditions set forth

in the ALJ’s Order.

/s/ John Allen Reilly

Board Secretary

34a

Mailing Date: April 8, 1991

PENNSYLVANIA LIQUOR CONTROL BOARD

HARRISBURG, PA 17124

Case No.: 89-2488

PENNSYLVANIA STATE POLICE

BUREAU OF LIQUOR CONTROL ENFORCEMENT

vs.

HOSPITALITY INVESTMENTS OF PHILADELPHIA, INC.

1701 Locust Street

Philadelphia, PA 19103

License No.: R-6205

OPINION

Hospitality Investments of Philadelphia, Inc. (Licensee),

- appealed the Opinion and Order of Administrative Law

Judge Tanya E. Wright (ALJ), wherein the ALJ sus-

tained the Citation and imposed a Fine of Two Hundred

and Fifty Dollars ($250.00).

Licensee was charged with violation of Section 498 of

the Liquor Code [47 P.S. § 4-498] in that on October 26,

1989, Licensee, by its servants, agents or employees, ad-

vertised or permitted advertising in any manner whatso-

ever the price at which alcoholic beverages would be sold.

Pursuant to Section 471 of the Liquor Code [47 P. S.

§ 4-471], the Appeal in this case must be based solely

35a

on the record before the ALJ. Where the decision of the

ALJ is based upon substantial evidence, the Board must

affirm the decision.

The Commonwealth Court defined “substantial evi-

dence” to be such relevant evidence as a reasonable per-

son might accept as adequate to support a conclusion,

requiring something more than a scintilla creating mere

suspicion of the fact to be established. McCauley vs.

Pennsylvania Board of Probation and Parole, 98 Pa.

Cmwith. 28, 501 A.2d 877 (1986); Chapman vs. Penn-

sylvania Board of Probation and Parole, 86 Pa. Cmwith.

49, 484 A.2d 413 (1984).

In its Appeal, Licensee generally argues that the decision

of the ALJ was contrary to the weight and sufficiency

of the evidence, and contrary to law. At the hearing,

Licensee’s counsel argued that Section 498 constituted

an abridgement of the Licensee’s First Amendment rights

of commercial free speech.

This Board does not have the power and authority to

constitutionally interpret its own statutes and regulations.

Notwithstanding, Section 468(d) specifically provides

that the license is a privilege and not a property right,

the latter conferring expanded constitutional rights. More-

over, the ALJ was correct in holding that promoting con-

sumption through off-premise advertising is inconsistent

with the purpose of the Liquor Code in restraining the sale

of liquor. Pennsylvania Liquor Control Board vs. Borough

Food Systems, Inc., 508 A.2d 1308 (1986).

ORDER

The decision of the ALJ is affirmed.

The Appeal of the Licensee is dismissed.

The Licensee is ordered to pay a fine of Two Hundred

Fifty Dollars ($250.00) within Twenty (20) days of the

mailing date of this Order. Failure to do so will result

36a

in a suspension or revocation of this license with Bond

Forfeiture.

Licensee must adhere to all other conditions set forth

in the ALJ’s Order.

/s/ John Allen Reilly

Board Secretary

374

Mailing Date: July 18, 1991.

COMMONWEALTH OF PENNSYLVANIA

OFFICE OF ADMINISTRATIVE LAW JUDGE

FOR PENNSYLVANIA LIQUOR CONTROL BOARD

Citation No. 91-0519

PENNSYLVANIA STATE POLICE,

BUREAU OF LIQUOR CONTROL ENFORCEMENT

Vv.

HOSPITALITY INVESTMENTS OF PHILADELPHIA, INC.

1701 Locust Street

Philadelphia, PA 19103

Philadelphia County

License No. R-AP-6205

BEFORE: WRIGHT, J.

ADJUDICATION

BACKGROUND:

This proceeding arises out of a citation that was issued

on March 12, 1991, by the Bureau of Liquor Control En-

forcement of the Pennsylvania State Police (hereinafter

“Bureau of Enforcement”) against Hospitality Investments

of Philadelphia, Inc., License Number R-AP-6205 (here-

inafter “Hospitality Investments” ).

An Administrative hearing was held on Tuesday, May

7, 1991, pursuant to requisite and appropriate hearing

38a

notice. The parties stipulated to the service and receipt

of the notice letter and the citation, and to the summary

of the facts.

The citation contains two counts.

The first count charges “Hospitality Investments” with

violation of Sections 471 and 493(24) of the Liquor

Code, 47 P.S. Sections 4-471 and 4-493(24) and Section

5 of the Pennsylvania Human Relations Act, 43 PS.

Section 955, in that on November 14, 1990, “Hospitality

Investments,” by its servants, agents or employes, offered

and/or gave inducements to certain persons by allowing

them privileges not permitted the general public.

The second count charges “Hospitality Investments”

with violation of Section 498 of the Liquor Codc, 47

P.S. Section 4-498, in that on November 14, 1990, “Hos-

pitality Investments,” by its servants, agents or employes,

advertised or permitted the advertising in any manner

whatsoever the price at which alcoholic beverages would

be sold.

COUNT NOS. 1 AND 2

FINDINGS OF FACT:

1. On November 21, 1990, Enforcement Officer Sam-.

uel Yurich reviewed an advertisement which ap-

peared in the Philadelphia Daily News on Novem-

ber 14, 1990. The advertisement read, “Attention

Hy Lit fans. Every Wednesday for the first time in

Center City, Legendary Radio Personality Hy Lit

will be appearing at Polo Bay tonight. No cover

and 50¢ drinks for the ladies, 10 to 12 midnight.”

(N.T. 4 and Exhibit B-3).

2. The name, location and phone number for the li-

censed premises was noted in the ad (N.T. 4 and

Exhibit B-3).

39a

CONCLUSIONS OF LAW:

Count No. 1—On November 14, 1990, “Hospitality

Investments,” by its servants, agents or employes, offered

inducements to certain persons by allowing them privileges

not permitted the general public, in violation of Sections

471 and 493(24) of the Liquor Code, 47 P.S. Section

4-471 and 4-493(24) and Section 5 of the Pennsylvania

Human Relations Act, 43 P.S. Section 955.

Count No. 2—On November 14, 1990, “Hospitality

Investments,” by its servants, agents or employes, adver-

tised or permitted the advertising of the price at which

alcoholic beverages would be sold, in violation of Section

498 of the Liquor Code, 47 P.S. Section 4-498.

PRIOR RECORD:

According to information received from the PSP,

Bureau of Liquor Control Enforcement, as provided by

the PLCB, Bureau of Licensing, of which we hereby take

administrative notice, “Hospitality Investments” was first

licensed on March 15, 1988, and has had no record of

prior offenses.

DISCUSSION:

This licénse was first issued on March 15, 1988. Under _

the circumstances of this case, the “Bureau of Enforce-

ment” recommended a monetary fine. That recommenda-

tion shall be accepted by the Court.

PENALTY:

Section 471 of the Liquor Code, 47 P. S. Section 4-471,

prescribes a penalty of suspension or revocation of license

or imposition of a fine of not less than $50.00 nor more

than $1,000.00, or both, for violations of the type found

in this case.

Therefore, penalties shall be assessed as follows:

40a

Count No. 1—$200.00.

Count No. 2—$200.00.

Accordingly, we issue the following

ORDER

THEREFORE, it is hereby ordered that Licensee, Hos-

pitality Investments of Philadelphia, Inc., License Number

R-AP-6205, pay a fine of Four Hundred Dollars

($400.00) within twenty (20) days of the mailing date of

this Order. In the event the aforementioned fine is not

paid within twenty (20) days from the mailing date of this

Order, Licensee’s license shall be suspended or revoked

and the bond forfeited.

The fine must be paid by Treasurer’s Check, Cashier’s

Check or Certified Check. Personal Checks are not ac-

ceptable. Make check payable to the Commonwealth of

Pennsylvania and mail to:

PLCB—Office of Administrative Law Judge

2973 Jefferson Street, Suite A

Harrisburg, PA 17110-2119

Dated this 9th day of July, 1991.

-/s/ Tania E. Wright

TANIA E. Wricur, J.

4la

Mailing Date: Jan. 28, 1991

COMMONWEALTH OF PENNSYLVANIA

OFFICE OF ADMINISTRATIVE LAW JUDGE

FOR PENNSYLVANIA LIQUOR CONTROL BOARD

Citation No. 90-0160

PENNSYLVANIA STATE POLICE.

BUREAU OF LIQUOR CONTROL ENFORCEMENT

Vv.

NIGHTTIME CONCEPTS, INC.

600 Spring Garden Street

Philadelphia, PA 19123

Philadelphia County

License No. R-2039

BEFORE: WRIGHT, J.

ADJUDICATION

BACKGROUND:

This proceeding arises out of a citation that was issued

on January 31, 1990, by the Bureau of Liquor Control

Enforcement of the Pennsylvania State Police (herein-

after “Bureau of Enforcement”) against Nighttime Con-

cepts, Inc., License Number R-2039 (hereinafter “Night-

time”).

42a

The citation charges “Nighttime” with violation of Sec-

tion 498 of the Liquor Code, 47 P.S. Section 4-498, in

that on October 19, 1989, “Nighttime,” by its servants,

agents or employes, advertised or permitted the adver-

tising in any manner whatsoever the price at which alco-

holic beverages would be sold.

FINDINGS OF FACT:

1. On October 19, 1989, an ad appeared for the

licensed premises in a local newspaper. The ad

read, in part, “ALL BEVERAGES $1” (N.T. 4

and Exhibit B-3).

CONCLUSIONS OF LAW:

On October 19, 1989, “Nighttime,” by its servants,

agents or employes, advertised or permitted the adver-

tising of the price at which alcoholic beverages would be

sold, in violaton of Section 498 of the Liquor Code,

47 P.S. Section 4-498.

PRIOR RECORD:

According to information received from the PSP, Bur-

eau of Liquor Control Enforcement, as provided by the

PLCB, Bureau of Licensing, of which we hereby take

administrative notice, “Nighttime” was first licensed on

September 9, 1988, and has had no record of prior

offenses.

DISCUSSION:

Counsel for licensee argues that Section 498 of the

Liquor Code constitutes an abridgement of the licensee’s

First Amendment rights of commercial free speech, both

under the United States Constitution and the Pennsylvania

Constitution. Counsel argues that the licensee has a con-

stitutionally protected right to advertise prices, and that

Section 498 is an abridgement of that right. He further

argues that it has no rational basis or connection to the

health and welfare of the general public, such that it

1 | . sii

43a

would exempt the state statute from constitutional

scrutiny.

Section 498 of the Liquor Code prohibits advertising

in any manner whatsoever the price of any malt, bever-

age, cordial wine or distilled liquor offered for sale in

Commonwealth. This Section does not apply to price,

signs or tags attached to or placed on merchandise for

sale within the premises. Further, Section 498(c) spe-

cifically exerapts licensees from the provision of this sec-

tion where advertisement is done in trade journals which

are duly recognized and authorized by the Board.

In a decision by a panel of Administrative Law Judges,

State Street Beer and Soda Discounters, Inc., Citation

Nos. 88-1972 and 88-2538 (as consolidated), Judge Thau

indicates that the restriction of price advertising was born

out of a belief that price advertising promoted consump-

tion. See The Legislative Journal—Senate, June 17, 1987

p.p. 759-761. Promoting consumption of alcohol is in-

consistent with the purpose of the Liquor Code, which is

to regulate and restrain the sale of liquor. See P.L.C.B. v.

Burrell Food Systems, Inc., 508 A.2d 1308 (1986). The

twenty-first Amendment to the Constitution conferred on

the state’s extensive authority relative to public health,

welfare and morals. The legislature deemed it appropriate

to exercise this power by prohibiting the advertisement of

prices of alcoholic beverages.

This Court does not presume to have the authority to

find the statute unconstitutional: The language of the

statutory provision is clear and unequivocable as it is

written, and the licensee is in ciear violation. Therefore,

a penalty shall be imposed.

PENALTY:

Section 471 of the Liquor Code, 47 P.S. Section 4-471,

prescribed a penalty of suspension or revocation of license

or imposition of a fine of not less than $50.00 nor more

than $1,000.00, or both, for violations of the type found

in this case

44a

According! - we issue the following

ORDER:

THEREFORE, it is hereby ordered that Licensee,

Nighttime Concepts, Inc., License Number R-2039, pay

a fine of Two Hundred Dollars ($200.00) within twenty

(20) days of the mailing date of this Order. In the event

the aforementioned fine is not paid within twenty (20)

days from the mailing date of this Order, Licensee’s li-

cense shall be suspended or revoked and the bond forfeited.

The fine must be paid by Treasurer’s Check, Cashier’s

Check or Certified Check. Personal Checks are not ac-

ceptable. Make check payable to the Commonwealth of

Pennsylvania and mail to:

PLCB—Office of Administrative Law Judge

2973 Jefferson Street, Suite A

Harrisburg, PA 17110-2119

Dated this 16th day of January, 1991.

/s/ Tania E. Wright

TANIA E, WRIGHT, J.

45a

Mailing Date: Jan. 10, 1991

COMMONWEALTH OF PENNSYLVANIA

OFFICE OF ADMINISTRATIVE LAW JUDGE

FOR PENNSYLVANIA LIQUOR CONTROL BOARD

Citation No. 89-2488

PENNSYLVANIA STATE POLICE,

BUREAU OF LIQUOR CONTROL ENFORCEMENT

HOSPITALITY INVESTMENTS OF PHILADELPHIA, INC.

1701 Locust Street

Philadelphia, PA 19103-6118

Philadelphia County

License No. R-6205

BEFORE: WRIGHT, J.

ADJUDICATION

BACKGROUND:

This proceeding arises out of a citation that was issued

on December 19, 1989, by the Bureau of Liquor Control

Enforcement of the Pennsylvania State Police (hereinafter

“Bureau of Enforcement”) against Hospitality Invest-

ments of Philadelphia, Inc., License Number R-6205

(hereinafter “Hospitality Investments” ).

An Administrative hearing was held on Thursday, Oc-

tober 4, 1990, pursuant to requisite and appropriate hear-

ing notice. The parties stipulated to the service and re-

46a

ceipt of the notice letter and the citation, and to the

summary of the facts. However, licensee’s counsel argued

that the facts did not rise to a violation of the law based

on constitutional defects in the statute.

The citation charges “Hospitality Investments” with vio-

lation of Section 498 of the Liquor Code, 47 P.S. Section

4-498, in that on October 26, 1989, “Hospitality Invest-

ments,” by its servants, agents or employes, advertised

or permitted the advertising in any manner whatsoever

the price at which alcoholic beverages would be sold.

FINDINGS OF FACT:

1. Officer Casiano noted that on October 26, 1989,

an advertisement appeared in the “Daily Pennsyl-

vania” for the licensed premises which read in part

“$1.00 for regular drinks, 9:00 until midnight”

(N.T. 4 and Exhibit B-3).

CONCLUSIONS OF LAW:

On October 26, 1989, “Hospitality Investments,” by

its servants, agents or employes, advertised or permitted

the advertising of the price at which alcoholic beverages

would be sold, in violation of Section 498 of the Liquor

Code, 47 P.S. Section 4-498.

PRIOR RECORD:

According to information received from the PSP, Bu-

reau of Liquor Control Enforcement, as provided by the

PLCB, Bureau of Licensing, of which we hereby take ad-

ministrative notice, “Hospitality Investments” was first

licensed on March 15, 1988, and has had no record of

prior offenses.

DISCUSSION:

Counsel! for the licensee indicated that the licensee’s

free speech was abridged and that Section 498 of the

Liquor Code is unconstitutional and should not be ap

47a

plied to the licensee. This Court does not have jurisdic-

tion to find a statute unconstitutional; however, the words

of the statute are clear and indisputable. No licensee

shall cause or permit the advertisement in any manner

whatsoever the price of any malt beverage, cordial wine

or distilled liquor offer for sale in the Commonwealth.

The sole exception is outlined in Section 4-498(c) wherein

it provides that this Section shall not apply to any trade

journal which is duly recognized and authorized to be

exempt from the provision by the Board.

Under the circumstances of this case, there is a clear

violation of the Code and a monetary penalty shall be

imposed.

PENALTY:

Section 471 of the Liquor Code, 47 P.S. Section 4-471,

prescribes a penalty of suspension or revocation of license

or imposition of a fine of not less than $50.00 nor more

than $1,000.00, or both, for violations of the type found

in this case.

Accordingly, we issue the following

ORDER:

THEREFORE, it is hereby ordered that Licensee, Hos-

pitality Investments of Philadelphia, Inc., License Number

R-6205, pay a fine of Two Hundred Fifty Dollars

($250.00) within twenty (20) days of the mailing date

of this Order. In the event the aforementioned fine is

not paid within twenty (20) days from the mailing date

of this Order, Licensee’s license shall be suspended or

revoked and the bond forfeited.

The fine must be paid by Treasurer’s Check, Cashier’s

Check or Certified Check. Personal Checks are not ac-

ceptable. Make check payable to the Commonwealth of

Pennsylvania and mail to:

48a

PLCB—Office of Administrative Law Judge

2973 Jefferson Street, Suite A

Harrisburg, PA 17110-2119

Dated this 2nd day of January, 1991.

/s/ Tania E. Wright

TANIA E. WriGHr, J.

49a

PENNSYLVANIA STATUTE

Pennsylvania statutes annotated Title 47, § 4-498:

Unlawful advertising

(a) No manufacturer, wholesaler, retailer or shipper

whether from outside or inside this Commonwealth and

no licensee under this act shall cause or permit the ad-

vertising in any manner whatsoever of the price of any

malt beverage, cordial, wine or distilled liquor offered for

sale in this Commonwealth: Provided, however, That the

provisions of this section shall not apply to price signs or

tags attached to or placed on merchandise for sale within

the licensed premises in accordance with rules and regula-

tions of the board.

(b) Any person who violates any of the provisions of

this section commits a misdemeanor and shall, upon con-

viction, be sentenced to pay a fine of fifty dollars ($50)

for the first offense and for each additional offense there-

after shall be sentenced to pay a fine of one hundred

dollars ($100). Publication or broadcast by any person

in violation of the provisions of this section shall also be

subject to injunctive proceedings in a court of competent

jurisdiction on a complaint brought by a retail licensee or

an association of retail licensees.

any trade journal which is duly recognized and authorized

to be exempt from the provisions of this section by the

board.

50a

REPORT TO

THE

PENNSYLVANIA LIQUOR CONTROL BOARD

BEER PRICE ADVERTISING

COMMONWEALTH OF PENNSYLVANIA

OFFICE OF ATTORNEY GENERAL

ANTITRUST SECTION

July 31, 1985

OOO OEE

S5la

Introduction

The question before the Pennsylvania Liquor Control

Board (LCB) is: Should Pennsylvania consumers have

access to beer price information through advertising? In

this Report, the term “advertising”, unless the context in-

dicates otherwise, refers to advertising presently banned

by LCB regulations, such as media advertising.

The Office of Attorney General, Antitrust Section, sup-

ports the proposed amendment by the LCB of 40 Pa.

Code § 13.41(a) because price advertising generates

greater competition and benefits consumers. More par-

ticularly, beer price advertising should be allowed be-

cause:

I. Beer Price Advertising Has Substantial Economic

Advantages.

II. Disadvantages, If Any, Of Beer Price Advertising

Are Minimal.

A. Excessive Consumption Of Beer Will Not

Result.

B. Beer Industry Participants Are Not Harmed By

Beer Price Advertising. (Expressions of con-

cern that beer price advertising will adversely

affect beer distributors or other beer industry

participants assumes that the business survival

of industry participants is a relevant LCB is-

sue, which it appears not to be.)

Ill. Concerns Expressed About The Effects Of Beer

Price Advertising Can Be Addressed By Alterna-

tives Which Are Less Restrictive Than Banning

Beer Price Advertising Altogether.

Each of these is separately discussed following this intro-

ductory section.

In order to present reliable economic analysis to the

LCB, the Office of Attorney General, Antitrust Section,

52a

retained Dr. Jon Nelson of the Economics Department of

Pennsylvania State University, to search for economic stud-

ies and literature relevant to the question before the

LCB, to locate relevant data, and to organize and make,

if possible, economic and statistical analyses of that data.

Dr. Nelson’s qualifications are set forth in Exhibit “A.”

Dr. Nelson was requested to examine three particular

relationships:

1. The relationship between price advertising and beer

consumption.

2. The relationship between price advertising and price

itself.

3. The effect of beer price advertising on the business

survival of industry participants.

Dr. Nelson’s analysis was in part subject to the availability

of data with which to make statistical studies. Accord-

ingly, Dr. Nelson’s conclusions varied in the extent to

which he could definitively come to conclusions on these

questions. Dr. Nelson’s study results are incorporated in

this Report.

I. Beer Price Advertising Has Substantial

Economic Advantages

Advertising, including price advertising, provides con-

sumers with the information necessary to make informed

purchasing decisions. The United States Supreme Court

recognizes this when addressing the significance of com-

mercial speech (advertising) :

Even though the [advertiser’s] interest is largely eco-

nomic, the Court has protected [commercial] speech

in certain contexts. The [consumer’s] interest is sub-

stantial... . [C]Jommercial speech serves to inform

the public of the availability, nature, and prices of

products and services, and thus performs an indis-

pensable role in the allocation of resources in a free

enterprise system. In short, such speech serves in-

53a

dividual and societal interests in assuring informed

and reliable decisionmaking.

Bates the State Bar of Arizona, 433 U.S. 350, 364 (1977)

(citations omitted) (emphasis added).

The fact that advertising is important to competition is

evident in federal and state court decisions. For example,

self-imposed restrictions among competitors not to adver-

tise prices violates the antitrust laws. See United States

v. Gasoline Retailers Association, Inc., 285 F.2d 688

(7th Cir. 1961). This illustration is applicable, because

the law of Pennsylavnia is that basic federal antitrust law

principles reflect the law which governs trade practices in

Pennsylvania. Collins v. Main Line Board of Realtors,

452 Pa. 342, 304 A.2d 493 (1973).

Actions of the LCB itself show that there is nothing

inherently wrong with price advertising of alcoholic bever-

ages. For example, taverns may advertise six pack prices.

Beer distributors are permitted to post prices in their

stores. The Commonwealth itself advertises liquor prices.

See Exhibit “B” (copy of ad appearing in Pittsburgh Post

Gazette, May 16, 1985, p. 28). Further, beer prices are

conveyed by word of mouth, another method of distribut-

ing information.

Past economic studies for products and services rang-

ing from eye care to gasoline support the proposition that

price advertising will result in lower prices to consumers.

See, Bond, Kwoka, Phelan and Whitten, Staff Report on

Effects of Restrictions on Advertising and Commercial

Practice in the Professions: The Case of Optometry, Fed-

eral Trade Commission, 1980, Washington, D.C.; Cady,

Advertising Restrictions and Retail Prices. 16 J. OF

ADVERTISING 27 (1976); Steiner, Does Advertising

Lower Consumer Prices, 37 J. OF MARKETING 19

(1976); Benham, The Effect of Advertising on the Price

of Eyeglass, 15 J. OF LAW & ECON. 337 (1972); and

Maurizi, The Effect of Laws Against Price Advertising:

The Case of Retail Gasoline, WESTERN ECON. J. 321

54a

(September 1972). While Dr. Nelson’s own preliminary

economic analysis found no direct relationship between

advertising and beer prices, his analysis could only be

based on the limited data available, which were the prices

of six packs. See Exhibit “C” (table listing average six

pack beer prices on state-by-state basis). The limited

preliminary analysis results were unexpected by Dr. Nel-

son, because of the substantial amount of evidence (see

above) showing that, as to other products, price advertis-

ing reduces prices. (Dr. Nelson’s computer-assisted eco-

nomic studies on all questions he investigated are available

to the LCB for its examination).

There are other economic costs to the public which

come into play if there is no price advertising. For ex-

ample, without price advertising, comparison shopping

costs will be substantially increased for consumers inter-

ested in price information. If consumers want to know

current prices, they must shop the stores in their neighbor-

hood. Further, because prices are constantly changing,

consumers must revisit stores on a regular basis if they

want current price information. The advantage to con-

sumers of “specials” is lost unless the consumer happens

to visit a store featuring a “special” at that time. These

comparison shopping costs could be substantially reduced

if price advertising is allowed. Price advertising will pro-

vide consumers who are interested in the price of beer

with a readily accessible source of that information. See

R. Boynton, B. Blake, and J. Uhl, Retail Price Reporting

Effects in Local Fruit Markets, 65 AM. J. OF AGRI-

CULTURE ECON. 20 (1983). Dr. Nelson concludes

that, considering all factors, consumers clearly gain when

price information is readily available.

55a

II. Disadvantages, If Any, Of Beer Price

Advertising Are Minimal.

A. Excessive Consumption Of Beer Will Not Result.

Price advertising does not increase beer consumption,

according to Dr. Nelson’s statistical analysis. Dr. Nelson

was able to arrive at a firm conclusion on this point be-

cause of the availability of data. States allowing price

advertising had no higher rates of consumption than states

prohibiting it. New Hampshire, which prohibits price ad-

vertising of beer, had the highest per capita consumption

of beer in the nation. See Exhibits “D” and “E” (tables

listing state per capita consumption by rank and adult per

capita consumption provided by 1984 Brewer Almanac,

United States Brewers Association, Washington, D.C., p.

72). Demand for beer is influenced by several factors:

price, income, tourism, legal drinking age and the price

of soft drinks. The demand for beer is inelastic meaning

a decrease in price will not bring about a corresponding

increase in consumption. This is a result of Dr. Nelson’s

study. The price inelasticity for beer has been proven by

other studies. See Hogarty, Elzinga, The Demand For

Beer, 54 REV. OF ECON. & STATISTICS 195 (May

1972); and Ornstein, Control of Alcohol Consumption

Through Price Increases, 41 J. OF STUDIES OF ALCO-

HOL 807 (Sept. 1980).

B. Beer Industry Participants Are Not Harmed By Beer

Price Advertising.

Price advertising increases competition which has the

effect of constantly redistributing market shares among

competitors. This economic process represents a healthy

marketplace. See Y. Brozen, Concentration, Mergers &

Public Policy (\st Ed. 1982); and M. Abion, Advertis-

ing’s Hidden Effects: Manufacturers Advertising and Re-

tail Pricing (1st Ed. 1983). In many other retail markets

—drug stores, shoes, clothing, photography—retailers

have faced increased competition from chain or discount

56a

stores entering their markets. The evidence is that the

markets have not been monopolized by the new entrants.

Stores which do not discount have remained successful in

all those markets.

Some distributors assert that price advertising will cause

business failures. It is not at all clear that the LCB has

any responsibility to assure the profitability of beer dis-

tributorships. It may not have any such responsibility

and the business survival of industry participants may not

be an appropriate LCB issue.

Be that as it may, as an economic matter, distributors

cannot be ensured a prosperous future. Some distributors

should probably not be in business. There are many

factors which may separately or in combination cause

business failure, none of which have to do with price

advertising. Some distributors may be economically in-

efficient; location may be important; the nature of local

markets may change so that local demand drops; the

rate of beer consumption, on a nationwide basis, is de-

creasing. Price advertising is only one competitive factor

which alone may not be significant.

Distributors are already facing increased competition

from discounters. Word of mouth advertising and com-

parison shopping presently disseminate price information.

Since there appears to be nothing inherently wrong with

beer price advertising and there are means by which con-

sumers can obtain price information, consumers should

not be blocked from securing the same information by a

more efficient means, price advertising. Price advertising

efficiencics substantially benefit consumers by reducing

shopping costs—such as gasoline, time, higher prices paid

because of consumer decisions not to travel or spend time

—associated with purchasing a product. Since the beer

distribution market is generally price competitive, price

advertising may not result in a substantial increase in

competition from the distributors’ point of view, but at

57a

the same time it may be a substantial benefit to consumers

by giving them the opportunity to reduce shopping costs.

In some cases, price advertising may be a business tool

which distributors can use to correct misconceptions about

their pricing structure. The widespread belief that there

is a significant difference between prices charged by dis-

count distributors and other distributors is not necessarily

accurate. See Exhibit “F” (chart comparisons of price of

several distributors). (Information believed available to

the LCB will show that the distributors in this Exhibit who

are “discount” distributors do not necessarily have sig-

nificantly lower pric es. )

As competition develops, if some beer distributors do

fail as the result of price advertising, the market will not

become less competitive and prices to the public will not

increase. Entry into the beer distribution market as a

competitor is easy in economic terms. A warehouse, un-

skilled labor and, perhaps, trucks, are necessary to enter

the market. No specialized resources are required. While

licensing is a barrier to entry, if distributors fail, their

licenses are then available on the market. Dr. Nelson’s

opinion is that even if some distributors fail, the market

will thus not become less competitive and prices will not

increase.

III. Concerns Expressed About The Effects Of Beer

Price Advertising Can Be Addressed By Alternatives

Which Are Less Restrictive Than Banning Beer Price

Advertising Altogether.

The main concerns about the adverse effects of beer

price advertising seem to be alcohol abuse, resulting from

increased consumption, and distributor failures. Portions

of the preceding discussion respond to these concerns and

were intended to provide information showing that these

concerns are either not well founded or are minimal.

However, assuming these concerns have merit, there are

less restrictive alternatives to respond to these concerns

than the total prohibition of price advertising.

58a

As to alcohol abuse, tighter enforcement of existing

safeguards, such as under age drinking laws and regula-

tions and increasing the awareness of the consequences of

alcohol abuse, should be considered. It is widely believed

that a factor contributing to the decrease in alcohol con-

sumption has been the impact of new drunk driving laws

and the heightened public reaction to drunk driving.

As to distributor failures, there are well known legal

tools available both to private parties and public agencies

to deal with predatory pricing practices. Reductions in

price which substantially lessen competition, that is, pred-

atory pricing, are unlawful. See Anheuser Busch, Inc. v.

FTC, 289 F.2d 835 (7th Cir. 1961). There is a differ-

ence between low prices, which reflect competition and

benefit consumers, and predatory prices, that is, selling

below cost, which eventually destroys competition. It is

important to understand this difference because predatory

pricing, feared by some distributors, is unlawful under

section 2 of the federal Sherman Act, 15 U.S.C. § 2. If

predatory pricing is present, direct action can be taken

against it under the Sherman Act. This is a less restric-

tive and more direct means of dealing with predatory

pricing—which can occur with or without price adver-

tising—than by banning price advertising altogether.

Conclusion

Since beer price advertising has substantial economic

advantages and benefits consumers, since the disadvan-

tages, if any, of beer price advertising are minimal, and

since concerns about the effects of beer price advertising

can be dealt with by alternatives which are less restrictive

than banning beer price advertising altogether, the LCB’s

proposal to amend 40 Pa. Code § 13.41(a) should be

adopted.

59a

EXHIBIT A

VITAE May 1985

NAME: Jon P. Nelson

BIRTH DATE: August 9, 1941

SOCIAL SECURITY NUMBER: 388-40-7663

MARITAL STATUS: Married (Naomi), Two children

OFFICE ADDRESS:

Department of Economics

The Pennsylvania State Univ.

University Park, PA 16802

(814) 865-8871

HOME ADDRESS:

708 W. Foster Avenue

State College, PA 16801

(814) 237-0157

ACADEMIC DEGREES:

B.S.—Economics—University of Wisconsin—1964

Ph.D.—Economics—University of Wisconsin—1970

DISSERTATION:

“An Interregional Recursive Programming Model of

the U.S. Iron and Steel Industry, 1947-1967.”

HONORS:

Senior graduation honors, 1964

Ford Foundation Fellowship, 1967-68

American Iron and Steel Institute Fellowship,

1968-69

National Academy of Sciences Committees,

1976-77, 1979-80

National Science Foundation Panel, 1978

Liberal Arts Research Recognition Award, 1980

60a

EMPLOYMENT:

Professor, The Pennsylvania State University, 1978-

Graduate Officer, Pennsylvania State Univ., 1985-

Associate Professor, Pennsylvania State Univ.,

1973-78

Assistant Professor, Pennsylvania State Univ.,

1969-73

Research Fellow, University of Wisconsin, 1967-69

OTHER EXPERIENCE:

Consultant, Pennsylvania Department of Justice

(1980-85); U.S. Department of Labor (1974-76);

Department of Transportation (1973-74); National

Science Foundation (1972-83); various private or-

ganizations. Research Assistant, State of Wisconsin

(1964-67).

COURSES TAUGHT:

Industrial organization, antitrust and regulation,

microeconomics, environmental economics.

RESEARCH AREAS:

Market structure and performance, technological

change, regulation, environmental economics, invest-

ment demand, pricing behavior, cost-benefit analysis.

RESEARCH GRANTS:

NSF and Pennsylvania Science and Engineering

Foundation (1970-72); U.S. Department of Labor

(1974-75); U.S. Department of Transportation

(1973, 1974-75, 1977-78); U.S. Bureau of Mines

(1975-77). Author or co-author of ten final research

reports.

SELECTED PUBLICATIONS:

“An Interregional Recursive Programs Model of

Production, Investment, and Technological Change,”

Journal of Regional Science, April 1971, pp. 33-47.

6la

“Regional Concentration in the Steel Industry,”

Northeast Regional Science Review, Spring 1972,

pp. 218-225.

“An Interregional Recursive Programming Model of

the Iron and Steel Industry,” in G. Judge and T.

Takayama (eds.), Studies in Economic Planning

Over Space and Time (North-Holland, 1973), chap-

ter 20 (pp. 368-393).

“A Class of Dynamic Models for Describing and Pro-

jecting Industrial Development” (with R. Day),

Journal of Econometrics, June 1973, pp. 155-190.

“Forecasting Aggregate Supply of Coal Miners”

(with E. Cohn and G. Neumann), Socio-Economic

Planning Sciences, October 1974, pp. 293-299.

“Energy Conservation Policies of the Federal Energy

Office” (with T. Ferrar), Science, February 1975,

pp. 644-646.

“Forecasting Aggregate Demand for Coal Miners”

(with E. Cohn and G. Neumann), Applied Eco-

nomics, June 1975, pp. 81-92.

“The Demand for Space Heating Energy,” Review

of Economics and Statistics, November 1975, pp.

508-512.

“Climate and Energy Demand: Fossil Fuels,” in T.

A. Ferrar (ed.), The Urban Costs of Climate Modifi-

cation (Wiley Inter-Science, 1976), Chapter 5 (pp.

123-137).

“Accessibility and the Value of Time in Commut-

ing,” Southern Economic Journal, January, 1977,

pp. 1321-1329. Summarized in W. Nicholson, /nter-

mediate Microeconomics and Its Applications, 3rd

edn. (1983), p. 450.

“Cost-Benefit Analysis: Some Illustrations,” in Na-

tional Academy of Sciences, Noise Abatement: Pol-

62a

icy Alternatives for Transportation (1977), Chapter

9 (pp. 183-206).

Economic Analysis of Transportation Noise Abate-

ment (Ballinger Publishing Company, 1978), 265

PP:

“Residential Choice, Hedonic Prices, and the De-

mand for Urban Air Quality,” Journal of Urban

Economics, July 1978, pp. 357-369.

“Behavioral, Suboptimizing Models of Industrial Pro-

duction, Investment and Technological Change”

(with R. Day, et al.), in R. H. Day and A. Cigno

(eds.), Modelling Economic Change: The Recursive

Programming Approach (North-Holland, 1978),

Chapter 4 (pp. 55-118).

“Airport Noise, Location Rent, and the Market for

Residential Amenities,” Journal of Environmental

Economics and Management, December 1979, pp.

320-331.

“Airports and Property Values: A Survey of Recent

Evidence,” Journal of Transport Economics and

Policy, January 1980, pp. 37-52.

“A Comparison of Alternative Econometric Models

of Iron and Steel Investment Behavior” (with G.

Neumann and R. Crandall), Review of Economics

and Statistics, February 1980, pp. 122-127.

“Tax Policy and Steel Industry Investment Behavior:

An Econometric Analysis’ (with G. Neumann),

Quarterly Review of Economics and Business, Au-

tumn 1980, pp. 19-34.

“Measuring Benefits of Environmental Improve-

ments: Aircraft Noise and Hedonic Prices,” in V. K.

Smith (ed.), Advances in Applied Microeconomics

(JAI Press, 1981), Chapter 4 (pp. 51-75).

“Three Mile Island and Residential Property Values:

Empirical Analysis and Policy Implications,” Land

63a

Economics, August 1981, pp. 363-372. Summarized

in W. Nicholson, Intermediate Microeconomics and

Its Applications, 3rd edn. (1983), p. 451.

“Highway Noise and Property Values: A Survey of

Recent Evidence,” Journal of Transport Economics

and Policy, May 1982, pp. 117-138.

“Safety Regulation and Firm Size: Effects of the

Coal Mine Health and Safety Act of 1969” (with G.

Neumann), Journal of Law and Economics, October

1982, pp. 183-199. Summarized in American Enter-

prise Institute, Regulation (Jan. 1983), pp. 46-48.

“Real Income, Grade Inflation, Simultaneity, and

Teaching Evalutions” (with K. Lynch), Journal of

Economic Education, Winter 1984, pp. 21-37.

“Housing Values, Census Estimates, Disequilibrium

| and the Environmental Cost of Airport Noise: A

) Case Study of Atlanta” (with P. O’Byrne and J.

Seneca), Journal of Environmental Economics and

Management, forthcoming.

WORK IN PROGRESS:

“Multiplant Operation and Unionization.”

“Entry, Exit and Sunk Costs.”

RECENT PROGRAM APPEARANCES:

Appeared on the program of the AISI Steel Econom-

ics Seminar (1973, 1979) Eastern Economics Asso-

ciation (1974, 1977, 1982), Econometric Society

(1970, 1975, 1984), Southern Economic Associa-

tion (1978, 1980, 1985), Western Economic Asso-

ciation (1974, 1979), and at various other profes-

sional conferences and meetings.

REFEREE:

Regular basis for Journal of Environmental Eco-

nomics and Management, Land Economics, and Re-

view of Economics and Statistics.

64a

Occasional referee for American Economic Review,

American Real Estate and Urban Economics Asso-

ciation Journal, Business Economics, Cato Review,

Eastern Economic Journal, Economic Inquiry, En-

gineering Economist, Journal of the Air Pollution

Control Association, Journal of Economic Behavior

and Organization, Policy Analysis, and Southern

Economic Journal.

Manuscript reviewer for American Enterprise Insti-

tute, Harvard University Press, JAI Press, Penn State

University Press, Resources for the Future, Transpor-

tation Research Board, and various commercial book

publishers. Proposal and report reviewer for the Na-

tional Science Foundation.

GRADUATE STUDENT RESEARCH DIRECTED:

Ph.D. dissertations (6); M.A. essays (13).

PROFESSIONAL AFFILIATIONS:

American Economic Association, Association of En-

vironmental and Resource Economists, Industrial

Organization Society.

ADDITIONAL PUBLICATIONS:

“A Note on the Economics of Metallurgical Coke

Production,” Management Science, December 1971,

pp. 237-239.

“The Economic Costs of Airport Noise: Theory and

Measurement” (with I. Feller), in Interagency Sym-

posium on University Research in Transportation

Noise Proceedings, Stanford University, March 1973,

pp. 727-743.

“Residential and Commercial Demand for Space

Heating Energy,” in Proceedings of the Pennsylvania

Conference of Economists, Bloomsburg State Col-

lege, April 1975, pp. 1-20.

65a

“Energy Conservation Policies of the Federal Energy

Office: Reply” (with T. Ferrar), Science, 19 Sep-

tember 1975, p. 1015.

“Econometric Analysis of the Effects of Climate on

Energy Demand,” in Economic and Social Measures

of Biologic and Climate Change, Institute for De-

fense Analyses, September 1975, Ch. 3 (65 pp.).

Review of The Economics of Professional Team

Sports (by H. G. Demmert), Antitrust Bulletin, Win-

ter 1975, pp. 939-942.

“Economic Considerations of Highway Noise Impact

on Land,” in Final Report of the Highway Noise

Research Workshop, Florida Atlantic University,

August 1977, pp. 60-63.

“Accessibility and the Value of Time in Commuting:

Reply,” Southern Economic Journal, July 1978, pp.

298-300.

Review of Steel Production: Processes, Products, and

Residuals (by C. S. Russell and W. J. Vaughan),

The Engineering Economist, Spring 1979, pp. 191-

192.

“Tax Policy, Capital ‘Shortages,’ and Iron and Steel

Investment Behavior” (with G. Neumann), in Steel

Industry Economics Seminar Proceedings, University

of Washington, June 1979, pp. 43-63.

“Estimating Demand Functions for Product Charac-

teristics: Comment,” Journal of Consumer Research,

September 1982, pp. 219-20.

Review of Clean Coal/Dirty Air (by B. A. Acker-

man and W. T. Hassle), Southern Economic Journal,

October 1982, pp. 587-89.

Review of Energy, Economics and the Environment

(by H. E. Daly and A. F. Umana), Natural Re-

sources Journal, October 1982, pp. 1186-88.

66a

“Comment on ‘Can Government Regulate Safety?

The Coal Mine Example’” (with G. Neumann),

American Political Science Review, December 1982,

pp. 876-78.

“The Monetary Evaluation of Noise Nuisance: Com-

ment,” in T. O’Riordan and R. K. Turner (eds.),

Progress in Resource Management and Environ-

mental Planning (John Wiley, 1983), pp. 201-09.

67a

EXHIBIT B

NNOD OUOALMVH “ON NIS NSH S961 > AG O3rOdrw sO0td C3 ANSIHM NYIOYNYD O30N5 19 . ANS,

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oon, Sh OE" 8 hag -£yu0 siep ¢ SSE] 2IRS :

‘sec B¥8f AQy ‘4783.ued nod puy *ayse} yOOWS ©

$ SUIRRoIQ 328 ues OK WONT yO] patamo] u3aq

oMe tn Seu uete v2aT2A Pre uo doud aul ; '

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69a

EXHIBIT C

AVERAGE PRICE ON STATE BY STATE BASIS

(1) (a) (2) (b) (3) (ce)

ACCRA BLS Real Price

State Price Cost of Living (1/2)

1. Alabama 2.9500 .90000 3.2778

2. Alaska 0 1.2600 0

3. Arizona 2.5000 .98000 2.5510

4. Arkansas 2.8300 .89000 3.1798

5. Cali. ornia 2.4700 .98000 2.5204

6. Colorado 2.5900 .98000 2.6429

7. Connecticut 3.0500 1.1100 2.7477

8. Delaware 2.5700 1.0400 2.4712

9. Dist. of Columbia 2.8400 1.0800 2.6296

10. Florida 2.4900 .91000 2.7363

11. ‘Georgia* 3.3100 .90000 3.6778

12. Hawaii 0 1.2600 0

13. Idaho 2.7900 .96000 2.9063

14. Illinois 2.4900 .98000 2.5408

15. Indiana 2.2100 .97000 2.2783

16. Iowa 2.4600 .93000 2.6452

17. Kansas 2.6600 .94000 2.8298

18. Kentucky 2.6900 .92000 2.9239

19. Louisiana 2.6000 .90000 2.8889

20. Maine 3.0400 1.0200 2.9804

21. Maryland 2.7800 .98000 2.8367

22. Massachusetts 2.7600 1.1300 2.4425

23. Michigan 2.8000 .98000 2.8571

24. Minnesota* 2.5200 .98000 2.5714

25. Mississippi* 2.7900 .86000 3.2442

26. Missouri 2.5700 .94000 2.7340

27. Montana 2.7000 .96000 2.8125

28. Nebraska 2.6100 .91000 2.8681

29. Nevada 2.6000 1.0500 2.4762

80. New Hampshire* 2.5000 1.0200 2.4510

81. New Jersey 2.6100 1.1500 2.2696

32. New Mexico 2.4700 .97000 2.5464

33. New York 3.0400 1.1500 2.6435

34. North Carolina 2.5300 .89000 2.8427

35. North Dakota 2.5400 .91000 2.7912

36. Ohio* 2.6000 .99000 2.6263

37. Oklahoma* 2.5600 .90000 2.8444

38. Oregon 2.9900 1.0000 2.9900

70a

(1) (a) (2) (b) (3) (c)

ACCRA BLS Real Price

State Price Cost of Living (1/2)

39. Pennsylvania(d)* 2.3300 1.0400 2.2404

40. Rhode Island* 2.9000 1.1500 2.5217

41. South Carolina 2.8700 .86000 3.3372

42. South Dakota 2.7400 .91000 3.0110

43. Tennessee 2.9900 .86000 3.4767

44. Texas 2.6200 .88000 2.9773

45. Utah 2.2400 .96000 2.4375

46. Vermont 3.0500 1.0200 2.9902

47. Virginia* 2.7500 1.0000 2.7500

48. Washington 2.7800 1.0000 2.7800

49. West Virginia 2.9300 .90000 3.2556

50. Wisconsin 2.3300 1.0100 2.3069

51. Wyoming 3.4400 .96000 3.5833

* States which prohibit price advertising.

(a) Prices are from the American Chamber of Commerce Re-

search Association (ACCRA) price lists for the second and third

quarters of 1982. Average prices for each state were calculated

by weighing prices recorded in cities in each state. ACCRA collects

prices for six packs of Budweiser and Schlitz 12 oz. cans less any

container deposits.

(b) Cost of living index derived from Bureau of Labor Sta-

tistics indexes for cities and rural areas within each state.

for that state.

(d) Pennsylvania’s six pack market is sale from taverns and

other eating places, different from most other states. Pennsyl-

vania’s ACCRA prices were accordingly adjusted by Dr. Nelson

to permit a comparison.

Fla

EXHIBIT D

STATE PER CAPITA CONSUMPTION BY RANK

1982-1983 (in gallons)

1983 Per Capita 1982 Per Capita

State Rank Consumption Rank Consumption

New Hampshire 1P 38.7 3 33.8

Nevada 2 36.0 1 35.5

Wisconsin 3 34.0 2 34.1

Hawaii 4 32.6 5 31.2

Montana 5 30.9 4 31.3

Texas 6 29.7 6 31.0

Arizona 7 29.3 8 29.2

New Mexico 8 29.1 11 28.0

Alaska 9 29.0 9 28.6

District of Columbia 10* 28.7 12 27.7

Florida 10 * 28.7 10 28.4

Wyoming 12* 27.6 7 29.6

Delaware 12 * 27.6 13 27.4

Vermont 14* 27.0 17 26.1

Rhode Island 14*P 27.0 25 24.5

Colorado 16 26.5 14 27.3

Nebraska 17 26.1 16 26.2

North Dakota 18 25.8 15 26.5

Pennsylvania 19P 25.5 19 25.9

Illinois 20 * 25.0 21 * 24.8

Massachusetts 20 * 25.0 18 26.0

Maryland 22 24.9 21 * 24.8

: California 23 24.7 23 24.7

Hy Iowa 24 24.6 26 * 24.4

Missouri 25 * 24.2 26 * 24.4

Louisiana 25 * 24.2 20 25.1

Minnesota 27 * 24.1 28 * 23.9

Ohio 28 P 23.9 24 24.6

Idaho 29 23.8 28 * 23.9

Michigan 30 23.6 30 23.6

Maine 31 23.4 33 23.2

Oregon 32 23.1 $1 * 23.3

Washington 33 22.7 $1 * 23.3

Virginia 84P 22.5 36 22.2

South Dakota 35 * 22.3 37 22.1

New York 35 * 22.3 34 22.6

Indiana 35 * 22.3 $5 22.5

72a

1983 Per Capita 1982 Per Capita

State Rank Consumption Rank Consumption

New Jersey 38 21.9 38 22.0

South Carolina 39 21.8 40 21.3

Kansas 40 21.0 39 21.4

Georgia 41P 20.8 42 20.2

Connecticut 42 20.2 46 * 19.3

West Virginia 43 * 20.1 46 * 19.3

Mississippi 43 *P 20.1 43 * 19.8

North Carolina 45 19.6 48 19.0

Kentucky 46 * 19.5 45 19.7

Tennessee 46 * 19.5 43 * 19.8

Oklahoma 48 P 18.5 41 20.4

Arkansas 49 17.9 49 17.8

Alabama 50 17.7 50 17.3

Utah ° 51 13.5 51 15.4

* Tied.

P=States which prohibit beer price advertising.

73a

EXHIBIT E

ADULT PER CAPITA CONSUMPTION 1982-83

State 1983 1982

1. Alabama 24.6 24.2

2. Alaska 40.3 42.8

8. Arizona 40.8 42.2

4. Arkansas 24.9 25.0

5. California 33.4 83.5

6. Colorado 36.2 37.8

7. Connecticut 26.6 25.5

8. Delaware 37.1 37.0

| 9. Dist. of Columbia 36.7 35.0

10. Florida 37.2 37.2

11. Georgia* 29.0 28.5

| 12. Hawaii 45.0 43.4

, 13. Idaho 35.1 35.7

| 14. Tilinois 34.3 34.2

15. Indiana 30.8 81.4

16. Iowa 33.8 33.6

17. Kansas 28.7 29.2

18. Kentucky 27.1 27.8

19. Louisiana 34.9 36.4

20. Maine 82.0 31.9

21. Maryland 33.4 33.5

22. Massachusetts 82.9 34.2

23. Michigan 32.6 32.9

24. Minnesota* 33.2 33.0

25. Mississippi* 29.0 29.1

26. Missouri 82.9 33.3

27. Montana 43.3 44.2

28. Nebraska 36.0 36.4

| 29. Nevada 48.5 47.8

30. New Hampshire* 52.4 45.9

) 31. New Jersey 29.2 29.5

82. New Mexico 42.0 40.9

| 88. New York 29.8 30.2

84. North Carolina 26.7 25.9

35. North Dakota 36.2 37.3

36. Ohio* 82.8 33.9

74a

State 1983 1982

37. Oklahoma* 25.6 28.6

38. Oregon 31.5 32.0

39. Pennsylvania (d) * 33.9 34.7

40. Rhode Island* 35.4 32.3

41. South Carolina 80.5 80.2

42. South Dakota 31.5 31.2

43. Tennessee 26.6 27.3

44, Texas 42.2 44.2

45. Utah 21.6 24.8

46. Vermont 36.9 36.2

47. Virginia* 30.3 30.0

48. Washington 30.9 32.0

49. West Virginia 27.7 26.9

50. Wisconsin 46.7 46.9

51. Wyoming 40.0 43.5

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76a

PRICE COMPARISON

Harrisburg—Scranton—Williamsport—Pittsburgh

Comparisons made July 25 and 26, 1985

All Prices Include 6% Sales Tax

George’s Beer Craig’s

Beverage Barn Distributors Distributors

Store Williamsport Pittsburgh Pittsburgh

Prices:

Budweiser

(12 oz. cans) $ 9.79 $10.50 $ 9.75

Rolling Rock

(12 oz. cans) $ 9.29 $ 9.25 $ 8.75

Schmidts

(12 oz. cans) $ 7.69 $ 8.35 $ 8.75

Miller Lite

(12 oz. cans) $ 9.99 $10.25 $ 9.75

Moosehead

(12 oz. bottles) $15.19 N/A $15.95

Meisterbrau

(12 oz. cans) $ 7.59 $ 7.90 $ 7.50

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78a

COMMONWEALTH OF PENNSYLVANIA

Order Adopting Regulations

Pennsylvania Liquor Control Board

(Name of subordinate unit, if any, adopting order)

Date of Order: September 4, 1985

Before (Members: Daniel W. Pennick, Chairman):

Ralph Barnett, Member—Mario Mele, Member

(Insert names of agency members participating

in action or order. )

Caption of Agency Proceeding (if any):

Agency Docket No. or File No. (if any):

Brief Descriptive Title of Order: Beer Price Advertising

Insert here (and continue on additional sheets la, 1b, Ic,

etc., as required) a brief narrative discussion of the back-

ground leading up to the agency decision to adopt the

subject order: As the result of a court challenge to the

regulation in question, the Liquor Control Board’s Chief

Counsel reviewed the regulation and determined that its

constitutionality (both under Pennsylvania and United

States constitutions) was questionable, and recommended

rescission of the regulation. The Independent Regulatory

Review Commission, as well as the Office of the Attorney

General, concurred, and also found that it would be in the

. Tad el pete < y

3 2 :

79a

best interest of the citizens of the Commonwealth to per-

mit the advertising of malt and/or brewed beverage prices.

It was noted by all of the foregoing that there are no

similar prohibitions against the advertising of other alco-

holic beverage prices.

The Board conducted a lengthy public hearing and after

a review of all the relevant data and testimony, voted

unanimously to rescind the regulation. It was further de-

termined that it would be in the best interest of the citi-

zens to make the rescission effective as of the date of the

vote, and issued a press release announcing this decision.

The release received wide general distribution.

(2) Public comments were received by the Liquor Con-

trol Board and a public hearing was held by the Board on

July 31, 1985. Thirteen letters were received by the Ex-

ecutive Director and/or Members of the Liquor Control

Board relative to beer price advertising during the 30-day

comment period. Ten expressed opposition to the pro-

posal to rescind the regulations and three expressed sup-

port of the Board’s proposal. In addition, an extensive

report written by a Pennsylvania State University Econo-

mist was received. This report supported the proposed

regulatory amendment.

Ten persons appeared and testified at the public hear-

ing. Arguments presented on both sides of the issue can

be broadly categorized as follows: 1) Economic considera-

tions, 3) legal considerations, and 3) social considerations.

Related to economic considerations, an economist retained

by the Office of the Attorney General, Anti-Trust Divi-

sion, examined the effect of price advertising on beer prices,

the effect of price advertising on consumption, and the

effect of beer price advertising on business survival of in-

dustry participants. Based on the available data, the econ-

80a

omist concluded that price advertising does not increase

beer consumption and beer industry participants are not

harmed by beer price advertising. It was pointed out that

beer price advertising offers substantial economic advan-

tages.

Those opposed to the regulatory proposal raised the

issue of the impact of increased competition from “dis-

counters”. The Board recognizes that some economic in-

fluence has been and probably will continue to be felt as

some distributors are offering discount prices to consum-

ers. Price advertising may cause additional consumers to

become aware that lower prices are available, possibly

creating more economic hardship for those distributors

who do not participate in the discount pricing measures.

While the Board is concerned for the economic survival of

industry participants, it also recognizes that a license to

sell malt or brewed beverages does not necessarily guaran-

tee success in the industry. There are many factors which

impact upon the success and/or competitiveness of busi-

ness including location, demand, product lines carried and

demographics of the market-place. The Board was not

convinced that price advertising is the sole determinant of

the business success rate. Testimony was offered to indicate

that price advertising was responsible for the closings of

several distributors over the past year. Since price adver-

tising was permitted only for a short time, it must be

assumed that the distributors that have closed, did so for

reasons other than price advertising per se. Regardless of

the reason for the success or failure of any business ven-

ture, the Liquor Control Board’s statutory authority and

regulatory responsibility does not encompass the guarantee

of licensee profitability.

Regarding legal considerations, the Liquor Controi Board

felt that the testimony of the Chief of the Anti-Trust Sec-

tion of the Attorney General’s Office and the advice of it’s

own Chief Counsel was valid and outweighed the legal

8la

objectives raised by those seeking to keep the regulation

intact.

With regard to social/other considerations, the Board

heard concern expressed over the possibility of additional

consumption and abuse of alcoholic beverages should beer

price advertising be permitted. In evaluating this issue, the

Board recognized the types of advertisements currently

permitted under the Liquor Code and its regulations. It is

felt that since advertisements which glamorized the use of

malt beverages are already permitted, the addition of price

advertising would not itself stimulate additional consump-

tion or abuse. If the purpose of price prohibition is to

protect the consumer, no case was made to indicate that it

does. On the contrary, it appears that the consumer would

be best served by being permitted to be informed of the

prices of the beverages.

Further, the Board notes that no other form of alco-

holic beverage price advertising is prohibited in the Com-

monwealth. Thus, it appears to be inconsistent with gov-

erning law as well as PLCB policy to support a prohibi-

tion against beer price advertising by manufacturers and

distributors.

Insert here (1) a brief narrative description of the notice

of proposed ruiemaking action taken by the agency, in-

cluding a reference to the volume, page and date of publi-

cation of the issue or issues of the Pennsylvania Bulletin

in which the proposed administrative regulation or change

therein was noticed for public comment, (2) a brief dis-

cussion of the comments and suggestions, if any, received

from the public in response thereto, and (3) a brief sum-

mary or any modifications in the originally proposed regu-

lations embodied in the final text as adopted by the subject

order:

(1) Pursuant to Section 5(a) of the Regulatory Review

Act of 1982 (P.L. 633, No. 181), on June 17, 1985 and

the regulation was submitted to the Independent Regula-

tory Review Commission and the standing House and Sen-

82a

ate Committees for review and comment. The Notice of

Proposed Rulemaking was published in 15 PA Bulletin,

page 2397, on July 29, 1985. Within the review period,

the regulation was disapproved by the House Liquor Con-

trol Committee and the Senate Law and Justice Commit-

tee. The Independent Regulatory Review Commission met

on July 3, 1985 and approved the regulation. The various

oversight requirements of the Regulatory Review Act have

been fulfilled.

(2) Please see attached.

(3) The regulation is rescinded as indicated in Annex A.

The (regulations) hereby (rescinded) are (adopted) pur-

suant to (Insert here a statement of the statutory or other

authority for the adoption by the agency of the subject

order, including a paralle! citation to Purdon’s Statutes):

Liquor Code, Act 21, of April 12, 1951, P.L. 90, Section

207(t); 47 P.S. §2-207(1). (The “authorizing §stat-

ute(s)”).

The Pennsylvania Liquor Control Board finds:

(1) That public notice of intention to (rescind) the ad-

ministrative regulations (rescinded) by this order has been

duly given pursuant to Sections 201 and 202 of the Com-

monwealth Documents Law (45 P.S. §§ 1201 and 1202)

and the regulations thereunder, 1 Pa. Code §§ 7.1 and 7.2.

(2) That the (rescission) of the (regulations) of the

Pennsylvania Liquor Control Board in the manner pro-

vided in this order is necessary and appropriate for the

administration (and enforcement) of the authorizing stat-

ute (s).

The Pennsylvania Liquor Control Board acting pursuant

to the authorizing statue (s), orders:

(A) The (regulations) of the Pennsylvania Liquor

Control Board, 40 Pa. Code Chapter 13 are amended by

(deleting) and [sic] Sections 13.41(a) and adopted to

read as set forth in Annex A to this order.

83a

(b) The Chairman of the Pennsylvania Liquor Control

Board shall submit this order and Annex A hereto to the

Department of Justice for approval as to legality as re-

quired by law.

Board shall duly certify this order and Annex A hereto

and deposit the same with the Legislative Reference Bu-

reau as required by law.

(D) (If the order is to take effect at a time subsequent

to publication in the Pennsylvania Bulletin.) This order

shall take effect immediately.

By the Pennsylvania Liquor Control Board

/s/ [Illegible]

Signature of Certifying Officer

Daniel W. Pennick

Name of Certifying Officer

Chairman

Title of Certifying Officer

[Affix agency seal, if possible]

84a

FACE SHEET

FOR FILING DOCUMENTS

WITH THE LEGISLATIVE REFERENCE BUREAU

(Pursuant to Commonwealth Documents Law)

Copy below is hereby approved as to form and legality.

Attorney General

By:

Deputy Attorney General

Date of Approval

L) Check if applicable

Copy not approved. Objections attached.

Copy below is hereby certified to be a true and correct

copy of a document issued, prescribed or promulgated by:

Pennsylvania Liquor Control Board

Document/Fiscal Note No. 54-16

Date of Adoption:

By: /s/ [Illegible]

Title: Chairman

(Executive Officer, Chairman or Secretary)

Copy below is hereby approved as to form and legality.

Executive or Independent Agencies.

By: /s/ [Illegible]

10-24-85

Date of Approval

(Chief Counsel)

(Strike inapplicable title)

C) Check if applicable. No Attorney General approval or

objection within 30 days after submission.

85a

ANNEX A

SECTION 13.41. MALT OR BREWED BEVER-

AGES.—

[(a) Manufacturers, importing distributors and distribu-

tors of malt or brewed beverages may advertise the brand

names of such beverages in, on, or by billboards, news-

papers, magazines, radio, and television, provided such

advertisements make no direct or indirect reference to the

price at which such manufacturer, importing distributor

or distributor sells the beverages, or imply an inducement

by the use of words or expressions, such as “special,”

“save,” “big value,” get acquainted offer,” etc.]

[(b)] Manufacturers and importing distributors of malt

or brewed beverages, may include the names and ad-

dresses of all distributors and importing distributors to

whom they sell in the locality covered by such advertising.

No discrimination may be shown to one distributor or

importing distributor over another, and where more than

one distributor or importing distributor purchases the

products from the manufacturer or importing distributor

in the area covered by such advertisement, the names and

addresses of all who purchase the product directly from

the advertiser shall be displayed or mentioned in equal

prominence. Where this is not done, none may be dis-

played or mentioned.

86a

LEGISLATIVE JOURNAL—SENATE

Senator WILLIAMS. Mr. President, I made a mis-

take. I think I was heard in voting in the negative. That

actually was the affirmative.

The PRESIDENT. The Clerk will report and record

Senator Williams in the affirmative.

Senator JONES. Mr. President, I, too, would like my

vote changed from “no” to “aye.”

The PRESIDENT. The Clerk will record Senator

Jones in the affirmative.

The yeas and nays were required by Senator RHOADES

and were as follows, viz:

YEAS—21

Afflerbach Jones

Armstrong Madigan

Bell Mellow

Bodack Pecora

Brightbill Rhoades

Corman Stewart

Greenleaf Stout

Greenwood Tilghman

Hankins Wenger

Hess Williams

Hopper

NAYS—28

Andrezeski Lincoln

Fisher Loeper

Fumo Lynch

Helfrick Moore

Holl Musto

Jubelirer O’Pake

Kelley Peterson

Lemmond Regoli

Lewis Reibman

a ee

87a

Rocks Shumaker

Romanelli Stapleton

Ross Stauffer

Salvatore Wilt

Shaffer Zemprelli

Less than a majority of the Senators having voted

“aye,” the question was determined in) the negative.

And the question recurring,

Will the Senate agree to the bill on third consideration,

as amended?

MADIGAN-WILT-ROMANELLI AMENDMENT

Senator MADIGAN, on behalf of himself and Senator

WILT, by unanimous consent, offered the following

amendment:

Amend Bill, page 198, by inserting between lines 27

and 28:

Section 86. The act is amended by adding a section

to read:

Section 498. Unlawful Advertising —(a) No manu-

facturer, wholesaler, retailer or shipper whether from out-

side or inside this Commonwealth and no licensee under

this act shall cause or permit the advertising in any man-

ner whatsover of the price of any malt beverage, cordial,

wine or distilled liquor offered for sale in this Common-

wealth: Provided, however, That the provisions of this

section shall not apply to price signs or tags attached to

or placed on merchandise for sale within the licensed

premises in accordance with rules and regulations of the

board.

(b) Any person who violates any of the provisions of

this section commits a misdemeanor and shall, upon con-

viction, be sentenced to pay a fine of fifty dollars ($50)

for the first offense and for each additional offense there-

after shall be sentenced to pay a fine of one hundred dol-

88a

lars ($100). Publication or broadcast by any person in

violation of the provisions of this section shall also be

subject to injunctive proceedings in a court of competent

jurisdiction on a complaint brought by a retail licensee or

an association of retail licensees.

trade journal which is duly recognized and authorized to

be exempt from the provisions of this section by the

board.

On the question,

Will the Senate agree to the amendment?

Senator MADIGAN. Mr. President, on behalf of my-

self and the gentleman from Mercer, Senator Wilt, I am

offering an amendment which would provide adding Sec-

tion 498, which would prohibit the advertising of price.

The amendment states, “. . . No manufacturer, whole-

saler, retailer or shipper whether from outside or inside

this Commonwealth and no licensee under this act shall

cause or permit the advertising in any manner whatsoever

of the price of any malt beverage, cordial, wine or dis-

tilled liquor offered for sale in this Commonwealth. . . .”

I know the issue is debatable. Many people in the Bible

Belt of this state who support liquor control feel that such

advertising would have an impact on the consumption of

alcohol and, therefore, I am pleased to urge support for

this amendment.

LEGISLATIVE LEAVE CANCELLED

The PRESIDENT. Prior to the roll call, the Chair

recognizes the presence on the floor of Senator Salvatore

and his temporary Capitol leave will be cancelled.

And the question recurring,

Will the Senate agree to the amendment?

Soak iar

Sh siete se hie inel tee ROe es

;

89a

Senator ROMANELLI. Mr. President, I would ask the

maker of the amendment to add my name to the amend-

ment. I would also add support for it. I would ask my

colleagues to support it. I have an identical amendment

and, therefore, I will not have to offer it if this one passes.

The PRESIDENT. Would the gentleman from Brad-

ford agree to list Senator Romanelli as a cosponsor of the

amendment?

Senator MADIGAN. Mr. President, I am pleased to

add the gentleman from Allegheny as a cosponsor to my

amendment and sincerely appreciate his support.

The PRESIDENT. The Clerk will make notation of

the sponsorship.

Senator ROMANELLI. Mr. President, I, too, feel that

if we are ever going to put these Beer Worlds of Pennsy]l-

vania out of existence, the ones that are wrecking our

small distributors, this is the way to do it; curb their

advertising.

Senator MELLOW. Mr. President, I find myself in the

very uncomfortable position of having to take a position

against a Member of my own caucus, he being the gentle-

man from Allegheny, Senator Romanelli, who has just

actively stated his support for the amendment. I think,

Mr. President, this is probably one of the most important

parts of House Bill No. 1000 that we can deal with today

because it basically has a direct dealing with the people’s

right to know. It has basically little to do with putting

anybody out of business or establishing business interest

for any particular individual or corporation. What this

amendment does, Mr. President, is it perpetuates the

system as we have it today with regard to advertising.

We add nothing new in the Liquor Code by continuation

of advertising or by opposing the amendment that has

been offered by the gentleman from Bradford, Senator

Madigan.

90a

Mr. President, basically, I do not think there is any

reason why we should deny the consuming public-—the

consumer who is not sitting in this room today—the op-

portunity to be able to pick up a newspaper and be able

to read what serves their best interest with regard to the

purchasing of spirits, liquor or beer because of advertis-

ing. I think when you talk about consumer interest, when

you talk about credit card purchasing and you talk about

advertising, you basically hit the two strong points of this

particular proposal. I would very strongly oppose the

amendment that has been offered by the gentleman from

Bradford, Senator Madigan, with support of the gentle-

man from Mercer, Senator Wilt, and the gentleman from

Allegheny, Senator Romanelli, because by and large what

this does is it returns us to the point we were at some

twenty months ago before regulations were adopted that

made advertising possible in the best interest of the con-

sumer. I do not view this particular amendment, Mr.

President, or the prohibition of advertising, as a way of

putting any particular group out of business, because I

would be totally opposed to putting anybody out of busi-

ness who is runing a legitimate operation in Pennsylvania

for a profit. I would want to keep them in business. I

think, Mr. President, by us going ahead and accepting

this particular amendment, we do go a long way in telling

the consumers in Pennsylvania that we do not think it is

important for them to know what the competitive price

is in their purchases and we do not think it is important

for them to know where, in fact, they might be able to

purchase something at a lower price. In this day and age

I see absolutely no useful purpose in accepting this amend-

ment and I would request a negative vote on the amend-

ment.

Senator BELL. Mr. President, I support this amend-

ment very, very strongly because in my district out-of-state

firms advertise “Come across the border and buy your

booze. It is a lot cheaper.” I know that does not happen

9la

in the district of the gentleman from Philadelphia, Senator

Fumo, which is right adjacent to mine, because his people

do not go to New Jersey over those two bridges and buy

their booze. But, down our way, I do not want any more

of my people—and I think he called them smugglers,

chiselers, criminals, and every other thing, and, in fact,

he said one lady may have been a prostitute, I did not

know how the hell that would come in, and I do not think

we should encourage criminal activity. I want my people

to be lily pure, just like Senator Fumo’s people.

Senator ROMANELLI. Mr. President, it is a proven

fact that every time one of the Beer Worlds of this Com-

monwealth opens up and starts their pattern of advertis-

ing, there are eight or ten small I.D.’s that go out of

business. With every one of them we probably lose four

or five more jobs. I know that is the case in western

Pennsylvania. It may not be the case in the northeast tier,

but it is the case in western Pennsylvania. I would urge

an affirmative vote here.

Senator HESS. Mr. President, I think we all in this

Body understand the controversy over this particular is-

sue. As I understand the current federal requirements

regarding the advertising of tobacco products, in particu-

lar cigarettes, whether it be the price or the name brand

or any other type of advertising affecting cigarettes and

—this is my understanding—any type of advertising that

mentions the brand name. I have a pack of Winston 100

Lights here which says that smoking by pregnant women

may result in fetal injury, premature birth and low birth

weight. As I read the bill now before us, no warning is

stipulated regarding the advertising of pricing of alcohol

or spirits or malt beverages. Until I see that in the bill,

I am going to support the amendment. I do not think we

should have one rule for our tobacco farmers and another

rule for our liquor producers.

92a

LEGISLATIVE LEAVE

Senator MELLOW. Mr. President, I request a Capitol

leave for Senator Williams who was just called from the

floor.

The PRESIDENT. Senator Mellow requests a tem-

porary Capitol leave for Senator Williams. Is there an

objection? The Chair hears none. The leave will be

granted.

And the question recurring,

Will the Senate agree to the amendment?

(During the calling of the roll, the following occurred: )

Senator MELLOW. Mr. President, I would like to

change the vote of Senator Andrezeski from “aye” to

“ ”

no.

The PRESIDENT. The gentleman will be so recorded.

POINT OF ORDER

Senator PECORA. Mr. President, I rise to a point of

order.

The PRESIDENT. The gentleman from Allegheny,

Senator Pecora, will state it.

Senator PECORA. Mr. President, has every absentee

Senator from this floor given instructions on how to vote

on each amendment?

The PRESIDENT. The Chair would presume so.

Senator PECORA. Mr. President, I am not asking

for a presumption. I am asking a question, Mr. President.

I would like verification of it.

The PRESIDENT. The Chair would suggest to the

gentleman that he might direct that inquiry to the leaders

on both sides.

Senator PECORA. Mr. President, under the point of

order, do I have the authoirty to look at the instructions?

93a

The PRESIDENT. The Chair would have no knowl-

edge of that particular situation. The Chair would also

remind the gentleman that with our system of temporary

Capitol leaves, the instructions need not be in writing.

Senator LOEPER. May we be at ease, Mr. President?

The PRESIDENT. The Senate will be at ease.

(The Senate was at ease. )

Senator PECORA. Mr. President, referring to the

point of order, it seems there have been some rules or

some agreement on the procedure of voting. Even though

I do not agree with it, it was accepted and we are follow-

ing those rules. But, it gives me a bad impression when

an absentee Senator votes “aye” or “nay” and then after

the votes are counted it is changed.

The PRESIDENT. The Chair would remind the gentle-

man that his point of order has been stated and that we

are in the middle of a roll call. Further remarks would

be properly addressed under Petitions and Remonstrances.

PARLIAMENTARY INQUIRY

Senator MELLOW. Mr. President, I rise to a question

of parliamentary inquiry.

The PRESIDENT. The gentleman from Lackawanna,

Senator Mellow, will state it.

Senator MELLOW. Mr. President, when would it be

appropriate for me to share with the Chair the orders that

were given to me to vote on amendments? Is that an

appropriate time, before the roll call is announced?

The PRESIDENT. No, that is not the appropriate

time, Senator. The appropriate time would be after the

announcement of the roll cail.

The yeas and nays were required by Senator

MADIGAN and were as follows, viz:

YEAS—24

Armstrong Pecora

Bell Peterson

Bodack Romanelli

Brightbill Ross

Hankins Salvatore

Helfrick Shaffer

Hess Shumaker

Holl Stewart

Hopper Wenger

Jones Williams

Lincoln Wilt

Madigan Zemprelli

NAYS—25

Afflerbach Mellow

Andrezeski Moore

Corman Musto

Fisher O’Pake

Fumo Regoli

Greenleaf Reibman

Greenwood Rhodes

Jubelirer Rocks

Kelley Stapleton

Lemmond Stauffer

Lewis Stout

Loeper Tilghman

Lynch

Less than a majority of the Senators having voted

“aye,” the question was determined in the negative.

And the question recurring,

Will the Senate agree to the bill on third consideration,

as amended?

Senator MELLOW. Mr. President, I guess you should

never make assumptions, but I would assume that the

95a

individua) was directing the question as to why I changed

the vote of the gentleman from Erie, Senator Andrezeski,

on the amendment that was offered by the gentleman from

Bradford, Senator Madigan. The instructions that were

given to me by Senator Andrezeski in his writing is to be

recorded as voting “no” on the amendment. A copy of

the record is here at the desk if anyone would like to

inspect it.

RECONSIDERATION OF MADIGAN AMENDMENT

Senator MADIGAN. Mr. President, I would like to

move for a reconsideration of the amendment.

The PRESIDENT. Senator Madigan moves that the

vote by which the previous amendment failed passage be

reconsidered.

The motion was agreed to.

And the question recurring,

Will the Senate agree to the amendment?

(During the calling of the roll, the following occurred: )

Senator LOEPER. Mr. President, I would like to

change my vote from “no” to “aye.”

The PRESIDENT. The gentleman will be so recorded.

The yeas and nays were required by Senator

MADIGAN and were as follows, viz:

YEAS—26

Armstrong Moore

Bell Pecora

Bodack Peterson

Brightbill Romanelli

Hankins Ross

Hess Salvatore

Holl Shaffer

96a

Hopper Shumaker

Jones Stewart

Lemmond Wenger

Lincoln Williams

Loeper Wilt

Madigan Zemprelli

NAYS—23

Afflerbach Mellow

Andrezeski Musto

Corman O’Pake

Fisher Regoli

Fumo Reibman

Greenleaf Rhoades

Greenwood Rocks

Helfrick Stapleton

Jubelirer Stauffer

Kelley Stout

Lewis Tilghman

Lynch

A majority of the Senators having voted “aye,” the

question was determined in the affirmative.

And the question recurring,

Will the Senate agree to the bill on third consideration,

as amended?

ROMANELLI AMENDMENT

Senator ROMANELLI, by unanimous consent, offered

the following amendment:

Amend Sec. 14 (Sec, 215), page 42, line 23, by insert-

ing after “ESTABLISHMENTS”: : Provided, however,

That in no instance shall such a wine specialty store be

located in a retail establishment, whose principal business

is the sale of food or food products.

On the question,

97a

Will the Senate agree to the amendment?

Senator ROMANELLI. Mr. President, this amendment

simply states that no wine shall be sold in stores that are

primarily food stores.

Senator LOEPER. Mr. President, it is my understand-

ing that House Bill No. 1000 was amended in committee.

That amendment included a provision which would allow

the State Liquor Control Board to establish locations for

the dispening of wine in speciality stores within any retail

establishment. Therefore, I would oppose the amendment

of the gentleman from Allegheny, Senator Romanelli.

LEGISLATIVE LEAVES CANCELLED

Senator MELLOW. Mr. President, first, I would like

to have the record reflect the fact that Senator Ross is

back on the floor and should be taken off Capitol leave.

The PRESIDENT. The Chair recognizes the presence

on the floor of Senator Zemprelli, Senator Andrezeski and

Senator Ross and their temporary Capitol leaves will be

cancelled.

98a

COURT OF APPEALS OF TENNESSEE

SHIRLEY A. WISE and

NEWSPAPER PRINTING CORPORATION,

Plaintiffs-A ppellees

vs.

TENNESSEE ALCOHOLIC BEVERAGE COMMISSION and

WILLIAM M. LEECH, JR., Attorney General of Tennessee,

Defendants-A ppellees

and

LICENSED BEVERAGE WHOLESALERS

OF TENNESSEE, INC.,

Intervening Defendant-A ppellant

Appeal from Part I, Chancery Court,

Davidson County, Tennessee

Honorable Irvin H. Kilcrease, Chancellor

Filed: Apr. 13, 1982

DAVIDSON EQUITY

BEN H. CANTRELL, Judge

AFFIRMED AND REMANDED.

OPINION

This case involves the constitutionality of the rules of

the Tennessee Alcoholic Beverage Commission which pro-

hibit mass media advertising of beverage alcohol. The

99a

Chancellor below declared the regulations unconstitu-

tional.

The plaintiff Shirley A. Wise operates Hickory Liquors,

a retail liquor store in Davidson County, Tennessee. She

entered into an agreement with the plaintiff, Newspaper

Printing Corporation, to place advertisements, including

price information in The Tennessean and Banner news-

papers, which circulate throughout middle Tennessee. The

plaintiffs understood that the current rules of the Alcoholic

Beverage Commission prohibited such advertising and

agreed that the ads would not run unless permission to run

them could be obtained. The Alcoholic Beverage Com-

mission denied such permission because of the rules pro-

hibiting all price advertisements of retail liquor. These

rules ars as follows:

0100-3-.01(5)

An advertisement for distilled spirits shall not con-

tain specific price for any item contained therein.

Nor shall such advertisement contain phrases such as

“specially priced,” “reduced price,” “new low price,”

“close-out price,” “sale price,’ or similar phrases of

pecuniary appeal.

0100-3-.02(5)

(e) Price

An advertisement for wine shall not contain spe-

cific price for any item contained therein. Nor shall

such advertisement contain phrases such as “specially

priced,” “reduced price,” “new low price,” “close-out

price,” “sale price,” or similar phrases of pecuniary

appeal.

Plaintiffs brought an action for declaratory judgment in

the court below naming the ABC and the Tennessee At-

torney General as defendants. The complaint asserted that

100a

the regulations were invalid because they were in violation

of the Free Speech Provisions of the First Amendment to

the United States Constitution and Article I, Section 19 of

the Tennessee Constitution. The Commission filed an an-

swer which did not defend the constitutionality of the reg-

ulations and exhibited two written opinions of the Tennes-

see Attorney General to the effect that the regulations

were unconstitutional.

The plaintiffs then filed a motion for a judgment on the

pleadings, asserting that the regulations were invalid on

their face. The plaintiffs asserted that the regulations vio-

lated the above constitutional provisions because they

absolutely prohibited the communication of truthful infor-

mation concerning lawful business transactions.

The Licensed Beverage Wholesalers of Tennessee, Inc.,

(LBWT) filed a motion to intervene supported by a pro-

posed answer and accompanying affidavit which defended

the constitutionality of the regulations. The answer as-

serted three justifications for the regulations: (1) That

they promote temperance and lawful conduct because, in

the absence of price advertising, residents of dry counties

and municipalities would not be enticed into wet counties

to purchase alcoholic beverages, and would not return to

the counties of their residence in possession of such bever-

ages in quantities in excess of that permitted by law; (2)

that they discourage excessive consumption; (3) that they

promote “orderly marketing” of liquor. The Chancellor

granted the motion to intervene.

Without further pleading or order procedural steps be-

ing taken, the Chancellor entered an opinion holding the

regulations unconstitutional. The opinion disclosed for the

first time that the court had sua sponte converted plain-

tiffs’ motion for judgment on the pleadings to a Rule 56

motion for summary judgment. (See Rules 12.03 and 56,

Tenn. R. of Civ. P.)

10la

The unusual history of this case during the pleading

phase in the court below presents the threshold question

on appeal. That is, whether the Chancellor erred in con-

verting plaintiffs’ motions for judgment on the pleadings

into motions for summary judgment without notice to the

intervenor.

The exact order of the procedural steps taken below is

important. Plaintiff NPC filed a motion for judgment on

the pleadings on April 23, 1981, accompanied by an

affidavit from the advertising director of the NPC reflect-

ing simply that if permission had been granted, the price

information would have been run in both the Tennessean

and the Banner. Four days later plaintiff Wise filed a

similar motion. LBWT made a motion to intervene on

May 1, 1981, and filed a proposed answer, counterclaim

and affidavit. The affidavit was in support of its motion to

intervene and focused on the impact to wholesalers of

liquor price advertising. The trial court granted the motion

to intervene on May 29, 1981 and, without further notice

to the parties so far as the record reflects, awarded sum-

mary judgment to the plaintiffs on July 30, 1981.

The Chancellor’s memorandum reflects his decision to

treat the motions for judgment on the pleadings as mo-

tions for summary judgment. His error, if any, was in

failing to notify the parties of the intended conversion and

thereby failing to give the intervenor the opportunity to

respond to the moving party’s supporting materials. Rule

12.03 provides:

After the pleadings are closed but within such time

as not to delay the trial, any party may move for

judgment on the pleadings. If, on a motion for judg-

ment on the pleadings, matters outside the pleadings

are presented to and not excluded by the court, the

motion shall be treated as one for summary judgment

and disposed of as provided in Rule 56, and all par-

ties shall be given reasonable opportunity to present

102a

all material made pertinent to such a motion by Rule

56. [emphasis added]

The authority on this point is scarce. There are no

Tennessee cases that address this issue, nor are there any

federal cases which address the issue of notice with regard

to the conversion of a motion for judgment on the plead-

ings to a motion for summary judgment. Federal courts,

however, in general have examined the notice requirements

of a conversion from a motion to dismiss pursuant to fed-

eral Rule 12(b)(6) [similar to our Rule 12.02(b)] to a

motion for summary judgment. Tennessee Rule 12.02 and

Federal Rule 12(b) provide:

If, on a motion asserting the defense numbered (6)

to dismiss for failure [of the pleading] to state a claim

upon which relief can be granted, matters outside the

pleading are presented to and not excluded by the

court, the motion shall be treated as one for summary

judgment and disposed of as provided in Rule 56,

and all parties shall be given reasonable opportunity

to present all material made pertinent to such a

motion by Rule 56. [emphasis added]

The underlined language is identical to that contained

in Rule 12.03 and has been interpreted by the federal

courts to require that the court give some notice to all

parties that it is treating the 12(b)(6) motion as one for

summary judgment. Crown Central Petroleum Corp. v.

Waldman, 634 F.2d 127, 129 (3rd Cir. 1980); Davis

v. Zahradnick, 600 F.2d 458, 460 (4th Cir. 1979);

Jensen v. Klecker, 599 F.2d 243, 245 (8th Cir. 1979);

Ohio v. Peterson, Lowry, Rall, Barber & Ross, 585 F.2d

454, 456-57 (10th Cir. 1978); Davis v. Howard, 561

F.2d 565, 571-72 (Sth Cir. 1977); Macklin v. Butler,

553 F.2d 525, 528 (7th Cir. 1977).

Each of the federal cases, upon finding that no notice

had been given the parties of the conversion, remanded

the cause to permit the non-moving party an opportunity

103a

to establish the existence of material controverted facts.

Clearly that is required on a conversion from a motion to

dismiss to a motion for summary judgment.

We think the same rule applies to a motion for judg-

ment on the pleadings which is treated by the trial court

as a motion for summary judgment. In either case, notice

should be given to all parties of the court’s intention to

treat the motions in that way. In that manner, all parties

will be given an opportunity to show by affidavit or other-

wise the existence of material controverted facts.

However, based on our analysis of the substantive issues

in the following portions of this opinion, we are not con-

vinced that the error affected the judgment of the court

below or would result in prejudice to the judicial process.

See Rule 36(b) of the Tenn. R. of App. P. Therefore, we

will not reverse and remand for that reason and wil! pro-

ceed to consider the merits of this case.

Plaintiffs contend that the ABC’s prohibition of all

liquor price advertising, irrespective of time, place or cir-

cumstance, is an unconstitutional restraint upon lawful

and truthful commercial communication, which violates the

First Amendment to the United States Constitution and

Article I, Section 19 of the Tennessee Constitution. Inter-

venor contends that the extraordinary power of the State,

augmented by the Twenty-First Amendment, to regulate

trade in beverage alcohol includes the power to prohibit

mass media price advertising.

Commercial speech is protected by the First Amend-

ment of the United States Constitution and Article I, Sec-

tion 19 of the Tennessee Constitution. Bigelow v. Com-

monwealth of Virginia, 421 U.S. 809 (1975); H & L

Messengers, Inc. v. City of Brentwood, 577 §.W.2d 444

(Tenn. 1979). Speech proposing no more than a commer-

cial transaction enjoys a substantial degree of First

Amendment protection: A state may not completely sup-

press the dissemination of truthful information about an

104a

entirely lawful activity merely because it is fearful of that

information’s effect upon its disseminators and its recipi-

ents. Virginia State Board of Pharmacy v. Virginia Citi-

zens Consumer Council, 425 U.S. 748, 773 (1976).

The U.S. Constitution accords commercial speech a

lesser protection than other constitutionally guaranteed ex-

pression. Central Hudson Gas and Electric Corp. v. Pub-

lic Service Commission of New York, 447 U.S. 557, 563

(1980). The protection available for particular commer-

cial expression turns on the nature of both of the expres-

sion and of the governmental interests served by its regu-

lation. Id. The United States Supreme Court has adopted

a four-part test for determining the validity of government

restrictions on commercial speech as distinguished from

more fully protected speech.

(1) The First Amendment prctects commercial

speech only if that speech concerns lawful activity

and is not misleading. A restriction on otherwise pro-

tected commercial speech is valid only if it (2) seeks

to implement a substantial governmental interest and

(3) directly advances that interest, (4) reaches no

farther than necessary to accomplish the given objec-

tive. [citation omitted]

Metromedia, Inc. v. City of San Diego, 101 S.Ct. 2882,

2892 (1981)

There can be no dispute over the application of the first

criterion. Mrs. Wise is lawfully engaged in the retail

liguor trade and there is no suggestion that the ads she

desires to run are misleading in any way.

Two governmental objectives which the intervenor

claims are advanced by the regulations—discouraging the

illegal possession of liquor in dry counties and discourag-

ing excessive consumption—are substantial governmental

goals. The third—promoting the orderly marketing of

liquor—is hardly valid. Intervenor contends that price

105a

advertising is cost effective only for the larger retail out-

lets. If such advertising is permitted, some smaller outlets

will be driven out of business, resulting in a more concen-

trated retail distribution structure. The retail trade will

become dominated by a few, high-volume outlets. This

country is based on the free enterprise system. Intervenor

cannot rely upon the anticompetitive effects of these regu-

lations as a justification for the suppression of First

Amendment rights.

The primary stumbling block for the intervenor is the

application of the third criterion: Do the regulations di-

rectly advance the governmental interests? Clearly they

do not. Governmental purposes, vital though they may

be, must be achieved through direct regulation and not

by keeping the public ignorant of truthful information.

It is precisely this kind of choice, between the dan-

gers of suppressing information, and the dangers of

its misuse if it is freely available, that the First

Amendment makes for us. Virginia is free to re-

quire whatever professional standards it wishes of its

pharmacists; it may subsidize them or protect them

from competition in other ways. ... But it may not

do so by keeping the public in ignorance of the en-

tirely lawful terms that competing pharmacists are

offering. In this sense, the justifications Virginia has

offered for suppressing the flow of prescription drug

price information, far from persuading us that the

flow is not protected by the First Amendment, have

re-enforced our view that it is. We so hold.

Virginia Citizens, 425 U.S. at 770.

It is contended that price advertising of liquor (1)

would entice residences of dry counties to purchase liquor

in wet counties and to subsequently possess it illegally in

the counties where they reside, and (2) encourage exces-

sive consumption. Both contentions are without merit.

The prohibition of price advertising does not directly

advance either of these governmental goals. The ABC

}06a

regulations do not prohibit advertisement of the avail-

ability of liquor. Mrs. Wise and others lawfully engaged

in the retail liquor trade may advertise their wares in as

alluring a fashion as they desire. The only thing they may

not do is tell the public the price of their products. The

notion that the possession of liquor in dry counties or

excessive consumption of liquor is effectively discouraged

by permitting advertising of the availability, but not the

price, of liquor is not even logical, let alone sufficient to

meet constitutional requirements.

Further, in order to justify suppressing an advertise-

ment on the basis that it promotes illegal conduct, it

would be necessary for the intervenor to show that price

advertisements are “directed toward” inciting “imminent

lawless conduct” and that they are “likely” to produce

such conduct. Carey v. Population Services, Int'l. 431

U.S. 678, 701 (1977). The intervenor cannot meet this

standard. The most that can be said about such advertis-

ments is that they state the terms of entirely legal trans-

actions, but that one of the parties to such a transaction

could by entirely independent action, elect to commit a

violation of the law involving goods procured in the trans-

action. Such tenuous connections cannot be said to con-

stitute incitement of criminal conduct, imminent or other-

wise. If they could, a very wide range of commercial

transactions, including the lawful sale of guns, butcher

knives, and prescription drugs, would be subject to ad-

vertising bans.

Even if the remaining governmental goal of the regu-

lations—the orderly marketing of liquor—is deemed by

the court to be substantial it cannot meet this third

criterion. Controlling the composition of the retail liquor

dealers and their stock is not directly advanced by keep-

ing the public in ignorance of the pricing structure. In

Virginia Citizens the U.S. Supreme Court concluded that

an advertising ban could not be imposed to protect the

ethical or performance standards of a profession. The

court noted that “[t]he advertising ban does not directly

107a

affect professional standards one way or the other.” 425

U.S. at 769.

The situation here is comparable. The number of re-

tail liquor dealers and the composition of their stock is

only remotely affected by price advertising.

Since the governmental objectives advanced by the in-

tervenor are not directly advanced by the prohibition of

price advertising there is no need to examine the breadth

of the restriction as required by the fourth criterion. It

is irrelevant that restrictions which only indirectly advance

substantial governmental goals reach no farther than is

necessary to accomplish those goals.

It is clear that the challenged regulations are violative

of the First Amendment of the United States Constitu-

tion under the four part test outlined in Central Gas and

reiterated in Metromedia. The Tennessee Supreme Court

has not specifically held that Article I, Section 19 of the

Tennessee Constitution is co-extensive with the First

Amendment in its protection of commercial speech but

such result is suggested by H & L Messengers, Inc. v. City

of Brentwood, 577 S.W.2d 444, 453 (Tenn. 1979).

Intevenor [sic] tacitly concedes that apart from the reg-

ulatory authority granted by the Twenty-First Amendment

the state cannot constitutionally prohibit price advertis-

ing on beverage alcohol. It contends, however, that the

ultimate balance between governmental and private in-

terests cannot be struck without consideration of the en-

hanced regulatory power applicable to beverage alcohol.

The power reserved by the Twenty-First Amendment

mainly relates to the “transportation and importation” of

liquor. While it has some application to other phases of

the liquor business, its importance lessens as the connec-

tion between the regulated activity and transportation and

importation becomes more tenuous. California Retail

Liquor Dealers Association v. Midcal Aluminum, Inc.,

445 US. 97 (1980). Moreover, the Twenty-First

108a

Amendment is primarily a limitation upon the authority

granted by the Commerce Clause. Whether it has any

significant effect upon the exercise of rights secured by

the Bill of Rights is at least “doubtful.” Craig v. Boren,

429 U.S. 190, 206 (1976).

In any event the intervenor’s reliance upon the Twenty-

First Amendment as a qualification of the rights secured

by the First Amendment completely overlooks the guaran-

tees of free expression contained in Article I, Section 19

of the Tennessee Constitution. Even assuming that the

regulatory authority reserved to the states by the Twenty-

First Amendment qualifies First Amendment rights in a

manner material to this case, there can be no similar

qualification of the freedom of expression reserved by the

Tennessee Constitution. Note, for example, Bellanca v.

New York State Liquor Authority, 54 N.Y.2d 228, 445

N.Y.S.2d 87, 429 N.E.2d 765 (1981) Bellanca is a

decision of the New York Court of Appeals upon remand

of the case from the U.S. Supreme Court. The Supreme

Court had held that a ban on topless dancing was valid

under the First Amendment, in part because of the regu-

latory right reserved to the states by the Twenty-First

Amendment. On remand, the New York Court of Ap-

peals held the ban invalid under the New York State

Constitution, notwithstanding its validity under the United

States Constitution, stating:

Although that statutory ban has been held to be

valid under the Federal Constitution in consequence

of the provisions of its Twenty-first Amendment, it is

invalid under the guarantee of freedom of expression

of our State Constitution, to which the Twenty-first

Amendment has no application.

429 N.E.2d at 766.

On the Federal level, the contest between freedom of

expression and the state’s authority to regulate liquor is

a constitutional one, pitting the policy of the First Amend-

ment against the policy of the Twenty-First Amendment.

109a

On the state level, there is nce such contest, since the Ten-

nessee Constitution guarantees freedom of expression, but

contains no provisions relating to the transportation or

sale of alcoholic beverages.

The decision of the lower court is affirmed and the

case is remanded for any further necessary proceedings.

The costs are taxed to the appellants.

AFFIRMED AND REMANDED.

/s/ Ben H. Cantrell

BEN H. CANTRELL

CONCUR:

/s/ Henry F. Todd

HENRY F. Topp

Presiding Judge, M.S.

/s/ Lewis H. Conner, Jr.

Lewis H. ConneER, JR.

Judge

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