Opposition Brief — Wine & Spirits Retailers, Inc. v. Rhode Island and Providence Plantations (No. 07-74)

Supreme Court brief2007

Ask Donna

What actually matters in this document.

Text

WINE & SPIRITS RETAILERS, INC.,

JOHN HARONIAN, DOUGLAS WINE &

SPIRITS - CUMBERLAND, INC., DOUGLAS

WINE & SPIRITS - CRANSTON, INC. and,

DOUGLAS WINE & SPIRITS —- N. PROVIDENCE, INC.,

Petitioners,

¥.

STATE OF RHODE ISLAND AND PROVIDENCE

PLANTATIONS, JEFFREY J. GREER, in his capacity

as the Associate Director of the Department of Business

Regulation, and UNITED INDEPENDENT LIQUOR

RETAILERS OF RHODE ISLAND,

Respondents.

On Petition For Writ Of Certiorari

To The United States Court Of Appeals

For The First Circuit

BRIEF IN OPPOSITION TO

PETITION FOR WRIT OF CERTIORARI

e—

PaTRIcK C. LYNCH

GOCELE LAW BRIG? PHRENTING CO. 00) 225-6954

OR CALL COMECT 40D 38-2831

BEST AVAILABLE COPY

COUNTERSTATEMENT OF

THE QUESTIONS PRESENTED

This Court has held that the three tier liquor distribu-

tion system (producers, wholesalers, and retailers) existing

by law in many states is “unquestionably legitimate.” As

relevant here, Rhode Island regulates that system by, inter

alia, prohibiting any liquor retailer from forming a chain

store or franchise with other retailers. Rhode Island’s one-

store limit applies neutrally and evenhandedly in purpose

and effect to both in-state and out-of-state entities. To enforce

its ban, among other things, the State prevents price fixing

in the form of common or coordinated advertising and use of

the same name — both actions the result of the prohibited

collusive action in the marketplace. The First Circuit’s

holdings twice sustaining the ban were limited to the retail

alcoholic beverage industry and upheld the ban under both

the Twenty-first Amendment and the State’s traditional

police power.

Accordingly, the questions presented are:

1. Whether a State may structure its retail liquor

distribution system to outlaw chain stores and franchises?

2. Whether a State’s retail liquor chain store and

franchise prohibition ~ which treats in-state and out-of-

state license holders evenhandedly in purpose and effect —

implicates the Commerce Clause?

3. Whether a State may prohibit price fixing

schemes by liquor retailers by banning advertisement of

the results of such collusion — called “joint advertising”

and “shared use of trade name” by Petitioners?

COUNTERSTATEMENT OF

THE QUESTION PRESENTED - Continued

4. Whether Petitioners’ belated arguments concern-

ing Rhode Island’s residency requirement are not worthy

of certiorari because, as the First Circuit affirmed, Peti-

tioners have no standing to raise them?

ill

TABLE OF CONTENTS

Page

QUESTIONS PREGEINT GO wi eveceeccoserrsccessevesssvecsarseees i

rT MITE fo cicncrecsvekotnpiscaendgeeonstocsbuniuesaseosdans 1

STATEMENT OF THE CASE ............cscccsosssceresscereees 1

SUMMARY OF ARGUMENT ................ccccceseeceeseeeenees 8

ET saiiiinhiiiataidindtaspccansnenscsuredssekciponinaieniiveiies 10

I. RHODE ISLAND HAS EXTENSIVE AU-

THORITY TO REGULATE THE BUSINESS

OF SELLING ALCOHOLIC BEVERAGES. .... 10

II. THE COMMERCE CLAUSE IS NOT IM-

PLICATED BY RHODE ISLAND’S CHAIN

STORE PROHIBITION, WHICH COUNTS

ALL RETAIL LIQUOR LICENSES IN DE-

TERMINING WHETHER A “CHAIN” EX-

ISTS, REGARDLESS OF LOCATION.

FURTHERMORE, PETITIONERS LACK

STANDING TO CHALLENGE THE RESI-

DENCY REQUIREMENT FOR CLASS A LI-

CFE CECA PEIOUED vccersoircesacterscepiigupscnaiendionen 14

Ii]. THE STATUTE AT ISSUE IS AIMED AT

CONDUCT, NOT SPEECH, THEREFORE,

THE FIRST AMENDMENT IS NOT IMPLI-

Ce sicnacpantideneetandainguniacenian nohbadneeninaiaeebin 19

IV. SIMILAR LEGISLATION HAS CONSIS-

TENTLY BEEN UPHELD AGAINST CON-

PEE EUS FPS UIRAN IGE BOM ceensncccrseessencesevenenesens 25

CAPO ATE TENET es sncicesivinvaintnabatectameoncscioenniasmniaaebtints 29

TABLE OF AUTHORITIES — Continued

Page

CONSTITUTIONAL PROVISIONS:

Constitution of the United States, First Amend-

i ieccchslntanicousicbichiidnctovitnseghadiaiisinssintinisbeiduumencnets passim

Constitution of the United States, Twenty-first

PIII s.asioxssnoseveatarsbsiibaisbcncbaivsiindidusteuedadeeanentiaaoes 10

Constitution of the United States, Art. I, sec. 8

SINS NINN 5 5. 5s. sind anndviaseessittdednmubieldecdbbunpaieadnasbis 14

STATUTES:

EB ii iciccsiesvononsniccseee RRR OT ESS 1

Bes See BN TO iaidcsidtbtconvedasndssmninniccscvaleccduciaiaaases 2, 13

Bee A Ne Be iticctetsbcecetosescntavcdenstctésieipeiatouinabeabinnis 16

ees CN, Se Se PB isinticicepssstcanssincceosiaresecivess 2, 12, 14,16

Pen Bs CUR, SNE BD EE 6 otcsivctsnrevsvceseccscasecess 2,11, 12, 14, 16

ees OR BS BEE seccnisicecsrcccsvensssessnciesioasiesconianies 2,17

i ne I Ti a a eile ta aa 2

EE PE Dy Lee Ree aN eer mO RT MIC RII ENE T Ted 2

OTHER:

Dictionary.com Unabridged (v.1.1 2007)............ceessseseeeeeees 9

OPINIONS BELOW

In addition to the opinions noted by the Petitioners,

there have been two reported decisions denying preliminary

injunctive relief issued during the course of this litigation:

Wine and Spirits Retailers, Inc. v. State of Rhode Island, 364

F. Supp. 2d 172 (D.R.I. 2005), aff'd, Wine and Spirits Retail-

ers, Inc. v. State of Rhode Island, 418 F.3d 36 (1st Cir. 2005).

The Court may also note the decisions rendered in the

administrative proceedings ongoing in the State courts,

provided in an Appendix (“App.”) attached hereto.

STATEMENT OF THE CASE

Petitioners challenge Rhode Island’s seventy-four year

old law forbidding chain stores from holding Class A

licenses, which allow the retail sale of alcoholic beverages

to the public. This case began with a scattergun approach.’

Petitioners initially alleged that the prohibition against

Class “A” licenses being held by chain or franchise stores

violated the First Amendment’s guarantee of free speech,

assembly, and something called “unfettered discretion.” In

what then seemed to be an afterthought, Petitioners also

claimed that the law violated the Commerce Clause, the

Fifth Amendment, the Fourteenth Amendment and 42

U.S.C. § 1983.

At this level, Petitioners focus on the Commerce Clause

and its applicability to the present dispute. Specifically, Peti-

tioners now claim that the requirement that the holders of a

Class A license be Rhode Island residents violates the Com-

merce Clause, and that the restriction that only a single license

may be held by any one person or corporation, wherever

‘In its decision granting judgment in the State’s favor, the trial

court observed that “The plaintiffs have brought a seven-count Com-

plaint that the Rhode Island statute prohibiting chain store organiza-

tions and franchise operations from engaging in retail sale of alcoholic

beverages violates nearly every provision of the Constitution except the

guarantee of the right to bear arms and the prohibition against cruel

and unusual punishment.” (Petitioners’ Appendix 28, hereinafter

referred to as “Pet. App.”).

situated, impermissibly regulates extraterritorially. They

also continue to argue that the State’s disinclination to allow

joint advertising, consisting of identical ads offering the same

products for the same prices, and the use of identical trade

names, banners, logos, and much more, violates their First

Amendment rights.

Rhode Island General Laws § 3-5-11.1, as amended,

provides that Class A licenses’ shall not be granted, issued or

transferred to any chain store organization. That law lists

certain activities that may result in a finding that an organi-

zation is a chain, and cannot hold a Class A license. Petition-

ers mischaracterize the above list as establishing absolute

prohibitions against the cited activity. A simple reading of the

statute makes clear that is not correct — subsections (1)(a)-(f)

simply provide indicia of chain store ownership that the

State may consider when determining whether stores have

violated the law. Petitioners also doggedly mischaracterize

the purpose of Rhode Island’s legislative scheme regulating

alcoholic beverages. The actual purpose is clearly stated in

Title 3 of the Rhode Island General Laws. The overarching

purpose of the entire liquor regulatory scheme is “ ... the

promotion of temperance and for the reasonable control of

the traffic in alcoholic beverages.” R.I. Gen. Laws § 3-1-5.

The specific purpose of the Amendment, as articulated by

Rhode Island’s General Assembly, is “to promote the effective

and reasonable control and regulation of the Rhode Island

alcoholic beverage industry and to help the consumer by

protecting their choices and ensuring equitable pricing.” R.I.

Gen. Laws § 3-5-11.1(a).

Section 3-5-10 of the Rhode Island General Laws

requires that, in order to hold a retail liquor license in

Rhode Island, one must be a Rhode Island resident or

corporation. Finally, section 3-5-11 makes it clear that

liquor stores inside and outside of the state are counted for

purposes of determining whether the one store licensing

limit applies.

* Class A licenses are issued to retail package liquor stores. R.I.

Gen. Laws §§ 3-7-1, 3-7-3.

Initially, Wine and Spirits Retailers, Inc. (as franchisor,

hereinafter “W&SR”) and John Haronian (as principal of

W&SR, and who directs the business activities of the stores),

sought a preliminary injunction against enforcement of the

statute, which was denied. Wine and Spirits Retailers, Inc. v.

State of Rhode Island, 364 F. Supp. 2d 172 (D.R.I. 2005).

Receiving evidence that the joint advertisements were placed

after representatives from the stores met monthly to deter-

mine what products they would sell at what agreed-upon

prices, the District Court in a strongly worded decision found

that the law did not “in any way” prevent W&SR from provid-

ing paid marketing and management advice, as claimed in the

Complaint and moving papers. The Court explained

What [the prohibition on joint advertising] prohib-

its is concerted activity on the part of Class A licen-

sees to engage in such practices. W&SR does not

hold a Class A license and remains free to provide

licensees with planning and/or marketing advice

which, during the hearing, it described as advice

regarding marketing, methods of doing business,

what products to sell, and how to set up a store.

364 F. Supp. 2d at 176. The Court refused to approve the

blatant price-fxang agreements that formed the foundation

for the joint advertisements.

The Court found that W&SR was “free to provide

marketing and management advice and even advice regard-

ing coordinated planning and implementation of marketing

strategies.” Jd. at 177. The prohibition, as described by the

Court, was to prevent “Class A licensees from acting in

concert to engage in such activities.” Jd. The Court found

that the First Amendment did not have any application to

the activity engaged in by W&SR, holding that the ban only

applied to common advertising by Class A license holders.

The District Court held that the prohibition affected only

“the concerted activity of placing common advertisements

which the evidence shows requires agreement among licen-

sees with respect to what products will be advertised and

what price will be charged for those products.” Jd. (emphasis

in original). The trial court determined that the activity at

play here was not speech, but conduct consisting of “anti-

competitive commercial practices.” Jd.

The denials of the Preliminary Injunction requests

were appealed, resulting in a decision affirming the

District Court. Wine and Spirits Retailers, Inc. v. State of

Rhode Island, 418 F.3d 36 (1st Cir. 2005). The First Circuit

correctly characterized the legislation as “tantamount to

an antitrust law,” the constitutionality of which “is not

open to debate.” Jd. at 51. Judge Selya captured the State’s

argument in a nutshell: “While the State cannot regulate the

right of speakers to band together to convey a common

message in the marketplace of ideas, it most assuredly can

exercise control over the efforts of market players to exploit

the principle of strength in numbers in the marketplace of

goods.” The fact that the relationship involved included

components of communication was held not to warrant

“overriding the State’s historic right to regulate market

forces in the retail liquor industry.” 418 F.3d at 53. The Court

found no First Amendment or Equal Protection violations

based upon the activities of W&SR or Haronian — even

though they tried to assert the rights of the franchisee stores.

The Complaint was subsequently amended to add three

store plaintiffs.’ The new plaintiffs moved for a preliminary

injunction, which was denied. No appeal followed. After a

bench trial, the District Court issued a decision unequivo-

cally rejecting all constitutional arguments pressed by the

Petitioners. Wine and Spirit Retailers, Inc. v. State of Rhode

Island, No. 04-418T (July 19, 2006) (Pet. App. 27). The facts

elicited at trial did not support any of the serious constitu-

tional accusations that were flung at the State. The trial

judge characterized the evidence offered by the Petitioners as

“patently incredible.” (Pet. App. 38). Conversely, the State

proved that an impermissible, anti-consumer chain store

existed, and that it was conduct, not speech or interstate

commerce that was targeted by the statutes. The facts

* All franchisee stores associated with W&SR are named “Douglas

Wine & Spirits” or “Peoples’ Liquor Warehouse.” W&SR does not do

business outside of that family.

established at trial showed that at the time the law was

passed, W&SR had franchise agreements with stores in

Rhode Island and Massachusetts, dictating everything from

location to permitted suppliers to color schemes and layout of

the floor plans. The stores clearly did not control their day-

to-day business. Other facts elicited at trial established that

John Haronian is President and sole owner of W&SR. W&SR

does not provide any services for any stores other than

Douglas Wine and Spirits or Peoples’ Liquor Warehouse

stores. (C.A. App. 73, 262). W&SR is a Rhode Island corpora-

tion. W&SR does not intend to attempt to obtain a Class A

license for itself. John Haronian does not want to own a

liquor store in Rhode Island. (C.A. App. 74).

The relationship of the stores and the individuals, if

diagramed like a tree, would not have many branches. As

stated above, John Haronian is the sole corporate office

holder in both W&SR and Tri-State, a management

company that oversees the day-to-day operations of the

stores. (C.A. App. 73).° The Rhode Island stores are all

owned by friends or family of John Haronian.°

* The Appendix provided to the First Circuit is designated as “C.A.

App.”.

* Additionally, Haronian has what he termed “an interest” in three

Massachusetts liquor stores - a Douglas Wine and Spirits in Fairhaven,

a Douglas Wine and Spirits in New Bedford, and a Peoples’ Liquor

Warehouse in Fall River, owned by a corporation of which he is the sole

shareholder. (C.A. App. 79). His daughter, Shirley Santoro, owns one of

the W&SR’s Massachusetts potential franchisees, Douglas Wine and

Spirits dba Tanza Liquors. (C.A. App. 75). The Massachusetts Alcoholic

Beverage Control Commission has rejected the application for a

franchise relationship because of the excessively intertwined nature of

the individuals and the businesses. http://www.mass.gov/Abcc/

administration/decisions/10052005_tanzaliquors.htm. A case almost

identical to the one sub judice was brought before the United States

District Court for the District of Massachusetts, Peoples Super Liquor

Stores, Inc. v. Jenkins, 432 F. Supp. 2d 200 (D.Mass. 2006). That case

was recently dismissed. See discussion, infra.

* The Cranston store is owned by Ron Bochner, who bought it from

Haronian’s daughter, Lynn Finn. (C.A. App. 84). The Cumberland store

is owned by Haronian’s son-in-law Joseph Santoro. (C.A. App. 85). The

(Continued on following page)

The stores do not set their own prices on the 7,000-

8,000 products that they sell. That is done at W&SR’s

offices in North Providence, at an address shared with Tri-

State Management. (C.A. App. 102, 164). W&SR tells the

stores what products are going on sale when, and instructs

them on product placement within the store. (C.A. App. 93,

94, 113, 114, 119, 165). Identical posters are located in the

windows of the stores. (C.A. App. 95).

Haronian offered insight into the business plan

preferred by his organization, the franchise operation he

wishes to resume. (C.A. App. 111). Prior to the 2004

amendment, the “franchisees” attended monthly meetings

and agreed on what price a product would be sold for

before the joint advertisements could be placed. (C.A. App.

91). They had to do that before the advertisement could go

in the paper because they would all honor the price once it

went into the newspaper. (C.A. App. 92). Petitioners have

grudgingly changed the procedure somewhat, with each

store in Johnston, Rhode Island, located on Route 44 is owned by

Meredith Bochner, who is married to the owner of the Cranston store.

(C.A. App. 85). DWS Johnston, a separate store from the Route 44

Johnston store, is owned by a trust, the beneficiary of which is Tyler

Santoro, daughter of Joseph and Shirley. (C.A. App. 85). The North

Providence store is owned by Kathleen Haronian, another daughter,

who also serves as Vice-President of Tri-State. (C.A. App. 86). The store

on Route 10 is owned by John’s wife, Emily. (C.A. App. 86). Haronian’s

daughter Lynn Finn presently owns the Peoples’ Liquor Warehouse in

Hopkinton, and is also employed by Tri-State. (C.A. App. 87). The PLW

in Apponaug is owned by a trust, the beneficiary of which is grandson

Jonathan Santoro. (C.A. App. 87). The North Smithfield store is owned

by a trust, the beneficiary of which is grandson Kyle Finn. (C.A. App.

87). The East Providence store is owned by a trust, the beneficiary is

grandson Jared Santoro. (C.A. App. 87). (The trust arrangement

appears to violate another subsection of 3-5-10, which prohibits

ownership of a Class A license by a trust). A Pawtucket store is owned

by Craig Power, who works for Haronian at W&SR as a Vice-President.

(C.A. App. 87-88). Several of the stores are located in buildings owned

by family members. Also, evidence indicated that stores shuffle

employees. For example, Victor Correia, the only store representative

offered at trial, has worked at five different DWS locations. (C.A. App.

157, 158).

store being presented with an advertisement that has been

created by the W&SR marketing department, with product

and price already in the draft copy of the advertisement.

There is no participation in setting the prices on the

products at the store level, however. (C.A. App. 164).

Likewise, each store displays identical window signs

containing the Douglas logo, sometimes directing the

customer to “www.douglaswines.com.” That address takes

a customer to a website where orders are filled by the

North Providence store, no matter where the customer

saw the sign. (C.A. App. 97). Employees at all stores dress

in an identical fashion, all wearing the “Douglas” logo,

without any store designation. (C.A. App. 107). Stores also

provide shopping carts emblazoned with the Douglas logo,

with no differentiation as to the individual store. (C.A.

App. 107).

Prior to the 2004 amendments, the stores would

purchase products from wholesalers jointly. They would be

offered discounts because of the quantity purchased. The

discounts were determined by the joint purchase of the

eleven franchisees, not by what each individual store

purchased. (C.A. App. 101). That has changed since the

amendment, with each store purchasing from the whole-

salers on an individual! basis. However, negotiations as to

price on a product is still done by representatives from

W&SR. W&SR instructs the stores as to what products

they will carry. They do not use suggestive language,

rather, the memos are clearly directives. One such memo-

randum instructs all of the stores that they “CANNOT”

make their own decisions on a particular issue. W&SR

wishes to return to the original way of doing business as

they did prior to the amendments. (C.A. App. 111).

After the amendment, the State’s Department of

Business Regulation issued a bulletin specific to the issue

of store names. (C.A. App. 103-105). Examples of what was

permissible, and what was not, were contained in the

bulletin. (C.A. App. 105-106). Despite the suggestion that

license holders call with any questions, no representative

from any of the Petitioners contacted the State regarding

their similar names. Instead, they changed their name to

be more similar than prior to the issuance of the bulletin.

(C.A. App. 105, 106). The State issued a more specific

bulletin, specifying that a mere geographic delineation

was not sufficient under the law. (C.A. App. 218-220).

Petitioners ignored the bulletin. All other Rhode Island

Class A license holders have complied with the amended

law. (C.A. App. 216). State proceedings are ongoing in

order to have the stores comply with the law. (App. 11, 43).

The District Court determined that the regulatory

scheme was aimed at anticompetitive, collusive conduct

and not speech, and had no extraterritorial reach. The

Court further held that no Petitioner had standing to

challenge the residency requirement, and that its validity

did not impact on the chain store prohibition. The Court

concluded that the statute did not violate any provision of

the United States Constitution and was thus enforceable.

The First Circuit affirmed, holding that, at every turn,

Petitioners failed to shoulder their burden of proof.

SUMMARY OF ARGUMENT

There is no reason to grant the instant Petition for

Writ of Certiorari since none of the issues pressed are

worthy of this Court’s consideration and since there is no

tension between the First Circuit’s decision and that of

any other Circuit or of any decision by this Court. The

instant case is remarkable only for the lack of foundation

for Petitioners’ claims — they offered no proof to support

any of their grandiose claims, and what little evidence was

offered was deemed “patently incredible” by the trier of

fact. Since they did not contest these findings at the

Appellate level, they stand at this level. Quite significant

are the rulings by the trial and Appellate courts that

Petitioners lack standing to press the Commerce Clause

claims they now seek to have this Court consider.

As for the merits, the most serious flaw in every facet

of the Petitioners’ case is the lack of proof to substantiate

any of their constitutional claims. They simply failed to

offer evidence to prove their case, relying instead on

arguments more suited for the academic arena than the

adversarial process of litigation, or, as Judge Selya de-

scribed it, a “rodomontade.” (Pet. App. 25). As the Circuit

put it, their First Amendment claim was “extravagant”

and “lacked force” (Pet. App. 8); their argument regarding

shared trade names did not “survive scrutiny” (Pet. App.

12), and indeed that the findings of the trial court -

including that the use of shared trade names was mislead-

ing — were not even contested by the Petitioners. (Pet. App.

13). As to the Commerce Clause dissertations offered by

the Petitioners, Judge Selya wrote that they failed to show

any cognizable harm, direct or indirect, attributable to the

residency requirements (Pet. App. 18); and that the

“brazen claim” made by Petitioners of a discriminatory

purpose was supported only by “isolated snippets” of

statements made by counsel, but not by any evidence.

Discarding the Commerce Clause argument relative to

discriminatory purpose, Judge Selya wrote that Petition-

ers’ case “elevated hope over reason.” (Pet. App. 21). In

rejecting their claim of discriminatory effect, the Circuit

wrote that the Petitioners failed to offer compelling evi-

dence of such an effect. “There is, for example, no evidence

of any carve-out or other device that would enable in-state

entities to evade the challenged restriction, nor is there

any hint of a home-field advantage in connection with the

Siate’s enforcement of the restrictions. The absence of any

such evidence is telling.” (Pet. App. 22). As to the allega-

tions of an impermissible territorial reach, the Circuit

wrote that it was supported only by “sketchy arguments,”

and that Petitioners had “not come close to showing that

the burdens they envision are excessive in relation to the

statutory scheme’s legitimate goals.” (Pet. App. 23-24).

There is absolutely no factual basis for the claims

made in the Petition concerning Rhode Island’s retail

liquor industry. (Petition at 2-6). Petitioners’ arguments

concerning “big-box stores” and something they term a

“sheltered market” are simply arguments, continuing their

" “Vainglorious boasting or bragging; pretentious, blustering talk.”

Dictionary.com Unabridged (v.1.1 2007).

habit of making statements without any evidentiary

foundation. Also, they ignore the decisions that led us to

this point, and the attempt by the courts below to outline

what they can do, as well as what they cannot do. One

example is the statement in the Petition at page 9: “Stores

cannot adopt business efficiencies developed by other

retailers.” The District Court instructed them over two

years ago that the franchisor, Wine and Spirits Retailers

“remains free to provide licensees with planning and/or

marketing advice which, during the hearing, it described

as advice regarding marketing, methods of doing business,

what products to sell, and how to set up a store.” 364

F. Supp. 2d at 176. Also, continuing the practice of insert-

ing completely new arguments into this case at every turn,

the Petition, part II, contains material and argument

never submitted to either the District or Circuit courts.

This Court should thus give no consideration to these

materials, or this argument.

Simply put, Petitioners failed to prove that they

engage in activity that is protected by any provision of the

United States Constitution. What was shown was a tightly

interrelated chain of stores engaged in employee sharing,

price fixing, product restrictions and general anti-

competitive, collusive conduct. The law is aimed at curbing

this harmful conduct, and not protected speech or inter-

state commerce. To give any credence to Petitioners’

arguments would be to do a great injustice to expression

that rightly deserves Constitutional protection.

ARGUMENT

I. Rhode Island Has Extensive Authority To Regu-

late The Business Of Selling Alcoholic Beverages.

Any consideration of the validity of Rhode Island’s regula-

tion of the sales of alcoholic beverages must acknowledge the

State’s significant power in this area. Since its passage in

1933, the Twenty-first Amendment has been deemed to

confer broad powers on the states in the area of liquor

regulation. California Retail Liquor Dealers Assoc. v.

MidCal Aluminum, Inc., 445 U.S. 97 (1980). Although the

States acknowledge that the sale of alcoholic beverages is

lawful, it is regarded as “a thing apart, a commodity with

a potential for social harm unlike cabbages and candle-

sticks....” Granite State Grocers Assoc. v. State Liquor

Comm’n., 289 A.2d 399 (N.H. 1972).

Immediately after passage of the Twenty-first Amend-

ment, the State of Rhode Island established a regulatory

scheme to oversee the business of selling alcoholic bever-

ages. The overarching purpose is “ ... the promotion of

temperance and for the reasonable control of the traffic in

alcoholic beverages.” R.I. Gen. Laws § 3-1-5. The specific

purpose of the 2004 amendments is “to promote the

effective and reasonable control and regulation of the

Rhode Island alcoholic beverage industry and to help the

consumer by protecting their choices and ensuring equita-

ble pricing.” R.I. Gen. Laws § 3-5-11(a).

The State of Rhode Island regulates the alcoholic

beverage industry using the “unquestionably legitimate”

three tier distribution system. North Dakota v. United

States, 495 U.S. 423 (1990); Granholm v. Heald, 544 U.S.

460 (2005). It is clear that within the area of its jurisdic-

tion, the State has virtually complete control over the

importation and sale of liquor and the structure of the

liquor distribution system. Jd. Ensuring orderly market

conditions in the industry is a core interest served by the

Twenty-first Amendment. Jd. The Twenty-first Amend-

ment has been construed as “grant{ing] the State virtually

complete control over whether to permit importation or

sale of liquor and how to structure the liquor distribution

system.” Midcal, supra, 445 U.S. at 110 (emphasis sup-

plied).

In reviewing the raison d'etre for the administrative

body overseeing the alcoholic beverage industry, the Rhode

Island Supreme Court said in 1934 that it “was created for

the purpose of regulating and controlling a business which

experience has taught must be strictly controlled in the

interest of public health, morals, and safety. The public

has therefore a vital interest in the determination of the

manner in which the alcoholic beverage commission

should perform the duties imposed upon it by the stat-

ute....” Clark v. Alcoholic Beverage Comm’n, 170 A. 79

(1934). Several years later, the State’s highest Court again

examined the necessity for the State’s close regulation of

the sales of alcoholic beverages. In Baginski v. Alcoholic

Beverage Comm'n, 4 A.2d 265 (1939), our Supreme Court

explained that the statutes were a “familiar and well-

recognized example of the legitimate exercise of the police

power. The act is entitled an act to promote temperance

and to control the manufacture, transportation, possession

and sale of alcoholic beverages. Its chief purpose may,

without question, be said to be the safeguarding of the

public health, safety and morals.” 4 A.2d at 266-67. The

Rhode Island Supreme Court continued, stating:

The traffic in intoxicating liquors has ever been a

prolific source of evils, gravely injurious to the

public welfare. The need of its regulation and

control is undisputed. In a search for a system of

effective, impartial and uniform regulation and

control of this traffic our legislature enacted the

above chapter which was later amended. ...

Id. at 267.

Since the repeal of prohibition, the State of Rhode

Island has determined that liquor retailers should not be

allowed to do business as “chain store organizations.” R.I.

Gen. Laws §§ 3-5-10, 3-5-11. Until 2004, the statutory

scheme did not contain a epeci‘ic listing of the indicia of a

chain store organization. At that time, the General Assem-

bly amended the statute. outlming several factors that

would weigh in favor of a fimeding that a chain store or-

ganization existed. The afnendment also prohibited

franchise relationships in the retail liquor industry.

The First Circuit likened the 2004 amendments to anti-

trust laws, which are the “Magna Carta of free enterprise.”

Midcal, supra. (Pet. App. 69). The State clearly has a

compelling interest in prohibiting anticompetitive, collu-

sive conduct, of the type described at the trial of this case.

It is axiomatic that any conspiracy that has an impact on

the price structure of any category of goods is illegal.

Schnapps Shop, Inc. v. H.W. Wright & Co., Lid., 377

F. Supp. 570 (D.Md. 1973). The evidence at trial showed

that representatives from stores routinely met to fix

prices, and they still do it, albeit in a more vertical fash-

ion. Where a party shows a per se violation of the antitrust

laws, such as price-fixing, no further proof of public injury

is required. Jd. The First Circuit recognized the State’s

“historic right to regulate market forces in the retail liquor

industry.” (Pet. App. 72).

The decision in Giboney v. Empire Storage & Ice Co.,

336 U.S. 490 (1949) makes it clear that the State can, and

must, prohibit the “business plan” touted by Petitioners.

In Giboney, this Court rejected arguments that union

picketing was protected by the First Amendment against

action based on an anticompetition statute. Nearly sixty

years ago, Justice Black wrote: “That states have constitu-

tional power to prohibit competing dealers and their aiders

and abettors from combining to restrain freedom of trade

is beyond question.” 336 U.S. at 495. That statute, like

this one, was upheld because its purpose is to secure

competition and preclude combinations that tend to defeat

it. At that early date, this Court recognized that “it is too

late in the day to assert against statutes which forbid

combinations of competing companies that a particular

combination was induced by good intentions.” Jd. at 496

(citation omitted). The holding that the union picketing

did not enjoy protection so as to invalidate the anticom-

petition statute rested on the premise that “legislative

power to regulate trade and commerce includes the power

to determine what groups, if any, shall be regulated, and

whether certain regulations will help or injure business-

men, workers, and the public in general.” Jd. at 497. In

rejecting the claim that the picketers were simply trying to

get a message across, this Court acknowledged:

It is true that the agreements and course of con-

duct here were as in most instances brought about

through speaking or writing. But it has never been

deemed an abridgement of freedom of speech or

press to make a course of conduct illegal merely be-

cause the conduct was in part initiated, evidenced,

or carried out by means of language, either spo-

ken, written, or printed. Such an expansive in-

terpretation of the constitutional guaranties of

speech and press would make it practically im-

possible ever to enforce laws against agreements

in restraint of trade as well as many other

agreements and conspiracies deemed injurious to

society.

Id. at 502.

Since it was “clear that the [picketers] were doing

more than exercising a right of free speech or press,”

rather, they were “exercising their economic power to-

gether with that of their allies” the constitutional chal-

lenge failed. Even outside of the alcoholic beverage

industry, the harmful effects of franchising can be lessened

by state regulation. See Fireside Nissan, Inc. v. Fanning,

30 F.3d 206 (1st Cir. 1994).

II. The Commerce Clause Is Not Implicated By

Rhode Island’s Chain Store Prohibition,

Which Counts All Retail Liquor Licenses In

Determining Whether A “Chain” Exists, Re-

gardless Of Location. Furthermore, Petition-

ers Lack Standing To Challenge The

Residency Requirement For Class A License

Holders.

A. Petitioners Lack Standing.

Petitioners allege that R.I. Gen. Laws § 3-5-10’s

residency requirement and § 3-5-11, prohibiting owners of

liquor stores in other states from obtaining a Class A

license in Rhode Island, violate the Commerce Clause

found in Article I, sec. 8 of the United States Constitution.’

At the outset, it must be determined whether there is

* The Commerce Clause allegations were so undeveloped during

the course of this case that Judge Torres, who had presided over the

case for two years since its filing, was unaware that they existed until

the first day of trial. (C.A. App. 26).

iii

Article III jurisdiction as to that Count. Clearly, there is not,

since the Petitioners are either Rhode Island residents or

corporations, and there is no claim that any have sought or

have been refused a Class A license for any reason. (C.A. App.

74). See Allendale Leasing, Inc. v. Stone, 614 F. Supp. 1440

(D.R.1. 1985); McCollester v. City of Keene, N.H., 668 F.2d 617

(1st Cir. 1982). Evidence offered at trial indicated that John

Haronian is a Rhode Island resident with no desire to obtain a

Class A license and that the corporate plaintiffs are all Rhode

Island corporations (C.A. App. 74). There is no resident of any

other state who has sought, or who has even considered

seeking, a Class A license in Rhode Island. The District Court

recognized this and also found that the residency requirement

lent no support to the Commerce Clause argument, since

... whether a non-resident may obtain a Class A

license has nothing whatever to do with the prohi-

bition against chain stores and franchises, because

even if an out-of-state entity could obtain a Class A

license, it, like local Class A licensees, still would be

prohibited from operating a chain store or partici-

pating in a franchise operation. So whether it is or

is not constitutional for Rhode Island to only grant

Class A licenses to local entities has no bearing

whatsoever on the validity of the prohibition

against franchises and chain stores.

(Pet. App. 43).

Petitioners cite First Amendment overbreadth law for the

untenable proposition that they may assert the constitutional

rights of an unknown and undefined class of nonresidents who

may at some point wish to obtain a Class A license in Rhode

Island. This Court has not extended the notions of standing

quite so far. All of the cases relied upon by the Petitioners in

support of their standing argument found a legally cognizable

injury suffered by somebody sufficient to invoke the jurisdic-

tion of the federal court. That is not the case here. These

parties wish to have an advisory opinion from this Court, with

no concrete “case or controversy” to support it.

Indeed, a finding that there is standing as to this

issue, and that this small part of the statute violates the

Commerce Clause would give these Petitioners little relief,

since it would not void the prohibitions on chain stores or

franchises. See R.I. Gen. Laws § 3-1-6 (severability clause).

Since this Court is not in the business of rendering advi-

sory opinions, and given the caveat on avoiding constitu-

tional issues when possible, the residency requirement

attack should fail at the outset.

B. The Commerce Clause Is Not Implicated.

This Court should not grant this Petition based on the

Commerce Clause arguments concocted by the Petitioners

because they go far beyond the allegations of their Com-

plaint and the scope of the record before the trial court.

The Amended Complaint simply alleges that the residency

requirement of R.I. Gen. Laws §3-5-10 “restricts the

ability of out of state individuals to do business within

Rhode Island” and therefore discriminates against inter-

state commerce. The Amended Complaint also alleges, as

to § 3-5-11, that Rhode Island “prohibits owners of liquor

stores in other states from obtaining Class A license in

Rhode Island” and therefore “discriminates against inter-

state commerce in violation of the Commerce Clause.”

(App. 6). Petitioners should be held to their pleadings and

should not be allowed to interject new arguments into this

case at this juncture.

The District Court found that these Appellants did not

“even come close” to proving a Commerce Clause claim.

(Pet. App. 40). After finding that there was no standing to

attack the residency requirement, the trial court deter-

mined that the Twenty-first Amendment had some appli-

cation to the single Class A license limitation. First, the

District Court found that “The statute by its terms applies

across the board regardless of whether the franchisee is

local or out-of-state. Nor have the plaintiffs presented any

evidence that despite their facial neutrality these sections

have the practical effect of discriminating against out-of-

state sellers.” (Pet. App. 41). Not surprisingly, the District

Court found that the Appellants had misread and misap-

plied the decision in Walgreen Co. v. Rullan, 405 F.3d 50

(1st Cir. 2005), since Rhode Island had not conferred any

competitive advantage on in-state sellers over out-of-state

sellers ~ both categories are limited to holding only one

Class A license. “[T]he statute contains no exemption for

local liquor stores. They’re not exempt from the prohibi-

tion against franchising or operating chain store organiza-

tions....” (Pet. App. 42). Finding that the limitation

applied evenhandedly, the Court rejected the Commerce

Clause claim.

After the First Circuit found that the Petitioners

lacked standing to challenge the residency requirement,

they addressed the sweeping claims that the overall

statutory scheme was motivated by a discriminatory

purpose and had an impermissible extraterritorial reach,

finding both arguments to be unpersuasive. After first

noting that the Petitioners had the burden of proving that

the statute was prompted by a discriminatory purpose, the

Circuit found that Petitioners’ entire case as to discrimina-

tory purpose was contained in “isolated snippets” of

responses to discovery questions. (Pet. App. 19). The First

Circuit declined to make the “quantum leap” required to

accept Petitioners’ arguments on this issue, instead looking

to the words of the statute to determine its purpose. The

purpose of the 2004 amendments is “to promote the effective

and reasonable control and regulation of the Rhode Island

alcoholic beverage industry and to help the consumer by

protecting their choices and ensuring equitable pricing.” R.I.

Gen. Laws § 3-5-11.1(a). The Circuit held that the Petitioners

did not offer any convincing reason for doubting these formal

statements of legislative purpose. (Pet. App. 20).

Next, the Circuit addressed the claims of discrimina-

tory effect, and found Petitioners’ interpretation of its

decision in Walgreen Co. v. Rullan, supra, “overly expan-

sive.” (Pet. App. 21). In rejecting that the instant case bore

any resemblance to Walgreen, the Circuit wrote that

... the plaintiffs adduced no evidence that the

prohibition on franchise and chain-store ar-

rangements, in itself, has had, or threatens to

have, a debilitating or unfair impact either on

competition or — leaving aside residency require-

ments — on out-of-state enterprises in particular.

There is, for example, no evidence of any carve-

out or other device that would enable in-state en-

tities to evade the challenged restrictions, or is

there any hint of a home-field advantage in con-

nection with the State’s enforcement of the re-

strictions.

(Pet. App. 21, 22).

Finally, the Circuit rejected the “sketchy” arguments

offered as to the statute’s impermissible territorial reach,

recognizing that “the district court did not address this

claim, presumably due to shortcomings in the manner of

its presentment. Even assuming that this argument was

squarely presented, it does not profit the plaintiffs’ cause.”

(Pet. App. 23). Instead, they found that the chain store

prohibition was “neutral” and “evenhanded.” (Pet. App.

24). Continuing the theme that the Petitioners failed

miserably in offering proof to support their claims, the

Circuit wrote that “[t}he plaintiffs have the obligation of

proving excessiveness, and they have not come close to

showing that the burdens they envision are excessive in

relation to the statutory scheme’s legitimate goals,” and

noted that this Court “previously has rejected the notion

that the dormant Commerce Clause protects particular

business structures or methods of operation.” (Pet. App.

24).

The decision of the First Circuit is in harmony with

this Court’s recent decision in United Haulers Assoc. v.

Oneida-Herkimer Solid Waste Mgmt. Auth., _ U.S. __,

127 S.Ct. 1786 (2007). That case made it clear that laws

that treat private businesses, “whether in state or out-of-

state, exactly the same, do not discriminate against

interstate commerce for purposes of the Commerce

Clause.” ___ U.S. ___, 127 S.Ct. at 1790, 1797. Since the

decision of the First Circuit is in full accord with the most

recent teachings of this Court on the subject of the Com-

merce Clause, there are no grounds to grant certiorari.

Ill. The Statute At Issue Is Aimed At Conduct,

Not Speech, Therefore, The First Amendment

Is Not Implicated.

At every turn, the lower courts emphasized that the

statute targeted conduct, not speech. Petitioners refuse to

accept this finding. Testimony offered by John Haronian,

describing the monthly meetings where store representatives

met to set prices on products, led to this conclusion. The First

Circuit correctly found that the chain store prohibition does

not target speech because “each individual licensee remains at

liberty to disseminate information about its prices and prod-

ucts to other stores and to the public at large. ... This statute

merely proscribes conduct ~— the launching of advertisements

resulting from pre-agreed commercial strategies. Such is not a

ban on commercial speech.” (Pet. App. 8). Just because these

Petitioners stubbornly insist that the First Amendment

protects their collusive activities does not make it so.

This Court has rejected outright a claim that conduct

that has incidental elements of speech is entitled to any

First Amendment protection. In Rumsfeld v. Forum for

Academic and Institutional Rights, Inc., __. U.S. ___, 126

S.Ct. 1297 (2006), the Court addressed complaints that the

“Solomon Amendment” requiring that military recruiters

be given access to college campuses, was “compelled

speech” in violation of the First Amendment. The Court

found that the “speech” involved was

plainly incidental to the Solomon Amendment’s

regulation of conduct, and ‘it has never been

deemed an abridgement of freedom of speech or

press to make a course of conduct illegal merely

because the conduct was in part initiated, evi-

denced, or carried out by means of language, ei-

ther spoken, written or printed’

id. at 1308. The following mandates a finding that Peti-

tioners’ position is without merit:

Congress, for example, can prohibit employers from

discriminating in hiring on the basis of race. The

fact that this will require an employer to take

down a sign reading “White Applicants Only”

hardly means that the law should be analyzed as

one regulating the employer’s speech rather than

conduct.

Id. at 1308, citing R.A.V. v. City of St. Paul, 505 U.S. 377

(1992).

In Rumsfeld, this Court chastised the challengers,

stating that their position “trivializes” the freedoms

protected by the Constitution and prior precedent. “In this

case, [petitioner] has attempted to stretch a number of

First Amendment doctrines well beyond the sort of activi-

ties these doctrines protect.” The argument was found to

“plainly overstate[] the expressive nature of their activity

and the impact of the Solomon Amendment on it, while

exaggerating the reach of our First Amendment prece-

dents.” 126 S.Ct. at 1313. This holding is entirely consis-

tent with prior Supreme Court precedent. For example, in

Arcara v. Cloud Books, Inc., 478 U.S. 697 (1986), this

Court found no element of protected expression in sexual

activity at a book store. There, the Justices found the

store’s argument too restrictive, “since every civil and

criminal remedy imposes some conceivable burden on

First Amendment protected activities.” Continuing, the

Court reminded that the Constitution does not

traditionally subject[] every criminal and civil

sanction imposed through legal process to ‘least

restrictive means’ scrutiny simply because each

particular remedy will have some effect on the

First Amendment activities of those subject to

sanction. Rather, we have subjected such restric-

tions to scrutiny only where it was conduct with

a significant expressive element that drew the

legal remedy in the first place, as in United

States v. O’Brien, 391 U.S. 367 (1968) or where a

statute based on a non-expressive activity has

the inevitable effect of singling out those engaged

in expressive activity. O’Brien has no relevance

to a statute directed at imposing sanctions on

non-expressive activity.

Id. (emphasis supplied). Clearly, Rhode Island’s ban on

“coordinated or common” advertising is not aimed at

Petitioners’ protected speech. The activity curbed is that

which is necessary for the joint advertising to occur, namely

the stores’ collusive agreements regarding prices and prod-

uct. This is well within the State’s regulatory power.

In Wirzburger v. Galvin, 412 F.3d 271 (1st Cir. 2005),

the First Circuit refused to invalidate regulations aimed at

non-communicative impact, notwithstanding a degree of

adverse impact on communication. Wirzburger first found

that citizens’ use of the ballot initiative process constituted

expressive conduct. However, the decision also correctly

found that the regulation in question was not aimed at

regulating speech. The Circuit wrote that government

actions that are aimed at some goal other than restricting

the conveyance of ideas are generally permissible even if

they incidentally inhibit free speech. Enforcement of a

prohibition with only incidental effects was found not to

implicate the First Amendment, and such a law is meas-

ured only by a rationality standard.

Petitioners’ attempt to shoehorn this case into a

commercial speech dispute should fail. Commercial speech

is the transmission of the notion that a party wishes to sell

a product for a certain price. This type of speech is simply

not affected by any state law or regulation at issue. What

is prohibited is the joint activity of agreeing to sell a

product at a particular price and then publishing the

result of this collusive agreement to consumers.

Even applying the commercial speech test, however,

Petitioners lose. Commercial speech, protected to some

degree by the First Amendment, consists of the “ability to

propose a commercial transaction and the adult listener’s

opportunity to obtain information about products.” Loril-

lard Tobacco Co. v. Reilly, 533 U.S. 525, 565 (2001). Com-

mercial speech is defined as “expression related solely to the

economic interests of the speaker and its audience.” Pharma-

ceutical Care Mgmt. Assoc. v. Rowe, 429 F.3d 294 (1st Cir.

2005). This case does not prohibit the disclosure of any

economic information to consumers. Rather, it prohibits the

agreement that necessarily precedes a joint advertisement

about price ai! product. It also prohibits the communication

that the parties are engaged in illegal activity — a chain

store operation. The statutes further an important gov-

ernmental interest, discussed supra, and do so as narrowly

as possible. All information is allowed; the manner in

which it is transmitted is the only action regulated.

The basis for both the trial court and Circuit’s decision

is the misleading nature of the use of the “Douglas” name.

At trial, John Haronian testified that each store was

independently owned and operated, yet they fly the same

banner, use the same colors, place for sale the same

advertisements, use identical in-store flyers touting the

same products for the same prices, sold by employees

dressed in the same “Douglas” garb. False testimony that

the stores are independent in light of these facts (which

emphasize the “conduct v. speech” dichotomy) highlight

the unassailable finding that the advertisements are

misleading.

The District Court made detailed factual findings,

which are binding on the Petitioners, since they were not

contested on appeal. A review of these facts highlights that

the decisions below were correct, and that no Writ should

issue from this Court:

1. Since 1933, Rhode Island has statutorily prohib-

ited the retail sale of alcoholic beverages by what

the statute has historically referred to as “chain

store organizations.” (Pet. App. 31).

2. Wine & Spirits Retailers (W&SR) and all of the

individual stores that are franchisees are Rhode

Island entities, corporations, or individuals. (Pet.

App. 31).

3. Prior to the denial of the Preliminary Injunction,

W&SR and the stores were parties to a Franchise

Agreement that contained the following provi-

sions and had the following characteristics:

° Each franchisee was given an exclusive

franchise within a specified geographic area.

The franchisees each had different corporate

names that were significantly different in

most cases. All did business under the name

“Douglas Wine and Spirits.”

products and prohibited from carrying other

products by W&SR. Further, W&SR speci-

fied the vendors from whom the franchisees

could purchase products and the layout of

the stores.

° Franchisees were required to pay an annual

franchise fee and to contribute to an adver-

tising and promotion fund that was con-

trolled by W&SR. W&SR could terminate

the Franchise Agreements at any time due

to a failure of the franchisee to comply with

the terms of the Franchise Agreement.

e Franchisees displayed posters and other lit-

erature at their stores containing references

to the Douglas website. On behalf of all of its

franchisees, W&SR negotiated with liquor

wholesalers for volume discounts, and every

two weeks W&SR placed ads in the Provi-

dence Journal newspaper on behalf of all

participating stores, and those ads listed the

products for sale at all Douglas stores and

the prices charged for those products. (Pet.

App. 31-32).

The “Franchise Agreements” have been replaced

by “Consulting Agreements.” Despite the seman-

tics, very little has changed. There are still ex-

clusive territorial provisions and all stores

continue to do business under the banner of

“Douglas Wine and Spirits.” The only difference

is that each store has added a single word nam-

ing the town in which the store is located. (Pet.

App. 32-33).

W&SR still negotiates prices with wholesalers on

behalf of all Douglas stores. (Pet. App. 33).

W&SR issues “Marketing Bulletins” telling

stores what to carry and what prices to charge.

These are much more than mere “suggestions”,

as Petitioners urged. (Pet. App. 33).

7. Products are priced by a computer system by

W&SR. The managers at the individual stores

can mark down individual products. W&SR still

issues suggestions regarding dress codes for em-

ployees and how each store is to be configured.

(Pet. App. 33).

8. Advertisements are still placed in the Providence

Journal every two weeks, except now they bear

the name of only one store. Each prominently

displays the “Douglas Wine and Spirits” logo, in

large, bold face type followed by the location of

the store that purportedly placed the advertise-

ment, which appears in much smaller type, far

less likely to be noticed by the reader. (Pet. App.

33).

9. The advertisements are paid for by a company

called Tri-State, an affiliate of DWS. (Pet. App.

33).

10. All other stores display exact copies of each ad

and offer the same products for the same prices

listed in the ad, and they still pay a fee to W&SR

for its advice and services and W&SR retains its

right to cancel the relationship. (Pet. App. 33-34).

11. Rarely, if ever, would any store fail to offer a

product shown in an ad at the price specified in

the ad. (Pet. App. 34).

12. Stores charge identical prices for the non-

advertised products that were randomly sur-

veyed by an investigator from the state. (Pet.

App. 34).

These uncontested findings establish that these

Petitioners have engaged in harmful conduct for many

years. Such conduct is not protected by the First Amend-

ment, and the Petition should be rejected.

IV. Similar Legislation Has Consistently Been

Upheld Against Constitutional Attack.

As part of the legislative grant of authority to control the

traffic in alcoholic beverages, the assurance that the commer-

cial aspects of the industry are operated under the conditions

of free and unrestricted competition are worthy and constitu-

tionally permissible goals. Nor is this legislation unusual.

Numerous states have historic limits on chain store

operations in the liquor industry. In Massachusetts,

factors considered under a previous statutory scheme in

determining whether a chain store relationship existed

were, among other things, single group insurance policies

covering employees of all corporations; sharing common

bookkeeping offices; substantial intercompany dealings; and

who the employees are hired by and work for. See Cleary v.

Cardullo’s, Inc., 198 N.E.2d 281 (Mass. 1964). That statutory

limit of three stores was upheld against an equal protection

attack in Johnson v. Martignetti, 375 N.E.2d 290 (Mass.

1978). That Court correctly found that the regulatory scheme

was aimed at the business relationships and their positive

effect on commerce and competition:

Concentration of retailing in the hands of an eco-

nomically powerful few has been thought to inten-

sify the dangers of liquor sales stimulations,

thereby threatening trade stability and promotion

of temperance. Regulation of the number of li-

censes issued, therefore, aims at controlling the

tendency toward concentration of power in the liq-

uor industry; preventing monopolies; avoiding

practices such as indiscriminate price cutting and

excessive advertising; and preserving the right of

small, independent liquor dealers to do business.

Id. at 297 (citations omitted).

In Parham v. Oklahoma Alcoholic Beverage Control

Board, 412 P.2d 142 (Okla. 1966), the Oklahoma Supreme

Court upheld, against a dual constitutional attack’ a rule

* Unconstitutional delegation of powers and due process.

requiring wholesalers to maintain minimum inventories of

certain of the most popular brands of alcoholic beverages.

In beginning its analysis, that Court stated:

At the outset we must recognize that the liquor

industry because of the very nature of its product

requires strict control and close supervision. As a

result, the Legislature by virtue of the police

power of the State possesses broad powers to

regulate and supervise all phases of traffic in in-

toxicating liquors. It is a generally accepted con-

cept that ‘the power of a state to regulate and

restrict the liquor traffic’ is far broader than the

power to regulate or restrict ordinary businesses,

because of its effect on the health and welfare of

the public.

412 P.2d at 147.

The rule requiring a fourteen-day inventory of the

most popular brands was read as expressing an intent on

the part of the Oklahoma legislature that, “... within the

framework of strict regulation which the liquor industry

by its nature requires, the commercial aspects of the

industry shall be operated under the conditions of free and

unrestricted competition.” Jd. at 148. The Court upheld

the rule, because it was “ ... clear that under the volun-

tary franchise agreement adopted by the wholesalers the

extensive competition heretofore existing between whole-

salers selling the same brands of liquor would be de-

stroyed.” There was no doubt in that case that the rule

was specifically designed “to combat the voluntary fran-

chise system. However, we make no determination of the

wisdom of a liquor franchise system, be it voluntary or

involuntary. That is a matter for determination by the

Legislature and the people of the State of Oklahoma.” Jd.

at 149. The legislative purpose, as exists in the case sub

judice, was unrestricted commercial competition.

In Granite State Grocers Assoc. v. State Liquor

Comm'n, 289 A.2d 399 (N.H. 1972), a prohibition against

any person holding more than two off-site beverage per-

mits was held not to deprive owners of the chain stores of

their equal protection rights, nor was it found to violate

the federal Commerce Clause. The prohibition in that case

was similar to that here - with New Hampshire allowing a

chain of two, instead of the absolute prohibition here. In

examining that scheme, the New Hampshire Court wrote

that “The obvious purpose of this well-rounded regulatory

system is to supervise and to fractionalize the beverage

industry. ...” The Court noted that “at least twenty states

similarly restrict the number of alcoholic beverage permits.

Such statutes have been held constitutional as serving a

public purpose in the two states where the question has been

considered.” Jd. at 400 (citations omitted). The lament of the

Petitioners is the same as that rejected in Granite State:

Regulations against concentration in the alcoholic

beverage business necessarily discriminate against

chain stores. ... Discrimination based on size is not

unconstitutional so long as it serves a bona fide pub-

lic purpose.... The legislative motives in enacting

economic and trade regulations, particularly in the

regulation of alcoholic beverages, may require less

stringent scrutiny and justification than in other so-

called personal-rights decisions.

Id.

The assurance of equitable basis for competition was

held enough to immunize a statute against an equal

protection challenge in Reinfeld v. Schieffelin & Co., 466

A.2d 563 (N.J. 1983). The following rationale applies with

equal force in this case:

The ultimate goal sought to be attained by the

statute in question, as in the entire scheme of liq-

uor legislation, is the protection of the public

through the promotion of temperance and elimina-

tion of the racketeer and bootlegger. In order to ac-

complish this purpose the statute seeks to achieve

as far as necessary the independence of wholesal-

ers from distillers. A wholesaler dependent upon a

distiller for a supply of sought-after merchandise

might be tempted to comply with the non-

legitimate desires of the distiller if the latter were

free to discontinue the supply at will. For the pur-

pose of strengthening the wholesaler’s resistance

”

if confronted with a distiller’s wish to over-

stimulate sales and thus negate the public policy

in favor of temperance or a desire to engage in

other prohibited acts, e.g., tie-in sales, the stat-

ute seeks to prevent the distiller from arbitrarily

closing the source of supply to a wholesaler.

Id. at 567. The same is true here — the fortunes of the

franchisees’ are inextricably intertwined with that of the

W&SR who controls the day-to-day operations of each

store. “However inconvenient the statute might be to [the

franchisor’s] and [the franchisees’) trade, even bona fide

business policy in the field of liquor traffic must yield to

the policy of the State.” Jd. at 568 (citation omitted). In

rejecting an equal protection challenge, the New Jersey

Court correctly recognized that “Liquor dealers are not a

suspect class, nor is liquor distribution a fundamental

right.” In deciding that the statute was fundamentally and

constitutionally sound, that Court decided that a legisla-

ture’s “practically limitless” power to regulate the sale of

intoxicating beverages accentuates the normal deference

afforded by the “rational basis” test. Although that power

was broad even before the passage of the Twenty-first

Amendment, the latter has been read to give states ple-

nary power to regulate the sale and distribution of liquor,

and it permits classifications that relate to that regulatory

function. The Court upheld the legislation as having a

rational basis in the promotion of temperance, in that it

would free from any illegitimate demands that suppliers

might make those wholesalers who have become depend-

ent on a supplier. That rationale is easily applied here.

In Grand Union Company v. Sills, 204 A.2d 853 (N.J.

1964), a similar law was upheld against due process and

equal protection attacks even though the Court recognized

that it would curb chain store liquor operations and aid

small liquor dealers. Initially, that Court acknowledged

that the

legislation was entitled to the various presump-

tions of constitutionality which attend on judicial

review of statutory enactments, and to aid from the

doctrine that factual support for the legisiative

judgment would be presumed, and absent a suffi-

cient showing to the contrary, the court would as-

sume that the enactment rested upon some

rational basis within the knowledge and experience

of the Legislature.

As for the purpose found advanced by the statute: “They

were designed to aid in the stabilization of the industry and

in the promotion of temperance through the curbing of

competitive practices which tended to stimulate sales.” Jd.

This case is indistinguishable from those and the result

should be the same.

A nearly identical attack was launched by these same

Petitioners in Peoples Super Liquor Stores v. Jenkins,

supra, and the same result obtained. As in this case the

Petitioners presented “sparse” arguments, and their

claims as to the First Amendment and Takings claims

were rejected on Motion to Dismiss. The only claim that

survived that initial disposition was the Commerce Clause

claim, and the litigation was terminated before a decision

could be reached.

The cases relied upon by the Petitioners to establish

discord in the Circuits simply do not. They all involved

cases of uncontroverted protected speech, which is not

implicated here. None of those decisions involves action by

the State to regulated anticompetitive, collusive conduct

as is present here. Since they are not “tantamount to

antitrust” cases, they should not be considered at all

relevant.

CONCLUSION

The State’s job is to legislate and regulate. In the area

of alcoholic beverages, the State has wide latitude in

determining how to structure the liquor distribution

system. This statute is no more than one designed to

ensure that consumers have choices, and its purpose was

to end price-fixing. The evidence adduced at trial showed

that Petitioners actions removed choice as to price and

product by directing all aspects of the business from one

central location, to the detriment of consumers. If every

store, every product, and every price is the same — con-

sumer choice is negatively affected. The reach of the

statute is only as far as need be.

The decision of the First Circuit is not in conflict with

that of any other Circuit, or with any decision of this

Court. To the contrary, it is merely the latest in a line of

decisions upholding similar chain store bans in the retail

liquor industry. This Court should decline to issue a Writ

of Certiorari in this matter.

Respectfully submitted,

PATRICK C. LYNCH

Attorney General

*REBECCA TEDFORD PARTINGTON

Assistant Attorney General

DEPARTMENT OF ATTORNEY

GENERAL

150 South Main Street

Providence, RI 02903

(401) 274-4400

*(Counsel of Record)

App. 1

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

WINE & SPIRITS RETAILERS,

INC., JOHN HARONIAN, DOUG-

LAS WINE & SPIRITS - CUM-

BERLAND, INC., DOUGLAS,

DOUGLAS WINE &

SPIRITS — CRANSTON, INC. and,

DOUGLAS WINE &

SPIRITS N. PROVIDENCE, INC.,

Plaintiffs,

STATE OF RHODE ISLAND AND

PROVIDENCE PLANTATIONS,

and JEFFREY J. GREER, in his

capacity as the Associate Director

of the Department of Business

Regulation,

Defendants,

and

UNITED INDEPENDENT LIQ-

UOR RETAILERS OF RHODE

ISLAND,

Defendant-Intervenor.

Civil Action No. 04-418-T

FIRST AMENDED COMPLAINT

(Filed Dec. 22, 2005)

App. 2

Nature Of The Action

1. Plaintiffs allege violations of the First, Fifth and

Fourteenth Amendments to the Constitution of the United

States and Article 1, §8 of the Constitution of the United

States.

2. Sections 3-5-11 and 3-5-11.1 of the Rhode Island

General laws unconstitutionally restrict the rights of

speech and association and deny the Plaintiffs of their

right to Equal Protection of the laws by denying them

fundamental rights in a discriminatory manner.

3. Additionally, §3-5-10 discriminates against interstate

trade in violation of the Commerce Clause of the Constitu-

tion of the United States.

Jurisdiction

4. This Court has subject matter jurisdiction over this

action under 28 U.S.C. §1331, because the matter in

controversy arises under the Constitution and laws of the

United States. Plaintiffs’ right to judicial review of the

actions complained of is secured by 42 U.S.C. §1983.

5. Venue in this Court is proper under 28 U.S.C. §1391

because the events giving rise to this claim have occurred,

and will occur, within the District of Rhode Island.

The Parties

6. WINE & SPIRITS RETAILERS, INC. (W&S) is a

corporation organized under the laws of Rhode Island.

W&S was the franchisor of Douglas Wine and Spirits

(DW&S) and People’s Liquor ‘Varehouse (People’s). W&S

App. 3

currently sells business advice and advertising services as

a consultant to liquor stores.

7. JOHN HARONIAN is a resident of Rhode Island who

provides business advice to liquor stores within the state

of Rhode Island. His ability to continue to provide this

advice is restricted by the amended liquor control law.

8. DOUGLAS WINE & SPIRITS - CUMBERLAND, INC.

(DW&S ~—~ CUMBERLAND) is a corporation organized

under the laws of Rhode Island. DW&S - CUMBERLAND

operates a liquor store. Until recently nullified by §3-5-

11.1, DW&S - CUMBERLAND had a franchise agreement

with W&S and enjoyed the benefits of the joint advertis-

ing, trade name and business advice that resulted from

that agreement.

9. DOUGLAS WINE & SPIRITS N. PROVIDENCE, INC.

(DW&S - N.PROVIDENCE) is a corporation organized

under the laws of Rhode Island. DW&S -

N.PROVIDENCE operates a liquor store. Until recently

nullified by §3-5-11.1, DW&S — N.PROVIDENCE had a

franchise agreement with W&S and enjoyed the benefits of

the joint advertising, trade name and business advice that

resulted from that agreement.

10. DOUGLAS WINE & SPIRITS - CRANSTON, INC.

(DW&S — CRANSTON) is a corporation organized under

the laws of Rhode Island. DW&S - CRANSTON operates a

liquor store. Until recently nullified by §3-5-11.1, DW&S -

CRANSTON had a franchise agreement with W&S and

enjoyed the benefits of the joint advertising, trade name

and business advice that resulted from that agreement.

11. Defendant STATE OF RHODE ISLAND AND

PROVIDENCE PLANTATIONS is a governmental unit,

App. 4

which promulgates laws and regulations which are bind-

ing upon the Plaintiffs. RHODE ISLAND has enacted the

statutes at issue in this litigation.

12. Defendant JEFFREY J. GREER, is the Associate

Director of the Department of Business Regulations

(DBR). In his capacity as Associate Director of the Division

of Business Regulation, Division of Commercial Licensing

and Regulation, GREER is tasked with enforcing the

unconstitutional statutes at issue in this litigation.

GREER is being sued in his official capacity only.

13. UNITED INDEPENDENT LIQUOR RETAILERS OF

RHODE ISLAND is an organization of liquor stores from

Rhode Island and Massachusetts, which has intervened in

this action as a defendant.

Facts Common to All Claims

14. The Plaintiffs seek to restore their franchise relation-

ships.

15. The Plaintiffs seek to speak to their prospective

customers through joint advertising and through the use

of the name Douglas Wine & Spirits.

16. The Rhode Island General Assembly enacted Rhode

Island General Laws §§ 3-5-10, 3-5-11 and 3-5-11.1.

17. Section 3-5-11 bans the ownership of multiple Class A

liquor licenses by the same individual or corporation.

18. Section 3-5-11.1 bans the holders of Class A licenses

from participating in franchises. Section 3-5-11.1 took

effect on April 1, 2004.

App. 5

19. DW&S ~- CUMBERLAND, DW&S — N.PROVIDENCE

and DW&S — CRANSTON had franchise agreements with

W&S. Those agreements have been nullified by §§3-5-11,

as amended, and 3-5-11.1.

20. DW&S —- CUMBERLAND, DW&S ~ N.PROVIDENCE

and DW&S — CRANSTON currently seek to purchase

business advice and marketing services from W&S. This

relationship is threatened by §3-5-11, as amended.

21. The elements of §3-5-11 are not separable.

22. The elements of §3-5-11.1 are not separable.

COUNT I

First Amendment to the Constitution

of the United States - Speech

23. Sections 3-5-11 and 3-5-11.1 prohibit the Plaintiffs

from engaging in expression protected by the First

Amendment to the Constitution of the United States.

COUNT II

First Amendment to the Constitution

of the United States - Assembly

24. Sections 3-5-11 and 3-5-11.1 violate the Plaintiffs’

rights secured by the First Amendment to the Constitution

of the United States by prohibiting the Plaintiffs from

forming an expressive association.

App. 6

COUNT III

First Amendment to the Constitution

of the United States —- Unfettered Discretion

25. The enforcement mechanism of §3-5-11’s prohibition

of chain stores permits unfettered discretion by the DBR

in permitting some Class A to engage in the prohibited

activities while not permitting others.

26. This unfettered discretion in the permitting or

prohibiting of the First Amendment activities described

above renders §3-5-11 unconstitutional.

COUNT IV

Article I, §8 of the Constitution

of the United States (Commerce Clause)

27. Section 3-5-10 requires the owners of Class A license

to be residents of Rhode Island.

28. This restriction limits the ability of out of state

individuals to do businesg within Rhode Island.

29. Section 3-5-10 discriminates against interstate

commerce and therefore violates the Commerce Clause.

30. Section 3-5-11 prohibits owner of liquor stores in

other states from obtaining a Class A license in Rhode

Island. Section 3-5-11 thereby discriminates against

interstate commerce in violation of the Commerce Clause

COUNT V

Fifth Amendment to the

Constitution of the United States

31. Sections 3-5-11 and 3-5-11.1 eliminates the reason-

able investment backed property rights of the Plaintiffs in

App. 7

their businesses and the value of their existing contractual

relationships.

32. The unconstitutional taking of the Plaintiffs’ property

has caused damage to them in an amount to be proven at

trial.

COUNT VI

Fourteenth Amendment to the

Constitution Laws of the United States

33. Sections 3-5-11 and 3-5-11.1 deny fundamental rights

to the Plaintiffs.

34. Sections 3-5-11 and 3-5-11.1 treat the Plaintiffs

differently from similarly situated other individuals and

businesses.

COUNT VII

Deprivation of Rights Secured by the

Constitution and Laws of the United States

in Violation of 42 U.S.C. §1983

35. Sections 3-5-10, 3-5-11 and 3-5-11.1 deprive the

Plaintiffs of rights or privileges secured by the Constitu-

tion and laws of the United States.

36. This deprivation of rights has and will occur under

cole~ of law.

WHEREFORE, Plaintiffs respectfully request the follow-

ing relief:

A. Enter judgment declaring §§3-5-11 and 3-5-11.1 vio-

late the First Amendment to the Constitution of the

United States; and

a i oo aes a Se a ae oe on we ms 2 we ee ee me

App. 8

B. Enter judgment declaring §§3-5-1( and 3-5-11 violate

Article I, §8 of the Constitution of the United States;

and

C. Enter judgment declaring §§3-5-11 and 3-5-11.1 vio-

late the Fifth Amendment to the Constitution of the

United States; and

D. Enter judgment declaring §3-5-11 and 3-5-11.1 violate

the Fourteenth Amendment to the Constitution of the

United States; and

E. Enter judgment declaring that §§3-5-10, 3-5-11 and 3-

5-11.1 have deprived the Plaintiffs of rights secured

by the Constitution and laws on the United States in

violation of 42 U.S.C. § 1983; and

F. Enter judgment declaring that §3-5-11(b)(1)(ii) vio-

lates 29 U.S.C. §1001; and

G. Permanently enjoin the defendants from enforcing

§§3-5-10, 3-5-11 and 3-5-11.1; and

H. Award to Plaintiffs the costs of this action, including

attorney fees as provided for by 42 U.S.C. §1988 and

29 U.S.C. §1132(g)(1); and

I. Award such other relief as the Court may deem just.

App. 9

Dated: December 21, 2005

/s/

Respectfully submitted,

WINE & SPIRITS

RETAILERS, INC., et al.

By their Attorneys,

Michael Williams

Robert J. Roughsedge (#5876)

Evan T. Lawson (pro hac vice)

Michael Williams (pro hac vice)

Lawson & Weitzen, LLP

88 Black Falcon Avenue,

Suite 345

Boston, MA 02210-1736

Telephone: (617) 439-4990

Facsimile: (617) 439-3987

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF RHODE ISLAND

WINE & SPIRITS RETAILERS,

INC., et al.

Plaintiffs,

v. Civil Action No. 04-418-T

STATE OF RHODE ISLAND

et al.,

Defendants.

CERTIFICATE OF SERVICE

The undersigned attorney for the Plaintiffs hereby

certifies that true copies of the Amended Complaint were

served upon the following attorneys of record by United

App. 10

States first class mail, postage prepaid on this 21st day of

December, 2005:

Rebecca Partington Joseph S. Larisa, Jr.

Deputy Chief- Civil Division Larisa Law and

Office of the Attorney General Consulting, LLC

150 South Main Street . One Citizens Plaza, Suite 1100

Providence, RI 02903 Providence, RI 02903

/s/ Michael Willis

Michael Williams (pro hac vice)

App. 11

STATE OF RHODE ISLAND AND

PROVIDENCE PLANTATIONS DEPARTMENT

OF BUSINESS REGULATION

233 RICHMOND STREET

PROVIDENCE, RI 02903

IN THE MATTER OF:

People’s Liquor

Warehouse-Hopkinton,

Inc. d/b/a People’s

Liquor Warehouse,

RESPONDENT.

DBR No. 06-L-007

IN THE MATTER OF:

People’s Liquor

Warehouse-Apponaug,

Inc. d/b/a People’s : DBR No. 06-L-008

Liquor Warehouse,

RESPONDENT.

IN THE MATTER OF:

People’s Liquor

Warehouse of Cranston —

LLC d/b/a People’s : DBR No. 06-L-009

Liquor Warehouse,

RESPONDENT.

App. 12

IN THE MATTER OF:

MAB Liquors, Ltd.

d/b/a Douglas Wine &

Spirits-Cranston,

RESPONDENT.

IN THE MATTER OF:

Delta Wine & Spirits,

Inc. d/b/a Douglas Wine

& Spirits-Smith St.

RESPONDENT.

IN THE MAT7ER OF:

Douglas Liquors, Inc.

d/b/a Douglas Wine &

Spirits-No. Providence,

Inc.,

RESPONDENT.

EN THE MATTER OF:

Liquor Depot East

Providence, Inc. d/b/a

Douglas Wine & Spirits- ;

East Providence, Inc.,

RESPONDENT.

DBR No. 06-L-010

DBR No. 06-L-011

DBR No. 06-L-012

DBR No. 06-L-013

App. 13

IN THE MATTER OF:

No. Smithfield Wine &

Spirits, Inc. d/b/a Doug-

las Wine & Spirits-North |

Smithfield, Inc.,

RESPONDENT.

DBR No. 06-L-014

IN THE MATTER OF:

CSW Operating

Company d/b/a Douglas

Wine & Spirits-

Cumberland,

RESPONDENT.

DBR No. 06-L-015

IN THE MATTER OF:

Putnam Pike Liquors, _

Inc. d/b/a Douglas Wine © DBR No. 06-L-016

& Spirits-44,

RESPONDENT.

IN THE MATTER OF:

Knights Wine & Spirits —

Inc. d/b/a Douglas Wine © DBR No. 06-L-017

& Spirits-Johnston, Inc., °

RESPONDENT.

App. 14

DECISION

I. INTRODUCTION

In 2004, the Rhode Island General Assembly amended

R.I. Gen. Laws § 3-5-11 and enacted R.I. Gen. Laws § 3-5-

11.1. R.I. Gen. Laws § 3-5-11.1, effective on April 1, 2005,

prohibited the Department of Business Regulation (“De-

partment”) from granting, issuing, renewing, and/or

transferring Class A liquor licenses’ to or for the use of any

liquor franchisor or franchisee. R.I. Gen. Laws § 3-5-11(a),

also effective on April 1, 2005, prohibited the Department

from granting, issuing, or transferring Class A liquor

licenses to or for the use of any “chain store organization.”

R.I. Gen. Laws § 3-5-11(b)(1)(vi) defines “chain store

organization” as:

[alny group of one or more holders of Class A liq-

uor licenses who engage in one or more of the fol-

lowing practices with respect to the business

conducted under such licenses, either directly or

indirectly or have any direct or indirect beneficial

interest in the following practices:

(vi) falny term or name identified as a chain or

common entity.

On January 6, 2006 the Director of the Department

issued separate Orders to Show Cause, Notice of Hearing,

and Appointment of Hearing Officer (“Order to Show

Cause” attached as Exhibit 1) to each of the above-

captioned Respondents ior operating as a “chain store

’ All of the Respondents in this matter are Class A liquor licensees

pursuant to R.I. Gen. Laws § 3-7-3.

App. 15

organization” in violation of R.I. Gen. Laws § 3-5-11 due to

the use of a “same or materially similar name as another

Class A licensee” (see Order to Show Cause, paragraph 5)

as defined ir . ~. Gen. Laws § 3-5-11(b)(1)(vi). The Orders

to Show Caus. allege that the above-captioned Respon-

dents failed to comply with two (2) Departmental Bulletins

dated September 21, 2005 (attached as Exhibit 2) and

December 15, 2005 (attached as Exhibit 3) issued to all

Class A liquor licensees explaining and informing the

affected licensees regarding the prohibition of Class A

licensees from using the same or materially similar

names. Paragraph 4 of the September 21, 2005 Bulletin

directed all of the Respondents to submit and obtain

approval for a name dissimilar than other Class A licen-

sees by December 31, 2005 in order to comply with R.I.

Gen. Laws § 3-5-11(b)(1)(vi). The Department alleges in its

Orders to Show Cause that Respondents have violated a

directive of the Department and are engaged in a business

practice prohibited by R.I. Gen. Laws § 3-5-11 and there-

fore, requests that pursuant to R.I. Gen. Laws § 3-5-

11(b)(4) Respondents’ licenses be revoked, or alternatively,

the licensees be ordered to cease and desist from the

prohibited practices and that a fine be imposed for the

violation.

A pre-hearing conference on the Orders to Show

Cause was held on February 16, 2006. At that time,

counsel for the Department and the Respondents agreed to

consolidate the above-captioned matters. On March 20,

2006, the Department filed a Motion and Memorandum of

Law in Support of its Motion for Summary Judgment. On

April 28, 2006, the Respondents filed their Memorandum in

Support of their Oppgsition to the Department’s Motion for

Summary Judgment and their Cross-Motion for Summary

App. 16

Judgment. On May 10, 2006, the Respondents submitted a

supplemental letter and case in support of their Objection

and Cross-Motion for Summary Judgment. On May 18,

2006, a status conference was held to determine whether

the Department wanted to reply to Respondents’ Objection

and Cross-Motion for Summary Judgment. The Depart-

ment did not reply in writing to Respondents’ Objection

and Cross-Motion for Summary Judgment and the parties

requested that a Decision on the pleadings be issued.

It should also be noted that the undersigned Hearing

Officer is also adjudicating another matter involving the

same Respondents in a consolidated matter, DBR Num-

bers 05-L-0225 through to and including 05-L-0232, which

addresses whether or not the Respondents are violating

the other prohibited activities in R.I. Gen. Laws § 3-5-

11{b)(1) and (2) other than R.I. Gen. Laws § 3-5-11(b)(1)(vi)

(the bar against any term 6r name identified as a chain or

common entity).

Additionally, the Wine and Spirits Retailers Inc. and

John Haronian (referred to collectively as “W&S”) filed a

civil action on September 28, 2004 in the United States

District Court for the District of Rhode Island against the

State of Rhode Island and the Department seeking to

declare R.I. Gen. Laws §§ 3-5-11 and 3-5-11.1 unconstitu-

tional and enjoin the enforcement of the statutes by the

Department. See Wine and Spirits Retailers Inc. and John

Haronian v. State of Rhode Island and Providence Planta-

tions and Jeffrey J. Greer, in his capacity as Associate

Director of the Rhode Island Department of Business

Regulation, 364 F. Supp. 2d 172, 175 (D. R.I. 2005). W&S

is the franchisor with whom the Respondents in this

matter have a franchisee agreement under the name

Douglas Wine & Spirits. The United States District Court

App. 17

for the District of Rhode Island denied W&S’s motion for a

preliminary injunction. Jd. at 183. W&S appealed the

federal District Court’s denial of its motion for a prelimi-

nary injunction to the United States Court of Appeals for

the First Circuit and on August 10, 2005, said court

affirmed the District Court’s denial of the motion for

preliminary injunction. Wine and Spirits Retailers Inc. and

John Haronian v. State of Rhode Island and Providence

Plantations and Jeffrey J. Greer, in his capacity as Associ-

ate Director of the Rhode Island Department of Business

Regulation, 418 F.3d 36, 2005 (1st Cir.).

II. JURISDICTION

The Department has jurisdiction over the Respon-

dents as Class A liquor licensees pursuant to R.I. Gen.

Laws §§ 3-5-1 et seg. and 3-7-1 et seq.

IV. [sic] ISSUE

The issue in this matter is whether Respondents’ use

of the term or names as stipulated constitutes prohibited

operation as a “chain store organization” as defined in R.I.

Gen. Laws § 3-5-11(b)(1)(vi). If it is deemed to be a viola-

tion, the Hearing Officer must then determine an appro-

priate remedy for the violation of R.I. Gen. Laws § 3-5-11

pursuant to R.I. Gen. Laws § 3-5-11(b)(4).

V. UNDISPUTED FACTS

The Department and Respondents agree that:

A. RI. Gen. Laws §§3-5-11 and 3-5-11.1 were

amended and enacted, respectively, in 2004, and

were effective as of April 1, 2005.

App. 18

On September 21, 2005 the Department issued

Bulletin 2005-2 to all Class A Licensees and

Wholesalers. This Bulletin clarified four (4) ques-

tions relating to the types of practices prohibited

by the amendment and enactment of R.I. Gen.

Laws §§ 3-5-11 and 3-5-11.1 and informed Class

A licensees that the statutory changes eliminate

any chain store and alcoholic beverage franchisor/

franchisee relationships. The Bulletin specifically

stated that it was “not meant to be an exhaustive

list of prohibited practices as set forth in the law,

but rather will serve to provide an overview of

certain prohibited practices for which enforce-

ment action will be taken.”

Bulletin 2005-2 stated that the following practice

is prohibited:

[E]xistence of Class A licensees with the same or

materially same names. By April 1, 2006, each

retail licensee will be required to operate under a

name totally dissimilar from other Class A licen-

sees with the exception that a full proper legal

name may be used as a business name. For ex-

ample, if there is more than one licensee operat-

ing under the name “Smith’s Liquors” the same

name should be changed to a totally dissimilar

name or, if the owner is named Smith, the name

may be changed to the full Legal name of the

owner such as “Joe Smith’s Liquors,” to demon-

strate appropriate differentiation. Accordingly,

two (2) or more stores currently named in a

manner such as “Hank’s Liquors of Smithfield”

and “Hank’s Liquors of Newport” will not be con-

sidered a sufficient differentiation of name ...

The Department encourages all licensees to call

with any further questions they may have about

operating under R.I. Gen. Laws § 3-5-11 and

11.1.

App. 19

D. From October 25, 2005 to October 31, 2005, the

Respondents proceeded to change their “full

proper legal name” with the Secretary of State’s

office:

1. from PLW-Hopkinton, Inc. to Peoples Liquor

Warehouse-Hopkinton, Inc.

2. from Douglas Wine & Spirits Apponaug, Inc.

to Peoples Liquor Warehouse-Apponaug,

Inc.

3. from PLW Cranston, LLC to Peoples Liquors

Warehosue [sic?] of Cranston, Inc.

4. from MAB Liquors, Ltd. To Douglas Wine &

Spirits-Cranston, Inc.

5. from Delta Wine & Spirits, Inc. to Douglas

Wine & Spirits-Smith Street, Inc.

6. from Douglas Liquors, Inc. to Douglas Wine

& Spirits No. Providence, Inc.

7. from Liquor Depot East Providence, Inc. to

Douglas Wine & Spirits-East Providence,

Inc.

8. from No. Smithfield Wine & Spirits, Inc. to

Douglas Wine & Spirits- No. Smithfield, Inc.

9. from CWS Operating Company to Douglas

Wine & Spirits-Cumberland, Inc.

10. from Putnam Pike Liquors, Inc. to Douglas

Wine & Spirits-44 Inc.

11. from Knights Wine and Spirits, Inc: to Doug-

las Wine and Spirits Johnston, Inc.

App. 20

E. On November 17, 2005 the Respondents provided

the Department with their name change Certifi-

cates issued by the office of the Rhode Island

Secretary of State.

F. On December 15, 2005, the Department amended

paragraph 4 of Bulletin 2005-2 to clarify addi-

tional criteria that do not deem a name “distin-

guishable” from another name. In _ that

clarification, the Department stated that one of

the criteria that would not be considered to dis-

tinguish the use of similar names is the addition

of a geographic location or place, or a numeric

designation (for example, Gourmet Liquors Inc.

versus Gourmet Liquors of Providence, Inc. or

Gourmet Liquors I, Inc. versus Gourmet Liquors

II, Inc.).

G. On December 28, 2005 the Respondents re-

submitted their same name changes as described

in paragraph V (D) above to the Department.

H. On December 29, 2005, the Department rejected

the Respondents’ names.

VI. DISCUSSION

A. Summary Judgment Standard

\ Under Rule 56 of the Superior Court Rules of Civil

Procedure, summary judgment is appropriate when there

is no genuine issue as to any material fact and the moving

party is entitled to judgment as a matter of law. In ruling

on a motion for summary judgment, it is necessary to view

the evidence in the light most favorable to the nonmoving

party. Hefline v. Koszela, 774 A.2d 25, 29 (R.I. 2001).

Summary judgment is appropriate if there are no genuine

issues of material fact remaining and the moving party is

App. 21

entitled to judgment as a matter of law. See Id. The mov-

ing party bears the initial burden of demonstrating the

absence of questions of material fact. See Id. That burden

may be satishied by “submitting evidentiary materials,

such as interrogatory answers, deposition, testimony,

admissions, or other specific documents, and/or pointing to

the absence of such items in the evidence adduced by the

parties.” Jd. (quoting Doe v. Gelineau, 732 A.2d 43, 48 (R.I.

1999)). In this matter, the parties have stipulated to the

facts and it is clear that there are no material facts in

dispute regarding the names submitted by the Respon-

dents.

B. Department’s Motion for Summary Judg-

ment

The Department asserts that the clear and unambigu-

ous language of R.I. Gen. Laws § 3-5-11(b)(I)(vi) prohibits

the Respondents from using any term or name identified

as a chain or common entity. The Department further

asserts that the names as currently being used by Respon-

dents constitute names evidencing a chain or common

entity. The Department states that well-established

principles of administrative law require that the Depart-

ment be afforded deference in its administration and

enforcement of the statute at issue. The Department

further asserts that its guidelines regarding the use of

names are reasonable and intended to enforce the statu-

tory mandates in R.I. Gen. Laws § 3-5-11(b)(1)(vi) and

because Respondents are clearly in violation of the De-

partment’s guidelines as articulated in Bulletin 2005-2

and its amendment, the Respondents’ licenses should be

revoked or alternatively, a cease and desist order shall be

issued to the Respondents to prevent them from using

App. 22

materially similar names as well as a fine not to exceed

$10,000 per licensee pursuant to R.I. Gen. Laws § 3-5-

T1(b)(4).

C. Respondents’ Objection and Cross-Motion

for Summary Judgment

The Respondents assert that the Department’s inter-

pretation and application of R.I. Gen. Laws § 3-5-11 should

be quashed because: (i) the Department has abused its

discretion; (ii) the Department’s interpretation and appli-

cation violates the Respondents’ First Amendment right to

freedom of speech; (iii) there are less drastic means avail-

able to achieve compliance with the statute; and (iv) the

Department’s interpretation and application violates the

Respondents’ Fifth Amendment rights because it is an

illegal taking. Additionally, Respondents claim that the

entire statutory scheme that governs R.I. Gen. Laws § 3-5-

11 violates the Commerce Clause because it impermissibly

burdens interstate commerce and violates the Sherman

Anti-Trust Act because it illegally restrains trade and,

therefore, prevents competition, which harms consumers.

Therefore, Respondents allege that any order against

Respondents to cease and desist the use of the Respon-

dents’ names would violate the Respondents’ rights.

Respondents stress that the reason the Department

must not be afforded deference in its interpretation of the

statute at issue is because the interpretation violates the

Constitution and the statute itself is unconstitutional

because it infringes upon the First Amendment rights of

the Respondents. The Respondents state that the Depart-

ment is compounding the constitutional issues by misin-

terpreting the statute and abusing its discretion and

App. 23

authority in the enforcement of the statute. Respondents

maintain that the statute does not articulate the harm

associated with from the existence and/or perception of a

chain store organization. However, Respondents assume

for the purpose of argument that the only harm sought to

be avoided is the misimpression that a licensee is a chain

store or affiliated with another store, and offer other

methodology for enforcing the statute. Furthermore,

Respondents assert that because the Department would

allow the use of the full, legal name of the individual

owner associated with the name of the licensee, the

Department is acting arbitrarily in its application. That is,

under the current criteria, the Department would allow

the use of Kathleen Haronian’s Douglas Wine & Spirits-

North Providence, Inc. but not Douglas Wine & Spirits-

North Providence. The Respondents allege that there is no

difference in the two names. Therefore, the Respondents

allege the criteria used by the Department to enforce the

statute are arbitrary,

Respondents raise constitutionality of the statutes at

issue based on violations of Respundents’ First Amend-

ment right to freedom of speech, the Fifth Amendment, the

Commerce Clause and the Sherman Anti-trust Act, and

the Equal Protection Cause. This Decision will discuss

legislative intent, statutory construction, and the man-

dates imposed upon this administrative agency (part of the

Executive Branch of government) without infringing upon

the determination of constitutionality of statutes which

lies solely within the Judicial Branch of government and is

well outside the purview of this administrative agency.

Additionally, it does not serve judicial economy nor further

the purpose of administrative regulation — to enforce

statutory mandates — to have an administrative agency

App. 24

rule on the constitutionality of statutes which it is charged

with enforcing. This is especially true in the context of this

proceeding because the challenge to the constitutionality

of the statutes at issue commenced in Federal District

Court prior to this adjudication and is currently pending

in federal District Court (and is scheduled to go to trial in

June 2006). The Rhode Island Supreme Court has stated

that:

[t]he principle that protects an administrative

agency from constitutional challenges during the

course of a licensing or permit proceeding is

based upon the necessity to establish and main-

tain orderly procedures required for effective im-

plementation of administrative determinations

pursuant to § 42-35-15, that review is circum-

scribed and limited to determinations that the

agency itself might properly entertain and con-

sider.

See Easton’s Point Association et al. v. Coastal Resources

Management Council et al., 522 A.2d 199, 202 (R.I. 1987).

D. Statutory Construction/Legislative Intent

The Rhode Island Supreme Court has consistently

held that it effectuates legislative intent by examining the

statute in its entirety and giving words their plain and

ordinary meaning. Jn re Falstaff Brewing Corp., 637 A.2d

1047, 1049 (R.I. 1994). See Parkway Towers Associates v.

Godfrey, 688 A.2d 1289 (R.I. 1997). The Rhode Island

Supreme Court has also established that it will not inter-

pret legislative enactments in a manner that renders them

nugatory or that would produce an unreasonable result.

See Defenders of Animals v. Dept. of Environmental

Management, 553 A.2d 541 (R.I. 1989) (citing Cocchini v.

App. 25

City of Providence, 479 A.2d 108, 111 (R.I. 1984); Beaudoin

v. Petit 409 A.2d 536, 540 (1979); Raymond Construction

Co. v. Bisbano, 326 A.2d 858, 861 (1974)). In cases where

statutory language is ambiguous, the Rhode Island Su-

preme Court has consistently held that legislative intent

must be considered. Providence Journal Co. v. Rodgers,

711 A.2d 1131, 1134 (R.I. 1998). The statutory provisions

must be examined in their entirety and the meaning most

consistent with the policies and purposes of the legislature

must be effectuated. Jd. It is also necessary to take into

account the scope of the statute and the purpose sought to

be accomplished through the enactment of the statute

when determining how it is to be construed. New England

Die Co., Inc. v. General Products Co., Inc., 168 A.2d 150

(R.I. 1961).

In examining Title 3 of the Rhode Island General

Laws, entitled Alcoholic Beverages, it is clear that the

legislature intended to regulate many facets of the liquor

industry. The chapters of Title 3 of the Rhode Island

General Laws include such areas as: Chapter 4-

Transportation of Beverages: Chapter 5-Licenses (includ-

ing state and local licensing provisions, limitations on the

number of licenses, manufacturer and wholesaler li-

censes); Chapter 6-Manufacturing and Wholesale Li-

censes; Chapter 7-Retail Licenses; Chapter 8- Regulation

of Sales; Chapter 9-Adulterated Liquors; Chapter 10-

Taxation of Beverages; Chapters 11 and 12-Penalties and

Liabilities and Enforcement of Title; Chapter 13-Malt

Beverage Supplier-Wholesaler Agreements; and Chapter

14- The Rhode Island Liquor Liability Act. This compre-

hensive statutory scheme clearly reflects the legislative

intent to control, regulate, penalize, and monitor activities

related to liquor. Additionally, R.I. Gen. Laws § 3-1-5

App. 26

states that “[t]his title shall be construed liberally in aid of

its declared purpose which declared purpose is the promo-

tion of temperance and for the reasonable control of the

traffic in alcoholic beverages.” R.I. Gen. Laws § 3-2-2 also

gives the Department “general supervision of the conduct

of the business of manufacturing, importing, exporting,

storing, transporting, keeping for sale, and selling bever-

ages.” (Emphasis added). This authority supervision ties

into the Department’s regulation in R.I. Gen. Laws § 3-5-1

et seq., entitled Licenses Generally, because the licenses

are required for manufacture, sale or importation of

beverages (R.I. Gen. Laws § 3-5-1).

The purpose and scope of the statute at issue, R.I.

Gen. Laws § 3-5-11(b)(1)(vi) and R.I. Gen. Laws § 3-5-11.1

(prohibiting liquor franchises) must, therefore, be ana-

lyzed in the context of this statutory scheme. R.I. Gen.

Laws § 3-5-11.1 states that the purpose of the liquor

franchise prohibition is to “promote the effective and

reasonable control and regulation of the Rhode Island

alcoholic beverage industry and to help the consumer by

protecting their choices and ensuring equitable pricing.”

The statutory definition of “chain store organization,” and

its criteria in R.I. Gen. Laws § 3-5-11(b)(1)(vi) is clear,

unambiguous.. criteria established by the legislature

requiring the Department to regulate the sale of liquor by

certain licensees in a certain manner-by limiting the term

or name identified as a chain or common entity.

The Rhode Island Supreme Court has consistently

upheld ‘the Department’s authority to regulate the liquor

' industry. It hag long been established that the role of the

Liquor Control Administrator (subsequently replaced by

the Department) in Rhode Island is that of a “superlicens-

ing board” with a broad and comprehensive power of

App. 27

review. Hallene v. Smith, 201 A.2d 921, 924 (R.I. 1964) (de

novo review necessary to fulfill intention of Legislature to

“provide broad and comprehensive control by the State

over the liquor traffic and to vest that control in an admin-

istrative body”); Tedford et al v. Reynolds, 141 A.2d 264,

267 (R.I. 1958); Baginski v. Alcoholic Beverage Commis-

sion, 4 A. 2d 265, 268 (R.I. 1939); see Clark v. Alcoholic

Beverage Commission, 170 A. 79, 80 (R.I. 1934). This

authority derives in part from the general supervisory

authority in matters related to liquor licensing that is

vested in the Department through R.I. Gen. Laws § 3-2-2,

which states that “the department has general supervision

of the conduct of the business of manufacturing, import-

ing, exporting, storing, transporting, keeping for sale, and

selling beverages.” Further evidencing the wide powers of

supervision and regulation vested in the Department and

the scope of Department’s authority is R.I. Gen. Laws § 3-

1-5 which provides: “this title shall be construed liberally

in aid of its declared purpose which declared purpose is

the promotion of temperance and for the reasonable

control of the traffic in alcoholic beverages.” See Thompson

v. Town of East Greenwich, 512 A.2d 837, 842 (R.I. 1986).

The seminal cases in the area of describing the purpose,

scope and necessity of liquor regulation by the Department

are Baginski, Clark, and Standard Bottling Company uv.

Brewster, 65 R.I. 279 (1940). These post-prohibition cases

recognize the well-established need to address the pre-

prohibition system of regulation which was an “unsuper-

vised system of local regulation” and a “lack of uniformity”

in administering the law, resulting in “grave abuses which,

as a matter of common knowledge, seriously affected

public welfare.” Baginski at 181. The Rhode Island Su-

preme Court has stated that the legislature expressiy

App. 28

provided for state control and has adopted a system for

administering such control in a manner which it deems

the most likely to be productive of the public good. Bd. of

License Commissioners v. Daneker, 78 R.I. 101, 107 (R.1.

1951). It should be noted that the Rhode Island Supreme

Court has also recognized the Department’s ability to

review cases on its own initiative pursuant to R.I. Gen.

Laws §§ 3-5-21 and 23.

The purpose of prohibitions set forth in R.I. Gen. Laws

§§ 3-5-11 and 3-5-11.1 is to create uniformity and consis-

tency in the sales, advertising, supervision, and control of

conduct of the business of selling alcohol beverages consis-

tent with the evident purposes of Title 3 of the Rhode

Island General Laws in its entirety and R.I. Gen. Laws

§§ 3-1-5 and 3-5-11.1. Therefore, the Department is

granted clear, unambiguous statutory mandates requiring

it to determine whether Class A liquor licensees are

operating as a “chain store organization” by using a term

or name identified as a chain or common entity and

determine an appropriate penalty for such prohibited

activity.

E. Department’s Interpretation and Applica-

tion of Statute

The Department’s interpretation of R.I. Gen. Laws

§ 3-5-11 is not an abuse of discretion and is not selectively

applied to Respondents.’ The Department’s interpretation

* The federal District Court stated in Wine and Spirits Retailers

Inc. and John Haronian v. State of Rhode Island et al., at 174-175 that

“[slince 1933, Rhode Island, like many other states, has statutorily

prohibited the retail sale of alcoholic beverages by ‘chain store organi-

zations.” (citing R.I. Gen. Laws § 3-5-11 and referencing see Granite

(Continued on following page)

App. 29

as reflected in Bulletin 2005-2 and its December 15, 2005

amendment clearly sets forth guidelines to allow entities

and individuals to distinguish their names to minimize the

use of a chain or common entity. The Department clearly

stated in its September 21, 2005 Bulletin that the adding

of a location to an existing similar name would not be

considered a sufficient differentiation of name. However,

in defiance of that mandate, the Respondents proceeded to

change their names to make them more similar to one

another by adding locations to the same names-Peoples

Liquor Warehouse and Douglas Wine & Spirits. Then, in

an act of further disingenuousness, they proceeded to

assert that they thought paragraph 4 of Bulletin 2005-2

allowed the use of a “full proper legal name” even though

the context of the example set forth in that paragraph was

inconsistent with the Respondents’ interpretation. The

Department clearly intended to apply the “full proper legal

name” standard to the name of an individual as opposed

the name of a business entity. It is clear from the result of

the Respondents’ name changes (to make the names more

similar) that it was an unreasonable interpretation by

Respondents.

The criteria enunciated in the Department’s Bulletins

clearly sought to inform its licensees and assist them in

the enforcement of the statutory mandate while recogniz-

ing that some of the licensees had a personal stake in their

businesses. For that reason, it is reasonable that the De-

partment allowed the “full proper legal name” of individuals

State Grocers Ass’n v. State Liquor Comm’n, 112 N.H. 62, 289 A.2d 399,

402 (N.H. 1972) (observing that at least twenty states, plus New

Hampshire, restrict the number of alcoholic beverage permits that may

be held by a single person or group.)

App. 30

to be attached to the name of the licensee. Furthermore,

the use of individual names clearly ties the license to an

individual separate and apart from a business entity

which is consistent with the requirement in R.I. Gen.

Laws § 3-5-1(b)(1)(vi). That is, a business entity name

(without reference to an individual’s full proper name) is

more likely to be deemed a chain or common entity. The

Respondents’ current names clearly exemplify the exact

rationale for requiring distinguishable names in order to

prevent the misperception of a chain store or common

entity. The names currently used by Respondents are not

easily distinguishable, appear to be a chain or common

entity and therefore, are clearly in violation of R.I. Gen.

Laws § 3-5-11(b)(1)(vi).

F. Allegations Regarding Unconstitutionality

of the Department’s Interpretation/Application

Respondents assert that because the First Amend-

ment protects Respondents’ trade names as speech, the

Department’s attempt to revoke the Respondents’ trade

name infringes upon the Respondents’ right to freedom of

speech. Therefore, Respondents argue R.I. Gen. Laws § 3-

5-11(b)(1)(vi) prohibits the Respondents’ trade names in

violation of the First Amendment. While it is clear that

this administrative agency does not have the authority to

adjudicate the constitutionality of statutes, it is compelled

to address Respondents’ constitutional claims because they

have been raised as issues prohibiting the enforcement of

R.I. Gen. Laws § 3-5-11(b)(1)(vi). Respondents assert that

because their trade names convey more information to the

potential consumer than the source of the products sold,

the restriction on the trade name constitute an infringe-

ment on pure speech which should be afforded higher

App. 31

standard of scrutiny than an infringement on commercial

speech. Respondents assert that their trade names convey

reputation for quality, price and service associated with

the name “Douglas Wine & Spirits” and “Peoples Liquor

Warehouse;” therefore, the infringement is upon pure

speech. The alleged conveyance of quality, price, and

service through the trade names at issue are impossible to

meaningfully establish in this context.

Assuming arguendo that the statute is subject to the

analysis articulated in Central Hudson Gas & Electric

Corp v. Public Service Comm’n of New York, 447 U.S. 557

(1980), it is clear that under the analysis set forth in

Section V (D) above, the statute and the Department’s

application of the statute meet the Central Hudson Test:

In commercial speech cases, then, a four-part

analysis has developed. At the outset, we must

determine whether the expression is protected by

the First Amendment. For commercial speech to

come within that provision, it at least must con-

cern lawful activity and not be misleading. Next,

we ask whether the asserted governmental in-

terest is substantial. If both inquiries yield posi-

tive answers, we must determine whether the

\regulation directly advances the governmental

interest asserted, and whether it is not more ex-

tensive than is necessary to serve that interest.

Id. at 566. As stated in Sections V (D), the prohibition of

franchises is lawful activity and clearly not misleading,

and the governmental interest in the regulation of alco-

holic beverages generally, and Class A licensees specifi-

cally is statutorily mandated and supported by well-

established caselaw. Therefore, it clearly advances gov-

ernmental interests and the restrictions on chain store

App. 32

organizations as applied by the Department is clearly

intended to advance the goals to create uniformity and

consistency in the sales, advertising, supervision, and

control of conduct of the business of selling alcohol bever-

ages consistent with the evident purposes of Title 3 of the

Rhode Island General Laws in its entirety and R.I. Gen.

Laws §§ 3-1-5 and 3-5-11.1 specifically. The restriction on

the use of similar names clearly furthers the statutory

purpose of prohibiting chain store organizations. The

names as used by Respondents clearly convey a chain or

common entity which is expressly prohibited by R.I. Gen.

Laws §§ 3-5-11(b)(1)(vi) and 3-5-11.1.

The undersigned also rejects Respondents assertion

that the Department’s interpretation of R.I. Gen. Laws

§ 3-5-11 and rejection of the Respondents’ trade names

must fail because less dramatic means are available.

Respondents suggest that the Department allow the

phrase “independently owned and operated” to follow

Respondents’ names on their signs. The Department has

rejected this additional phrase because it still conveys the

connection or affiliation of entities. Alternatively, Respon-

dents suggest that they be afforded the opportunity to add

the phrase that reads “Not a chain store.” It is clear that

allowing Respondents to have similar names with qualify-

ing phrases does not fully distinguish the entities in a

meaningful way. Furthermore, even if entities are desig-

nated to be “independently owned and operated” and/or

“not a chain store,” the presence of any similar term or

name identified as a chain or common entity among

entities sends mixed messages to the consumer and is not

a reasonable application of that prohibition.

Finally, Respondents assert that R.I. Gen. Laws § 3-5-

11(b)(1)(vi) violates the Commerce Clause, the Sherman

App. 33

Anti-Trust Act, and the Equal Protection Clause. For the

reasons stated herein regarding the purpose of the statute

within the context of the Department’s authority to regu-

late such activity, it is well within the authority of this

agency to interpret and apply the statute as described in

this matter. The Respondents have not set forth sufficient

facts to sustain their allegations of violations of the Com-

merce Clause, the Sherman Anti-Trust Act and the Equal

Protection Act. Specifically, it is not clear how requiring

Respondents to change their name burdens interstate

commerce and discriminates against out-of-state com-

merce because all licensees will be subject to the same

criteria. With respect to the Sherman Anti-Trust Act

allegations, it is not clear what empirical evidence is being

used to support Respondents’ conclusions. The Equal

Protection Clause violations also are not supported by the

facts in this matter. It is clear that the statutory prohibi-

tion of a term or name identified as a chain or common

entity serves a legitimate governmental interest as de-

cided by the General Assembly in prohibiting chain store

organizations as set forth herein.

G. Administrative Penalty

Respondents have been afforded ample opportunity to

comply with the statutory mandates of R.I. Gen. Laws § 3-

11-5(b)(1)(vi) and have deliberately chosen, not only to

refuse to comply, but have taken the additional measure of

using names that are more indicative of a chain or com-

mon entity than prior to the issuance of the Department’s

Bulletins. It is reasonable to allow licensees the benefit of

due process to challenge statutory mandates within the

paradigm of the administrative process; but Respondents’

actions in this matter clearly evidence not a reasonable

App. 34

availing of the administrative process, but a desire to

intentionally violate a clear statutory mandate. It is one

thing for the licensees to continue to operate under their

former licensed names, but in this matter, Respondents

proceeded to change their names to reflect a more compel-

ling example of a chain or common entity. Their explana-

tions regarding using “full proper legal name” ignores the

context of the Bulletin and does not demonstrate a good-

faith effort to undertake an administrative adjudication to

seek relief from statutory mandates but to calculatingly

flout the mandate by more egregiously violating it while

feigning attempted compliance. Respondents’ actions in

this matter do not demonstrate the requisite “suitability”

qualification required of licensees pursuant to R.I. Gen.

Laws § 3-5-10.

It is also troubling that the federal District Court’s

April 8, 2005 decision in Wine and Spirits Retailers Inc.

and John Haronian v. State of Rhode Island et al at 175

seemingly confirms that Respondents are currently fran-

chisees in violation of R.I. Gen. Laws §§ 3-5-11 and 11.1:

[a]pproximately seven years ago, W&S, which it-

self does not hold a Class A license, began enlist-

ing independently-owned liquor stores to operate

as its franchisees under the name Douglas Wine

& Spirits. The terms of the franchise arrange-

ment are set forth in the Uniform Franchise Of-

fering Circular filed by Wine & Spirits with the

Department of Business Regulation and in

W&S’s standard franchise agreement. Those

terms include provisions that authorize W&S to

designate geographical territory in which the

franchisee may operate; the inventory items that

the franchisee is allowed or required to carry; the

vendors from which the franchisee may purchase

App. 35

those items; and the layout of the franchisee’s

store. The franchisee is required to pay an an-

nual franchise fee and to contribute to an adver-

tising and promotion fund controlled by W&S. In

exchange, W&S agrees to grant the franchisee

exclusive franchise rights within the assigned

territory; to help the franchisee train its employ-

ees; and to advise the franchisee with respect to

advertising, marketing, and other aspects of the

franchisees business.

The undersigned Hearing Officer takes notice pursuant to

Rule 201 of the Rhode Island Rules of Evidence of the facts

stated in April 8, 2005 decision of the federal District

Court and is compelled to address the violation as de-

scribed above. If the Respondents are a party to a fran-

chise agreement, said agreements are declared null and

void and illegal as of the effective date of R.I. Gen. Laws

§ 3-5-11.1, April 1, 2005, and shall be terminated by the

franchisor or the franchisee within thirty (30) days of the

effective date of this section pursuant to R.I. Gen. Laws

§ 3-5-11.1(c). Furthermore, upon finding of a violation of

R.J. Gen. Laws § 3-5-11.1 by either the franchisor or the

licensee, the Department is empowered to set a fine up to

the amount of ten thousand dollars ($10,000) per violating

franchisor or licensee, revoke the license of the violator or

suspend the license of the violator for a period of time to

be determined by the Department pursuant to R.I. Gen.

Laws § 3-5-11.1(d). R.I. Gen. Laws § 3-5-11.1(d) also gives

the Department the power to revoke or suspend the

franchise registration in accordance with R.I. Gen. Laws

19-28.1-18 and to order it to cease and desist from all

operations that are violative of the provisions of this

section. The undersigned would be remiss if she did not

address the facts stated in the federal District Court

App. 36

decision regarding the apparent violation of R.J. Gen.

Laws § 3-5-11.1. Therefore, since a violation of R.I. Gen.

Laws § 3-5-11(b)(1)(vi) has already been determined, it is

necessary within the context of this proceeding to inquire

further about the apparent violations of R.I. Gen. Laws

§ 3-5-11.1 in order to craft an effective, meaningful rem-

edy. Additionally, regardless of whether the franchise

agreements are still in place, the dissolution of the violat-

ing chain store entities pursuant to R.I. Gen. Laws § 3-5-

11(b)(4) is a remedy that is provided to the Department

and effectively cures the violation, better serves the

interests of the Respondents (rather than the revocation of

the license as requested by the Department) and enforce-

ment of these specific statutory mandates. Furthermore, it

is clear from the language of R.I. Gen. Laws § 3-5-11(b)(1)

that only one practice of the six (6) listed have to [sic]

established in order to adjudicate an entity a “chain store

organization.” Therefore, it is the undersigned’s recom-

mendation that because R.I. Gen. Laws § 3-5-11(b)(4)

authorizes the Department to “order the dissolution of the

violating chain store entity(s),” it is appropriate to order

such dissolution in order to effectuate the statutory

mandate of prohibiting, chain store organizations, and

franchises. For these reasons, the undersigned Hearing

Officer recommends that Respondents be ordered to:

1. Pay an administrative penalty of $5,000 per

Respondent;

2. Suspend their licenses for a period of ten

(10) business days;

3. During the ten (10) day suspension, Re-

spondents shall seek the approval of name

change from the Department and cease and

desist from conducting any licensed activity

App. 37

until such time that the Department ap-

proves the use of a name for each Respon-

dent.

4. Confirm within ten (10) business days of

this Decision whether the facts stated in

Wine and Spirits Retailers Inc. and John

Haronian v. State of Rhode Island et al at

175 regarding existing franchise agreements

are still true. If said facts are true, and the

Respondents are parties to franchise agree-

ments, said franchise agreements are

deemed null and void ana illegal pursuant

to R.I. Gen. Laws § 3-5-11.1(b) and the un-

dersigned further orders the dissolution of

the violating Respondents as chain store en-

tities pursuant to R.I. Gen. Laws §§ 3-5-

11(b)(4) and 3-5-11.1(d).

5. Appear before the undersigned on June 29,

2006 at 10:00 am for a status conference re-

lated to the status of Respondents’ compli-

ance with the terms of this Decision and the

process to be utilized to dissolve the chain

store entities.

6. The Department may move for additional

remedies if the facts pertaining to the status

of Respondents’ franchise agreements so

warrant. Respondents shall be afforded no-

tice and an opportunity to object to said

remedies.

VII. FINDINGS OF FACT

A. The undisputed facts as stated in Section V of

this Decision are incorporated by reference as

findings of fact herein.

App. 38

The undersigned Hearing Officer takes adminis-

trative notice of the fact that Respondents may

be a party to a franchise agreement based on the

decision of the federal District Court in Wine and

Spirits Retailers Inc. and John Haronian v. State

of Rhode Island et al at 175.

VIII. CONCLUSIONS OF LAW

Respondents’ use of their names as proposed to

the Department and described in Section V

herein constitutes the use of terms or names

identified as a chain or common entity and there-

fore establish a “chain store organization” under

R.I. Gen. Laws § 3-5-11(b)(1)(vi).

Respondents’ use of their names as proposed to

the Department and described in Section V

herein is a violation of R.I. Gen. Laws § 3-5-11(a).

The undersigned Hearing Officer takes quasi-

judicial notice of Wine and Spirits Retailers Inc.

and John Haronian v. State of Rhode Island et al

at 175 pursuant to Rule 201 of the Rhode Island

Rules of Evidence.

The existence of franchise agreements as de-

scribed in Wine and Spirits Retailers Inc. and

John Haronian v. State of Rhode Island et al at

175 may, if still in existence, constitute a viola-

tion of R.I. Gen. Laws § 3-5-11.1.

Respondents’ violations of R.I. Gen. Laws § 3-5-

11 warrant the imposition of administrative pen-

alties pursuant to R.I. Gen. Laws §§ 3-5-11(b)(4)

including suspension, a cease and desist order,

an administrative penalty, and the dissolution of

the chain store organizations.

App. 39

The existence of franchise agreements in which

Respondents are parties may constitute a viola-

tion of R.I. Gen. Laws § 3-5-11.1 and warrant

further inquiry by this Hearing Officer in order

to craft an effective, meaningful remedy pursu-

ant to R.I. Gen. Laws § 3-5-11(b)(4) and 3-5-

11.1(d).

The dissolution of the chain store entities pursu-

ant to R.I. Gen. Laws § 3-5-11(b)(4) is a more ef-

fective remedy for the violation of R.I. Gen. Laws

§ 3-5-11(b)(1)(vi) than the revocation of licenses

sought by the Department.

As part of the Department’s remedy to dissolve

the chain store entities, it is necessary to give the

opportunity to be heard to aid in the effective

dissolution of the chain store entities.

IX. RECOMMENDATION

For the reasons stated herein, the undersigned Hear-

ing Officer respectfully recommends that the Department’s

Motion for Summary Judgment be granted and the Re-

spondents’ Cross-Motion for Summary Judgment be

denied. The undersigned Hearing Officer also recommends

that the Respondents be ordered to:

Pay an administrative penalty of $5,000 per Re-

spondent;

Suspend their licenses for a period of ten (10)

business days;

During the ten (10) business day suspension, Re-

spondents shall seek the approval of name change

from the Department and cease and desist from

conducting any licensed activity until such time

App. 40

that the Department approves the use of a name

for each Respondent.

D. Confirm, in writing, to the Department within

ten (10) business days of this Decision whether

the facts stated in Wine and Spirits Retailers Inc.

and John Haronian v. State of Rhode Island et al

at 175 regarding existing franchise agreements

are still true. If said facts are true, and the Re-

spondents are parties to franchise agreements,

said franchise agreements are deemed null and

void and illegal pursuant to R.I. Gen. Laws § 3-5-

11.1(b) and the undersigned further orders the

dissolution of the violating Respondents as chain

store entities pursuant to R.I. Gen. Laws §§ 3-5-

11(b)(4) and 3-5-11.1(d).

E. Appear before the undersigned on June 29, 2006

at 10:00 am for a status conference related to the

status of Respondents’ compliance with the terms

of this Decision and the process to be utilized to

dissolve the chain store entities.

F. The Department may move for additional reme-

dies if the facts pertaining to the status of Re-

spondents’ franchise agreements so warrant.

Respondents shall be afforded notice and an op-

portunity to object to said remedies.

Dated May 24, 2006 /s/ Neena Sinha Savage

Neena Sinha Savage, Esq.

Hearing Officer

ORDER

I have read the Hearing Officer’s Recommendation in

this matter, and I hereby take the following action with

regard to the Recommendation:

App. 41

_¥_ ADOPT

REJECT

___ MODIFY

Dated: 5/24/2006 /s/ A. Michael Marques

A. Michael Marques

Director

NOTICE OF APPELLATE RIGHTS

THIS DECISION CONSTITUTES A FINAL ORDER

OF THE DEPARTMENT OF BUSINESS REGULA-

TION PURSUANT TO R.I. GEN. LAWS § 42-35-12.

PURSUANT TO R.I. GEN. LAWS § 42-35-15, THIS

ORDER MAY BE APPEALED TO THE SUPERIOR

COURT SITTING IN AND FOR THE COUNTY OF

PROVIDENCE WITHIN THIRTY (30) DAYS OF THE

MAILING DATE OF THIS DECISION. SUCH AP-

PEAL, IF TAKEN, MUST BE COMPLETED BY FIL-

ING A PETITION FOR REVIEW IN SUPERIOR

COURT. THE FILING OF THE COMPLAINT DOES

NOT ITSELF STAY ENFORCEMENT OF THIS OR-

DER. THE AGENCY MAY GRANT, OR THE REVIEW-

ING COURT MAY ORDER, A STAY UPON THE

APPROPRIATE TERMS.

CERTIFICATION

I hereby certify that on this 25th day of May, 2006, a copy

of this Decision was sent by first class and certified mail,

postage prepaid to

App. 42

Robert J. Roughsedge, Esq.

Lawson & Weitzen, LLP

88 Black Falcon Avenue

Suite 345

Boston, MA 02210-1736

and by hand-delivery to:

Michael Jolin, Esq.

Deputy Chief of Legal Services

233 Richmond Street

Providence, RI 02903

/s/ AB Ellison

App. 43

STATE OF RHODE ISLAND

AND PROVIDENCE PLANTATIONS

Filed May 21, 2007

PROVIDENCE, SC. SUPERIOR COURT

PEOPLES LIQUOR

WAREHOUSE -

HOPKINTON, INC., et ai.

~ CA. No. PC-2006-3223

DEPARTMENT OF

BUSINESS REGULATION :

DECISION

CLIFTON, J. The Appellants, eleven Rhode Island-based

package stores holding Class A liquor licenses, appeal a

Rhode Island Department of Business Regulation (“DBR”)

decision granting summary judgment in favor of the DBR.

A DBR Hearing Officer determined that the Appellants’

use of essentially the same business name violates G.L.

1956 § 3-5-11(b)(1)(vi), which prohibits licensees from

using “[a]ny term or name identified as a chain or common

entity.” The Hearing Officer found that the Appellants’

business names identified them as a chain or common

entity in violation of G.L. 1956 § 3-5-11(a) and ordered the

Appellants to pay an administrative penalty of $5,000

each and suspended their licenses for a period of ten (10)

business days. The Hearing Officer further required

Appellants to seek DBR approval of any business name

changes and to cease and desist from conducting any

licensed activity until the DBR approves the use of a name

for each of them.

The Appellants appeal the DBR decision on four

grounds. First, they assert that G.L. 1956 § 3-5-11, facially

App. 44

and in the manner of its enforcement by the DBR, violates

the Appellants’ rights secured under the First Amendment

of the United States Constitution. The Appellants also

argue that federal trademark laws preempt the DBR’s

statutory authority to regulate trade names. Third, they

contend that the DBR decision violates the dormant

Commerce Clause in Article I, Section 8 of the United

States Constitution. Finally, the Appellants claim that the

DBR decision constitutes the taking of a vested, federally

recognized property right protected by the Fifth Amend-

ment of the United States Constitution.

The Appellants now seek to have this Court overturn

the DBR Decision. This Court has jurisdiction over the

instant appeal pursuant to G.L. 1956 § 42-35-15(g). For

the reasons set forth below, this Court affirms the DBR

Decision and denies the appeal.

FACTS AND TRAVEL

Each of the Appellants is a Class A liquor license-

holder engaging in the retail sale of alcoholic beverages

pursuant to G.L. 1956 §§ 3-2-2 et seg., 3-5-1 et seg., and 3-

7-1 et seq. Under §§ 3-7-1 and 3-7-3, “a retailer’s Class A

license authorizes the holder to keep for sale and to sell at

the place described beverages at retail and to deliver the

beverages in a sealed package or container, which package

or container shall not be opened nor its contents consumed

on the premises where sold.” The DBR has jurisdiction to

regulate and control the sale of alcoholic beverages in

Rhode Island pursuant to §§ 3-2-2, 3-5-1 et seq., and 3-7-1

et seq. and §§ 42-14-1 and 42-14-2. Pursuant to § 3-5-11,

the DBR may determine whether any group of one or more

App. 45

Class A liquor licensees constitutes a “chain store organi-

zation” following an evidentiary hearing.

During the DBR hearing, the Appellants and the DBR

filed cross-motions for summary judgment on whether the

Appellants’ use of their business names violated the

provisions of G.L. 1956 § 3-5-11(b)(1)(vi).’ For summary

judgment purposes, the DBR and the Appellants stipu-

lated that three (3) of the Appellants conduct business

under the name “People’s Liquor Warehouse,” and eight (8)

operate under the business name “Douglas Wine & Spir-

its.” All eleven of these Class A licensees append different

geographic locations to their names — for example, “Peo-

ples Liquor Warehouse — Hopkinton.” The DBR argued

that summary judgment was proper because the Appel-

lants’ use of the same business name - distinguished only

by a reference to geographic location — violates § 3-5-

11(b)(1)(vi).

In support of their cross-motion for summary judg-

ment, Appellants argued that the DBR’s interpretation

and application of § 3-5-11(b)(1)(vi) should fail because: (i)

the DBR abused its discretion in enforcing the statute; (ii)

the DBR’s interpretation and application of § 3-5-11(b)(1)(vi)

' G.L. 1956 § 3-5-11(b) provides, in pertinent part, that:

The term “chain store organization” is defined to include, but ndt

limited to:

(1) Any group of one or more holders of Class A liquor li-

censes who engage in one or more of the following practices

with respect to the business conducted under such licenses,

either directly or indirectly, or have any direct or indirect

beneficial interest in the following practices: .. .

(vi) Any term or name identified as a chain or

common entity.

App. 46

is an unconstitutional and arbitrary infringement upon

protected commercial speech; and (iii) § 3-5-11 violates the

Commerce Clause and the Sherman Anti-Trust Act.

In the DBR Decision, the DBR Hearing Officer dis-

cussed legislative intent, statutory construction, and the

mandates that the General Assembly imposed on the DBR

with respect to the regulation of alcoholic beverages. The

Hearing Officer declined to rule on the Appellants’ consti-

tutional claims, because she recognized that an adminis-

trative agency of the executive branch of government

cannot determine the constitutionality of a statute at

issue. See Easton’s Point Assoc. v. Coastal Resources

Mgmt. Council, 522 A.2d 199, 202 (R.I. 1987) (holding that

administrative agencies are circumscribed from consider-

ing constitutional challenges during the course of a licens-

ing or permit proceeding). She further explained that only

the judicial branch can make such a determination. The

Hearing Officer also noted that some of the Appellants had

brought a constitutional challenge § 3-5-11 before the

United States District Court for the District of Rhode

Island. That case did not go to trial until approximately

one month after the DBR released its decision in May,

2006.

According to the Hearing Officer, the General Assem-

bly intended Title 3 of the Rhode Island General Laws (the

Alcoholic Beverages statutes) to control, regulate, penal-

ize, and monitor activities related to liquor. Section 3-2-

2(a) of the Rhode island General Laws gives the DBR

“general supervision of the conduct of the business of

manufacturing, importing, exporting, storing, transport-

ing, keeping for sale, and selling beverages.” Thus, the

Hearing Officer determined that the prohibitions set forth

in § 3-5-11 served to create uniformity and consistency in

App. 47

the sales, advertising, supervision, and control of conduct

of the business of selling alcohol beverages consistent with

the purposes of the Alcoholic Beverages statutes. See G.L.

1956 § 3-1-5 (stating that “purpose [of Title 3] is the

promotion of temperance and for the reasonable control of

the traffic in alcoholic beverages”). The Hearing Officer

held that the DBR had clear. unambiguous statutory

mandates to determine whether Class A liquor licensees

were operating as a “chain store organization” when they

used a term or name identified as a chain or common

entity.

In her decision, the Hearing Officer also determined

that the DBR’s interpretation of § 3-5-11 did not constitute

an abuse of the agency’s discretion and that the DBR did

not selectively apply the statute to the Appellants. She

held that, in DBR Bulletin 2005-2 of September 21, 2005,

the DBR provided clear guidelines to Class A licensees who

had the same or similar business name as another Class A

retailer. The Bulletin explicitly stated that the DBR would

not consider adding a location to an existing similar name

a sufficient differentiation of name to satisfy § 3-51-1.

Additionally, the Hearing Officer determined that the

Appellants had defied the DBR mandate by merely ap-

pending locations to “Peoples Liquor Warehouse” and

“Douglas Wine & Spirits.” The Hearing Officer concluded

that the Appellants’ current names exemplify the exact

rationale for requiring distinguishable names in order to

prevent the misperception of a chain store or common

entity. Thus, the Hearing Officer found that the names

currently used by the Appellants were not easily distin-

guishable, appeared to be a chain or common entity, and

therefore clearly violated § 3-5-11(b)(1)(vi). Although the

DBR sought to revoke the Appellants’ licenses, the Hearing

App. 48

Officer imposed administrative penalties pursuant to § 3-

5-11(b)(4) that included a 10-day suspension, a cease and

desist order, an administrative penalty of $5,000 for each

licensee, and the dissolution of the chain store organiza-

tion.

The Director of the DBR approved the Hearing Offi-

cer’s recommended decision on May 24, 2006. On or about

June 16, 2006, the Appellants filed a timely Complaint of

Appeal pursuant to § 42-35-15. This Court granted a

Motion for a Stay of the Order pending further review. On

September 28, 2004, the franchisor, Wine & Spirits Retail-

ers, Inc., filed suit in the United States District Court for

the District of Rhode Island, alleging that §§ 3-5-11 and 3-

5-11.1 violated the franchisor’s constitutional rights

pursuant to the First Amendment, the Commerce Clause

contained in Article I, Section 8, the Takings Clause of the

Fifth Amendment and the Fourteenth Amendment’s

guarantees of Equal Protection. The franchisor requested

a preliminary injunction against enforcement of the

amended provisions, which the District Court denied. See

Wine & Spirits Retailers, Inc. v. Rhode Island, 364 F.Supp.

2d 172 (D.R.I. 2005) (Wine & Spirits Retailers (I)). The

franchisor thereafter appealed the District Court’s denial

to the United States Court of Appeals for First Circuit,

which upheld the District Court’s decision. See Wine &

Spirits Retailers, Inc. v. Rhode Island, 418 F.3d 36 (1st Cir.

2005) (Wine & Spirits Retailers (II)). Subsequently, the

franchisor amended the complaint to add three new store

plaintiffs: the Douglas Wine & Spirits stores in Cumber-

land, Cranston, and North Providence.

On July 10 and 11, 2006, the District Court held a

bench trial on the franchisor and stores’ federal complaint.

The District Court decision rejected all constitutional

App. 49

arguments pressed by the plaintiffs in that action. (See

Transcript of the District Court Decision in Wine & Spirits

Retailers, Inc. v. Greer, C.A. 04-418T, July 19, 2006) Subse-

quently, the First Circuit affirmed the District Court’s

decision and found that the General Assembly had acted in

the public interest in enacting G.L. 1956 § 3-5-11 and did

not cross any constitutional boundaries. See Wine &

Spirits Retailers, Inc. v. Rhode Island, 481 F.3d 1 (1st Cir.

2007) (Wine & Spirits Retailers (IID).

STANDARD OF REVIEW

The Court reviews contested agency decisions pursu-

ant to the provisions of the Rhode Island Administrative

Procedures Act, G.L. 1956 § 42-35-15(g). Section 42-35-

15(g) provides that:

[t]he court shall not substitute its judgment for

that of the agency as to the weight of the evi-

dence on the questions of fact. The court may af-

firm a decision of the agency or remand the case

for further proceedings, or it may reverse or mod-

ify the decision if substantial rights of the appel-

lant have been prejudiced because _ the

administrative findings, inferences, conclusions,

or decisions are:

(1) In violation of constitutional or statutory

provisions;

(2) In access of the statutory authority of the

agency;

(3) Made upon unlawful procedure;

(4) Affected by other error of law;

App. 50

(5) Clearly erroneous in light of reliable, proba-

tive, and substantial evidence on the whole

record; or

(6) Arbitrary or capricious or characterized by

abuse of discretion or clearly unwarranted

exercise of discretion.

In reviewing an agency decision, the Court will not

weigh the evidence upon which findings of fact are based,

but will limit itself to an examination of the certified

record in deciding whether the agency had substantial

evidence to support its decision. Ctr. for Behavioral Health,

Rhode Island, Inc. v. Barros, 710 A.2d 680, 684 (R.I. 1998).

The Rhode Island Supreme Court has defined “substantial

evidence” as “such relevant evidence that a reasonable

mind might accept as adequate to support a conclusion,

and means an amount more than a scintilla but less than

a preponderance.” Newport Shipyard, Inc. v. R.I. Comm’n

for Human Rights, 673 A.2d 457, 459 (R.I. 1996). More-

over, the Court will not substitute its judgment for that of

an administrative agency as to the weight of the evidence

on questions of fact, even. if the Court “might be inclined to

view the evidence differently and draw inferences different

from those of the agency.” Johnston Ambulatory Surgical

Assocs., Lid. v. Nolan, 755 A.2d 799, 805 (R.I. 2000)

(quoting Rhode Island Pub. Telecomm. Auth. v. Rhode

Island State Labor Relations Bd., 650 A.2d 479, 485 (R.I.

1994)). Therefore, the Court may reverse findings of fact

only where an agency’s factual conclusions are “totally

devoid of competent evidentiary support in the record,”

Baker v. Dep’t of Employment and Training Bd. Of Review,

637 A.2d 360, 363 (R.I. 1994) (quoting Milardo v. Coastal

Res. Mgmt. Council, 434 A.2d 266, 272 (R.I. 1981)). Al-

though the Court may freely conduct de novo review of an

App. 51

agencys determinations of law, Arnold v. R.I. DOL &

Training Bd. of Review, 822 A.2d 164, 167 (R.I. 2003)

(citing Johnston Ambulatory Surgical Assocs., 755 A.2d at

805), “the law in Rhode Island is well settled that an

administrative agency will be accorded great deference in

interpreting a statute whose administration and enforce-

ment have been entrusted to the agency.” Jn re Lallo, 768

A.2d 921, 926 (R.I. 2001) (citing Jn re Advisory Opinion to

the Governor, 732 A.2d 55, 76 (R.I. 1999); Pawtucket Power

Assocs. Ltd. Partnership v. City of Pawtucket, 622 A.2d

452, 456 (R.I. 1993); Defenders of Animals, Inc. v. Dept. of

Envil. Mgmt., 553 A.2d 541, 543 (R.I. 1989) (attributing

great weight to an agency’s construction of a regulatory

statute when the provisions of the statute were unclear)).

ANALYSIS

The Weighing of Evidence by the Hearing Officer

The Appellants allege that that [sic] the Hearing

Officer arbitrarily enforced G.L. 1956 § 3-5-11 and ask this

Court to review the factual determinations of the Hearing

Officer. Additionally, the Appellants assert that this Court

should quash the DBR’s interpretation and application of

§ 3-5-11 because the DBR abused its discretion and be-

cause the Hearing Officer should have used less drastic

means to achieve compliance with the statute. Further-

more, the Appellants maintain that the statute does not

articulate the harm resulting from the existence of a chain

store organization or consumer perception of this exis-

tence. The Appellants also contend that because the DBR

would allow the use of the full, legal name of the individ-

ual owner associated with the name of the |. ensee, the

DBR has acted arbitrarily by allowing, for example, the

App. 52

use of “Kathleen Haronian’s Douglas Wine & Spirits-North

Providence, Inc.” but not “Douglas Wine & Spirits-North

Providence.” The Appellants allege that there is no differ-

ence in the two names, and, therefore, the criteria used by

the DBR to enforce the statute are arbitrary.

In evaluating the facts of the case, the Hearing Officer

found that DBR Bulletin 2005-2 had “clearly set forth

guidelines to allow entities and individuals to distinguish

their names to minimize the use of a chain or common

entity.” (DBR Decision at 14.) The Hearing Officer also

held that the names currently used by the Appellants “are

not easily distinguishable, appear to be a chain or common

entity and therefore, are clearly in violation of [G.L. 1956]

§ 3-5-11(b)(1)(vi).” Ud. at 15.) The Hearing Officer also

considered the factual arguments asserted by the Appel-

lants regarding alternative means of enforcement and

rejected their proposals to add “independently owned and

operated” and “not a chain store” to the business names,

because the presence of any similar term or name identi-

fied as a chain or common entity among entities sends

mixed messages to the consumer and is not a reasonable

application of § 3-5-11(b)(1)(vi) prohibitions. (/d. at 18.)

“The law in Rhode Island is well-settled that an admin-

istrative agency will be accorded great deference in inter-

preting a statute whose administration and enforcement

have been entrusted to the agency.” State v. Cluley, 808

A.2d 1098, 1103 (R.I. 2002) (quoting Jn re Lallo, 768 A.2d

921, 926 (R.I. 2001)). “Use of the arbitrary and capricious

standard means that reviewing courts will uphold admin-

istrative decisions ... as long as the administrative

interpreters have acted within their authority to make

such decisions and their decisions were rational, logical,

and supported by substantial evidence.” Goncalves v. NMU

App. 53

Pension Trust, 818 A.2d 678, 682-683 (citing Doyle v. Paul

Revere Life Insurance Co., 144 F.3d 181, 184 (1st Cir.

1998)). Deference must also be given to an agency’s inter-

pretation even if the statute is ambiguous. See Pawtucket

Power Assocs. Lid. P’ship v. City of Pawtucket, 622 A.2d

452, 456-457 (“Deference is accorded even when the

agency’s interpretation is not the only permissible inter-

pretation that could be applied.”).

In matters of statutory interpretation, the Rhode

Island Supreme Court has consistently held that the

courts’ “ultimate goal is to give effect to the purpose of the

act as intended by the Legislature.” Silva v. Fitzpatrick,

913 A.2d 1060, 1063 (R.I. 2007) (quoting Webster v. Pe-

rotta, 774 A.2d 68, 75 (R.I. 2001)). In order to effectuate

the intent of the Legislature, courts must examine a

statute “in its entirety and [attribute] to words their plain

and ordinary meaning.” LePage v. Babcock, 839 A.2d 1226,

1230 (R.I. 2004) (citing Kent County Mental Health Center,

Inc. v. Cavanaugh, 659 A.2d 120, 122 (R.I. 1995)). Addi-

tionally, courts “shall not ascribe to the Legislature an

intent to enact legislation that is devoid of any purpose, is

inefficacious, or is nugatory.” Pullen v. State, 707 A.2d 686,

691 (R.I. 1998) (quoting Cocchini v. City of Providence, 479

A.2d 108, 111 (R.1. 1984)). In cases of ambiguous statutory

language, courts must then consider legislative intent.

Providence Journal Co. v. Rodgers, 711 A.2d 1131, 1134

(R.I. 1998). In interpreting a legislative enactment, courts

will “determine and effectuate the Legislature’s intent”

and “attribute to the enactment the meaning most consis-

tent with [the Legislature’s] policies or obvious purposes.”

Park v. Ford Motor Co., 844 A.2d 687, 692 (R.I. 2004)

(quoting Dias v. Cinquegrana, 727 A.2d 198, 199-200 (R.I.

1999)).

App. 54

As noted by the DBR Hearing Officer, in Title 3 of the

General Laws of Rhode Island — entitled “Alcoholic Bever-

ages” — the Rhode Island General Assembly adopted a

comprehensive statutory scheme to regulate many facets

of the liquor industry within this state.’ (DBR Decision at

12.) The provisions of Title 3 reflect legislative intent to

control, regulate, penalize, and monitor activities related

to alcohol. (/d.) Section 3-1-5, for example, states that

“[t]his title shall be construed liberally in aid of its de-

clared purpose which declared purpose is the promotion of

temperance and for the reasonable control of the traffic in

alcoholic beverages.” (Jd.) Furthermore, § 3-2-2 gives the

DBR “general supervision of the conduct of the business of

manufacturing, importing, exporting, storing, transport-

ing, keeping for sale, and selling beverages.” (Jd.) Under

§ 3-5-1 et seqg., the DBR’s supervisory authority extends to

regulating licenses for the manufacture, sale or importa-

tion of alcohclic beverages. (Jd.)

In light of the regulatory authority granted to the

DBR, the DBR Hearing Officer analyzed the purpose and

scope of the statutes at issue, §§ 3-5-11(b)(1)(vi) and 3-5-

11.1 (prohibiting liquor franchises), in the context of Title

3’s statutory scheme. (Jd.) Section 3-5-11.1 states that the

liquor franchise prohibition “promote[s] the effective and

* The régulatory measures of Title 3 include: Chapter 4 — Trans-

portation of Beverages; Chapter 5 — Licenses (including, state and local

licensing provisions, limitations on the number of licenses that a

licensee may hold, and manufacturer and wholesaler licenses), Chapter

6 — Manufacturing’and Wholesale Licenses; Chapter 7 - Retail Li-

censes; Chapter®8 — Regulation of Sales; Chapter 9 - Adulterated

Liquors; Chaptér 10-— Taxation of Beverages; Chapters 11 and 12 -

Penalties and Liabilities and Enforcement of Title, Chapter 13 - Malt

Beverage Supplier-Wholesaler Agreements; and Chapter 14 - The

Rhode Island Liquor Liability Act.

App. 55

reasonable control and regulation of the Rhode Island

alcoholic beverage industry and to help the consumer by

protecting their choices and ensuring equitable pricing.”

(Id.) As noted by the Hearing Officer, this statutory

scheme, coupled with the statutory definition of “chain

store organization” under R.I. Gen. Laws § 3-5-11(b)(1)(vi),

provides the legislative basis for Department to regulate

the sale of liquor by limiting the names or other terms

used by licensees identified as a chain or common entity.

(Id.)

The Hearing Officer also correctly observed that the

Rhode Island Supreme Court has consistently upheld the

DBR’s authority to regulate the liquor industry. (Jd.) The

Supreme Court confirmed that Rhode Island’s Liquor

Control Administrator — subsequently replaced by the

DBR - serves as a “superlicensing board” with a broad and

comprehensive power of review. Hallene v. Smith, 201 A.2d

921, 924 (R.I. 1964) (holding that de novo review is neces-

sary to fulfill the legislative intent to “provide broad and

comprehensive control by the State over the liquor traffic

and to vest that control in an administrative body”);

Tedford v. Reynolds, 141 A.2d 264, 267 (R.I. 1958); Bagin-

ski v. Alcoholic Beverage Commission, 4 A.2d 265, 268 (R.I.

1939). See Clark v. Alcoholic Beverage Comm’n, 170 A. 79,

80 (R.I. 1934). This authority derives in part from the

general supervisory authority in matters related to liquor

licensing vested in the DBR through §§ 3-1-5 and 3-2-2.

See Thompson v. Town of East Greenwich, 512 A.2d 837,

842 (R.I. 1986). The General Assembly vested this author-

ity in the DBR, because an “unsupervised system of local

regulation” and a “lack of uniformity” in administering the

law would result in “grave abuses which, as a matter of

common knowledge, seriously [affect] public welfare.”

App. 56

Baginski, 4 A.2d at 267. The Rhode Island Supreme Court

has stated that the legislature expressly provided for state

control and has adopted a system for administering such

control in the manner that it deems the most likely to be

productive of the public good. Bd. of License Commission-

ers v. Daneker, 79 A.2d 614, 617 (R.I. 1951). This Court

concurs with the Hearing Officer’s analysis that §§ 3-5-11

and 3-5-11.1 create uniformity and consistency in the

sales, advertising, supervision, and control of conduct of

the business of selling alcoholic beverages consistent with

the legislative intent of Title 3. (DBR Decision at 15.)

Therefore, the DBR has the statutory mandate to deter-

mine whether Class A liquor licensees are operating as a

“chain store organization” by using a term or name identi-

fied as a chain or common entity and determine an appro-

priate penalty for such prohibited activity. (Id.)

In DBR Bulletin 2005-2 and its December 15, 2005,

amendment, the DBR promulgated guidelines for entities

and individuals to distinguish their names to minimize the

use of a chain or common entity. (/d.) As stated in the

Bulletin, the DBR did not consider the adding of a location

to an existing similar business name a sufficient differen-

tiation. (Jd.) Here, however, the Appellants proceeded to

change their business names to increase their similarity

to one another by adding locations in Rhode Island to

identical business names — for example, Douglas Wine &

Spirits — 44 and Douglas Wine & Spirits — Johnston. The

Appellants argue that Paragraph 4 of the Bulletin allowed

the use of a “full proper legal name,” including their

shared corporate name. However, this Court notes that the

clear context of the example given in that paragraph

indicates that the DBR intended to apply the “full proper

legal name” standard to the name of an individual person,

App. 57

not the name of a business entity. Here, the Appellants’

name changes only serve to make their business names

more similar and more indicative of a chain, thereby

conflicting with the overall statutory intent.

As noted by the Hearing Officer, the DBR intended

the criteria enunciated in the Bulletin “to inform its

licensees and assist them in the enforcement of the statu-

tory mandate while recognizing that some of the licensees

had a personal stake in their businesses.” (DBR Decision

at 16.) Thus, the DBR allowed the “full proper legal name”

of individuals to be attached to the name of the licensee.

(Id.) Furthermore, the use of individual names clearly ties

the license to an individual as distinguished from a busi-

ness entity. The DBR Bulletin remains consistent with the

requirements of § 3-5-11(b)(1)(vi), because consumers will

more likely view a business entity name without reference

to an individual’s full proper name as a “chain or common

entity.” (Jd.) Thus, the Appellants’ current business names

actually demonstrate the rationale for requiring distin-

guishable names in order to prevent consumer mispercep-

tion that the Appellants’ businesses were chain stores or

common entities. (/d.)

The names currently used by the Appellants are not

easily distinguishable, thereby violating § 3-5-11(b)(1)(vi).

Therefore, the DBR Hearing Officer did not abuse her

discretion in furthering Title 3’s statutory scheme by

finding that the Appellants violated DBR regulations. As

the Hearing Officer noted, the names currently used by

the Appellants “are not easily distinguishable, appear to

be a chain or common entity and therefore, are clearly in

violation of R.I. Gen. Laws § 3-5-11(b)(1)(vi).” Ud.) Upon a

thorough examination of the entire record, this Court finds

App. 58

that the Hearing Officer’s findings were not arbitrary and

capricious or marked by an abuse of discretion.

Appellants’ Constitutional Claims

In addition to proceedings before the DBR, three of

the Appellants in the instant matter — Douglas Wine &

Spirits Cumberland, Douglas Wine & Spirits North Provi-

dence, and Douglas Wine & Spirits Cranston — filed suit

against the State of Rhode Island in the United States

District Court for the District of Rhode Island. In their

federal case, the three Class A liquor licensees claimed

that G.L. 1956 § 3-5-11(b)(1)(vi) violated their constitu-

tional rights. The District Court rejected all the licensees’

claims and held that § 3-5-11(b)(1)(vi) did not violate the

licensees’ rights. On appeal before the United States Court

of Appeals for the First Circuit, the First Circuit affirmed

the District Court decision and rejected all the licensees’

constitutional challenges. These three licensees now join

their fellow franchisees in appealing the DBR decision on

largely identical constitutional grounds.

The doctrine of res judicata, or “claim preclusion,”

renders “a prior judgment in a civil action between the

same parties conclusive with regard to any issues that

were litigated in the prior action, or, that could have been

presented and litigated therein.” Waters v. Magee, 877

A.2d 658, 666 (R.I. 2005) (citing Ritter v. Mantissa Invest-

ment Corp., 864 A.2d 601, 605 (R.I. 2005) (internal cita-

tions omitted)). Under res judicata, “[a] party defeated in

one action cannot maintain a second action based on a

ground which could properly have been, but was not, set

forth and relied upon in the former action.” Johnston

App. 59

Ambulatory Surgical Assocs. v. Nolan, 755 A.2d 799, 808

(citing El Gabri v. Lekas, 681 A.2d 271, 275 (R.I. 1996)

_ {internal citations omitted)). The doctrine “serves as an

absolute bar to a second cause of action where there exists

identity of parties, identity of issues, and finality of judg-

ment in an earlier action.” Mills v. Toselli, 916 A.2d 756,

757 (quoting El Gabri, 681 A.2d at 275 (internal citations

omitted)). This Court will apply the preclusive effect of the

res judicata doctrine to “all or any part of the transaction,

or series of connected transactions, out of which the action

arose.” El Gabri, 681 A.2d at 276 (quoting Restatement

(Second) of Judgments § 24 (1982)).

In contrast, the doctrine of collateral estoppel makes

conclusive in a later action on a different claim the deter-

mination of issues that were actually litigated in a prior

action. Foster: Glocester Reg’l Sch. Comm. v. Bd. of Review,

854 A.2d 1008, 1014 (quoting E.W. Audet & Sons, Inc. v.

Firemen’s Fund Insurance Co. of Newark, New Jersey, 635

A.2d 1181, 1186 (R.I. 1994) (internal citations omitted)).

“Collateral estoppel ‘means simply that when an issue of

ultimate fact has once been determined by a valid and

final judgment, that issue cannot again be litigated be-

tween the same parties in any future lawsuit.’” State v.

Santiago, 847 A.2d 252, 254 (R.1. 2004) (quoting State v.

Hie, 688 A.2d 283, 284 (R.I. 1996)). Collateral estoppel

requires “(1) that there [was] an identity of issues, (2) that

the prior proceeding resulted in a final judgment on the

merits, and (3) that the party against whom collateral

estoppel is asserted [was] the same as or in privity with a

party in the prior proceeding.” State v. Pacheco, 763 A.2d

971, 980 (quoting E.W. Audet & Sons, Inc., 635 A.2d at

1186). In order to meet the identity of issues requirement

for preclusion, the issue: (1) must be identical to an issue

App. 60

determined in an earlier proceeding; (2) must actually

have been litigated in a prior proceeding; and (3) must

necessarily have been decided. State v. Godette, 751 A.2d

742, 746 (citing Hie, 688 A.2d at 285).

In four decisions arising from the same issues, the

federal courts have consistently decided against the

Appellants’ constitutional claims. Federal judges have

heard and ruled on all issues raised here on appeal, and

all parties to this appeal were either parties to one or more

of the federal actions or in privity with one or more of the

parties. Parties are in privity when “there is a commonal-

ity of interest between the two entities’ [sic] and when they

‘sufficiently represent’ each other’s interests.” Duffy v.

Milder, 896 A.2d 27, 36 (R.I. 2006) (quoting Commercial

Union Insurance Co. v. Pelchat, 727 A.2d 676, 680 (R.I.

1999)). As fellow franchisees with identical legal interests

in both the federal and state proceedings, all the Appel-

lants in this case are in privity with the licensees who

joined the franchisor in the federal complaint. In essence,

the Appellants have had their day in court.

The appellants received a full federal bench trial

before the District Court in Rhode Island. The District

Court held that DBR policies banning the licensees’ use of

the same or similar business names pursuant to G.L. 1956

§ 3-5-11(b)(1)(vi) did not violate any provisions of the United

States Constitution. First, this ban did not implicate the

licensees’ First Amendment rights to freedom of speech or

association by prohibiting common advertising and the use

of a common name. (Tr. District Court Decision at 12.)

Section 3-5-11(b)(1)(vi) of the Rhode Island General Laws

does not prevent Class A licensees from using any name

that they choose as long as it does not identify them as a

chain store entity, since the statute does not restrict the

App. 61

message that may be conveyed by the stores. The statute

solely targets the licensees’ collaboration in setting prod-

ucts and prices ~ the precursor to any common advertis-

ing. As noted by the Federal District Court,

[t}here is no other reason to use a common name

unless that’s the case. Indeed, the evidence

shows that this is precisely the means that the

plaintiffs have used in order to circumvent the

statutory prohibition against chain stores or

franchise operations.

(Federal District Court Decision at 13-14.) The Federal

District Court also noted that the use of a common name

did not constitute protected commercial speech.

[Clommon advertising or the use of a common

name, which has no independent expressive sig-

nificance and amounts to nothing more than a

means for carrying out the concerted activity, ...

is prohibited by statute. To put it another way,

common advertising and the use of a common

name not only concerns unlawful activity, it is

part and parcel of the unlawful activity.

(Tr. District Court Decision at 17.) Thus, the Federal

District Court held the use of that name would unlawfully

mislead consumers, because a common name conveys the

message that the licensees’ stores are members of a chain.

On appeal, the First Circuit affirmed the District

Court’s findings and determined that these findings were

not clearly erroneous. According to the First Circuit, the

District Court’s findings

graphically illustrate why the use of a shared

trade name in the retail liquor market by sup-

posedly independent package stores poses an

App. 62

area of legitimate concern for a state that has

abolished franchise and chain-store arrange-

ments in that market. The findings, therefore,

comprise a showing sufficient to underpin the re-

striction enacted by the Rhode Island General

Assembly.

Wine & Spirits Retailers (III), 481 F.3d at 9. Thus, banning

the use of common names does not impinge on any of the

Appellants’ First Amendment rights.

The District Court also held that the licensees “failed

to come close” to showing that G.L. 1956 § 3-5-11(b)(I)(vi)

violated the licensees’ rights under the Commerce Clause

of the United States Constitution. See U.S. Const. art. I,

§ 8. According to the District Court, G.L. 1956 § 3-5-11

does not facially discriminate against interstate commerce

or out-of-state interests. (Tr. District Court Decision at 21.)

“The statutory prohibitions against the sale of liquor by

chain store organizations and/or franchise operations

make

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.