Michigan License Beverage Ass'n v. Behnan Hall, Inc.

82 Mich. App. 319 (1978) 266 N.W.2d 808

MICHIGAN LICENSE BEVERAGE ASSOCIATION
v.
BEHNAN HALL, INC.

Docket No. 77-795.

Michigan Court of Appeals.

Decided April 3, 1978.

Campbell, Kurzman & Plunkett, for plaintiff.

Hyman, Gurwin, Nachman, Friedman & Winkleman, for defendant.

Before: BASHARA, P.J., and BEASLEY and D.E. HOLBROOK, JR., JJ.

BASHARA, P.J.

Plaintiff appeals from a trial court judgment granting injunctive relief against defendant, prohibiting certain conduct alleged by plaintiff to be in violation of the Michigan Liquor Control Act.^[1] The contention of plaintiff is that the scope of the injunction's prohibition does not enjoin all of the defendant's allegedly unlawful conduct.

Defendant cross-appeals from the judgment. Its primary contention is that plaintiff lacked standing to maintain the action for injunctive relief. To sustain the argument, defendant asserts that plaintiff lacks any interest affected by the alleged unlawful conduct, and that plaintiff has failed to establish any basis upon which equity jurisdiction can be founded. Additionally, defendant contends that the conduct of which plaintiff complains is not violative of § 26c of the act.^[2]

This case was submitted to the trial court by stipulation of facts, which were adopted by the trial court. Those facts disclose that the defendant is in the business of operating a catering hall. That facility is rented to various persons and organizations for use in holding wedding receptions, banquets, and similar social gatherings. As part of its business services to those lessees, defendant provides food, a bartender, and assorted nonalcoholic beverages, some of which are used in conjunction with liquor, for an agreed upon price per person.

Any alcoholic beverages consumed on defendant's premises by the lessees or their guests are furnished by the lessees. The lessees purchase the liquor, not from defendant, but from licensees under the act. Defendant does not sell liquor, derives no profit from its sale by others, nor is it licensed to do so under the act.

Proceedings were initiated by plaintiff, a nonprofit corporation whose members are licensees under the act, to enjoin the operation of defendant's business insofar as it permitted the consumption of liquor on its premises. Suit was predicated upon allegations that such business activity violates § 26c of the act and injures the property rights of plaintiff's members in their liquor licenses.

Initially, we analyze the defendant's contentions relative to plaintiff's standing to maintain the action and the existence of a basis for equity jurisdiction.

In the context of this case questions of standing and jurisdiction are closely related. Indeed, much of defendant's argument denominated as pertinent to standing is actually aimed at the existence of equity jurisdiction. Therefore, the distinction should be clarified.

Standing is the legal term used to denote the existence of a party's interest in the outcome of the litigation; an interest that will assure sincere and vigorous advocacy. Sierra Club v Morton, 405 U.S. 727, 731-732; 92 S. Ct. 1361, 1364; 31 L. Ed. 2d 636, 641 (1972). Conceptually, standing was adeptly described by the Sierra Club Court in the following terminology:

"Whether a party has a sufficient stake in an otherwise justiciable controversy to obtain judicial resolution of that controversy is what has traditionally been referred to as the question of standing to sue. * * * [T]he question of standing depends upon whether the party has alleged such a `personal stake in the outcome of the controversy,' Baker v Carr, 369 U.S. 186, 204, 82 S. Ct. 691, 703, 7 L. Ed. 2d 663, as to ensure that `the dispute sought to be adjudicated will be presented in an adversary context and in a form historically viewed as capable of judicial resolution.' Flast v Cohen, 392 U.S. 83; 101, 88 S. Ct. 1942, 1953; 20 L. Ed. 2d 947." Id.

See also Warth v Seldin, 422 U.S. 490, 499; 95 S Ct 2197, 2205; 45 L. Ed. 2d 343, 354 (1975), and United States v SCRAP, 412 U.S. 669, 687; 93 S. Ct. 2405, 2416; 37 L. Ed. 2d 254, 269 (1973).

Accordingly, the threshold question is whether plaintiff has an interest in the outcome of this litigation sufficient to invoke the controversy-resolving powers of the judiciary. The stipulation of facts discloses that plaintiff does not have a liquor license, nor is it engaged in any commercial activity that will be affected by the outcome of this litigation. As a corporation, a separate legal entity, plaintiff possesses no interest that we are able to discern that confers upon it the requisite standing to maintain this action.

Relying upon White Lake Improvement Assoc v City of Whitehall, 22 Mich. App. 262; 177 NW2d 473 (1970), plaintiff asserts that the commercial interests of its members constitute a sufficient basis to conclude that it has standing as a representative. In the White Lake case a non-profit corporation was held to have standing to represent its riparian landowner-members in a suit to enjoin the pollution of a lake. Id. at 271-274. This conclusion was obtained notwithstanding that the association itself was not a riparian landowner.

A circumstance in the White Lake case that distinguishes it from the facts before us is that the association in the former was constituted for solely representative purposes. Id. at 272; 177 NW2d at 477. In the case under review the facts indicate that plaintiff's corporate purpose is unrelated to that of a litigation representative.^[3] Further, the cases^[4] upon which White Lake was premised involved associations that acted as a class representative or sought to establish rights in which they had a direct interest, or without which their existence would terminate.^[5] None of these factors characterize plaintiff's position in the instant litigation.

More importantly, since economic utilization of judicial resources is a principal objective of representative litigation, it becomes paramount that the outcome of the adjudication be binding upon those represented. Consistent with our conception of procedural due process, this imports that those whose rights are to be determined by litigation be given notice of its pendency and an opportunity to participate personally or through a class representative. See, e.g., Mullane v Central Hanover Bank & Trust Co, 339 U.S. 306, 313; 70 S. Ct. 652, 656; 94 L. Ed. 865, 872-873 (1950).

The stipulation of facts indicates that plaintiff does not know whether any of its members has knowledge of the pendency of this litigation. Concomitantly, if plaintiff seeks to adjudicate the alleged property interests of its members by this action, the binding effect upon its members under the foregoing principle would be tenuous, at best. Consequently, since the plaintiff has neither a direct interest in the cause of action nor a properly constituted representative position, we must conclude that the requisite standing to pursue this litigation is absent.

Should plaintiff establish standing to maintain this action by assuming a proper representative status,^[6] under the facts shown by the record, equitable relief would nevertheless remain unavailable. Such result would obtain because of the absence of any grounds upon which the invocation of equity jurisdiction can be founded. Even if a party has standing to maintain a suit for injunctive relief, he must additionally allege and establish a basis for equity jurisdiction.

Violations of the act are, by the terms of § 50, deemed to be crimes.^[7] As a well-established general rule, only in the cases of public or private nuisance or injury to property rights will equity jurisdiction be available to enjoin criminal violations. See e.g. State ex rel Washtenaw County Prosecuting Attorney v Western Union Telegraph Co, 336 Mich. 84, 90; 57 NW2d 537, 540 (1953), Glover v Malloska, 238 Mich. 216, 220; 213 N.W. 107, 108 (1927), Village of St Johns v McFarlan, 33 Mich. 72; 20 AR 671 (1875). No allegations of nuisance were made by plaintiff, nor does the act declare violations to be a nuisance. However, the interests of plaintiff's members in their liquor licenses may constitute sufficient property rights to invoke equity jurisdiction. But we need not decide that issue.

Assuming, arguendo, the existence of standing and property rights, the record is devoid of any evidentiary basis for finding that defendant's alleged violations of the act resulted in any injury to those interests. Mere conclusory allegations are insufficient. Plaintiff must show, as a precondition to obtaining equitable relief, that the injury was "directly traceable" to the alleged unlawful conduct of defendant. Glover v Malloska, supra at 221.

This requirement of direct traceability was reasserted in United-Detroit Theaters Corp v Colonial Theatrical Enterprise Inc, 280 Mich. 425, 430-431; 273 N.W. 756, 757 (1937). There, the Supreme Court reversed an order for injunctive relief because the record failed to show an injury to plaintiff's property interest in their business. Id.

Accordingly, we conclude that the trial court erred in granting injunctive relief to the plaintiff. Further, it is our conclusion that the action should have been dismissed because plaintiff lacked standing to maintain the suit. Consequently, we need not reach an evaluation of the trial court's interpretation of § 26c of the act.

Reversed and dismissed. Costs to defendant.

D.E. HOLBROOK, J., concurred.

BEASLEY, J. (dissenting).

I respectfully dissent.

In this case, plaintiff seeks interpretation of MCLA 436.26c; MSA 18.997(3), which provides:

"No person shall maintain, operate, lease or otherwise furnish to other persons any premises or place which is not licensed under this act, wherein such other persons may engage in the drinking of alcoholic beverages, for a fee or for any other consideration including the sale of food, mixers, ice or other fluids used with alcoholic drinks or the storage of alcoholic liquors: Provided, That the provisions of this section shall not apply to any hotel nor to any licensee under the provisions of this act: Provided further, That the provisions of this section shall not be construed to repeal or amend the provisions of section 26b of this act."

Even a cursory reading of the above statute reveals plenty of room for differing interpretations. In a nutshell, plaintiff claims the statute prohibits unlicensed persons from furnishing premises for a fee where others engage in drinking alcoholic beverages on the premises.

Defendant says, an unlicensed person may furnish premises and food, including ice, mix and pop to another for a fee where the second person permits drinking of alcoholic beverages on the premises. An authoritative, binding interpretation of the statute should be made to resolve this issue.

Both at trial and on appeal, defendant urges that plaintiff is an improper party and lacks standing to bring this action. Defendant argues that violations of the Liquor Control Act are a crime, that plaintiff's position is essentially that defendant violates the Liquor Control Act by permitting and promoting liquor to be served in premises rented for a fee, that criminal activity may only be enjoined where it is either a public or private nuisance or where injury is caused to the property rights or pecuniary interests of another; that plaintiff does not have property rights in or pecuniary interests arising from a license, that, in addition, under the primary jurisdiction doctrine, administrative remedies in the Liquor Control Commission must first be exhausted, and that plaintiff nonprofit association is a separate entity distinct from its members, pays no taxes, and does not and cannot suffer injury because of defendant's operations. Defendant concludes that plaintiff lacks standing to bring this action.

The trial court rejected defendant's claim that plaintiff lacked standing, finding that, under Bundo^[1] and Bisco's,^[2] plaintiff's members possessed valuable property rights in their liquor licenses. The trial court reasoned that since a property right was involved, violations of the Liquor Control Act could be enjoined as private nuisances. The trial court rejected defendant's argument that bringing this suit was ultra vires under plaintiff's articles of incorporation, indicating this suit was for the purpose of mutual benefit. The trial court also declined to apply the doctrine of primary jurisdiction in the Liquor Control Commission to the facts of this case.

In analyzing the standing issue, I would start with the proposition that where, as here, there is a genuine justiciable issue, that is, the assertion of a claim of right against one who has an interest in contesting it,^[3] the law should favor that interpretation which grants standing to obtain resolution of the issue. Judicial review of justiciable issues should be freely available with the least judicial encumbrance.^[4]

The justiciable issue is, does § 26c of the liquor law prohibit defendant from performing the acts delineated in the stipulated facts?^[5]

If standing is denied plaintiff, then who can raise the question as to whether defendant's business is in violation? It is assumed that the police agencies listed in the statute are empowered to see that the law is enforced. It would also be assumed that a liquor licensee who was in economic competition with this unlicensed defendant would have standing to seek determination of whether this defendant is in violation of the liquor control law.^[6] But, plaintiff is neither. Plaintiff is a nonprofit corporation holding no liquor license of its own, but representing some 2,902 licensees statewide.

On appeal, the majority conclude that plaintiff lacks "standing" to bring this action. In Michigan, the leading case dealing with the subject of standing is White Lake Association v Whitehall.^[7] In that case, Judge (now Justice) LEVIN indicated that the standing of nonprofit corporations to challenge proposed action of administrative agencies has been recognized. Among other things, he said:

"No constructive purpose would be served by requiring the members of the plaintiff association who are riparian owners to maintain this action individually and thereby require that they seek in some other fashion financial and other support from the other affected landowners. Additionally, allowing the landowners to associate together for this purpose may avoid a multiplicity of suits; the difficulties that are likely to be encountered where there are a large number of plaintiffs are all too familiar to anyone who has had experience in such litigation. The most expedient way for the riparian owners to obtain a determination on the merits is to allow them to combine and join together for this purpose with others of a like interest under a single banner both before and at the time of suit;

* * *

"In other cases as well it has been recognized that a nonprofit corporation may have standing to maintain an action to vindicate the interests of its members." (Footnote omitted.)^[8]

The majority undertake to distinguish the within case from the White Lake case, saying that in the White Lake case the nonprofit association was constituted for solely representative purposes, while the corporate purpose of plaintiff nonprofit corporation is unrelated to that of a litigation representative.

Plaintiff was formed as a nonprofit corporation in 1946. Article II of the articles of incorporation provided:

"The purpose or purposes of this corporation are as follows: The purpose of educating licensees of the Michigan Liquor Control Commission as to their responsibilities to the public from a moral, ethical and civic standpoint of view and for the purpose of mutual benefit that accrues from such an understanding."

The by-laws of plaintiff provide, among other things, as follows:

"Therefore, we, the Michigan Licensed Beverage Association, pledge ourselves to labor unitedly in behalf of the following principles:

"1. To affiliate all licensees into one state organization.

"2. To establish and perpetuate an organization for the purpose of mutual improvement, protection and benefit to promote a moral, social, intellectual improvement of the liquor licensees of the State of Michigan.

"3. To encourage, sustain and assist in the just and equitable enforcement of laws, and in the effort to defeat oppressive legislation, to promote beneficial legislation, and to maintain and support the objects of the organization."

For this nonprofit corporation to attempt to secure a binding adjudication as to whether catering halls, like defendant, must obtain liquor licenses would seem clearly to be for the "mutual improvement, protection and benefit" of its members and, thus, not outside the contemplation of the articles of incorporation and by-laws of plaintiff.

Under these circumstances, the bringing of the within cause of action by plaintiff does not appear to be an ultra vires action.

Contrary to the majority, I would incline to believe that, for the same reasons delineated in White Lake Association, supra, plaintiff has standing to bring this action. The majority suggest that since plaintiff does not hold a liquor license and, thus, has no direct interest in the outcome of this litigation, equitable relief is not available for plaintiff. However, the members of plaintiff nonprofit corporation do have a direct interest in the outcome of this litigation.

Judicial notice is taken that there is direct economic competition between the liquor licensees who comprise plaintiff and catering halls similar to defendant. In the within case, the form of relief sought by plaintiff is in reality twofold; a sweeping injunction to enjoin "Defendant from operating his establishment in violation of the Michigan Liquor Control Act", and, implicitly, a declaration that the interpretation of § 26c of the liquor statute urged by plaintiff is correct.

The majority say that since violations of the liquor statute are punishable as criminal acts, injunctive relief is only available if public or private nuisance or injury to property rights is established. They maintain that there has been no such showing in the within case.

To the contrary, I would conclude that the members of plaintiff have a property right in their liquor licenses,^[9] that that property right would be injured by violations of the liquor control law and that plaintiff represents its members in seeking to prevent such injury.

However, with the majority, I would acknowledge that plaintiff in the within case has apparently made no evidentiary showing of pecuniary damages "directly traceable" to the alleged unlawful conduct of defendant.^[10] Without a showing of direct traceability, injunctive relief is not available to plaintiff. Therefore, I would agree with the majority that injunctive relief was not proper in the within case on the facts indicated in the record. However, I would treat plaintiff's cause as an action for declaratory judgment^[11] and would find standing in plaintiff to seek an authoritative, binding interpretation of § 26c of the Liquor Control Act as it relates to the allegedly unlawful activities of defendant. I would address that issue as to the statute's meaning; but since this is a dissent, no good purpose will be served by further comment.

NOTES

[1] MCLA 436.1, et seq; MSA 18.971, et seq.

[2] MCLA 436.26c; MSA 18.997(3). This section states as follows:

"No person shall maintain, operate, lease or otherwise furnish to other persons any premises or place which is not licensed under this act, wherein such other persons may engage in the drinking of alcoholic beverages, for a fee or for any other consideration including the sale of food, mixers, ice or other fluids used with alcoholic drinks or the storage of alcoholic liquors: Provided, That the provisions of this section shall not apply to any hotel nor to any licensee under the provisions of this act: Provided further, That the provisions of this section shall not be construed to repeal or amend the provisions of section 26b of this act."

[3] Plaintiff's corporate purpose is stated in its articles of incorporation to be as follows:

"Article II — The purpose or purposes of this corporation are as follows: The purpose of educating licensees of the Michigan Liquor Control Commission as to their responsibilities to the public from a moral, ethical and civic standpoint of view and for the purpose of mutual benefit that accrues from such an understanding."

[4] See White Lake Improvement Assoc v City of Whitehall, 22 Mich. App. 262, 273-274 and fn 12 and 14; 177 NW2d 473, 477-478 (1970).

[5] For example, in the cases reported in White Lake, at 274, fn 14 the association brought suit as a class action in Smith v Board of Education of Morrilton School District No 32, 365 F2d 770, 777 (CA 8, 1966), and litigated rights essential to its organizational existence or in which it had a direct interest, in the cases of Louisiana v NAACP, 366 U.S. 293, 294; 81 S. Ct. 1333, 1334; 6 L. Ed. 2d 301, 303 (1961), and NAACP v Button, 371 U.S. 415, 428-429; 83 S. Ct. 328, 335; 9 L. Ed. 2d 405, 415 (1963), respectively. See also NAACP v Alabama, 357 U.S. 449, 459; 78 S. Ct. 1163, 1170; 2 L. Ed. 2d 1488, 1489 (1958).

[6] One means of instituting representative litigation is provided by the court rule governing class actions. See GCR 1963, 208. This rule enables the court to assure that all those who are to be bound by the judgment receive proper notice of the litigation. Rule 208.4 provides:

"Protective Orders. The court at any stage of an action under subrules 208.1 or 208.2 may require such security and impose such terms as shall fairly and adequately protect the interests of the class or association in whose behalf the action is brought or defended. It may order that notice be given, in such manner as it may direct, of the pendency of the action, of a proposed settlement of entry of judgment, or any other proceedings in the action, including notice to the absent persons that they may come and present claims and defenses if they so desire. Whenever the representation appears to the court inadequate fairly to protect the interests of absent persons who may be bound by the judgment, the court may at any time prior to judgment order an amendment of the pleadings, eliminating therefrom all reference to representation of absent persons, and the court shall order entry of judgment in such form as to affect only the parties to the action and those adequately represented."

[7] MCLA 436.50; MSA 18.1021, which states as follows:

"PENALTIES. Any person, other than persons required to be licensed under this act, who shall violate any of the provisions of this act shall be guilty of a misdemeanor.

"Any licensee who shall violate any of the provisions of this act, or any rule or regulation of the commission promulgated hereunder, shall be guilty of a misdemeanor, punishable by imprisonment in the county jail not more than 6 months or by a fine of not more than 500 dollars, or both, in the discretion of the court.

"Any person, who shall do any act for which a license is required under this act without first obtaining said license or any person who shall sell any alcoholic liquor in any county which shall have prohibited the sale of alcoholic liquor under the provisions of section 57 hereof, shall be guilty of a felony, punishable by imprisonment in the state prison not more than 1 year or by a fine of not more than 1,000 dollars, or both, in the discretion of the court.

"It is the intent of the legislature that the court, in imposing punishment under the provisions of this section, should discriminate between casual or slight violations and habitual sales of alcoholic liquor or attempts to commercialize violations of this act or any of the rules or regulations of the commission promulgated hereunder."

[1] Bundo v Walled Lake, 395 Mich. 679; 238 NW2d 154 (1976).

[2] Bisco's, Inc v Liquor Control Commission, 395 Mich. 706; 238 NW2d 166 (1976).

[3] Black's Law Dictionary (4th ed), p 1004.

[4] See, 75 Harvard L Rev 255, 257-258 (1961), citing FCC v Sanders Brothers Radio Station, 309 U.S. 470; 60 S. Ct. 693; 84 L. Ed. 869 (1940).

[5] MCLA 436.26c; MSA 18.997(3).

[6] Kirkby v Public Service Commission, 320 Mich. 608; 32 NW2d 1 (1948), In re Azarewicz, 163 Pa Super 459; 62 A2d 78 (1948).

[7] White Lake Improvement Association v City of Whitehall, 22 Mich. App. 262; 177 NW2d 473 (1970).

[8] Id. at pp 272-273.

[9] Bundo, supra and Bisco's, supra.

[10] Glover v Malloska, 238 Mich. 216; 213 N.W. 107 (1927), United-Detroit Theaters Corp v Colonial Theatrical Enterprise, Inc, 280 Mich. 425; 273 N.W. 756 (1937).

[11] GCR 1963, 521, Kuhn v East Detroit, 50 Mich. App. 502, 504; 213 NW2d 599 (1973).