Retail Services & Systems, Inc. v. South Carolina Department of Revenue

ACTING JUSTICE TOAL:

Appellant Retail Services & Systems, Inc. Retail Services & Systems, Inc., d/b/a Total Wine & More (Retail Services) appeals the trial court’s decision granting summary judgment to Respondents South Carolina Department of Revenue (SCDOR) and ABC Stores of South Carolina (ABC Stores). We reverse.

Analysis

Retail Services owns and operates three separate liquor store locations in Charleston, Greenville, and Columbia, South Carolina. SCDOR is charged with the administration of South Carolina’s statutes concerning the manufacturing, sale, and retail of alcoholic liquors. S.C. Code Ann. §§ 61-2-10 & -20. Retail Services petitioned SCDOR to open a fourth store in Aiken, however, SCDOR refused to grant Retail Services a fourth liquor license under sections 61-6-140 and -150 of the South Carolina Code,¹ which limit a liquor-selling entity to three retail liquor licenses. Additionally, ABC Stores lobbies before the General Assembly on behalf of its members who are owners and holders of retail dealer licenses. Therefore, Retail Services brought this action against SCDOR and ABC Stores seeking a declaratory judgment that these provisions of the South Carolina Code are unconstitutional.

Appellant argues that sections 61-6-140 and -150: (1) exceed the scope of the General Assembly’s police power provided for in article VIII-A of the South Carolina Constitution² because the licensing limits do not promote the health, safety, or morals of the State, but merely provide economic protection for existing retail liquor store owners; (2) violate its rights to equal protection³ under the law by creating arbitrary distinctions, in that the three-store limit unfairly treats large retailers differently from small retailers and that section 61-6-150’s “grandfather clause,” unfairly discriminates against those that did not have an interest on or before July 1,1978, and unfairly differentiates between owners of stores that sell liquor for on-site consumption and those that sell liquor for off-site consumption; and (4) violate its due process rights⁴ because they unfairly prevent Appellant from operating in its chosen field of business.

The trial court found the provisions constitutional because (1) they are within the scope of the State’s police power; and (2) they satisfy the rational basis test, which, because they do not infringe on a fundamental right or implicate a suspect class, is all that is required. Therefore, the circuit court granted Respondents’ motions for summary judgment. Appellant appealed the circuit court’s decision. We now review the circuit court’s decision and reverse.

“This Court has a limited scope of review in cases involving a constitutional challenge to a statute because all statutes are presumed constitutional and, if possible, will be construed to render them valid.” Curtis v. State, 345 S.C. 557, 569, 549 S.E.2d 591, 597 (2001) (citing Davis v. Cnty. of Greenville, 322 S.C. 73, 77, 470 S.E.2d 94, 96 (1996)).

While article VIII-A, section 1 of the South Carolina Constitution contains a broad mandate to the General Assembly with respect to regulating the sale and retail of alcohol in South Carolina, this ability to regulate is not as far-reaching as Respondents maintain. See State ex rel. George v. City Council of Aiken, 42 S.C. 222, 20 S.E. 221, 230 (1894) (“[I]f the act is not a police measure, it is unconstitutional”). We find that sections 61-6-140 and -150 of the South Carolina Code are unconstitutional because they exceed the scope of the General Assembly’s police powers.⁵

Under the current paradigm, the government may “regulate any trade, occupation or business, the unrestrained pursuit of which might affect injuriously the public health, morals, safety or comfort; and in the exercise of the power particular occupations may be ... required to be conducted within designated limits.” Denene, Inc. v. City of Charleston, 359 S.C. 85, 98, 596 S.E.2d 917, 924 (2004) (quoting City of Charleston v. Esau Jenkins, 243 S.C. 205, 210-11, 133 S.E.2d 242, 244 (1963)). This mandate is especially broad with respect to regulating liquor:

In the exercise of the police power the General Assembly has the right to prohibit and to regulate the manufacture, sale, and retail of alcoholic liquors or beverages within the State. The General Assembly may license persons or corporations to manufacture, sell, and retail alcoholic liquors or beverages within the State under the rules and restrictions as it considers proper....

5.C. Const. art. VIII-A, § 1.

Here, the circuit court justified the three-license restrictions on corporations as “preserving the right of small, independent liquor dealers to do business.” Moreover, counsel for Respondents repeatedly stated to this Court during oral arguments that the only justification for these provisions is that they support small businesses. The record does not contain any evidence of the alleged safety concerns incumbent in regulating liquor sales in this way. Without any other supportable police power justification present, economic protectionism for a certain class of retailers is not a constitutionally sound basis for regulating liquor sales. See Bacchus Imports v. Dias, 468 U.S. 263, 276, 104 S.Ct. 3049, 82 L.Ed.2d 200 (1984) (“State laws that constitute mere economic protectionism are ... not entitled to the same deference as laws enacted to combat the perceived evils of an unrestricted traffic in liquor.”); McCullough v. Brown, 41 S.C. 220, 247-48, 19 S.E. 458, 472-73 (1894), overruled on other grounds by State ex rel. George, 42 S.C. at 254, 20 S.E. at 233 (holding that if a statute regulating alcoholic liquors is enacted for economic purposes rather than “as a police regulation of the business of selling intoxicating liquors,” it is unconstitutional).

Not only is there no indication in this record that these provisions exist for any other reason than economic protectionism, the provisions themselves and statutory scheme to which they belong lend further support to Appellant’s position. As Appellant points out, the provisions do not limit the number of liquor stores that can be licensed in a certain area—only the number than can be owned by one person or entity.⁶ Another provision governs the specific placement of retail establishments away from churches, schools and playgrounds. See S.C. Code Ann. § 61-6-120. Therefore, Respondents’ contention that the provisions advance the safety and moral interests of the State, no doubt a legitimate State interest, is unavailing with respect to sections 61-6-140 and - 150.

While the dissent contains a learned and well-reasoned analysis of constitutional challenges to statutes restricting the sale of liquor, the dissent acknowledges that Respondents and the trial court justified the three-license restrictions on corporations as “preserving the right of small, independent liquor dealers to do business.” Appellant argues that this proves that this statutory restriction exists solely for economic protectionism and is thus invalid. The dissent acknowledges that this argument has some appeal, but claims the restriction must be evaluated alongside the numerous other justifications expressed for the statutes before proceeding to cite justifications offered in case from New Hampshire (1972), Massachusetts (1978), and New Jersey (1964 and 2009). While the dissent provides that economic protectionism is merely one of the police justifications for this type of regulation and there are other valid police purposes attributable to these provisions, this contention is not supported by the record below, as it was in the records of the cases cited from other states. As noted previously, Respondents’ experienced counsel repeatedly stated to this Court during oral arguments that the only justification for these provisions is that they support small businesses.⁷

Ultimately, the Respondents’ and dissent’s position amounts to “it’s just liquor,” which is not a legitimate basis for regulation. Under this rationale, market regulation—no matter how oppressive—cannot ever be said to be unconstitutional. While we acknowledge that the State is granted broad powers with respect to regulating liquor sales, this is an example of market regulation that exceeds constitutional bounds. Therefore, we reverse the trial court’s decision granting summary judgment to Respondents, and find sections 61-6-140 and -150 unconstitutional as violative of the General Assembly’s police powers under article VIII-A, section 1 of the South Carolina Constitution.⁸

HEARN, J., concurs. BEATTY, C.J. and Acting Justice Costa M. Pleicones, concurring in result only. KITTREDGE, J., dissenting in a separate opinion.

1 . See S.C. Code Ann. § 61-6-140 (2009) ("No more than three retail dealer licenses may be issued to one licensee.... No more than three retail dealer licenses may be issued for the use of one corporation, association, partnership, or limited partnership."); id. § 61-6-150 (“No person, directly or indirectly, individually or as a member of a partnership or an association, as a member or stockholder of a corporation, or as a relative to a person by blood or marriage within the second degree, may have any interest whatsoever in a retail liquor store licensed under this section except the three stores covered by his retail dealer’s licenses, as provided for in [s]ection 61-6-140. The prohibitions in this section do not apply to a person having an interest in retail liquor stores on July 1, 1978.”).

2 . See S.C. Const, art, VIII-A, § 1 ("In the exercise of the police power the General Assembly has the right to prohibit and to regulate the manufacture, sale, and retail of alcoholic liquors or beverages within the State.’’).

3 . S.C. Const, art. I, § 3 (providing no person "shall ... be denied the equal protection of the laws”).

4 . S.C. Const, art. I, § 3 (providing no person "shall ... be deprived of life, liberty, or property without due process of law....”).

5 . For many years, our precedents embraced Lochner-era principles justifying court invalidation of almost all legislative restrictions on private business. However, in R.L. Jordan Co., the Court replaced this test with a rational relationship test. 338 S.C. at 477-78, 527 S.E.2d at 765 (“Accordingly, we overrule our cases which apply the traditional approach, and adopt this standard for reviewing all substantive due process challenges to state statutes: ‘Whether it bears a reasonable relationship to any legitimate interest of government.’ ” (footnote omitted)). Under the Lochner approach, the state could regulate prices charged by businesses for goods and services whenever the business was " ‘affected with a public interest.’ ” R.L. Jordan Co. v. Boardman Petroleum, Inc., 338 S.C. 475, 477, 527 S.E.2d 763, 764-75 (2000) (quoting Gwynette v. Myers, 237 S.C. 17, 115 S.E.2d 673 (1960)); see Lochner v. New York, 198 U.S. 45, 25 S.Ct, 539, 49 L.Ed. 937 (1905). We have a number of precedents regulating businesses in this broad fashion. See, e.g., State Dairy Comm’n of S.C. v. Pet, Inc., 283 S.C. 359, 363, 324 S.E.2d 56, 58 (1984) (finding that the wholesale milk industry was not so affected with the public interest as to authorize price regulation or price control by the State), overruled by R.L. Jordan Co., 338 S.C. at 475, 527 S.E.2d at 763. As of 2000, we formally abandoned the Lochner-era test, yet in this case some fourteen years later, Respondents offer economic protectionism as the sole justification of this extreme business regulation. We reference this background merely to provide historical context to the type of extreme industry regulation Respondents ask this Court to uphold, and not as the dissent suggests, to resolve this matter on due process grounds.

6 . In fact, another provision of the statutory scheme provides DOR with the discretion to "limit the further issuance of retail dealer licenses in a political subdivision if it determines that the citizens who desire to purchase alcoholic liquors therein are more than adequately served because of (1) the number of existing retail stores, (2) the location of the stores within the subdivision, or (3) other reasons,” S.C. Code Ann, § 61-6-170 (2009).

7 . I note that this argument was exclusively relied upon during oral arguments by Respondents’ very experienced counsel, not just as a consequence of the Court’s questioning. Counsel was not prohibited from propounding any other basis for the regulation, and therefore should be held to his statements to the Court that this is a protectionist statute.

8 . We need not reach Appellant’s equal protection and due process arguments as the police power argument is dispositive of the issues on appeal. See Futch v. McAllister Towing of Georgetown, Inc., 335 S.C. 598, 518 S.E.2d 591 (1999) (finding appellate courts need not reach remaining issue when one issue is dispositive).