IN RE: APPLICATION OF SHELLEY NOVICK-LEIGHTON FOR WAIVER OF N.J.A.C. 13:2-16.11

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

 

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-0

A-3721-11T4

A-3722-11T4

A-3724-11T4

IN RE: APPLICATION OF

SHELLEY NOVICK-LEIGHTON FOR

WAIVER OF N.J.A.C. 13:2-16.11

_____________________________

IN RE: APPLICATION OF

RORY McCORMICK FOR WAIVER

OF N.J.A.C. 13:2-16.11

_____________________________

 

IN RE: APPLICATION OF

DONNA McADAM FOR WAIVER

OF N.J.A.C. 13:2-16.11

_____________________________

 

IN RE: APPLICATION OF

KERRY CANAL FOR WAIVER

OF N.J.A.C. 13:2-16.11

_____________________________

March 31, 2014

 

Argued March 19, 2014 Decided

 

Before Judges Fuentes, Simonelli and Haas.

 

On appeal from the New Jersey Department of Law and Public Safety, Division of Alcoholic Beverage Control, Docket Nos. WA-10-006, WA-10-005, WA-10-004, and WA-10-001.

 

Justin A. Marchetta argued the cause for appellantShelley Novick-Leighton (Inglesino, Wyciskala & Taylor, LLC, attorneys; John P. Inglesino and Mr. Marchetta, of counsel and on the briefs).

 

Scott N. Silver argued the cause for appellants Rory McCormick, Donna McAdam and Kerry Canal (Scott N. Silver and John F. Vassallo, Jr., attorneys; Mr. Silver, Mr. Vassallo, and Anne Marie Vassallo, of counsel and on the briefs).

 

Kevin Marc Schatz, Senior Deputy Attorney General, argued the cause for respondent Division of Alcoholic Beverage Control (John J. Hoffman, Acting Attorney General, attorney; Lorinda Lasus, Deputy Attorney General, of counsel; Mr. Schatz, on the brief).

PER CURIAM

In these consolidated appeals, appellants Shelley Novick-Leighton, Rory McCormick, Donna McAdam, and Kerry Canal appeal from the February 3, 2012 final administrative decision and order of the Director of the Division of Alcoholic Beverage Control (the Division) denying their petitions for a waiver from an amendment to N.J.A.C. 13:2-16.11 which precludes them from selling alcohol products to retail establishments owned by their immediate family members. Appellants also appeal from the March 21, 2012 order, which denied their motion for reconsideration. We affirm.

The history of this litigation and the facts relevant to this appeal are set forth at length in the 123-page, February 3, 2012 written opinion of former Division Director Jerry Fischer and need not be repeated in detail here. Each appellant works as a salesperson for a liquor wholesaler. In order to hold these positions, they are each required to possess a valid "solicitor's permit" issued by the Division Director. N.J.A.C. 13:2-16.1. A solicitor's permit "authorizes the permittee to make offers and solicit for such sales of alcoholic beverages on behalf of the licensee represented by the solicitor and designated in the permit." N.J.A.C. 13:2-16.2.

In 1993, the Division, together with the New Jersey Attorney General's Office, conducted an investigation into a number of different practices wholesalers and solicitors were using to secure retailer accounts. The investigation revealed that

wholesalers were illegally rebating or "kicking back" a percentage of solicitors' commissions to retailers who regularly purchased from them. This practice was most prevalent with high volume retailers and the result was that the retailers' incomes were subsidized by these illegal rebates or "kickbacks." Complaints by industry members further evidenced a trend whereby some of the large-volume retailers would request that a wholesaler hire the retailer's relative as the solicitor to that retailer's accounts [thereby creating the possibility that the relative-solicitor's commissions were indirectly subsidizing the retailer].

 

[ 41 N.J.R. 2436 (June 15, 2009).]

 

Because this latter practice gave retailers, whose relatives worked as solicitors for their purchases, an advantage with which other retailers could not compete, the Division Director published an order on September 30, 1997, directing that, as of January 1, 1998, no solicitor would be permitted to service a retail account in which an immediate family member1 had an interest.

Appellant Canal and her employer Allied Beverage Group, LLC (Allied) filed separate appeals with the Appellate Division challenging the order. In a December 12, 1997 Notice and Order sent to Canal's and Allied's attorneys, the Division Director stated that he had "determined to withdraw the September 24, 1997 order to enable [the Division] to freshly consider the issues and concerns raised by the industry." The order also stated that, "[u]pon completion of [the Division's] review, [it would] determine whether regulatory action in the form of rulemaking is necessary and appropriate." Canal and Allied then withdrew their appeals. The December 12, 1997 order made no mention of, and did not include, a permanent grandfather clause that would permit Canal and other currently licensed solicitors to continue to sell products to retail establishments owned by their immediate family members.

Over a year later, on February 16, 1999, the Division amended N.J.A.C. 13:2-16.11 as follows:

(c) As of February 16, 1999, no holder of a solicitor's permit shall offer for sale or solicit any order for the purchase or sale of any alcoholic beverage to any retail licensee in which an immediate family member of the solicitor has any direct or indirect financial interest or participates in the operation of the retail licensee.

 

(d) The term immediate family member as used in this chapter means husband, wife, son, daughter, grandson, granddaughter, brother, sister, father, mother, brother-in-law, sister-in-law, father-in-law, mother-in-law, son-in-law, or daughter-in-law.

 

(e) The provisions of (c) and (d) above do not apply to any solicitor who has been issued a solicitor's permit on or before February 16, 1999.

 

[31 N.J.R.547 (February 16, 1999) (emphasis added).]

 

Thus, N.J.A.C. 13:2-16.11(e) "grandfathered" solicitors who had been engaged in the newly prohibited activity prior to the effective date of the regulation. "Since the number of grandfathered solicitors was small, [the Division] believed that the practice of solicitors selling to relative-retailers would eventually extinguish itself."

Unfortunately, a subsequent Division investigation commenced in 2007 uncovered new and continued abuses. Among other things, "[t]his investigation established that certain solicitors, who were permitted to service retail accounts held by a member of the solicitor's immediate family pursuant to the grandfather clause of N.J.A.C. 13:2-16.11[(e)], performed no services for their relative's retail accounts but were paid commissions for sales made to those accounts." 41 N.J.R. 2436 (June 15, 2009). The Division also found that

[m]any large-volume retailers do not even need or want a solicitor assigned to their accounts because they have sophisticated ordering systems in place. Paying commissions to a solicitor when no services are rendered is a violation of N.J.A.C. 13:2-24.2. The fact that the relative solicitors did not render services in exchange for the commissions paid to them further establishes that the commissions paid were no more than rebates or "kickbacks" to the large volume retailers.

 

This activity created a competitive advantage for the wholesalers employing those relatives because it ensured the retailers would purchase from them. The retailers whose relatives were employed as solicitors also gained a competitive advantage because the commissions could subsidize their household incomes and allow them to lower their prices. As a result, other wholesalers and retailers sought out ways to compete with these subsidies. In sum, the Division's recent investigation demonstrated that further restrictions are necessary to continue to prevent illegal rebates, maintain trade stability and foster a competitive three-tier system of distribution in the liquor industry.

 

[Ibid.]

 

Based upon these findings, on August 2, 2010, the Division amended N.J.A.C. 13:2-16.11, effective October 1, 2010, to provide in pertinent part as follows:

(c) No holder of a solicitor's permit shall offer for sale or solicit any order for the purchase or sale of any alcoholic beverage, or receive any commission or compensation, directly or indirectly, based on sales to any retail license in which an immediate family member of the solicitor has any direct or indirect financial interest or participates in the operation thereof.

 

(d) No holder of a solicitor's permit whose immediate family member has any direct or indirect interest or participates in the operation of a retail license shall offer for sale or solicit any order for the purchase or sale of any alcoholic beverage, or receive any commission or compensation, directly or indirectly, based on sales to any retail license in which an immediate family member of another solicitor employed by the same wholesaler has any direct or indirect financial interest or participates in the operation thereof.

 

The Division also amended N.J.A.C. 13:2-16.3, which governs eligibility for a solicitor's permit, to provide in pertinent part as follows:

(b) No solicitor's permit shall be issued to any person whose immediate family member has any direct or indirect interest or participates in the operation of a retail license. This prohibition shall apply to all persons hired as solicitors by any wholesaler, except as provided in (c) below.

 

(c) A solicitor who has held a solicitor's permit and has been employed by a wholesaler prior to October 1, 2010 and whose immediate family member has any direct or indirect interest or participates in the operation of a retail license shall be permitted to remain a solicitor and submit annual renewal applications for his or her solicitor's permit as long as the solicitor is in compliance with all the provisions of N.J.A.C. 13:2-16.1.

 

(d) "Immediate family member" as used in this section means husband, wife, son, daughter, grandfather, grandmother, grandson, granddaughter, brother, sister, father, mother, aunt, uncle, niece, nephew, brother-in-law, sister-in-law, father-in-law, mother-in-law, son-in-law and daughter-in-law.

 

(e) For purposes of this section, "bona fide solicitor" means a solicitor who performs substantial duties and responsibilities for each retail account assigned to the solicitor. . . .

 

In explaining its reasons for amending the regulations, the Division stated:

The Division's recent investigation . . . has established the dangers of allowing immediate family members of retailers to become solicitors. If such practices are permitted to continue, wholesalers will seek to hire more and more relatives of retailers in an effort to gain a competitive edge. Instead of competition being driven by prices, services and product catalogs, purchasing decisions will be based on which wholesaler hires the retailer's relatives. The wholesalers for which it is not economically feasible to hire relatives of retailers will be at a competitive disadvantage and will seek out other illegal methods of competition, such as free goods, extended or favorable credit terms, or other forms of "kickbacks." Small-volume retailers not offered the opportunity to have a relative hired as a solicitor will seek other methods to increase their income, such as purchasing from prohibited sources, selling below cost, or demanding "kickbacks" or illegal credit terms. Lastly, solicitors not related to a retailer will be pressured by retailers to provide illegal incentives in order to retain retail accounts. This practice, unless stopped, will affect both tiers of the industry, change buying patterns and threaten the stability of the industry. Moreover, this practice will deprive the marketplace of the benefits of free competition as contemplated by the Alcoholic Beverage Control Act.

 

[ 41 N.J.R. 2437 (June 15, 2009).]

 

In response to the amendments, appellants, who as solicitors had been selling alcohol products to retailers which were owned by their immediate family members, filed petitions for waiver or relaxation of N.J.A.C. 13:2-16.11 pursuant to N.J.A.C. 13:2-9.1. Each was required to demonstrate that: (1) absent relaxation, the solicitor would suffer undue hardship; (2) waiver of the rule would not unduly burden any affected party; and (3) waiver would be consistent with Title 33 and its implementing regulations. N.J.A.C. 13:2-9.1. The Division provided appellants with all of the evidence it had collected and the opportunity to present documentary evidence and argument in support of their petitions.

In his February 3, 2012 decision, Director Fischer found that none of the appellants had satisfied the three criteria for a waiver under N.J.A.C. 13:2-9.1. The Director explained the reasons for this conclusion at length and provided detailed findings supporting his denial of each appellant's waiver petition. The Director found that appellants would suffer no undue hardship if they were required to comply with N.J.A.C. 13:2-16.11. Each would continue to earn sizable incomes by serving the clients they had who were not their immediate family members. The Director also found that appellants had not demonstrated that they were in any danger of losing their jobs as solicitors or that they would not be able to obtain additional accounts.

With regard to the second prong of N.J.A.C. 13:2-9.1, the Director noted that requiring the family member who owned the retail establishment to use a different solicitor would not affect the retailer's operations or sales volume. Finally, as to the third prong, furthering the goal of N.J.S.A. 33:1-3.1b(6) "[t]o provide a framework for the alcoholic beverage industry that recognizes and encourages the beneficial aspects of competition[,]" the Director found that, if the retailers were no longer able to place orders with a solicitor who was a family member associated with a single wholesaler, they would be more likely to purchase products from other wholesalers. This would obviously enhance competition.

The Director rejected appellant Canal's claim that the December 12, 1997 order was a "settlement" that included a permanent grandfather provision. He found that the order said nothing about a permanent grandfather provision, and Canal presented no evidence that the Division ever agreed to such a provision.

The Director also rejected appellants' due process and deprivation of property rights arguments. He found that N.J.A.C. 13:2-16.11 did not impair appellants' right to work as solicitors, but merely prevented them from soliciting business at their relatives' establishments. The Director further found that, by providing appellants with all of the evidence in the Division's possession and the opportunity to address and rebut it, the Division ensured that appellants were afforded due process in the waiver proceeding in which they participated.

Appellant Novick-Leighton claimed that N.J.A.C. 13:2-16.11 discriminated against her based upon her marital status. However, in concluding that this argument lacked merit, Director Fischer adopted our reasoning in an unpublished opinion, In re Sobczak, No. A-3286-03 (App. Div. Mar. 16, 2005), certif. denied, 184 N.J. 212 (2005), which found that the regulation did not interfere with a solicitor's right to marry as protected by the Fourteenth Amendment and Article I, 1 of the State Constitution.

Appellants each moved for reconsideration. In a March 21, 2012 comprehensive written decision that painstakingly set forth the factual basis for each of his conclusions, Acting Director Halfacre denied appellants' motions. This appeal followed.2

On appeal, appellants raise the same arguments that were presented to the Division Directors. Appellants contend that: (1) the Division's promulgation of N.J.A.C. 13:2-16.11 violated the terms of an alleged settlement in 1997 under which the Division agreed to permanently grandfather all current solicitors from any prohibition against selling products to their family members; (2) the Division acted arbitrarily in amending N.J.A.C. 13:2-16.11; (3) the Division should have afforded them a plenary hearing; (4) the regulation improperly deprived them of a property right; and (5) Director Fischer's decision to deny their petitions was arbitrary and capricious.3

Established precedents guide our task on appeal. Appellate review of an administrative agency decision is limited. In re Herrmann, 192 N.J. 19, 27 (2007). A "strong presumption of reasonableness attaches" to the Director's decision. In re Carroll, 339 N.J. Super. 429, 437 (App. Div.), certif. denied, 170 N.J. 85 (2001). Appellants have the burden to demonstrate grounds for reversal. McGowan v. N.J. State Parole Bd., 347 N.J. Super. 544, 563 (App. Div. 2002); see also Bowden v. Bayside State Prison, 268 N.J. Super. 301, 304 (App. Div. 1993) (holding that "[t]he burden of showing the agency's action was arbitrary, unreasonable or capricious rests upon the appellant"), certif. denied, 135 N.J. 469 (1994).

Appellate courts generally defer to final agency actions, only "reversing those actions if they are 'arbitrary, capricious or unreasonable or [if the action] is not supported by substantial credible evidence in the record as a whole.'" N.J. Soc'y for the Prev. of Cruelty to Animals v. N.J. Dep't of Agric., 196 N.J. 366, 384-85 (2008) (alteration in original) (quoting Henry v. Rahway State Prison, 81 N.J. 571, 579-80 (1980)). Under the arbitrary, capricious, and unreasonable standard, our scope of review is guided by three major inquiries: (l) whether the agency's decision conforms with relevant law; (2) whether the decision is supported by substantial credible evidence in the record; and (3) whether in applying the law to the facts, the administrative agency clearly erred in reaching its conclusion. In re Stallworth, 208 N.J. 182, 194 (2011).

When an agency decision satisfies such criteria, we accord substantial deference to the agency's fact-finding and legal conclusions, acknowledging "the agency's 'expertise and superior knowledge of a particular field.'" Circus Liquors, Inc. v. Governing Body of Middletown Twp., 199 N.J. 1, 10 (2009) (quoting Greenwood v. State Police Training Ctr., 127 N.J. 500, 513 (1992)). We will not substitute our judgment for the agency's even though we might have reached a different conclusion. Stallworth, supra, 208 N.J. at 194; see also In re Taylor, 158 N.J. 644, 656-57 (1999) (discussing the narrow appellate standard of review for administrative matters).

Applying these principles here, we discern no basis for disturbing the Directors' decisions concerning appellants' waiver petitions and we conclude that none of appellants' arguments have merit. We therefore affirm substantially for the reasons expressed by the Directors in their comprehensive and well-reasoned written opinions. We add the following brief comments.

There is no evidence in the record to support appellants' contention that the Division ever agreed to a permanent grandfather clause. In addition, the 1999 amendment, N.J.A.C. 13:2-16.11(e), does not state that the grandfathering provided for therein would be permanent. More importantly, as our Supreme Court has observed, New Jersey's "liquor control laws and regulations must be administered in the light of changing conditions. Prior measures of enforcement may have failed their mark. Recurrent instances of particular violations must be dealt with accordingly." Butler Oak Tavern v. Div. of Alcoholic Beverage Control, 20 N.J. 373, 382 (1956). Thus, the Division was clearly authorized to amend the regulation in 2010.

Appellants also failed to demonstrate that the Division acted arbitrarily in promulgating N.J.A.C. 13:2-16.11. The agency's action fully comports with the "express or implied legislative policies" underlying Title 33 and, as outlined in detail in the Director's final decision, "there is substantial evidence in the record to support the findings on which the [Division] based its action[.]" N.J. Ass'n of Sch. Adm'rs v. Schundler, 211 N.J. 535, 548 (2012) (quoting In re Petitions for Rulemaking, N.J.A.C. 10:82-1.2 & 10:85-4.1, 117 N.J. 311, 325 (1989)).

Appellants were not entitled to a plenary hearing as part of the Director Fischer's consideration of their waiver applications. Appellants were afforded access to all of the information relied upon by the Director and he fully considered all of their arguments and documentary submissions in his comprehensive decision. Appellants have not identified any statute or constitutional provision which required a hearing. In re Xanadu Project at Meadowlands Complex, 415 N.J. Super. 179, 193 (App. Div.), certif. denied, 205 N.J. 96 (2010); N.J.S.A. 52:14B-2(b).

Like Director Fischer, we reject appellants' argument that they were unconstitutionally deprived of a "property right" when they were no longer permitted to sell products to their family members. Pursuant to N.J.S.A. 33:1-26, a liquor license is merely a temporary permit or privilege, rather than a property right. Xanadu, supra, 415 N.J. Super. at 198. Moreover, this case did not involve the suspension, revocation, or non-renewal of appellants' solicitor permits. They still hold the permits and they may still sell alcohol products to non-family members.

Finally, the Director's decision denying appellant's waiver petitions was fully supported by substantial and credible evidence in the record and was neither arbitrary nor capricious.

Affirmed.

1 An "immediate family member" was defined as a "spouse, child, father, mother, brother or sister or the children of any son, daughter, brother and sister."

2 On June 4, 2012, we denied appellants' motion for a stay pending appeal.

3 Appellant Novick-Leighton's contention that the regulation discriminates against her on the basis of gender and marital status is without sufficient merit to warrant further discussion. R. 2:11-3(e)(1)(D) and (E).