The question in the case, therefore, is focused on whether the admitted discrimination by the local Lodge in refusing to serve plaintiff a drink of liquor because of his race bore the attributes of state action and so falls within the prohibition of the Fourteenth Amendment against the denial by a state of the equal protection of the laws.
The boundaries which define what is state action are not always clear.
This case presents a situation which is one of first impression. It comes to us surrounded by a mass of decisions which can serve as guides, although they do not authoritatively direct our conclusion.
We believe the decisive factor is the uniqueness and the all-pervasiveness of the regulation by the Commonwealth of Pennsylvania of the dispensing of liquor under licenses granted by the state. The regulation inherent in the grant of a state liquor license is so different in nature and extent from the ordinary licenses issued by the state that it is different in quality.
It had always been held in Pennsylvania, even prior to the Eighteenth Amendment, that the exercise of the power to grant licenses for the sale of intoxicating liquor was an exercise of the highest governmental power, one in which the state had the fullest freedom inhering in the police power of the sovereign.
With the Eighteenth Amendment which went into effect in 1919 the right to deal in intoxicating liquor was extinguished. The era of Prohibition ended with the adoption in 1933 of the Twenty-first Amendment, which has left to each state the absolute power to prohibit the sale, possession or use of intoxicating liquor, and in general to deal otherwise with it as it sees fit.
Pennsylvania has exercised this power with the fullest measure of state authority. Under the Pennsylvania plan the state monopolizes the sale of liquor through its so-called state stores, operated by the estate. Resale of liquor is permitted by hotels, restaurants and private clubs, which must obtain licenses from the Liquor Control Board, authorizing them "to purchase liquor from a Pennsylvania Liquor Store [at a discount] and keep on the premises such liquor and, subject to the provisions of this Act and the regulations made thereunder to sell the same and also malt or brewed beverages to guests, patrons or members for consumption on the hotel, restaurant or club premises."
The issuance or refusal of a license to a club is in the discretion of the Liquor Control Board.
In order to secure one of the limited number of licenses which are available in each municipality
an applicant must comply with extensive requirements, which in general are applicable to commercial and club licenses equally. The applicant must make such physical alterations in his premises as the Board may require and, if a club, must file a list of the names and addresses of its members and employees, together with such other information as the Board may require.
He must conform his overall financial arrangements to the statute's exacting requirements
and keep extensive records.
He may not permit "persons of ill repute" to frequent his premises
nor allow thereon at any time any "lewd, immoral or improper entertainment."
He must grant the Board and its agents the right to inspect the licensed premises at any time when patrons, guests or members are present.
It is only on compliance with these and numerous other requirements and if the Board is satisfied that the applicant is "a person of good repute" and that the license will not be "detrimental to the welfare, health, peace and morals of the inhabitants of the neighborhood," that the license may issue.
Once a license has been issued the licensee must comply with many detailed requirements or risk its suspension or revocation. He must in any event have it renewed periodically. Liquor licenses have been employed in Pennsylvania to regulate a wide variety of moral conduct, such as the presence and activities of homosexuals,
performance by a topless dancer,
being noisy or disorderly.
So broad is the state's power that the courts of Pennsylvania have upheld its restriction of freedom of expression of a licensee on the ground that in doing so it merely exercises its plenary power to attach conditions to the privilege of dispensing liquor which a licensee holds at the sufferance of the state.
These are but some of the many reported illustrations of the use which the state has made of its unrestricted power to regulate and even to deny the right to sell, transport or possess intoxicating liquor. It would be difficult to find a more pervasive interaction of state authority with personal conduct. The holder of a liquor license from the Commonwealth of Pennsylvania therefore is not like other licensees who conduct their enterprises at arms-length from the state, even though they may have been required to comply with certain conditions, such as zoning or building requirements, in order to obtain or continue to enjoy the license which authorizes them to engage in their business. The state's concern in such cases is minimal and once the conditions it has exacted are met the customary operations of the enterprise are free from further encroachment. Here by contrast beyond the act of licensing is the continuing and pervasive regulation of the licensees by the state to an unparalleled extent. The unique power which the state enjoys in this area, which has put it in the business of operating state liquor stores and in the role of licensing clubs, has been exercised in a manner which reaches intimately and deeply into the operation of the licensees.
In addition to this, the regulations of the Liquor Control Board adopted pursuant to the statute affirmatively require that "every club licensee shall adhere to all the provisions of its constitution and by-laws."
As applied to the present case this regulation requires the local Lodge to adhere to the constitution of the Supreme Lodge
and thus to exclude non-Caucasians from membership in its licensed club. The state therefore has been far from neutral. It has declared that the local Lodge must adhere to the discriminatory provision under penalty of loss of its license. It would be difficult in any event to consider the state neutral in an area which is so permeated with state regulation and control, but any vestige of neutrality disappears when the state's regulation specifically exacts compliance by the licensee with an approved provision for discrimination, especially where the exaction holds the threat of loss of the license.
However it may deal with its licensees in exercising its great and untrammeled power over liquor traffic, the state may not discriminate against others or disregard the operation of the Equal Protection Clause of the Fourteenth Amendment as it affects personal rights.
Here the state has used its great power to license the liquor traffic in a manner which has no relation to the traffic in liquor itself but instead permits it to be exploited in the pursuit of a discriminatory practice. Here then are fully applicable the words of the Supreme Court in Burton v. Wilmington Parking Authority, 365 U.S. 715, 725, 81 S. Ct. 856, 862, 6 L. Ed. 2d 45 (1961), where discrimination by a coffee shop lessee in the municipal parking authority's garage building was held to be state action:
"[In] its lease with Eagle the Authority could have affirmatively required Eagle to discharge the responsibilities under the Fourteenth Amendment imposed upon the private enterprise as a consequence of state participation. But no State may effectively abdicate its responsibilities by either ignoring them or by merely failing to discharge them whatever the motive may be. * * * By its inaction, the Authority, and through it the State, has not only made itself a party to the refusal of service, but has elected to place its power, property and prestige behind the admitted discrimination. The State has so far insinuated itself into a position of interdependence with Eagle that it must be recognized as a joint participant in the challenged activity, which, on that account, cannot be considered to have been so 'purely private' as to fall without the scope of the Fourteenth Amendment."