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TRONE v. PREATE

April 12, 1991

JOHN E. TRONE, AN INDIVIDUAL, AND CASE BEER AND SODA OUTLET, INC. D/B/A BEER WORLD, 520 SO. 29TH STREET, HARRISBURG, PENNSYLVANIA, A PENNSYLVANIA CORPORATION, PLAINTIFFS,
v.
ERNEST PREATE, JR., ATTORNEY GENERAL OF THE COMMONWEALTH OF PENNSYLVANIA, IN HIS OFFICIAL CAPACITY, LAWRENCE N. CLAUS, DEPUTY ATTORNEY GENERAL, IN HIS OFFICIAL CAPACITY, GLENN WALP, ACTING STATE POLICE COMMISSIONER, IN HIS OFFICIAL CAPACITY, MAJOR WILLIAM A. MERICLE, DIRECTOR OF THE PENNSYLVANIA BUREAU OF LIQUOR CONTROL ENFORCEMENT, IN HIS OFFICIAL CAPACITY, AND MAJOR GEORGE P. MARCH, DIRECTOR OF THE PENNSYLVANIA BUREAU OF CRIMINAL INVESTIGATION, IN HIS OFFICIAL CAPACITY, DEFENDANTS.



The opinion of the court was delivered by: Rambo, District Judge.

MEMORANDUM

PROCEDURAL BACKGROUND

Plaintiffs, John E. Trone and Case Beer And Soda Outlet, Inc. d/b/a/ Beer World, (plaintiffs) filed a complaint with this court on March 28, 1991, requesting a declaratory judgment that a provision of the Pennsylvania Liquor Code, 47 P.S. § 4-436(f), is unconstitutional as applied to plaintiffs, and a preliminary and permanent injunction prohibiting the defendants from prosecuting them under that provision. Simultaneously, plaintiffs filed a motion for a temporary restraining order or preliminary injunction on the same grounds. The court held a hearing on the matter on April 3 and 4, 1991 and is now prepared to issue its ruling.

FACTS

Plaintiff John E. Trone is the president and sole shareholder of plaintiff Case Beer And Soda Outlet, a beer distributorship located in Harrisburg, Pennsylvania, which operates under the trade name of Beer World (the "Harrisburg Beer World"). Pursuant to the Pennsylvania Liquor Code, 47 P.S. § 1-101 et seq. (Purdon 1969 and Supp. 1990), John Trone holds the distributor's license for the Harrisburg Beer World. At least five other members of John Trone's immediate family now hold or have held licenses for beer distributorships in Pennsylvania.

The Trone family's involvement with the distributorship business apparently began with a distributorship owned by John Trone's parents (the "Hanover distributorship"). In varying degrees, John and his siblings assisted in the operation of the parents' distributorship during high school and college. In 1983, John's brother Robert Trone acquired a 55% interest in that distributorship, and the remaining interest was retained by his mother. At around the same time, John's brother David Trone obtained the license for and opened the distributorship in Harrisburg, which operated under the name of The Beer and Soda Warehouse, and would later become the Harrisburg Beer World.*fn1 With the Beer and Soda Warehouse, David Trone introduced a novel approach to the layout, design and operation of beer distributorships in Pennsylvania. In brief, from the consumer's viewpoint, David Trone's approach introduced full customer access to the product by utilizing a "supermarket" style of case beer marketing, as well as expanded product choice and extended hours. From the management viewpoint, the approach established quantity purchasing and sales and a particularly effective system of accounting and financial reporting, including the extensive reporting licensees must provide to the Liquor Control Board.*fn2

While David Trone operated the Beer and Soda Warehouse, John Trone purchased his brother Robert's interest in the Hanover distributorship in 1984. According to John Trone, by 1985, David Trone decided to establish a "consulting firm" to provide services to beer distributorships. John Trone sold his interest in the Hanover distributorship and bought David's Beer and Soda Warehouse in Harrisburg and David Trone established the consulting firm, now known as Retail Services and Systems, Inc. ("RSS"). The court understood from the testimony at the hearing that David Trone also acquired the trademark for the Beer World around that time and the Harrisburg distributorship was the first to carry that name. Eight other distributorships in Pennsylvania now also operate under the name of Beer World.

John Trone presently pays a monthly fee to David Trone's consulting firm for the use of the Beer World name and the provision of the accounting, marketing and management services to which is ascribed the financial success of Beer World stores.*fn3 David has similar arrangements with the eight other Beer Worlds in Pennsylvania, one of which is owned by his sister and another of which is owned by his wife. On a number of occasions, through investigations and the filing of charges, the Bureau of Liquor Control Enforcement ("BLCE")*fn4 have indicated their concern that this arrangement somehow violates provisions of the Liquor Control Code.

The Statutory Scheme

The Liquor Control Code allows an individual to hold only one distributorship license at any given time. 47 P.S. § 4-438. The Code also requires any applicant for a distributor's license to state and verify by affidavit that the applicant is the only person pecuniarily interested in the business for which the license is sought during the term of the license. 47 P.S. § 4-436(f). The Code makes it a misdemeanor for an applicant to make intentionally false statements on the license application and provides penalties for any conviction thereof. 47 P.S. § 4-436(j). In addition, 47 P.S. § 4-494 makes it a crime to violate § 4-436(f) or any other provision of section 4 of the act.

Neither the Liquor Control Code nor the regulations promulgated under the Code define pecuniary interest. Pennsylvania case law provides no final definition of the term, but has upheld the PLCB's finding that, whatever else it might encompass, such evidence of de facto proprietorship as control over employees and day to day operations and finances suffices to establish pecuniary interest under the Liquor Control Code. See Appeal of E-J Westside Inn Corp., 68 Pa. Commw. 323, 449 A.2d 93, 94-95 (1982). The BLCE has declined plaintiff's request to set out an explicit or limiting definition of the term, preferring, apparently, to review questionable arrangements on a case-by-case basis.

The BLCE has initiated several administrative citations against various Beer World licensees for their failure to provide information to the PLCB about David Trone's involvement with their businesses. As for the plaintiffs at bar, the BLCE initiated a citation against John Trone and the Harrisburg Beer World on June 16, 1989 for allegedly failing to provide information to the PLCB regarding David Trone's involvement in the distributorship. That citation was amended on April 17, 1990, to charge that John Trone had permitted David Trone to exercise substantial control over his business, which constituted an unlawful pecuniary interest. Ultimately, that charge was dropped on February 1, 1991. Counsel for the defendants advised this court that the charge was withdrawn to avoid interference with an ongoing criminal investigation being conducted by a state investigating grand jury into the activities of David Trone and his Beer World clients.*fn5 At the hearing and in their complaint, plaintiffs indicated their belief that the focus of the investigation is upon David Trone and his relationship with each of the Beer Worlds.*fn6

DISCUSSION

Plaintiffs contend that the absence of a definition of pecuniary interest in the statutory, regulatory, or administrative law renders ยง 4-436(f) constitutionally infirm because the provision is so vague that it fails to give notice of the conduct prohibited and permits arbitrary enforcement by the BLCE, thereby violating plaintiffs' Fourteenth and First Amendment rights. Plaintiffs are particularly concerned that the BLCE may choose to pursue any alleged violation of this section via criminal rather than administrative proceedings. Plaintiffs' request for a temporary restraining order or preliminary injunction is premised on their belief that they will prevail on their ...


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