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Malt Beverages Distribution Association v. Pennsylvania Liquor Control Board

February 23, 2009


The opinion of the court was delivered by: Judge Simpson

Argued: December 10, 2008



In this appeal from an order of the Pennsylvania Liquor Control Board (PLCB), Malt Beverage Distributors Association (MBDA) and Tanczos Beverages, Inc. (Tanczos) ask whether the PLCB erred in granting Wegmans Food Markets, Inc.'s (Wegmans) application for a restaurant liquor license at its store in Bethlehem, Pennsylvania. Essentially, MBDA argues the real seller of beer here is Wegmans' supermarket, and the notion that Wegmans' Market Café restaurant is actually the seller is merely a legal fiction. Wegmans asserts the PLCB erred in granting MBDA and Tanczos standing to intervene in the proceedings. Upon review, we affirm.

I. Background

In February 2007, Wegmans filed an application for the inter-municipal transfer of Restaurant Liquor License No. R-18314 from Gerstenberg, Inc., 375 East Lawn Road, Upper Nazareth Township, Nazareth, Pennsylvania, to itself, for the premises located at 5000 Wegmans Drive, Hanover Township, Bethlehem, Pennsylvania. MBDA, Tanczos, and Jim-Bob, Inc., filed a joint motion to intervene in the licensure proceedings. Wegmans filed an answer, requesting the PLCB deny the motion to intervene.

The PLCB's Bureau of Licensing (Bureau) informed Wegmans it would conduct a hearing to take evidence regarding several objections by the Bureau, including:

1) The [PLCB] shall take evidence to determine if it should permit an interior connection to the unlicensed grocery store in accordance with Section 3.52(b) of the [PLCB's] Regulations.

2) The [PLCB] shall take evidence to determine whether it should permit [Wegmans] to operate another business on the licensed premises (the storage and preparation of food items for the unlicensed grocery store as well as grocery item sales), in accordance with Section 3.52(c) of the [PLCB's] Regulations.

3) The [PLCB] shall take evidence to determine if [Wegmans] will allow minors to frequent its licensed premises, in violation of Section 493(14) of the Liquor Code.*fn2

6) The [PLCB] shall take evidence and hear argument on the issue of whether the Commonwealth Court decision in Malt Beverage Distributors Association v. Pennsylvania Liquor Control Board, [918 A.2d 171 (Pa. Cmwlth.), appeal granted, 593 Pa. 413, 931 A.2d 626 (2007)], and/or Section 3.52 -- 3.54 of its Regulations, precludes an interior connection between a supermarket and a restaurant, notwithstanding the lack of reference to such a limitation in the Regulation and its predecessors, Regulation 103 and Regulation [R-]37-27 and further notwithstanding the [PLCB's] historical policy of approving such connections when appropriate. [See] Freedman v. Pennsylvania Liquor Control Board, 20 Pa. D & C[.]2d 353 (CCP Montgomery 1954). [See also] Tacony Civic Association v. Pennsylvania Liquor Control Board, 668 A.2d 584 (Pa. Cmwlth. 1995).

7) The [PLCB] shall take evidence and hear argument on the issue of whether the Commonwealth Court decision in Malt Beverage Distributors Association v. Pennsylvania Liquor Control Board, [918 A.2d 171 (Pa. Cmwlth.), appeal granted, 593 Pa. 413, 931 A.2d 626 (2007)], and/or Section 3.52 -- 3.54 of its Regulations, imposes a limitation on the size of the licensed business, notwithstanding the lack of reference to such a limitation in the Regulation and its predecessors, Regulation 103 and Regulation [R-]37-27 and further notwithstanding the [PLCB's] historical interpretation of the Regulations to allow an interior connection to other businesses such as department stores (Wanamaker's and Boscov's).

8) The [PLCB] shall take evidence to determine if [MBDA], [Tanczos] and Jim Bob, Inc., would be directly aggrieved by the granting of this application, which would qualify them as intervenors in this matter. See In re Application of Family Style Restaurant, Inc., 503 Pa. 109, 468 A.2d 1088 (1983); Malt Beverage Distribs. Ass'n v. Pa. Liquor Control Bd., 881 A.2d 37 (Pa. Cmwlth. 2005).

9) The [PLCB] shall take evidence to determine that the approval of this application will not adversely affect the health, welfare, peace and morals of the neighborhood within a radius of 500 feet of the proposed licensed premises. .

PLCB Op., Finding of Fact (F.F.) No. 2. A hearing ensued before a PLCB hearing examiner.

After hearing,*fn3 the PLCB hearing examiner issued a recommended opinion in which he opined the PLCB should approve Wegmans' license transfer application. In addition, the hearing examiner opined MBDA and Tanczos would not be directly aggrieved if Wegmans obtained the requested license and, therefore, they should not be granted intervenor status.

The PLCB subsequently issued an order approving Wegmans' license application. The order indicated if an appeal was filed the PLCB would issue an opinion in support of its order. Wegmans filed three motions asking the PLCB to clarify and/or reconsider its order. Each motion focused on the standing of MBDA, Tanczos and Jim-Bob, Inc. to intervene in the proceedings. Ultimately, the PLCB clarified its prior order, holding MBDA and Tanczos had standing and expressly granting them intervenor status.*fn4 MBDA and Tanczos filed a petition for review to this Court, and the PLCB issued an opinion in support of its order.*fn5

II. PLCB's Opinion

A. PLCB's Findings

The PLCB's opinion in support of its order approving Wegmans' license application contained 458 findings, which are summarized below.

In December 2006, the Hanover Township Board of Supervisors adopted an ordinance approving the transfer of Restaurant Liquor License R-18314 into the Township.

Gregory Banzhoff, a PLCB licensing analyst who investigated Wegmans' inter-municipal license transfer application, testified concerning his investigation of the application and the proposed interior connections. Banzhoff explained the 900 square-foot licensed area would have seating and service accommodations for over 30 patrons at one time. He noted the Wegmans Market Café has numerous specialty food shops on premises, but customers would also be permitted to consume food purchased off the licensed premises. He explained Wegmans would install a four-foot high divider wall separating the licensed restaurant area from the unlicensed grocery store areas. Banzhoff further testified there would be four cash registers used for the purchase of both alcoholic and non-alcoholic beverages in the licensed area, and all beer sales would have to proceed through these registers. He testified the area around the registers currently contains non-alcoholic beverages, but would include coolers for beer if a license is obtained. Banzhoff further testified Wegmans would sell malt or brewed beverages for on and/or off premises consumption.

Banzhoff's investigation also revealed the proposed licensed premises is not located within 200 feet of any other licensed establishment or within 300 feet of any restrictive institutions. He explained the area within a 500-foot radius of the proposed licensed area is approximately 75-percent commercial and 25-percent residential. Banzhoff explained this particular location has a large parking lot which makes up a great deal of the 500-foot radius.

The Bureau also presented evidence that the PLCB previously issued licenses to Boscov's, John Wanamaker's and Wawa, Inc., all of which had restaurants with interior connections to retail stores.

MBDA presented the testimony of Mary Lou Hogan, MBDA's chief counsel and executive secretary. Hogan explained that MBDA is a trade association for malt beverage distributors in Pennsylvania, which is comprised of 430 members. Hogan testified that MBDA's basic concern with regard to Wegmans' application is the economic impact on distributors if a supermarket the size of Wegmans is permitted to sell beer. She testified MBDA believes the difference between Wegmans and a typical restaurant licensee is that customers who patronize Wegmans are there to buy grocery items, which beer distributors cannot sell. She further explained that Wegmans' customers would be able to purchase beer in direct competition with distributors. Hogan testified MBDA is concerned that, because Wegmans sells a multitude of grocery items, the sale of beer at Wegmans could attract customers who might not otherwise be contemplating a beer purchase. Hogan further testified Wegmans would attract customers for take-out beer sales and distributors could not compete with that because distributors are required to sell beer by the case, while restaurants can sell beer in six-packs. Hogan further testified that if Wegmans obtained a restaurant liquor license many of its sales could come at the expense of distributors and, as a result, a number of area distributors would go out of business. Hogan explained the sale of beer by Wegmans would have a direct and indirect negative impact on all distributors in the state. Specifically, she explained, the direct impact would be for distributors in the immediate area of Wegmans, while the indirect impact would be as a result of other supermarkets across the state obtaining licenses to sell beer.

In addition to Hogan's testimony, Mark Tanczos, a member and area director of MBDA, and president of Tanczos, which holds an importing distributorship license, testified his distributorship is about one mile from Wegmans' Bethlehem location. Tanczos testified that more than 80 percent of the products he sells are malt or brewed beverages. He explained that over the last several years beer sales increased, while the sale of other items such as soda, cigarettes, lottery tickets and cigars decreased because nearby businesses such as grocery stores and gas stations began selling the same products. Tanczos testified if Wegmans is permitted to sell malt and brewed beverages, his business will suffer financially. He testified the competition would be unfair because, while Wegmans can profit from thousands of items, more than 80 percent of his business is from beer sales alone.

Wegmans presented the testimony of David DeMascole, its Regional Beverage Director for Pennsylvania and the general manager of its distribution center in Schuylkill County. As Regional Beverage Manager, DeMascole is responsible for coordinating the opening and introduction of beer sales in the restaurants in Wegmans' stores. DeMascole explained Wegmans began opening restaurants in the 1990s as a way to distinguish itself from other supermarkets and grow its business in the restaurant field. DeMascole explained, compared to large supermarket chains, Wegmans is a small regional chain and it needed to develop a niche, which it did by opening its restaurants over the past 15 years. DeMascole testified the food offered at Wegmans' restaurants is comparable to that served at restaurants such as T.G.I. Friday's or Applebee's, but that Wegmans is at a competitive disadvantage with such restaurants because of its inability to serve a glass of beer with a meal. DeMascole explained that Wegmans would sell beer for both on-site consumption and takeout, but it has not reached a conclusion as to the percentage of on-site consumption versus takeout sales. DeMascole further testified that on-premises consumption of beer would be limited to the licensed areas. DeMascole also testified, unlike its stores in other states, Wegmans does not anticipate impulse purchases of beer in its Pennsylvania stores because the beer would only be located in the restaurant area of the store, which is not an area that all customers frequent.

Wegmans also presented the testimony of Jared Shelly, the store manager of its Bethlehem location, who is familiar with the store layout and all operational aspects. He testified Wegmans' Bethlehem location, which opened in 2001, operates a restaurant under the same roof as the supermarket. Shelly explained customers can access the restaurant directly from an entrance/exit adjacent to the parking lot; thus, customers do not have to walk through any portion of the grocery store to access the restaurant. He explained that if Wegmans' Bethlehem store is granted a liquor license, it would sell beer in individual cans and bottles and six packs; no other alcohol would be sold. He explained Wegmans would sell beer from lockable beer coolers installed along the wall of the restaurant area and that no beer would be sold in any other portion of the store. Shelly testified that if customers wish to consume beer on-site, they would go upstairs to the second floor to do so and the customers could only consume beer if they are also consuming food. Shelly testified the store is open 24 hours a day, seven days a week and the restaurant is open from 9:00 a.m. to 9:00 p.m., occasionally staying open until 10:00 p.m. He explained Wegmans would sell beer during the hours the restaurant is open, except on Sundays, when beer cannot be sold before noon. He testified that customers 21 years of age and older would be able to choose beer from the coolers, pay for it at a designated registers, put it in a cart and continue to shop for groceries in the store.

Wegmans also presented the testimony of Thomas J. Shepstone, an urban planner, who performed a market study at Wegmans' request. Shepstone testified Wegmans is pursuing its business model of niche marketing, particularly with regard to its sale of prepared foods. Shepstone testified he did not believe there would be a negative impact on any beer distributors if Wegmans began selling beer in its restaurants. He explained that, as compared to other supermarkets, Wegmans is more aptly characterized as a "destination," i.e., a store that customers would travel further to reach than a typical grocery store. Shepstone opined other businesses, including beer distributors, near Wegmans actually benefit from their location because Wegmans draws customers to the area that would not otherwise be there. Shepstone also opined it is unlikely that Wegmans' sale of beer would generate many new customers for Wegmans; rather, the sale of beer would primarily serve existing customers. At Wegmans' request, Shepstone also examined the location of Wegmans' Bethlehem store in relation to Tanczos' distributorship. Shepstone opined Wegmans and Tanczos are located in, and draw customers from, two different neighborhoods resulting in different customer bases. As a result, he opined Wegmans would not detrimentally affect Tanczos' business.

Wegmans also presented the testimony of John Rowland Dunham, an economist, who performed an analysis of whether beer sales by Wegmans would have a significant negative impact on beer distributors. Dunham opined neither MBDA nor any individual distributors would be harmed as a result of Wegmans' beer sales and, in his opinion, they may actually benefit. Dunham testified, in his years of experience studying retail establishments, he found that similar retail establishments often locate together to enhance all of their businesses. Dunham testified Wegmans is beneficial to nearby businesses based in part on the economic benefit of "clustering," which occurs when retail establishments are located very close to one another. Dunham explained the benefit to other distributors of Wegmans being located near them is Wegmans attracts a large number of customers because it is more than a grocery store, but rather it is a "destination retailer." Dunham further testified that sales of cases of beer and six-packs are two different businesses. He opined Wegmans would not adversely impact distributors, in part, because Wegmans would be limited to selling two six-packs per transaction while distributors sell in much greater quantity. Dunham also agreed with Shepstone's testimony that Wegmans would attract few new customers through the sale of beer.*fn6

In order to rebut the testimony of Wegmans' experts that more competition helps all businesses, MBDA presented the testimony of Matthew Weinstein, an attorney specializing primarily in retail shopping center development, leasing and financing. He testified that contrary to the testimony of Wegmans' experts, "real world" commercial tenants do not seek to "cluster" or "co-locate" around similar businesses. To that end, Weinstein testified regarding various use restrictions and restrictive covenants commonly placed in commercial leases that are used to deter direct competition between retail tenants. In addition, MBDA presented the testimony of Lee Goldstein, ...

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