Beer distributor foams at Indiana’s alcohol law

 Monarch Beverage Co. argued before the Indiana Court of Appeals Dec. 1 that the state law prohibiting beer wholesalers from distributing liquor violates the Indiana Constitution’s Equal Privileges and Immunities Clause.  (IBJ file photo)

Indiana’s alcohol law that prohibits liquor and beer from being distributed by the same wholesaler has been called antiquated and even silly, but courts so far have rejected arguments that the statute is unconstitutional.

Monarch Beverage Co. tried again Dec. 1 when it appeared before the Indiana Court of Appeals in Monarch Beverage Co. v. Cook, et al., 49A02-1504-PL-245. The Indianapolis-based company, which can only distribute beer and wine under state law, argued that the limitations on wholesalers violate the Equal Privileges and Immunities Clause of the Indiana Constitution.

However the state, represented by Indiana Solicitor General Thomas M. Fisher, asserted Monarch’s argument was really about economic rights rather than a constitutional challenge. Fisher charged the beverage company chose to be a beer distributer in Indiana but now does not want to live with the consequences.

“The Legislature put in place an economic system, various economic interests came along and played by those rules for decades upon decades upon decades and all the sudden Monarch is coming in asking for that all to be thrown up in the air and the deck to be reshuffled,” Fisher said.

Monarch’s attorney, Kannon Shanmugam of Williams & Connolly LLP in Washington, D.C., pointed to Collins v. Day, 644 N.E.2d 72 (Ind. 1994) as setting the precedent that requires the court to consider whether disparate treatment is reasonably related to inherent characteristics. With Monarch, he said, the disparate treatment of permitting all entities other than beer wholesalers to distribute liquor is not related to any characteristic specific to beer and wine wholesalers.

Judge Michael Barnes noted all the wholesalers, whether of beer or liquor, still have to comply with state regulations and get the appropriate licenses. “It’s not like I can go out and open the trunk of my car,” he said.

Shanmugam replied, “We are not challenging that there are separate requirements to obtaining permits.”

He went on to argue the provision governing beer and liquor wholesalers was unconstitutional when it was enacted in 1935. The law, he said, is now serving the entrenched interests who stand to lose a lot if the protection this prohibition provides is removed from the statute.

“(The) large national wholesalers are not happy about the prospect of competition,” Shanmugam said. “They have vigorously opposed the repeal of this prohibition. They want to protect entrenchment.”

Fisher countered that through this case Monarch is trying to please its client, E.& J. Gallo Winery. The wholesaler wants to be able to distribute Gallo wines as well as its line of distilled spirits which could give the winery the leverage to strong-arm retailers into carrying all its products. As Gallo, the producer, gains more influence over the stores and bars, this will lead back to the tied-house system in which alcohol producers also owned taverns where they sold their beer and spirits.

Under Indiana’s wholesale provision, companies choose whether they want to distribute beer or liquor, Fisher said. Monarch has a choice like other entities and it is being treated the same as everyone else.

Shanmugam argued neither feature of the provision disqualifies it from making an Equal Privileges and Immunities claim. Just because the wholesalers have a choice, the statute still violates the state’s Constitution.

Judge Edward Najam questioned Shanmugam about the scope of Monarch’s challenge. He asked if the wholesaler saw a problem with the state’s three-tier system of producers, distributors and retailers.

“I don’t think that our arguments would in any way entail the conclusion that any other aspect of the Indiana alcoholic beverages law is unconstitutional,” Shanmugam replied, adding Monarch is not challenging the overall general regulatory scheme. “None of our arguments would suggest in any way that any other aspect of the three-tier system is invalid.”

Fisher disagreed, saying Monarch wants to expand a doctrine that would have consequences for the entire three-tier system.

“It’s the camel’s nose under the tent, is that what you’re saying?” Najam asked.

“Precisely,” Fisher replied. “There’s no stopping the logic of the argument if we start to give some specific economic scrutiny to every barrier within the three-tier system.”

Fisher continued by referring to Marion Superior Judge Timothy Oakes’ use of the word “silly” when he was presiding over this case in the trial court. The judge was not describing the barrier between beer and liquor on the wholesale level but rather he was talking about the state’s entire alcohol regulatory scheme. And, Fisher said, Oakes understood Monarch’s arguments were really targeting the three-tier system.

Oakes found the state’s division between alcohol wholesalers was constitutional.

In September, Monarch failed in federal court in a similar to challenge to Indiana’s alcohol wholesale statute. There, the company argued the state’s prohibition which keeps beer distributors from distributing liquor violates the Equal Protection Clause of the U.S. Constitution.

However, the U.S. District Court for the Southern District of Indiana ruled Monarch did not prove that it was being treated differently.•