Indiana’s alcohol laws withstand court challenges

Recent rulings from state and federal courts underscore that while Indiana’s alcohol laws may be silly, quirky and arcane, they are not so easily changed.

Proponents of the state’s three-tier scheme and heavy regulation on the distribution and sale of products say the laws have to be viewed as a whole rather than picking at pieces. Indiana’s policy controls the access to liquor, beer and wine while also preventing a handful of companies from dominating the market.

Opponents counter that prohibitions frustrate consumers and violate constitutional protections. The laws may have made sense when they were enacted decades ago, but today they hinder businesses from competing.

In December, two appellate courts ruled on two separate issues – cold beer sales and the barrier between liquor and beer wholesalers. Both courts upheld Indiana’s laws and told the parties to take their battles to the Statehouse rather than the courtroom.

However, it appears the fight will continue in the courthouse as well as the Legislature. The U.S. District Court for Southern Indiana is handling three cases attacking the alcohol wholesaler laws, and thus far two bills related to alcohol sales have been filed in the Indiana Senate.

Many do not anticipate any beer or liquor bills finding their way through both chambers during the 2016 short session. But attempts to rewrite the alcohol laws are expected to continue and may be successful long term.

Herriman

“I think you’ll see an increase in the loosening of some alcohol beverage laws,” said Bart Herriman, partner at Clark Quinn Moses Scott & Grahn LLP and former chair of the Indiana Alcohol and Tobacco Commission. “As the years go on, there will be some loosening of regulations and a chipping away.”

Still, alcohol laws change slower than other laws. The beverage bills that recently have passed in the Legislature had overriding economic development themes such as allowing craft brewers more capacity and opening the market to artisan distillers.

The courts, for their part, have been reluctant to second-guess the General Assembly on alcohol laws. Judges generally have deferred to the legislative branch on such policy issues.

That trend continued during the week of Dec. 14.

First, the 7th Circuit Court of Appeals on Dec. 15 found Indiana’s limits on the sale of cold beer did not violate the U.S. Constitution’s Equal Protection Clause. In Indiana Petroleum Marketers and Convenience Store Association, et al. v. David Cook, et al., 14-2559, the unanimous panel held the restriction of cold beer sales to “more rigorously regulated” liquor stores is “rationally related” to the state’s goal of curbing underage consumption.

Two days later, the Indiana Court of Appeals affirmed the state’s wholesale regulatory structure in Monarch Beverage Co., Inc., v. David Cook, et al., 49A02-1504-PL-245. Again, a unanimous panel ruled the prohibition against distributors from wholesaling both beer and liquor did not deny Monarch the protections provided by the Equal Privileges and Immunities Clause in the Indiana Constitution.

Monarch Beverage

Monarch Beverage Co.’s battle to overturn the wholesale provision illustrates the difficulty of changing the state’s booze statutes.

As a beer and wine distributor, the Indianapolis company has worked for years to persuade the Legislature to change the law so that beer wholesalers can also distribute liquor and vise versa. But the effort to get a bill through committees and floor votes and onto the governor’s desk so far has failed.

In addition to the complaint that appeared in the Court of Appeals, Monarch has made the same challenge in federal court. It lost summary judgment in the district court and has appealed to the 7th Circuit.

Along with this, Monarch’s two sibling businesses are seeking a remedy to their disputes with the Indiana Alcohol and Tobacco Commission regarding the state’s barriers between beer and liquor distribution.

E.F. Transit Inc., a motor carrier that is owned by the same family that owns Monarch, filed three complaints (two of which have since been consolidated) in the Southern District of Indiana. These suits focus on the ATC’s concerns about E.F. Transit’s attempt to sort, load and deliver liquor for a different wholesaler.

Similarly, Spirited Sales LLC, which is also owned by the family that runs Monarch, has filed a complaint in Marion Superior Court over the ATC denying its application to wholesale liquor.

Monarch CEO Phillip Terry said the suits are in response to what the company sees as unfair treatment by the Alcohol and Tobacco Commission. He contended the ATC has overlooked common ownership between other companies in the past.

“We’re not trying to bully the regulator,” Terry said.

He also disputed Monarch is trying to upend Indiana’s three-tier system that separates producers, wholesalers and retailers. Instead, the company just wants to remove the division between liquor and beer distributors. No other state has such a barrier, he said, and dissolving it will not create super-sized wholesalers who squeeze smaller wholesalers from the market.

The need to change the wholesale regulations is being driven by the evolution of producers, Terry said. Now that many wineries are making liquors, these companies might opt to do all their business with wholesalers who can distribute liquor and wine. Indiana’s prohibitions are putting Monarch at a competitive disadvantage, he said.

Price

But Matthew Price, partner at Bingham Greenebaum Doll LLP, sees Indiana’s regulations as keeping a balance of small and large entities in the alcoholic beverage market.

The state wants a mixture of different-sized businesses so the alcohol industry does not become concentrated in the hands of a few large players. This removes the worry of an entity becoming too big to fail, he said. Also, the mix does better at keeping regulators from writing rules that favor one institution at the expense of another.

“There is a method to the madness,” Price said.

Cold beer

Convenience stores and other retailers hoping to stock beer in their coolers will have to continue selling brews at room temperature after the decision by the 7th Circuit.

Maley

Representing the convenience stores in the federal complaint, John Maley, partner at Barnes & Thornburg LLP, said the decision is being reviewed and all options judicially and legislatively are being considered.

“Outside of the judicial branch, our Legislature should correct this discriminatory law rooted in the liquor-store lobby,” he said. “Indiana is the only state in the Union with this bizarre law.”

The convenience store association raised the possibility that the court case could provide fodder for conversations in the Statehouse. Association Executive Director Scott Imus pointed out the judicial filings established that non-liquor stores are more responsible about not selling to minors based on excise police testimony and records.

Patrick Tamm, president and CEO of the Indiana Association of Beverage Retailers, said the attack on cold beer laws is more about the “blood thirst pursuit of profit” than about consumers. The other retailers do not recognize that public policy regarding beer, wine and liquor is different because the products can irreparably harm families and communities.

“What we’re selling is alcohol and it has consequences if we don’t sell it properly,” Tamm said. “The state has the inherent right to control access and availability of alcohol.”•