Monarch loses federal challenge seeking to wholesale liquor

Indianapolis-based Monarch Beverage Co.’s attempt to obtain a wholesale liquor permit rests with the Indiana Supreme Court after its federal challenge to Indiana law was rejected by the 7th Circuit Court of Appeals Friday.

A panel of the 7th Circuit affirmed Senior Judge Sarah Evans Barker’s ruling that Indiana’s law prohibiting beer wholesalers like Monarch from holding an interest in a liquor-distribution permit does not violate the prohibited-interested law.

Monarch sued members of the state Alcohol and Tobacco Commission to invalidate the law that does not allow a beer wholesaler to acquire a liquor-wholesaling permit or a liquor wholesaler to obtain a beer-wholesaling permit. Monarch claims this facially discriminates against beer wholesalers in violation of the 14th Amendment’s equal-protection guarantee.

The state made three arguments in defense, with the federal appeals court focusing on its temperance rationale. The state says separating beer and liquor wholesaling rationally serves to discourage consumption of alcohol by making distribution more expensive, which in turn increases prices for consumers.

Judge Diane Sykes, writing for the majority, noted that the law is not the most direct way to achieve this aim (“a tax is the most direct way”), but “it’s hardly irrational to think that separating beer and liquor wholesaling is likely to impose higher distribution costs than if beer and liquor wholesaling were combined. That, in turn, keeps liquor prices higher, with the salutary corresponding effect of reducing consumption,” she wrote.

“The Supreme Court has never invalidated an economic regulation on rational-basis review because a more direct or effective policy alternative was available. Neither have we, and Monarch has given us no reason to change course.

“Indiana’s law separating beer and liquor wholesaling is rationally related to the state’s interest in encouraging temperance; that it serves this purpose indirectly does not make the law irrational,” Sykes wrote.

Judge Frank Easterbrook concurred with the judgment in a separate opinion, basing his decision not on a standard under the Equal Protection Clause, but instead as a substantive objection that fails under The Slaughter-House Cases, 83 U.S. (16 Wall.) 36 (1873) and Washington v. Glucksberg, 521 U.S. 702 (1997).

Phil Terry, CEO of Monarch Beverage, said Wednesday in an email that the company is disappointed in the decision and understood it had a very heavy burden of proof in that “we had to show that no real or imagined purpose for the ban on beer and liquor at the wholesale level was rational.

“The court held that we did not meet that burden as to the regulator’s imagined purpose of creating an inefficient and anti-competitive distribution system which would cause higher prices to consumers and thereby promote temperance.”

Terry said the company hasn’t decided whether it will appeal.

The Wine & Spirits Distributors of Indiana and the Indiana Beverage Alliance released a statement after the decision praising the ruling.

“This is a victory for Hoosiers in many ways. First, it's a win in the fight against monopolies in the alcoholic beverage industry.  Second, it proves that non-stop bullying of regulators in this state doesn't work. Finally, we would hope that this would be the end of Monarch’s wasteful lawsuits against the State of Indiana because Hoosier taxpayers have long been footing the bill for Monarch’s unrelenting efforts.”

The case is Monarch Beverage Co. Inc. v. David Cook, et al., 15-3440.

Monarch has a separate challenge to the law pending before the Indiana Supreme Court. A Marion County judge ruled last year that Monarch’s affiliate Spirited Sales LLC is entitled the liquor-wholesaler permit. The state appealed and sought to stay the ruling pending appeal, but both the Indiana Court of Appeals and Supreme Court denied the request.

The Supreme Court heard arguments in the case in February. Justice Robert Rucker has since retired and Justice Mark Massa, who previously chaired the Alcohol and Tobacco Commission before becoming a justice, did not participate in oral arguments. The high court has not yet ruled on the case.