Judge blocks ‘discriminatory’ residency, sales requirements for alcohol permits

An Indiana law requiring bars and restaurants owned by out-of-state entrepreneurs to gross more than $100,000 in food sales each year to receive an Indiana alcohol permit has been permanently struck down as unconstitutional by a federal judge.

The state of Indiana is now permanently enjoined from enforcing Indiana Code §§ 7.1-3-21-5.4(a) and 7.1-3-21-6(a)(10)(B)(i), pursuant to an order issued Monday by Indiana Southern District Court Senior Judge Sarah Evans Barker. Barker determined those statutes violated the dormant Commerce Clause of the U.S. Constitution.

Barker’s order came after she issued a preliminary injunction against the statutes in December. NA Main Street LLC, which is owned entirely by Kentucky residents, challenged the statutes after it faced the threat of losing its alcohol permit due to insufficient food sales in 2020.

I.C. 7.1-3-21-5.4(a) requires that at least 60% of the ownership interest of a limited liability company seeking an Indiana alcoholic beverage retailer’s permit must consist of “persons who have been continuous and bona fide residents of Indiana for five (5) years.” I.C. 7.1-3-21-6(a)(10) provides an exception to the residency requirement by allowing permits to be issued to out-of-state LLCs that gross more than $100,000 in annual food sales at their Indiana locations.

NA Main Street took advantage of that exception to open The Earl in New Albany. However, the company sued the Indiana Alcohol and Tobacco Commission and Gov. Eric Holcomb in May 2020 because it would likely not meet that threshold to renew its permit, especially in light of the COVID-19 pandemic.

Indeed, as of December, The Earl had grossed only $10,406.58 in food sales during the relevant period, Barker wrote. Holcomb had issued Executive Order 20-31 lowering the sales requirement to $66,000, but The Earl could not reach that amount, either.

The ATC informed The Earl on Dec. 15 — one week before Barker entered the preliminary injunction — that its permit would not be renewed. But in her subsequent order, the senior judge struck down the statutes as unconstitutional.

“Indeed, the constitutionality of a nearly identical statute was adjudicated in a recent lawsuit presided over by our colleague, the Honorable Tanya Walton Pratt,” Barker wrote in her preliminary injunction order, referencing Indiana Fine Wine & Spirits, LLC v. Cook, 459 F. Supp. 3d 1157 (S.D. Ind. 2020).

“There, Judge Pratt reviewed Indiana’s prohibition on the issuance of ‘an alcoholic beverage dealer’s permit of any type for the premises of a package liquor store to a limited liability company unless at least sixty percent (60%) of the outstanding membership interest in the limited liability company is owned by persons who have been (continuous) and bona fide residents of Indiana for five (5) years.’

“That statute, like the one at issue, facially discriminated against out-of-state limited liability companies and thus could be saved only if there was a ‘legitimate local purpose that [could not] be adequately served by reasonable nondiscriminatory means,’” Barker wrote, citing Granholm v. Heald, 540 U.S. 460 (2005).

Here, the state provided no evidence to support its purported “legitimate interests” in enforcing the challenged statutes, she wrote.

In converting the preliminary injunction to a permanent injunction, Barker wrote Monday that “no issues of prejudice or surprise have been raised and we perceive none to exist; indeed, we are informed that the parties have agreed that ‘a motion for permanent injunction would be the most efficient procedure to dispose of this matter.’ … Further, the parties ‘do not intend to engage in any additional discovery and do not have any additional evidence to produce.’ … For these reasons, we agree that a trial on the merits is unnecessary and that the conversion of our preliminary injunction into a permanent injunction is appropriate here.”

NA Main Street was represented by the Indianapolis law firm of Epstein Cohen Seif & Porter, while the state was represented by the Indiana Attorney General’s Office.

The case is NA Main Street LLC, Earl F. Hamm, Jr., AFI Ventures LLC, Tad Thomas v. Jessica Allen, Chairwoman of the Indiana Alcohol and Tobacco Commission, Eric Holcomb, Governor of Indiana, Todd Rokita, Indiana Attorney General, 1:20-cv-01335.