Broadcasters Association, et al. v. Lacy, et al.
- The Missouri Broadcasters Association appealed
a district court denial of summary judgment and dismissal of all
but one of its claims in its challenge to state alcohol
advertising limits. The
United States Court of Appeals for the 8th Circuit rendered its
decision on January 19, 2017.
its Decision, the 8th Circuit reversed the underlying
court’s grant of defendants’ motion to dismiss, stating that
plaintiffs’ amended complaint plausibly stated a claim upon
which relief could be granted.
Court stated that the two points at issue in the appeal are
whether plaintiffs’ amended complaint included sufficient
factual matter to state a claim that (1) the challenged Missouri
advertising provisions do not directly advance the state’s
substantial interests or (2) the provisions are more extensive
than necessary. The
Court concluded that the plaintiffs pled more than sufficient
facts to state a claim.
the amended complaint included sufficient allegations that the
provisions did not directly advance the substantial interest of
promoting responsible drinking.
According to the Court, the allegations make clear the
provisions do little, if anything, to promote the asserted state
decision points out the inconsistencies in the regulations.
The Court noted plaintiffs’ allegations that the
regulations don’t prohibit retailers from offering discounted
prices or advertising those discounts in the retail
establishment, and 11 CSR 70-2.240(5)(G) exempts manufacturers
of liquor other than beer and wine from its ban on advertising
rebate coupons. The
Court goes on to state that “if the true aim of the
regulations is to promote responsible drinking, the
inconsistencies in the prohibitions on advertisements of
promotions and sales of alcohol ‘make no rational sense.’”
Court also concluded that Section 311.070, RSMo, does nothing to
further the interests of promoting responsible drinking and
maintaining an orderly marketplace.
In fact, it weakens the impact of the statutory scheme in
that this section is an exemption to restrictions preventing
retailers, wholesalers, and producers from being financially
entangled. And, the
amended complaint contains sufficient information to state a
the amended complaint included sufficient information to plead
the challenged provisions are more extensive than necessary.
Taking the facts in the light most favorable to
plaintiffs, the Court determined that it is clear that there are
reasonable alternatives to the restrictions that the state could
have enacted that are less intrusive to plaintiffs’ First
as pled by plaintiffs, Section 311.070, RSMo, could conceivably
compel speech and association in violation of the First
Amendment. The Court
analyzed, “[t]he statute is conditional in that it only
impacts speech if producers and wholesalers choose to include
the name and address of a retailer in an advertisement.”
If this information is included, though, the producer or
wholesaler is compelled to associate with multiple retailers and
to include multiple retailers’ information on the
such, the plaintiffs pled sufficient facts to survive a motion
to dismiss, and the Court reversed the dismissal of the amended
Retailer Direct Ship Lawsuit:
Sarasota Wine Market v. Nixon - United States District Court
for the Eastern District of Missouri
Wine Market, LLC d/b/a Magnum Wine and Tastings (a Florida
retail wine store), Heath Cordes (owner of Sarasota Wine
Market), and Michael Schlueter (a Missouri resident wine
Defendants: Jay Nixon
(Governor of Missouri), Chris Koster (Missouri Attorney
General), and Lafayette Lacy (Supervisor of the Missouri
Division of Alcohol and Tobacco Control)
Summary: On September
23, 2016, Plaintiffs filed their Complaint bringing a civil
rights action under 42 U.S.C. § 1983 challenging the
constitutionality of §§ 311.462 and 311.060, RSMo.
Plaintiffs assert that these statutes allow Missouri wine
retailers to sell, ship, and deliver wine directly to consumers
within the state of Missouri, while prohibiting out-of-state
retailers from doing so unless they are located in one of the
few states which afford Missouri retailers a reciprocal shipping
Complaint sets forth two counts.
In Count I, Plaintiffs allege a Commerce Clause violation
asserting discrimination against out-of-state wine retailers
with respect to sale to consumers.
Plaintiffs allege that the Missouri statutory scheme
treats differently, and discriminates against, out-of-state wine
retailers and provides economic advantages and protection to
wine retailers in Missouri.
Plaintiffs seek a judgment declaring §§ 311.462 and
311.060, RSMo, unconstitutional to the extent they prohibit
out-of-state wine retailers from selling, shipping, and
delivering wine directly to Missouri consumers as a violation of
the Commerce Clause.
Count II, Plaintiffs allege a Privileges and Immunities Clause
violation asserting that an out-of-state wine merchant is denied
the same privileges as Missouri citizens with respect to sale to
allege that Missouri’s ban on wine sales and deliveries by
out-of-state merchants denies Mr. Cordes the privilege to engage
in his occupation upon the same terms as Missouri citizens.
Plaintiffs seek a judgment declaring §§ 311.462 and
311.060, RSMo, unconstitutional to the extent they prohibit
out-of-state wine merchants from obtaining licenses and engaging
in their occupations in Missouri as a violation of the
Privileges and Immunities Clause.
also request an injunction prohibiting Defendants from enforcing
the statutes and requiring them to allow out-of-state wine
retailers to sell, ship, and deliver wine directly to consumers
filed Motion To Dismiss in January and Plaintiffs filed
Memo in Opposition to Motion to Dismiss in February. Awaiting
the Court’s decision on the Motion to Dismiss.
STATES – SIGNIFICANT DISCIPLINARY CASES FOR TRADE PRACTICE
regulatory focus on alcoholic beverage industry corruption has
its genesis in the pre-Prohibition American saloon. In the early
part of the last century, brewers and distillers used many
questionable sales techniques, such as excessive credit, free
goods, secretly paying employees, consignment sales and other
inducements to persuade saloon owners to carry their beer and
spirits over competing brands. Preventing the reemergence of
those widely used and abusive business practices has been a core
concern of alcohol regulators since the early 1930s when
Prohibition was repealed. These are the "tied house"
laws, and they exist today, in one form or another, both
federally and in every state (and with exceptions that vary from
state to state).
perceived harm comes from increased consumer consumption of the
specific alcohol brands to intemperate levels. This theory of
intemperate consumption underlies almost all of the tied house
laws as they were enacted in the original Federal Alcohol
are currently significant disciplinary cases in process in
California and Massachusetts that are worthy of attention.
In early January 2017, the California Department of Alcohol
Beverage Control (ABC) filed 34 accusations (agency indictments
seeking license suspension or revocation) for providing things
of value (television sets, coolers and draft systems,
reportedly) against Southern California beer distributors and
the various on- and off-premises retail accounts that received
the items. The ABC Trade Enforcement Unit is currently
processing these accusations. Supplier and retail penalties may
involve license suspensions or fines of $10,000 (the typical
starting offer in compromise for tied house violations for the
suppliers) or the value of the items provided. The Lesson: Both
suppliers and retailers must be very careful about which items
other than alcohol are sold or provided to retail accounts, how
they are accepted, how the transaction is recorded in a contract
and, whether they are covered by specific exceptions to the
general prohibition against "things of value."
In a case dating back to early 2016, a beer wholesaler, the
Craft Brewers Guild of Massachusetts (CBD) was indicted by the
Massachusetts Alcoholic Beverage Control Commission (MABCC) in a
"pay-to-play" scheme alleging that CBD paid retailers
monthly payments in exchange for their beer being on-tap at the
retail accounts. Following a threatened 90-day license
suspension, the MABCC fined CBD $2.6 million. The cases continue
against the retailers who received the payments. The retailers'
defense is that this is normal activity and "everyone does
are not isolated examples of enforcement actions around the
country. There are matters pending in Illinois involving alleged
retailer smuggling of spirits purchased from lower tax
jurisdictions such as Indiana and Iowa; TTB action in Ohio
against major retailers and wholesalers over category
management, leading Ohio to threaten license revocations; and
allegations of smuggling spirits from Maryland to New York that
are the heart of a lawsuit by Empire Wine Merchants against
Charmer in New York.
Department of Alcoholic Beverage Control Press Release:
California ABC Fines Two Large Beer & Wine
Wholesalers and numerous Retailers for Unfair Business Practices
Wholesalers facilitated Prohibited Marketing Practice(s)
Department of Alcoholic Beverage Control has reached a $400,000
settlement with Anheuser-Busch, LLC wholesalers and a $10,000
settlement with Straub Distributing Company LTD for their
engagement in unfair marketing practices aimed at retail
licensees. Additionally, approximately 34 retail licensees also
received disciplinary sanctions levied against their ABC
licenses for their related activities. The settlements came
after a year-long investigation begun in 2015 by ABC’s Trade
Enforcement Unit that found the wholesalers covered the cost of,
or partially financed, refrigeration units, television sets and
draught systems at retailers in the Southern California area, in
violation of the law.
wholesalers provide prohibited things of value to retailers, it
results in unfair marketplace advantages over other wholesalers.
Investigators inspected more than 100 retail customers of
Anheuser-Busch, LLC’s distributorships in Sylmar, Pomona,
Carson (Beach Cities) and Riverside. They also found that Straub
Distributing Company LTD, which distributes Anheuser-Busch
products in Orange County, engaged in the activity as well.
“The investigative efforts of ABC’s Trade Enforcement Unit
and the discipline imposed in these cases reflect the
Department’s commitment to maintaining a safe and fair
marketplace,” said Acting Director Ramona Prieto. “I
appreciate the wholesalers renewed commitment to training,
education, and restructuring of their business practices as
means of ensuring compliance with the law.”
settlement with Anheuser-Busch, LLC includes one of the largest
penalty fines imposed in the history of ABC, but more
importantly, it focuses on the training and transparency
necessary to promote a safe and fair economic marketplace. As
part of the settlement by Anheuser-Busch, LLC, the company must
provide training to its current and newly hired employees
regarding the administration of a rental or lease program of
Anheuser-Busch, LLC refrigeration equipment by a company unit
within the confines of law. Additionally, upon request by the
Department, Anheuser-Bush, LLC, must provide evidence of the
training. In exchange for suspension of $200,000 of the fine,
Anheuser-Busch, LLC agreed to extend the conditions of
discipline to all Anheuser-Busch, LLC wholesalers in the state.
Failure to comply with the terms of the agreement may result in
the imposition of the suspended penalty against any
Anheuser-Busch, LLC wholesaler licensed by ABC.
mission is to provide the highest level of service and public
safety through licensing, education, and enforcement.
leads the way for a national crackdown on 'pay-to-play'
regulators have struck a record-high settlement from a
Massachusetts beer distributor.
alcohol regulators vowed a national crackdown on
"pay-to-play" in the beer industry, taking aim at an
illegal practice that came to light last year in Massachusetts
when the state caught a distributor paying bars to put its brews
schemes, federal officials said, limit consumers' opportunity to
choose from a broader variety of beers by awarding tap handles
to the highest bidder. The
practice is also harmful to small craft brewers who rely on taps
to gain access to the market but cannot afford to outbid larger
companies in order to secure them.
at the U.S. Alcohol and Tobacco Tax and Trade Bureau (TTB)
issued the warning of a crackdown as they announced the
settlement of a previously undisclosed six-month investigation
of the Massachusetts distributor, Craft Brewers Guild.
The company previously admitted to Massachusetts
regulators last year that it paid various Boston bars more than
$120,000 to stock its beers and freeze out those offered by
competitors, a practice officials ruled was a violation of state
federal investigators now say those payments to bars also
violated U.S. trade practice laws.
with the possibility of having its federal license suspended or
revoked, Craft Brewers Guild voluntarily paid $750,000 to settle
the case, the largest sum TTB has ever collected from a single
company for trade practice violations. In a brief statement, the
parent company of Craft Brewers Guild, the Sheehan Family Cos.,
confirmed the deal and said it "fully cooperated" with
Angelo, director of TTB's Trade Investigations Division,
characterized the large settlement as a warning to beer
distributors everywhere and vowed to take a "hard
stand" against pay-to-play. "This is not something I
intend to walk away from. You're going to see further
investigations in this area," Angelo said in an interview.
"I don't want industry members to consider getting caught
the cost of doing business. I want them to realize there are
significant consequences if we catch you."
brewers have been saying for years that pay-to-play is rampant,
especially in crowded urban markets. Angelo acknowledged those
complaints and admitted the government has failed to
consistently enforce the federal prohibition against so-called
slotting fees in the beer industry, or payments from brewers and
wholesalers to retailers. "It's definitely getting a lot
more emphasis now,'' he said.
decision by TTB to crack down on what has long been a tacitly
accepted practice will likely reverberate through the beer
industry - if TTB can make good on its enforcement threat but
that could prove to be difficult, as the small agency has
limited resources and the legal standard for bringing a case is
high. And in the
Craft Brewers Guild probe, the agency had the luxury of leaning
on the earlier Massachusetts Alcoholic Beverages Control
Commission investigation into essentially the same set of facts.
state case similarly resulted in a record settlement, with Craft
Brewers paying $2.6 million in February to avoid a months-long
suspension of its license. The company is currently contesting
that fine in court, arguing that the state regulation banning
pay-to-play is legally invalid. Craft Brewers Guild is also
defending itself against a lawsuit brought by Shelton Brothers
Inc., a Massachusetts importer that believes the distributor's
pay-to-play tactics resulted in lower sales of its beers.
Boston restaurant groups were also charged by Massachusetts
regulators for accepting the payments from Craft Brewers Guild;
one escaped punishment, while a decision by state regulators on
the remaining four is pending.
brewers cheered the news of a federal crackdown, saying they are
tired of bar managers telling them no tap handles are available
because they've been bought up by distributors.
STATES – ADVERTISING / CROSS OWNERSHIP / CROWLERS / RESIDENCY
/ TERRITORIAL / SALE OF BREWERY DISTRIBUTION RIGHTS
Digital Network v. Applesmith
2011, the Retail Digital Network brought a new challenge to the
statute following the U.S. Supreme Court's decision in Sorrell
v. IMS Health Inc., 131 S. Ct. 2653 (2011), which held that
heightened scrutiny should be applied to the review of
regulations prohibiting non-misleading commercial speech
regarding lawful products. The district court rejected this
challenge, but in January 2016 the Ninth Circuit reversed,
holding that the heightened standard did indeed apply and that,
on remand, the government would have to show that the statute is
a reasonable and proportional "fit" with the interest
being advanced. In November, the court granted the government's
petition for an en banc rehearing. Retail Digital Network v.
Appelsmith, 810 F. 3d 638 (9th Cir. 2016).
panel of the Ninth Circuit Court of Appeals ruled in Retail
Digital Network that
as a result of the US Supreme Court's 2011 Sorrell
decision, the California law prohibiting manufacturers and
wholesalers from giving a retailer something of value in
exchange for advertising requires examination under
"heightened judicial scrutiny." This case tests the
constitutionality of the state's tied-house laws in
relation to the First Amendment and commercial speech.
have been several legal challenges mounted recently against
various Texas Alcoholic Beverage Commission (TABC) laws and
Share Rule / Prohibition of Spirits Sales in Grocery
was the first to file suit against the TABC in 2015, claiming it
is irrationally banned from selling spirits for being a public
company. This year Walmart has been gaining ground in the case,
with the denied interventions of the Texas Package Store
Association (TPSA) and package store chain Gabriel Holdings.
Most recently the TPSA's appeal to intervene was granted and
filed a counterclaim in October.
food distributor McLane Company, owned by Warren Buffet's
Berkshire Hathaway, also filed suit against the agency in May
because it was denied an alcohol distribution permit for
violating the TABC's One Share Rule. McLane, in conjunction with
the Texas Association of Business (TAB), is attempting to
eliminate that rule and create a "level playing field"
amongst Texas businesses.
Texas Alcohol Beverage Commission removed a crowler machine from
Austin’s Cuvée Coffee Bar in September 2015. Crowlers (a
combination of “canned growlers” where beer is canned in a
machine on-site) are not allowed on premises where beer is not
produced and are regulated as canned products versus being
considered with growlers, which are allowed on a wide basis in
Texas. The Coffee Bar filed suit alleging that the seizure of
the equipment was unlawful, since it was not illegal to possess.
A state administrative judge ruled
two weeks ago that
crowlers are not illegal in the state, writing that "there
is no material difference between growlers and crowlers."
The TABC is reviewing the decision and may appeal the ruling.
Supreme Court Will Not Consider Reviving Texas Alcohol Permit
Texas trade group for alcohol retailers lost its chance to have
the U.S. Supreme Court consider reviving a long-dormant state
law requiring a retailer to have a year of state residency
before receiving an alcohol sales permit, when the court
declined to review the case.
Package Stores Association Inc. argued in an August petition for
writ of certiorari that a permanent injunction against a Texas
residency rule for new businesses seeking alcohol permits should
be lifted, because some level of residency or state citizenship
purportedly facilitates cooperation with law enforcement and
encourages accountability to the community. But the Supreme
Court was not swayed and refused to take up the case.
rule was initially struck down by a Texas court that determined
such a durational residency requirement was a protectionist
provision and constitutionally invalid.
the Fifth Circuit subsequently agreed that the 21st Amendment of
the U.S. Constitution does not authorize states to impose
durational residency requirements for alcohol permits, it also
found that TPSA had standing to pursue litigation aimed at
nixing the injunction.
suit dates back more than 25 years, when two men, Richard Wilson
and Steve Cooper, were unable to buy a Texas nightclub because
they would have endangered the club's mixed-beverage permit due
to the residency requirement in the Texas Alcoholic Beverage
Code. The pair went
on to sue the Texas Alcoholic Beverage Commission, and a court
eventually permanently enjoined the commission from enforcing
the residency provision.
which had intervened as a defendant in the original litigation,
in 2014 asked the court for relief from the decision. The Texas
Alcoholic Beverage Commission did not join in the motion, and
neither of the original plaintiffs filed a response. Two
out-of-state corporations, Fine Wine & Spirits of North
Texas LLC and Southern Wine and Spirits of Texas Inc.,
intervened as plaintiffs and argued the residency laws are
discriminatory and unconstitutional.
for the Fifth Circuit's subsequent affirmation of the injunction
on the residency rule, TPSA told the high court that the finding
is out of line with the "weight of circuit authority"
on the issue.
its cert petition, the trade group argued most circuits
interpret a 2005 Supreme Court ruling in Granholm v. Heald, a
case regarding the legality of direct-to-consumer wine sales by
wineries, to establish a bright line that treats alcohol
producers differently than alcohol wholesalers and retailers.
The appellate panel's ruling "threatens numerous state
laws" that the high court had sought to protect in the 2005
decision, TPSA said.
group also argued that the underlying ruling is at odds with a
2013 decision by the Eighth Circuit in Southern Wine &
Spirits of America Inc. v. Missouri Division of Alcohol &
Tobacco Control, which allows states to impose a residency or
physical presence requirement on wholesalers and retailers so
long as they do not discriminate against out-of-state products.
case is Texas Package Stores Association Inc. v. Fine Wine &
Spirits of North Texas LLC et al., case number 16-242, in the
Supreme Court of the United States.
United States Supreme Court denied certiorari
on a petition from the Texas Package Stores Association
requesting the lifting of a permanent injunction on the Texas
residency rule for alcohol permits. The Fifth Circuit previously
concluded that this rule was unconstitutional.
Appeals Texas Brewer Distribution Rights Sales Win
August, Travis County Judge Karin Crump held a 3-year-old law
preventing Texas brewers from selling their territorial
distribution rights unconstitutional. There has been a battle in
Texas for craft brewers to be able to sell their territorial
distribution rights, since a 2013 senate bill banned the
practice. The judge handed down the decision rather quickly,
suggesting that some of the state's argument -- tying brewers'
ability to sell their own distribution rights to societal ills
-- were tenuous. On the other hand, distributors say paying a
manufacturer for brands is a direct violation of the tied house
law. The motion for new trial was denied but the state perfected
its appeal to the Third Court of Appeals the day before the
deadline. The appellate court will consider whether there was an
error in the trial court's decision. The Texas brewers who
brought the complaint are asking that decision be affirmed.