Supreme Court Hears Spirited Sales Liquor Wholesaling Case

Olivia Covington for www.theindianalawyer.com

The fate of Spirited Sales LLC’s liquor wholesaling license is in the hands of the Indiana Supreme Court as the justices consider whether allowing the company to keep its permit would enable its parent company, Monarch Beverage Co., to gain an unlawful monopoly in the alcohol wholesaling business.

When Spirited Sales first applied for an Indiana liquor wholesaling license in 2014, the Indiana Alcohol and Tobacco Commission denied the request, holding that state law prohibits wine and beer wholesalers from also wholesaling liquor as a protection against monopolies. Because there is common ownership between Monarch, the state’s largest beer and wine wholesaler, and Spirited Sales, the ATC said awarding the license would open the door for Monarch to form a monopoly.

Spirited Sales is owned by EF Transit Inc., a transportation company in which its CEO, board of directors and shareholders hold the same positions with Monarch.

But in August 2016, the Marion Superior Court struck down that decision and instead ordered the ATC to issue the permit after finding that its rationale in the decision was arbitrary and capricious. After the Indiana Court of Appeals denied a stay in the case, the Indiana Supreme Court granted a Trial Rule 56A transfer at the request of former Indiana Attorney General Greg Zoeller.

During oral arguments in the case Thursday morning, Brian Paul, counsel for Spirited Sales, told the Supreme Court panel – which excluded Justice Mark Massa – that not only is it common for businesses to use the practice of corporate separateness to avoid non-compliance with prohibitive interest restrictions, but the ATC has actually encouraged such practices before.

But Indiana Solicitor General Tom Fisher, arguing on behalf of the ATC, told the justices that past enforcement decisions do not dictate future enforcement under Indiana law. Further, Fisher said the ATC does, in fact, have a history of denying permits based on prohibitive interest provisions, regardless of whether corporate separateness applied.

When asked by Justice Geoffrey Slaughter to name the specific prohibitive interest issues at play in the case, Fisher pointed to Indiana Code 7.1-5-9-3(b),  which holds that, “It is unlawful for the holder of a brewer’s or beer wholesaler’s permit to have an interest in a liquor permit of any type… .” For the purposes of the instant case, Fisher said the “holder” of the beer wholesaling permit is Monarch. Thus, according to the statute, Monarch cannot directly own Spirited if Spirited holds a liquor wholesaling license, he said.

Further, under I.C. 7.1-3-21-5, Fisher said the stockholders of Monarch – who are statutorily required to possess “all other qualifications required of an individual applicant for that particular type of permit” and who Fisher said own Monarch – are similarly prohibited from owning Spirited because they would have an interest in both sides.

But if the ATC’s position is closely followed, then Paul said it would have “absurd results.”

“Under their logic, all ownerships interests are potentially relevant, no matter how remote, which could make it difficult for larger companies with lots of layers and lots of shareholders with lots of shares to do business in Indiana,” Paul said. “There is no limiting principle to the notion that remote ownership principles are relevant, which puts the industry totally at the mercy of the ATC’s discretion, which is precisely the problem with the system now.”

Much of the discussion during oral arguments focused on what the definition of “interest” is, and Paul told the participating justices that there was a general understanding that the ATC had either failed or refused to promulgate rules or provide a clear definition of the term. To that end, he said the Legislature sought to draw the line of ownership interest at immediate owners through the language of I.C. sections 7.1-3-21-5 and 5.4.

But Fisher said the lack of a definition is an indication that most people have a common sense understanding of what an “interest” is, much the same way legal professionals have an understanding of what the Code of Judicial Conduct means when it prohibits judges from having an interest in the cases they hear.

Further, when the ATC has issued liquor wholesaling permits on the basis of corporate separateness in the past, Fisher said those decisions were made in regard to small organizations such as microbreweries or farm wineries, not large corporations like Monarch.

The full oral arguments can be watched here.