Cowlitz County Superior Court Denies Motion For Preliminary Injunction Against I-1183
Defenders of I-1183 received a holiday gift last week from the Cowlitz County Superior Court. On Thursday, December 22, 2011, the Court issued two important rulings in the declaratory judgment action challenging the constitutionality of I-1183.
First, the Court granted the motion to intervene brought a group of supports of I-1183 led by Costco and the Washington Restaurant Association. In so ruling, the Court observed that those entities’ economic interests were implicated by challenge to I-1183 and that their interests were distinct from those of the State. Those entities now will be able to participate fully in the defense of I-1183.
Second, the Court denied the motion for preliminary injunction to block implementation of I-1183. The Court explained that I-1183 is the law of Washington and that Plaintiffs had not carried their heavy burden for altering that status quo.
Following that ruling and recognizing that the challenge to I-1183 turns largely, if not exclusively, on pure legal arguments, the Court set the following expedited schedule for summary judgment briefing and a trial date if necessary:
- January 20, 2012: Opening Summary Judgment Briefs Due
- February 10, 2012: Responsive Briefs Due
- February 17, 2012: Reply Briefs Due
- March 5, 2012: Summary Judgment Hearing
- April 16, 2012: Trial
In setting this schedule, the Court stated that it welcomed extensive briefing on the issues presented. Thus, there might be an opportunity for the filing of amicus briefs.
We will continue to monitor developments in the case. If you have any questions, please do not hesitate to contact us.
I-1183 Faces Legal Challenges
Despite Washington voters’ approval of I-1183 in the November 2011 election, the effort to privatize the wholesale distribution and retail sale of liquor in Washington faces another hurdle. Last week, two lawsuits were filed in Washington courts challenging the validity of I-1183. The plaintiffs in both cases contend that the newly enacted law violates the single-subject rule for legislative bills and ballot initiatives under the Washington Constitution. Article II, § 19 of the Washington Constitution, which applies to both legislative bills and ballot initiatives, provides that “[n]o bill shall embrace more than one subject, and that shall be expressed in the title.” The plaintiffs allege a violation of that constitutional provision because the terms of I-1183, in addition to paving the way for private retailers to sell liquor, affect fines for selling alcohol to minors, taxes, and the wine distribution and pricing scheme.
Some past single-subject challenges to ballot initiatives have been successful. For instance, in 2000 a group of plaintiffs succeeded in repealing an initiative that addressed both the fees for car license tabs and required voter approval for all future state and local tax increases. But I-1183 differs from that initiative because it did not join together two completely separate subjects but instead deals entirely with various aspects of state regulation of alcohol distribution and retail sales. Thus, the key issue in the litigation appears to be whether I-1183 conforms to the single-subject rule when the provisions deal with the same general subject.
One of the challenges to I-1183 was filed in King County Superior Court, and the other in Cowlitz County Superior Court. The King County case was brought by two labor unions and is named General Teamsters Local Union No. 174 v. State. The Cowlitz County case was brought by the Washington Association for Substance and Violence Prevention, a property owner who leases a liquor store to the state, and two grocery stores. It is named WASAVP v. State. Both groups of plaintiffs seek declaratory and injunctive relief blocking the implementation of I-1183. The plaintiffs in the WASAVP case have also filed a motion for preliminary injunction, which is scheduled to be heard in Cowlitz County Superior Court on Friday, December 16.
Even though both lawsuits are against the Washington state government, it is very likely that businesses or associations whose interests are affected by I-1183 will have the opportunity to intervene in the litigation. We will continue to monitor the proceedings. If you have any questions, please don’t hesitate to contact us.
Court Upholds San Diego County's Winery Ordinance
On April 15th, a California Superior Court Judge denied a challenge to San Diego County’s new Winery Ordinance. The Ordinance, passed in 2010 and available here, eases restrictions on tasting rooms and sales for smaller producers and allows others to essentially “fast-track” registration as a “small winery” with such designation allowing for pre-approved events, such as weddings.
The challengers claimed that the Ordinance’s Environmental Impact Report (“EIR”) under the California Environmental Quality Act (“CEQA”) was inadequate. Judge Timothy Taylor disagreed, stating “[t]he Board of Supervisors was, by the EIR, adequately informed about the consequences of its decisions. The public (including petitioner) was provided with adequate information regarding the decisions of their elected leaders.”
The challengers have 30 days from the issuance of the ruling to appeal.
Washington Wine Law Legislative Update
For those interested in the status of Washington State wine legislation, the Washington Wine Institute provided this useful legislative update to various wine-related bills moving through the House and Senate.
Conjunctive Labeling Comes to Sonoma County
With the turn of the calendar and after nearly a year of political wrangling, conjunctive labeling will be the norm for Sonoma County wineries beginning in 2014. Passed by unanimous vote in both the state assembly and senate in August and signed by Governor Schwartzenegger at the end of September, AB 1798 will require wineries using the name of any of the 13 recognized American Viticulture Areas (AVA) within Sonoma County on their labels to include “Sonoma County” as well. The bill is not retroactive as it applies only to wines bottled after January 1, 2014. Failure to comply is considered a misdemeanor and subjects the violator to possible revocation of their ABC license. To achieve compliance, it will be necessary to file for and receive a new Certificate of Label Approval (COLA) from the TTB for those labels already approved.
Response to the new requirements has been mixed. Pushed heavily by the Sonoma County Winegrape Commission and the Sonoma County Vintners, Nick Frey, the Commission’s president, stated, “In this increasingly competitive wine market, building awareness for Sonoma County and the wine regions within the county is critical to Sonoma County grape growers and the wineries they supply. AB 1798 will ensure that consumers recognize every bottle of wine produced from Sonoma County grapes.” However, several large, well-known wine producers in the region see the legislation as diluting their already well-established brands, in addition to the added cost and confusion of including “Sonoma County” on an often already crowded label.
Some of the better known of Sonoma’s AVAs are the Russian River Valley, Sonoma Coast and Dry Creek Valley. California requires conjunctive labeling for three other viticulture areas: Napa Valley, Lodi, and Paso Robles.
Audit Supports More Liquor Permits for Utah
A recent legislative audit made several strong recommendations for reforming Utah’s liquor laws, in particular the quota system for granting alcohol permits. The audit echoes reports that the current shortage of alcohol permits is stifling economic development and does not reflect the state’s changing population.
Utah is in the small minority of control states that grant liquor permits based on population. Of the states polled, the audit commission found that only two other states, Pennsylvania and Idaho, use a state-wide quota for liquor permits. Idaho allows one permit per 1,500 people for clubs and restaurants and has no quota for beer and wine. Pennsylvania allows one permit per 3,000 people regardless of permit type. In contrast, Utah allows one permit per 7,850 people for clubs and one permit per 5,200 for restaurants.
According to the audit, quota numbers have not changed since 1990. In the meantime, the state’s population has increased by 22 percent with significant demographic changes. For instance, the percentage of the state’s population that were reported to be members of the Church of Jesus Christ of Latter Day Saints, whose observant members do not consume alcohol, has shrunk from 70% in 1989 to 58% in 2009. Further, alcohol consumption rose 54% from 2001 to 2009. The audit also reports an increase in the number of people who are eating out. These changes make the state appealing to restaurant and bar development. Many restaurateurs, including large chains, have, however, expressed reluctance to develop businesses in Utah given the uncertainty over obtaining a liquor permit.
The audit recommends increasing the number of overall liquor permits, and in particular restaurant permits. As previously reported, a bill to allow current permit holders to sell their alcohol permits is being considered for the next legislative session, which begins in January. Another proposal would allow resorts to obtain one license to cover the range of alcohol services provided rather than the current system that requires a separate permit for each service. This could free up numerous additional permits; one resort alone reportedly holds 17 permits to cover its restaurants, bars and other services.
In response, the Executive Director of the Utah Department of Alcoholic Beverage Control suporrted the audit’s recommendations. The Utah Restaurant Association and Utah Hospitality Association also embrace such reforms. It is still unclear, however, whether the state legislature will support any of the recommended reforms. Stay tuned for updates.
More Liquor Permits Possible for Utah
Senator John Valentine (R – Orem) has announced that he intends to introduce a bill in the next Utah legislative session that would establish a property right in liquor permits, allowing restaurants with current liquor permits to sell them. Use of any purchased permit would be conditioned upon approval by the state liquor-control board. The intended bill will also convert about 25 of the 50 unused tavern permits (which allow only the sale of 3.2 beer) into restaurant permits. Senator Valentine currently has no plans to make any changes to the state’s club permits.
Utah limits liquor permits based upon population and ran out of restaurant and club permits earlier this year. The proposed legislation may help alleviate the resulting logjam if existing businesses that are struggling elect to sell or if other restaurants elect to stop serving alcohol. Questions remain as to whether the bill will pass. Legislators have expressed reluctance to increase the number of permits granted, so the proposed legislation may create a work around. The Church of Jesus Christ of Latter Day Saints, a major stakeholder in Utah’s liquor policy, also has yet to weigh in on the proposed change.
The proposed change is likely to put small and start-up restaurants at a distinct disadvantage to well-funded chains. Senator Valentine is quoted in a Salt Lake Tribune article as acknowledging this issue and indicated that some permits could be set aside for small businesses.
Attorneys in our Salt Lake City office are closely following this issue. Please send us an email here if you would like to receive regular updates.
Update on Utah's Privatization Process
As we previously reported, Utah is considering privatizing at least some aspects of its liquor control. On Wednesday, August 25, John Freeman, the Deputy Director of Operations for The Utah Department of Alcoholic Beverage Control (“DABC”) appeared before the Privatization Board to answer questions.
Mr. Freeman presented four reasons to maintain the status quo. First, he contended that privatization would decrease the state’s net revenue from alcohol sales. As previously reported, Utah garnered $59 million in profit and $41 million in tax receipts from liquor sales in 2009. Mr. Freeman cited the findings of the Alcohol Research Group, a California-based division of the Public Health Institute, which indicate that control states like Utah generate three times the revenue of non-control states. Members of the Board appeared reluctant to accept these findings, focusing instead on the state’s hard costs to run the liquor stores. As the Salt Lake Tribune reported, Randy Simmons, the Board’s chair, indicated that the primary question for him was whether the money spent to run the liquor stores (estimated at $21 million) could be put to better use. The Board did not discuss how the state would compensate for the millions of dollars in lost revenue, which appear to be far greater than the estimated savings.
Second, Mr. Freeman contended that private retailers would not have the same buying power the state has, and therefore, could not offer the same selection of products. Mr. Freeman specifically cited the state’s ability to stock stores with niche wines, indicating that more than 4,000 wines were available in the state. The Board questioned, however, whether the state is responsive to customer preferences. While there was some confusion among Board members as to whether privatization for both wholesale and retail aspects of alcohol sales were options, it appears that only the retail side is currently under discussion. Thus, the question of choice in products is likely moot as the state would still control selection and would maintain its current buying power.
Third, Mr. Freeman argued that consumers would pay more under privatization. As it stands, Utah marks products up by a statutorily-mandated 86%. Private retailers would need to add sufficient amounts to the price to cover their costs and be profitable. The discussion indicated that wages are one area that would likely cost private retailers more. Currently, the state legislature sets wages for store employees, which average barely above minimum wage.
Finally, Mr. Freeman argued that DABC’s primary responsibility was to ensure public safety and that any form of privatization would create more alcohol-related problems in the state. The Alcohol Research Group study supported these claims, showing that consumption rates in non-control states are higher than in control states, due in part to more outlets and longer hours. The Board questioned the study’s findings regarding alcohol-related problems in Utah, with Randy Simmons stating that he had read conflicting studies. The Board did not address whether the state would continue to mandate the number of outlets and their hours under privatization.
Because of time constraints, the session abruptly ended with both sides promising to forward on their sources and to continue the conversation regarding privatization. We will keep you updated as these issues develop.
Possible Privatization of Utah Liquor Stores
The sixteen-member Utah Privatization Policy Board was created by the legislature to determine what services currently provided by the state can be privatized. State liquor stores are one of many state functions that the Board is examining.
Utah is one of 18 states, and two Maryland counties, that currently use a state run retail system, commonly called control states. The other 32 states issue licenses to private companies to sell liquor. Four control states (Washington, Virginia, North Carolina and Utah) are currently considering privatization. See Susan Johnson’s blog for a terrific discussion of the Washington initiative process. Utah also controls the wholesale market for liquor, which is not under discussion for privatization.
The debate thus far has centered on the economics of privatization and the level of state control exercised over liquor sales. There seems to be consensus that privatization will occur only if shown to be both profitable and to allow for sufficient state control.
From an economic perspective, state liquor stores are one of the few profitable government agencies in Utah. Estimates indicate that state liquor stores sold $269 million dollars worth of product in 2009, yielding $59 million in profit and $41 million in tax receipts, with $27 million going to the school lunch program. Information gathered by the Board so far indicates that privatization could result in $21 million dollars in annual savings from lowered payroll, operational and liability costs. The potential cost savings are more than offset by last year’s profit levels, however, which exceeded the potential annual savings by $38 million. It is not clear that tax receipts would remain consistent either. Both Montana and Maine, two states that recently privatized, have reported a drop in sales (and thus tax receipts) due to increased prices. It is not clear whether a privatization of Utah liquor stores would be likely to result in increased prices. Although privatization could lead to a decrease in revenues for the state from profits and tax receipts, privatization would bring in new streams of revenue, such as real estate taxes on liquor store properties, which are currently exempt. The state would also realize one-time gains from selling the current liquor store businesses and property. The Privatization Policy Board will need to consider whether these revenue streams would be sufficient to replace any lost revenues associated with lost profits and tax receipts.
With regard to control, the primary question is how to balance free-market principles with moral regulations. Many supporters of privatization equate state-run liquor stores to socialism. Opponents question whether a loosening of state control would result in increases in impaired driving and alcohol consumption, particularly by minors. One Board member, Senator Howard Stephenson, Republican from Draper, has indicated that liquor stores lend themselves to privatization, but that all of the current controls should remain in place. It is unclear whether business would be able to operate profitably if the state maintains current restrictions on advertising, locations, hours and days of operation. Further, as long as the state keeps its monopoly on wholesale liquor distribution, the state would maintain control over the brands offered and any volume discounts negotiated, which could limit the ability of retailers to compete based on selection and price. It is unclear what effect, if any, consumers would experience other than new names on the liquor stores.
Stoel Rives will be monitoring the privatization debate in Utah. We will post an update after the next Board meeting, expected to be held in late September.
Dueling Liquor Privatization Initiatives in Washington State: What do the Initiatives Say and Who are the Players?
Word is out that enough signatures have likely been gathered to ensure that an initiative backed by Costco will make it on the on the ballot in Washington State in November. The Costco backed initiative would transition sales of spirits in Washington State from state operated liquor stores to private retail stores and allow manufacturer to retailer direct sales and volume discounts.
A second initiative backed by distributors would also move spirits sales from state operated stores to private retail stores, but would preserve the role of distributors in a traditional three tier system, has until July 2nd, to amass enough signatures to make it on the ballot.
A third group is raising money to oppose any attempts to change the current state administered system. Combined contributions of over $1,200,000 have been reported to the Washington State Public Disclosure Commission in support of and opposition to privatization.
We have assembled the following information so that you can read the actual initiatives, explore the proponents and opponents, and form your own opinion.
1. Initiative No. 1100 was filed by Modernize Washington, is financially backed by big box retailer Costco, and has statements of support from other groups that retail liquor such as the Northwest Grocery Association and the Washington Restaurant Association.
- Where to Follow updates: Modernize Washington on Facebook
- Reported Contributions: > $700,000
2. Initiative No. 1105 was filed by Washington Citizens for Liquor Reform and is financially backed by alcohol distributors Young’s Market Company and Odem Southern Holdings.
- Where to Follow updates: Yes on 1105 on Facebook
- Reported Contributions: $400,000
3. Keep our Kids Safe is leading efforts to preserve the existing state operated system. Washington Association for Prevention of Substance Abuse filed fund raising reports for Keep our Kids Safe with the Public Disclosure Commission. The reports identify the union that the state liquor store employees belong to, United Food and Commercial Workers as the source of the funds. UFCW 21, with the endorsement of other organizations, has issued a fact sheet outlining rationales for preserving the current system of state run liquor stores.
- Reported Contributions: $38,000
We will report back in a few weeks to let you know if one or both privatization initiatives make on to the ballot and the status of efforts to promote preservation of the existing state operated system.
