We will follow up with additional analysis, but for now, you can plan your first trip to the grocery store to purchase liquor as early as tomorrow.

Yesterday, the Washington State Supreme Court heard oral argument in Washington Association for Substance Abuse & Violence Prevention v. State, concerning the constitutionality of I-1183. WASAVP contends that I-1183 violates Article II, § 19 of the Washington Constitution in two ways: (1) the initiative violates the “single-subject rule,” by including a $10 million earmark along with provisions to privatize the sale of spirits and also by allowing for price variability in the sale of wine; and (2) the initiative violates the “subject-in-title rule” because, although the title refers to license fees to be imposed on sellers, in reality, such fees resemble taxes because they are levied as a proportion of sales. These arguments, and the responses of the State and the Costco-led intervenors were discussed in earlier blog posts here and here. Copies of the briefing filed in the Supreme Court can be found here: 1, 2, 3, 4. A recording of the hearing can be viewed here.

On the single-subject issue, the Court sought clarity on the framework for analyzing whether there is rational unity between the different provisions in the initiative. In particular, Justice Stephens pressed counsel on whether the issue of rational unity boiled down to whether there is a rational basis for the $10 million earmark, i.e., even though such funds are not specifically allocated to alcohol-related law enforcement, is there nonetheless rational unity because such funds might be spent in connection with alcohol-related issues. WASAVP responded, no, that rational unity required an specific expenditure requirement. The Court seemed unmoved by that position, especially in light of the past practice of making general appropriations from the Liquor Revolving Fund. 

On the subject-in-title issue, Justice Wiggins expressed skepticism about referring to the license fee as such when the revenue-raising scheme so closely resembles a tax. Attorneys for the State and the intervenors urged the Court that use of the term fee was proper and that the Court need not decide whether the “fee” is actually a “tax” so long as it was clear to voters what type of revenue scheme would be created. WASAVP’s attorney, of course, pointed that the easiest way to ensure clear understanding was to use the word tax.

I-1183 is set to take effect on June 1. The Court is expected to issue its opinion before that date.  

 The implementation of I-1183 remains on schedule. Last Friday, April 6, a Washington Supreme Court Commissioner issued an order denying an emergency motion for injunctive relief to halt the implementation of I-1183. The motion was filed by the plaintiffs in Washington Association for Substance Abuse and Violence Prevention v. State. The WASAVP plaintiffs were unsuccessful in challenging I-1183 before the Cowlitz County Superior Court and have obtained direct review by the Washington Supreme Court. Oral argument before the Supreme Court is scheduled for May 17, 2012 – which is two weeks before I-1183 mandates the closure of state-run liquor stores on June 1. In denying the plaintiffs’ motion, the Commissioner observed that the Supreme Court very well could issue an opinion before the June 1 implementation deadline, thus conclusively resolving the controversy over I-1183.

I. WASAVAP v. State

A. Entry of Final Judgment by the Cowlitz County Superior Court

On March 19, the Cowlitz County Superior Court granted the Costco-led intervenors’ and the State’s motion for reconsideration and, in turn, granted summary judgment upholding I-1183 in its entirety

B. Proceedings before the Washington Supreme Court

After the trial court entered final judgment, the plaintiffs promptly filed a notice of appeal. On March 28, they filed with the Washington Supreme Court a “statement of grounds for direct review”, which is a motion for the state supreme court to address the validity of I-1183 directly, bypassing the usual process of appealing first to the state court of appeals. Contemporaneously, the plaintiffs filed a motion for injunctive relief seeking to halt the implementation of I-1183 until final resolution on appeal, as well as a request for an expedited briefing schedule. The Supreme Court, through its Commissioner (which is a court officer empowered to rule on procedural matters) will hold a hearing on the plaintiffs’ motion for injunctive relief and expedited review this Thursday, April 5. As of Friday, Costco and the State have not filed responsive pleadings. Presumably, they will present substantially the same arguments they made in the trial court

II. Teamsters Local No. 174 v. State

As you probably recall, there is also a parallel challenge to I-1183 pending in King County Superior Court here in Seattle. The plaintiffs in this action are unionized employees of the Liquor Control Board who stand to lose their jobs upon the full implementation of I-1183. The court entered an order staying proceedings in this case pending resolution of WASAVP v. State, and the Court of Appeals rejected the plaintiffs’ motion for discretionary review of that ruling.

The plaintiffs now have moved to lift the stay on the ground that the Cowlitz County Superior Court has entered final judgment. Costco and the State have urged the court to maintain the stay in favor of waiting for a decision by the state supreme court.

With a little more than two months remaining before I-1183 is scheduled to take full effect on June 1, 2012, the implementation of the initiative will turn on whether the Cowlitz County Superior Court concludes that section 302 of the initiative cannot be severed from the other provisions approved by voters last fall. On March 2, the Court entered partial summary judgment in Washington Association for Substance Abuse and Violence Provisions v. State, upholding all provisions of I-1183 except section 302, which requires that $10 million be spent annually on public safety programs from revenues raised through new alcohol license created by the initiative. The Court held that section 302 violates the single-subject rule of article II, section 19 of the Washington Constitution because section 302 is a general spending measure unrelated to the regulation of the distribution and sale of liquor and therefore has no rational unity with the subject expressed in the title of the bill.  But after concluding that severance of section 302 would not frustrate the underlying purpose of I-1183 concerning privatization and deregulation, the Court declined to strike down I-1183 in its entirety. Instead, it will hold further hearings on the issue of severability commencing on March 19.

The issues to be resolved at the scheduled hearings are (a) which party bears the burden of showing that it cannot be reasonably believed that Washington voters would have passed I-1183 without section 302 and (b) whether, in fact, it cannot be reasonably believed that Washington voters would have passed I-1183 without section 302. On the burden of proof issue, the Court is expected to rule that the plaintiffs bear the burden, as there is a presumption under Washington law in favor of severability. See State v. Harris, 12 Wn. App. 906, 918, 99 P.3d 902 (2004). On the substantive question of voter intent, the plaintiffs likely will have a difficult time of proving that voters would not have approved I-1183 without section 302 because courts view the inclusion of a severability clause in a statute as and indication that voters would have approved the remainder of the statute without the invalid portion. I-1183 contained such a severability clause in section 304.

As far as the plaintiffs’ other arguments attacking the constitutionality of I-1183, the Court rejected them. Although the Court agreed with the plaintiffs that the licensing fee scheme created by I-1183 is more appropriately characterized as a tax, the word “fee” in the initiative’s title was not deceptive because the initiative explicitly provides that licensees will be required to pay to the state a percentage of their sales revenues. Regarding the plaintiffs’ other single-subject arguments, the Court ruled different provisions effecting a different deregulation of the distribution of spirits and wine, provisions concerning alcohol advertising, and a repeal of purposive policy statements under the prior regulatory scheme all bore a rational unity to the underlying subject of a comprehensive revision to the regulation of liquor distribution and sales. Therefore, such provisions do not violate the single-subject rule.

Whatever the outcome of the upcoming hearings on severability, there likely will be an appeal concerning the constitutionality of I-1183, and we will continue to analyze the issues as this litigation wends it way through the courts.

In other news, the Washington wine industry, including both wineries and grape growers, has made a $7.4 million commitment to a new Washington State University Wine Science Center facility. Read the WSU article here, and about the additional contribution by Ste. Michelle Wine Estates here.

• The provision that allows restaurants to exclude minors from the premises during certain periods is removed – does this mean that minors must either always or never be excluded from a premises/area? WAC 314-02-030
• The description of “premises” for on-premises retailers (restaurant, bar, etc) includes the building in which the retail business is located – does this mean that if a restaurant is located in mall, the entire mall is the retail premises? WAC 314-02-010(16)
• The number of complete meals a spirits, beer and wine restaurant licensee must make available increases from four (4) to eight (8). WAC 314-05-035(1)
• Outside of the mandatory food service hours, a spirits, beer and wine restaurant must have certain foods available, and this list is expanded to include appetizers, salads, soups, and pizza. WAC 314-02-010(2), (11); 314-02-035
• WSLCB clarifies that all meals must be prepared on-site – no reheated or pre-cooked meals are allowed. WAC 314-02-035(1)(b)
• A “complete meal” can include hamburgers, sandwiches, salads, or fry orders (those are not included under the current rule)
• Beer and wine restaurants are required to operate five hours a day, five days a week (currently, no hourly requirements)

WSLCB is currently taking comments on the proposed rules.  It is important to read these carefully and respond with any questions or concerns, as there can be implications for the industry that are not immediately recognized by the drafters.  WSLCB welcomes the comments, and is open to revisions that are supported by law.  You can find the details on how to respond here – comments are due by November 10, 2010.  A public hearing will then be set, where you can voice any concerns in person. 

If you have any questions about what these or other proposed rule changes can mean for your business, feel free to contact one of our alcohol beverage law professionals.

As we all know, Washington is not the only state that controls the sale and distribution of alcohol. Each of the 19 (1) “control states” have different practices that distinguish them. Here, and in future posts under “States that Regulate . . . and Control” we will provide bits of information on the control states and how they operate.

• IDAHO – What is distinguishing Idaho from other control states right now? TAXES. There has reportedly been an influx of Washington customers who are traveling to Idaho to avoid paying the higher liquor taxes in Washington. This has long been a customary practice in the Northeast, where a shorter commute can make a trip across state lines worth the few dollars of savings. Here in Washington, however, only the eastern-most residents benefit.
• PENNSYLVANIA – With the current drive to privatize in Washington, it is interesting to remember that the state could always impose more control: the Pennsylvania Liquor Control Board recently rolled out its new wine kiosks, where one must scan an ID, pose for the video camera, and take a breathalyzer before purchasing wine from an automated machine. In Pennsylvania, wine and liquor are sold from state stores, so this provides consumers the “opportunity” to buy wine in a grocery store – one stop shopping at its best?

(1) Alcohol is regulated at the county level in Maryland; Worcester and Montgomery counties both control alcohol sales.

In February of 2010, the CEDB took another step forward when it signed a cooperation agreement with China regarding wine entering the mainland through Hong Kong. This agreement puts in place a voluntary registration system that seeks to streamline the process of importing wine from Hong Kong, and in the process sets Hong Kong up as a gateway for foreign wine entering China, which as we all know is an important and growing market.  

The CEDB’s activity has finally reached the U.S. – in May of this year it signed an MOU with the U.S. and a joint MOU with Washington and Oregon. Not only does this continue efforts that regional organizations have been making to promote Northwest wine in Asia, but it is yet another acknowledgment of how important this region is becoming in the global wine economy.

FYI - Upcoming events in Hong Kong include the Wine and Dine Festival in October and the Hong Kong International Wine and Spirits Fair in November.