Understanding the U.S. market for alcohol beverages, including beer, requires an understanding of the three-tier system. Whether viewed with deep reverence or great scorn, it is a system of distribution that delivers the vast majority of beer to the mouths of thirsty American drinkers. Let’s take a few moments to understand that system a little better.
Originally published in CraftBeer.com.
Last week, the Texas Alcoholic Beverage Commission (“TABC”) circulated a draft amendment of Texas’ name and address labeling regulation for “malt beverages” (beer). A copy of the proposed amended regulation (with a redline of the changes) is can be found here.
Consistent with TTB regulations on name and address labeling for malt beverages, the current regulation requires only the name and address of the importer, with foreign producer information optional. The revised regulation, in contrast, requires:
The proposed regulation accordingly marks a significant Texas departure from federal labeling rules. First, it requires foreign producer information on the label. Second, it requires the label to show the name and principal place of business address of the foreign producer. This could require substantial changes to the labels of malt beverages sold in Texas.
The TABC is scheduled to hold a hearing in Austin on its proposed new regulation on Friday, March 10, 2017.
On January 30, 2017, President Trump issued Executive Order No. 13771, entitled “Reducing Regulation and Controlling Regulatory Costs.” A link to Executive Oder 13771 appears here. The Order provides:
Executive Oder 13771 applies to each “executive department or agency,” but leaves a number of government regulatory functions outside of its scope. These include agencies involved in military, national security, and foreign affairs functions, as well as any government organization arising from the Legislative or Judicial branches. Nevertheless, the Order applies to a vast swath of the federal bureaucracy.
On its face, Executive Order 13771 could have a significant impact on the pace of federal rulemaking during the Trump Administration. The “two-for-one” requirement, in particular, appears to be a blunt instrument aimed at shrinking the Code of Federal Regulations. Moreover, the explicit requirement for cost estimates and “zero” total costs flowing from the rulemaking process plainly seeks to halt the growth and costs of the federal administrative state.
But the jury remains out on the practical impact of Executive Order 13771. Longstanding observers of the federal bureaucracy will, no [...]
Continue Reading
Last week, the US Court of Appeals for the Eighth Circuit weighed in on the legality of restrictions on alcohol advertising under the First Amendment, issuing an opinion in Missouri Broadcasters Association v. Lacy that could eventually broaden free speech protections for alcohol beverage advertisements. After the lower court granted defendants’ motion to dismiss and plaintiffs appealed, the Eighth Circuit reversed the district court’s dismissal, finding that plaintiffs’ claim alleging the unconstitutionality of a Missouri statute and two regulations should be heard.
The case concerned three Missouri provisions – two regulations and a statute – that restrict the advertising of alcohol beverages:
Plaintiffs – a broadcasting industry group, radio station operator, winery and retailer – sued Missouri’s supervisor of liquor control and attorney general, alleging that the three provisions are facially invalid under the First Amendment in that they prohibit truthful, non-misleading commercial speech, are inconsistently enforced by the state and the challenged statute unconstitutionally compels speech.
To state a claim that a statute is facially unconstitutional under the First Amendment, Supreme Court precedent instructs that plaintiffs must show that there are no set of circumstances under which the challenged provision would be valid, or that a substantial number of the provision’s applications are unconstitutional. Alcohol beverage advertisements involve commercial speech, which receives less protection under the First Amendment than other constitutionally protected forms of expression. In Central Hudson Gas & Electric Corp. v. Public Service Comm’n of New York (1980), the Supreme Court articulated a four-part test for determining the constitutionality of laws restricting commercial speech: whether (1) the speech concerns lawful activity and is not misleading; (2) the governmental interest justifying the regulation is substantial; (3) the regulation directly advances the governmental interest; and (4) the regulation is no broader than necessary to further the governmental interest.
Applying the third and fourth factors of the Central Hudson test (plaintiffs and defendants agreed on the first two factors of the test), the court found that the facts plaintiffs alleged were “more than sufficient” to state a plausible claim. First, the court opined, plaintiffs made sufficient allegations that the challenged provisions do not directly advance Missouri’s substantial interest in promoting responsible drinking. Although defendants argued that a link exists between advertising promotions and increased demand for alcohol beverages, the court noted that “multiple” inconsistencies in the regulations demonstrate that the regulations do not advance Missouri’s interest in promoting responsible drinking. Likewise, the court determined, plaintiffs pled sufficient facts to support [...]
Continue Reading
A recent Texas Court of Appeals decision, EATX Coffee, LLC v. Texas Alcoholic Beverage Commission, provides an important reminder of how principles of administrative law may check the current trend towards “regulation by Internet.” Ct. of App of Texas, 4th Dist., No. 04-16-00213-CV (Dec. 7, 2016). Like TTB and many other state alcohol beverage authorities, the Texas Alcoholic Beverage Commission (TABC) periodically publishes “Question and Answer” (Q&A) documents purporting to interpret the Texas Alcoholic Beverage Code.
The EATX opinion arose from a challenge of two particular Q&A’s that, in effect, banned the filling of “crowlers” by Texas beer and wine retailers. A crowler is an aluminum can that a retailer can fill with beer and seal for consumers to take away from the retail premises. While TABC has declared that retailers may fill and sell “growlers” of beer (large bottles filled and sealed by retailers), the TABC’s Q&A’s declared the filling of crowlers to constitute manufacturing – an activity that a retailer cannot engage in without a manufacturing license. (And, of course, under state tied house laws a retailer generally cannot lawfully obtain a manufacturing license).
EATX, having invested in crowler equipment and facing disciplinary action over its filling and sale of crowlers, filed a lawsuit against the TABC seeking a declaration that TABC’s Q&A’s were wrong because the filling of a crowler does not constitute manufacturing. EATX also sought an injunction against enforcement. In response, TABC asserted that the Q&A’s were not a “rule” and therefore the trial court lacked jurisdiction to hear a challenge to the Q&A’s, and also asserted that EATX failed to exhaust the administrative remedies it could raise in defense of a TABC disciplinary action against EATX’s retail license.
The Texas Court of Appeals, 4th District, reversed. Reviewing the Q&A’s, the Court of Appeals concluded that: (1) they are of general applicably as they purport to apply to all retail permit holders; (2) they interpret the law and do not simply re-state it; (3) they do not affect only TABC’s internal management or organization. As such, the Q&A’s constitutes a “rule” within the meaning of Texas’ Administrative Procedures Act and the trial court had jurisdiction to hear the case and grant relief. Turning to exhaustion, the Court of Appeals found no authority for the proposition that a litigant aggrieved by the promulgation of a rule must instead wait and raise its arguments in an action brought to cancel, suspend or refuse to renew its license. In short, EATX can have its day in court.
Given the declining use of notice-and-comment rulemaking by TTB and most state alcohol regulatory agencies, the use of Q&A’s, “FAQs,” “advisory bulletins,” “industry memoranda,” and similar informal policy documents has been rising for decades. While such expedients may help move policy forward in a quicker, less resource-intensive (for the agency) manner, the EATX opinion stands as a useful reminder to regulators that this approach has limits.
The Texas Package Stores Association has asked the US Supreme Court (via a “Petition of Certiorari”) to hear a case that could clarify the interaction between the 21st Amendment and the non-discrimination between states principle of the “dormant” Commerce Clause.
The case arose in Texas, where the Court of Appeals for the Fifth Circuit ultimately held that the Supreme Court’s Granholm v. Heald (2005) decision did not limit the reach of the Commerce Clause in alcohol cases to situations where a state discriminates against producers or products. Decisions by two other federal Court of Appeal’s Circuits (the Second and the Eight) have expressly limited Granholm’s reach to discrimination against producers and products. Thus, the Texas Package Stores Association would like the Supreme Court to reverse the Fifth Circuit and explicitly limit the non-discrimination principle of Granholm to cases involving alcohol products and producers.
The Supreme Court hears only a small fraction of the cases brought before it on a Petition of Certiorari, so the chances that the Supreme Court ultimately reviews the Fifth Circuit’s decision remain low. Nevertheless, the existence of a “split” of opinion between different federal Courts of Appeal increase the chances of Supreme Court review.
How is it that the Brewers Association—an organization that has no political action committee, has employed a staff lobbyist for only 18 months, and has only had a strong presence in Washington since 2009—has gained significant traction among policymakers in the nation’s capital?
The BA is now a serious player in Washington. That is not by accident; it’s a carefully conceived strategy implemented by the BA board and senior staff—including president and CEO Bob Pease—over the last seven years that seeks to leverage the inherent strengths of America’s small craft brewers.
Read the full article, originally published in the September/October 2016 issue of The New Brewer.
On April 21, the US Court of Appeals for the Fifth Circuit handed down its opinion in Cooper v. Texas Alcoholic Beverage Commission, No. 14-51343. It provides further guidance, at least within the Fifth Circuit, on the interplay of the “dormant” Commerce Clause and the 21st Amendment following the Supreme Court of the United States’ oft-cited decision in Granholm v. Heald, 544 US 460 (2005).
The case arose when the Texas Package Store Association attempted to revisit the Fifth Circuit’s two-decade old decision in Cooper v. McBeath, 11 F.3d 547 (5th Cir. 1994). Cooper v. McBeath permanently enjoined the Texas Alcoholic Beverage Commission (TABC) from enforcing certain residency requirements imposed on wholesalers and retailers by the Texas Alcoholic Beverage Code. In that decision, the Fifth Circuit decided that the residency requirement was a protectionist measure and therefore unconstitutional under the so-called “dormant” Commerce Clause of the US Constitution.
In 2014, the Texas Package Store Association (TPSA) moved for relief from the Cooper v. McBeath injunction, arguing that Granholm and its progeny undermined the earlier decision’s reasoning. The district court ruled that the TPSA lacked standing to seek relief, although it also suggested that TPSA’s motion for relief should be denied on the merits.
In last month’s Cooper v. Texas Alcoholic Beverage Commission decision, the Fifth Circuit concluded that TPSA had standing to seek relief from the Cooper v. McBeath injunction, but then held that TPSA’s motion should be denied on the merits. Laying out the standard for relief as whether Granholm and its progeny represent a “significant change in decisional law,” the Fifth Circuit concluded that no significant change had occurred.
The Fifth Circuit begins its analysis by noting that Granholm expressly refused to overrule prior cases holding that the Commerce Clause qualified states’ rights under the 21st Amendment. TPSA argued that the statement in Granholm labeling the three-tier system “unquestionably legitimate” essentially removed Commerce Clause protections from state laws dealing with the wholesale and retail tiers of the industry. Characterizing that language in Granholm as “dictum,” the Fifth Circuit rejected TPSA’s argument as “unconvincing.” Refusing to follow an Eighth Circuit decision that embraced logic similar to the argument advanced by TPSA, the Fifth Circuit instead relied on its own decision in Wine Country Gift Baskets.com v. Steen, 612 F.3d 809 (5th Cir. 2010). Thus “state regulations of the retailer and wholesaler tiers are not immune from Commerce Clause scrutiny just because they do not discriminate against out-of-state liquor.” Instead, although the 21st Amendment permits a state to impose a physical-residency requirement that may favor in-state businesses, it may not impose “a durational-residency requirement on the owners of alcoholic beverage retailers and wholesalers.” (Quoting Cooper v. McBeath, emphasis in original).
The Fifth Circuit accordingly reasoned that nothing in Granholm and its subsequent application represent a significant change in the law. It therefore reversed the decision of the district court and directed it to enter an order denying on the merits TPSA’s motion for relief.
Cooper v. Texas Alcoholic Beverage Commission [...]
Continue Reading
The annual Craft Brewers’ Conference will be held on May 3-6, 2016 in Philadelphia, PA. McDermott partner, Marc Sorini will give two presentations:
For more information or to register, please visit https://www.craftbrewersconference.com/.
On March 16, the federal Alcohol and Tobacco Tax and Trade Bureau (TTB) published a list of frequently asked questions expanding further on a ruling issued in February on application of the federal “tied house law” to industry promotional activities, specifically category management practices employed by retailers.
TTB claims that a formal rulemaking to revise its tied house regulations is not necessary: “TTB Ruling 2016-1 merely provides guidance as to the plain meaning of the existing regulation under 27 CFR 6.99(b). It does not change TTB’s longstanding position, nor does it change the meaning of the plain language of this regulatory exception.” So let’s look at the plain language:
The act by an industry member [supplier or wholesaler] of providing a recommended shelf plan or shelf schematic for distilled spirits, wine, or malt beverages does not constitute a means to induce within the meaning of section 105(b)(3) of the [Federal Alcohol Administration (FAA)] Act.
That statement on its face is an open-ended authorization to provide shelf schematics. It says nothing about the products of other industry members or whether the plan is written on a napkin or in a sophisticated IT system that is used for inventory management at hundreds of stores. (more…)
Subscribe
