Alcoholic Beverages Law Blog

Implementation of I-1183 Remains On Schedule; Washington Supreme Court Argument Set for May 17, 2012

Stephanie Meier — Tue, 10 Apr 2012 08:58:03 -0800

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-1183 Litigation Update

Stephanie Meier — Mon, 02 Apr 2012 08:56:40 -0800

Today the Washington State Supreme Court accepted review of the challenge to I-1183. The briefing schedule has been posted, and the arguments are set for May 17th. We expect an opinion to be issued before the June 1st implementation date for retail spirits sales. Our colleague Hunter O. Ferguson provided the following update:

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.

Starbucks to Start Selling Beer and Wine in California

Jake W. Storms — Wed, 28 Mar 2012 15:47:31 -0800

Expanding on its pilot programs in Seattle and Portland, Starbucks will begin selling wine and beer at a few select locations in Orange County, CA by the end of this year. The program will reportedly sell California vintages and micro-brews. You can read more about the story here and can I get that in a Venti?

Tasting Rooms Not Restaurants Says California Appeals Court

Jake W. Storms — Thu, 15 Mar 2012 08:45:35 -0800

In a recent 3-0 decision, a California Appeals Court sided with Freemark Abbey Winery in its attempt to move its wine store and tasting room into a building in St. Helena which already contained a restaurant. The decision reversed the district courts granting of a preliminary injunction which would have stopped Freemark’s move entirely until a trial.

The building is owned by Freemark and the move was challenged by Silverado Brewing Co., the current operator of the existing restaurant. The challenge stems from Silverado’s lease, which gives it exclusive rights to run a restaurant in the building. Silverado claimed that moving Freemark’s tasting room into the same building would violate that exclusivity.

The court based its decision on the word “purvey” which, it stated, in this context simply meant selling. Any other reading, said the court, would lead to “absurd results.” The decision remanded the case back to district court with an order to vacate the broad preliminary injunction the district court had previously granted and an order to institute a new narrow injunction which would “prohibit[s] Freemark Abbey from selling food or beverages for consumption on the premises in any portion of the building” pending trial.

A copy of the court decision can be seen here.

Stoel Rives Holds California Wine Seminar

Jake W. Storms — Mon, 12 Mar 2012 13:02:32 -0800

On March 8 and 9, Stoel Rives cosponsored, with Kennedy/Jenks Consultants, the 6th Annual Best Practices for Owning and Operating a Winery, held in Napa, CA. The well attended event covered such topics as valuation, water, energy, and branding. Stoel attorney’s Chris Hermann, John McKinsey, and Jake Storms were all panel speakers with John McKinsey acting as emcee for the second day of the conference.

I-1183 Challenge Update

Stephanie Meier — Mon, 12 Mar 2012 09:57:59 -0800

By Hunter O. Ferguson, Stoel Rives

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.

"At Rest" Proposal for New York

Elaine Albrich — Fri, 09 Mar 2012 12:52:39 -0800

There is a proposed bill pending before the New York Senate, S2473-2011 that would require, under certain circumstances, out-of-state shipments of alcohol into New York to be stored in-state for at least 48 hours at a licensed New York storage facility before being distributed to New York retailers. This “at rest” requirement means that an out-of-state winery could no longer ship wine to a New Jersey warehouse to store the wine until the wine is distributed from the New Jersey warehouse directly to New York retailers. Rather, the out-of-state winery would need to ship directly to a New York warehouse or ship the wine to New Jersey, but the wine would then need to be shipped to a New York storage facility and remain there for at least 48 hours before it could be distributed to New York retailers. The proposed regulation would have no ramifications on the ability to ship directly to New York consumers.

The justification for the bill is to, supposedly, put New York on equal footing with other states that require “at rest” periods. The “at rest” period requirement would only be triggered if the out-of-state shipper was from a state that also had an “at rest” requirement. However, the proposal has small distributors crying foul and the industry concerned that this change could, among other possibilities, decrease the volume of wine sold in New York, impact the availability of smaller producers’ wines, and increase the price of wine.

Site Visit to Heater Allen

Elaine Albrich — Tue, 06 Mar 2012 14:02:03 -0800

On February 16th, Stoel Rives LLP held its 5th Annual Law of Wine Seminar at The Allison in Newberg. The seminar focused on the trends and developments in the wine industry as well as touched on issues facing the distilled spirits and brewery industries. After presenting at the seminar, three Stoel attorneys Jeremy Sacks, Reilley Keating,and Elaine Albrich ventured to McMinnville to visit Heater Allen, a small seven-barrel artisan brewery specializing in all-malt lager and other German and Czech style beers. Lisa Allen, Assistant Brewer and daughter of Owner and Brewer Rick Allen, greeted us and hosted a tour of the facility, including the area for the proposed expansion. Lisa offered us tastes of three of Heater Allen’s brews: the Pils, the Coastal and the Dunkel. In addition to tasting great beers, we learned about Heater Allen’s history, its philosophy on brewing, and its approach of marketing and distribution.

Thanks Heater Allen for a great visit!

Oregon HB 4121: Another Round of Legislation Related to Wineries on Agricultural Lands

Elaine Albrich — Tue, 14 Feb 2012 13:29:55 -0800

Oregon House Bill (“HB”) 4121 expands the basis for allowing wineries to be sited on land zoned Exclusive Farm Use (“EFU”). The bill, in addition to vineyards, would allow wineries to qualify as permitted uses under ORS 215.452 if 15 or 40 acres of land was used to cultivate or produce agricultural products other than grapes that are used in winemaking, including fruits, cultivated crops and honey. Unlike Oregon HB 3280 (2011), HB 4121 does not seem to specifically expand allowances for commercial activities on EFU land. Rather, it would expand the type of land qualifying for a winery under ORS 215.452. The ramifications of this possible change, however, could lead to more activities on agricultural land. HB 4121 is scheduled before the House Agricultural and Natural Resources Committee for a public hearing and possible work session, today, February 14, 2012 at 1 pm.

Big Developments in the Washington Wine Industry

Stephanie Meier — Thu, 09 Feb 2012 09:11:38 -0800

The Washington State Wine Commission hired Steve Warner as the new Executive Director. For more information on Mr. Warner’s background, and the unanimous support by the Washington wine industry, read the WSWC press release here, and the WAWGG press release here.

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.

Washington Wine, Beer & Distilleries Law Seminar - March 15, 2012

Susan Johnson — Wed, 08 Feb 2012 10:51:36 -0800

Please join us for our inaugural Washington Winery, Brewery & Distillery law seminar at the Columbia Winery in Woodinville, Washington on Thursday, March 15.

Panels to include these hot topics, plus much more:

Privatization/I-1183
Trademarks
Employment Laws
Tasting Room Operations
Taxes

For more information and registration visit: http://www.stoel.com/showevent.aspx?Show=9199

Idaho Wine, Beer & Distilleries Law Seminar - Thursday, March 1, 2012

Nicole Hancock — Wed, 08 Feb 2012 10:43:12 -0800

Please join us for our inaugural Idaho Wine, Beer & Distillers law seminar at the Boise Centre in Boise, ID on Thursday, March 1, 2012.

Panels to include these hot topics, plus much more:

Start-ups (licensing, permitting and business formation)
Trademarks (protecting your investment)
Distribution and other key contracts
Land use issues
Employee matters

For registration visit: http://www.stoel.com/showevent.aspx?Show=9156

5th Annual Oregon Wine Law Seminar - February 16, 2012

Elaine Albrich — Wed, 08 Feb 2012 10:40:23 -0800

Please join us for our 5th Annual Oregon Wine Law Seminar at the Allison Inn and Spa in Newberg, Oregon on Thursday, February 16.

Topics and panels include start-ups, trademark registration, employment, privatization of OLCC liquor sales, land use and a panel discussion on alternating premises (wine/beer/spirits). This seminar is complimentary to all industry members. Topics will apply to wineries, breweries and distilleries.

For agenda and registration visit: http://www.stoel.com/showevent.aspx?Show=9155

A Check-In with the Idaho Wine Industry

Elaine Albrich — Thu, 19 Jan 2012 11:02:45 -0800

An update from our colleagues Allison Blackman and Nicole Hancock:

The State of Idaho is most infamously know for the potato but the recently reenergized Idaho Wine Commission, vintners, and wineries across the state hope to soon add Idaho Wines to the Gem State's reputation.

Idaho wines regularly net honors in regional and national competitions, and the media are increasingly taking notice. "They want something new to write about, and that's us," says Executive Director of the Idaho Wine Commission, Moya Shatz. The October issue of Sunset magazine sports a feature story headlined: "Discover new wine country: In Idaho's low-key Snake River Valley, the wine is getting seriously good."

Idaho is steadily earning a reputation for growing and producing vinifera wine grape varieties such as syrah and viognier, as well as classic varieties including merlot, cabernet sauvignon, chardonnay and riesling.

Southwestern Idaho, the location of Idaho’s capital Boise and the surrounding counties known as the Treasure Valley , boasts more than half of the state’s 47 wineries, a tally that has more than quadrupled since 2002, when Idaho had 11 wineries.

The Snake River Valley Appellation is the first registered AVA (American Viticultural Area) for the state, officially designated in April 2007. The AVA covers an area of 8000 square miles throughout Southern Idaho and has comparable latitudes to many famous wine regions of the world.

In Canyon County (about twenty miles outside of Boise) there are eight wineries within just 10 miles— making ideal a leisurely two day wine trip of the area.

Although Idaho’s wine industry is currently ranked 22nd in Wine Business Monthly’s most recent ranking of “Number of Wineries,” Idaho has been steadily expanding since the Great Recession.

An economic impact study conducted by Boise State University in 2008 found that Idaho’s wine industry contributed about $73 million to the state’s economy and 625 jobs. Although Shatz doesn’t expect to commission another such study until around 2015, she expects those numbers have already increased.

One of Idaho’s prime wine business assets is its two viticulture programs: one at the University of Idaho’s Parma research center (where the U.S. Department of Agriculture has funded 2 of 28 wine grape researchers in the U.S.) and the second at Treasure Valley Community College in Caldwell.

In celebration of Idaho’s winery growth- Stoel Rives is proud to release “The Law of Wine in Idaho: a Guide to Business and Legal Issues” at the Inaugural Idaho Wine, Beer and Distiller’s Law Seminar in Boise Idaho on March 1st, 2012, presenting Moya Shatz as the Special Guest Speaker. Please click here for more information regarding the event and for information on how to obtain a copy of the Law of Wine in Idaho.

Cowlitz County Superior Court Denies Motion For Preliminary Injunction Against I-1183

Susan Johnson — Thu, 29 Dec 2011 14:45:23 -0800

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

Susan Johnson — Mon, 12 Dec 2011 15:30:23 -0800

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.

TTB Publishes Notice of Rulemaking for Inwood Valley AVA

Jake W. Storms — Wed, 07 Dec 2011 15:58:40 -0800

On December 5, 2011, the TTB published a Notice of Proposed Rulemaking (Notice No. 125) regarding the establishment of the Inwood Valley Viticultural Area in Shasta, California. If established, the new AVA would consist of a 28,000 acre area, the vast majority of which is currently not dedicated to, or known for, vineyards. The TTB invites comments on the proposed rulemaking, with any comments due on or before February 3, 2012. A full version of the Notice and the documents relating to the underlying Petition can be found here.

Utah to Consider Privatization Models

Catherine Parrish Lake — Wed, 23 Nov 2011 11:05:48 -0800

The recent move by Washington voters to end state control of liquor sales, combined with ongoing corruption scandals within the Utah Department of Alcoholic Beverage Control, is causing Utah lawmakers to renew privatization discussions. Support appears to be growing to limit the state’s involvement in liquor sales at least to some degree.

Utah is among the minority of states that control wholesale and retail liquor sales. Several Utah state legislators have expressed an interest in privatizing the retail business. Some have also expressed interest in privatizing wholesale sales. Governor Herbert has expressed interest in retail change but appears reluctant to remove control of the wholesale system. Wholesale privatization appears less likely than retail privatization, because of a perception that state control over distribution and pricing results in fewer alcohol-related problems.

Utah currently allows some private retail alcohol sales through “package agencies.” Package agencies are located in resorts and rural areas and offer a modest selection of products. Similar to liquor licenses, package agency contracts are granted based on population with one package agency allowed per 18,000 people. Expanding the package agency system, for instance to allow grocery stores to operate liquor outlets, could act as a bridge to full privatization.

Any privatization reforms will have to clear several hurdles, including compensating for the substantial profit the state realizes from liquor sales.

TTB Rules to Expand Sonoma AVAs

Jake W. Storms — Mon, 21 Nov 2011 11:06:12 -0800

On Wednesday November 16, the TTB published a ruling (T.D. TTB-97, available here) amending the federal definition of the Russian River Valley viticultural area and the Northern Sonoma viticultural area, by expanding each. The action first began in August of 2008 when Gallo Family Vineyards submitted a petition for the amendment. After receiving numerous comments both for and against, the TTB ruled to expand the Russian River Valley viticultural area south and southeast by 14,044 acres to 169,029 acres, an increase of 9%. This expansion will include land just west of Rohnert Park and Cotati.

The decision will also expand the Northern Sonoma viticultural area to include the entirety of the Russian River Valley viticultural area. The expansion will add 44,244 acres to the Northern Sonoma area, bringing its total to 394,088 acres, also an increase of 9%.

The TTB specifically noted in the ruling that the expansion will not affect currently approved wine labels but will allow winemakers in the expanded area to utilize the two viticultural designations not previously available to them.

The ruling goes into effect on December 16, 2011.

Liquor Sales to be Privatized in Washington State

Susan Johnson — Wed, 09 Nov 2011 13:24:43 -0800

Initiative Measure No. 1183 is passing by a 20% margin according to Washington Secretary of State’s 2011 General Election Results website. The same source indicates that, as of this morning, a majority of voters in only four of Washington State’s counties in the state were not definitively in favor of the measure.

A Press Release by the Washington State Liquor Control Board indicates that the agency “will continue to maximize revenue in responsible ways through the holiday season” and, in January, will focus on divesting its self of the state’s current wholesale distribution and retail operations. “By June 1, 2012, all liquor business operations - including purchasing, distribution and retail -- will be transitioned to the private sector.”

There are many unknowns that we expect to be addressed by agency rulemaking in the coming months of transition and we will be working closely with our current and future clients to help them understand how the changes affect their current business interests and strategic plans.