Indiana: Supreme Court weighs arguments in liquor wholesaling permit case

Source: IBJ

Susan Orr

February 23, 2017

Is setting up a surrogate company an acceptable way to comply with the law, or is it skirting the law?

That was one of the issues debated Thursday when the Indiana Supreme Court heard oral arguments in a case pitting liquor wholesaler Spirited Sales Inc. against the Indiana Alcohol and Tobacco Commission. The case could decide whether beer and wine wholesalers can also be legally permitted to sell liquor in Indiana.

In 2014, the commission denied Spirited Sales’ request for a wholesale liquor permit because, under state law, alcohol wholesalers can’t have an interest in both a beer wholesaler’s permit and a liquor wholesaler’s permit. Indiana is the only state with such a restriction.

Spirited Sales is wholly owned by EF Transit Inc., a transportation company that shares the same CEO, board of directors and shareholders with beer distributor Monarch Beverage.

In August, a Marion Superior Court judge ruled in favor of Spirited Sales, overturning the Alcohol and Tobacco Commission’s denial as “arbitrary and capricious.” Following that decision, the Indiana Alcohol and Tobacco Commission issued Spirited a temporary liquor wholesalers permit pending a court decision.

Indiana Supreme Court Chief Justice Loretta Rush, along with justices Robert Rucker, Steven David and Geoffrey Slaughter, heard arguments from both sides Thursday. Justice Mark Massa has recused himself from the case.

Representing the Indiana Alcohol and Tobacco Commission, Solicitor General Thomas Fisher told the justices that the common links between Monarch and Spirited mean that Spirited is not entitled to a permit.

“Who can look at that situation using common sense and reality and think that the owners of Monarch don’t have an interest in what goes on at Spirited, and vice versa? Of course they do,” Fisher told the justices. “How is this anything other than trying to get around the direct prohibitions, if we have the same ownership owning companies that have permits on both sides, both in liquor and in beer?”

The justices, in response, noted that in some cases the alcohol and tobacco board actually suggested the use of surrogate corporate entities.

“People were advised to do this,” Rush said.

Justice David described the permitting landscape as “a really wild, wild West. Almost anything goes.”

Arguing on behalf of Spirited Sales, attorney Brian Paul of Faegre Baker Daniels said the Alcohol and Tobacco Commission has had “a longstanding policy and practice” of “encouraging the creation of separate companies to avoid running afoul of prohibited interest provisions.”

Paul also rejected the idea that Monarch and Spirited have a legal interest in each other’s permits.

“Monarch does not have a legal interest in Spirited’s permits, and vice versa,” Paul told the justices. “This is ultimately, I think, a matter of line-drawing, of classic interest-balancing.”

Oral arguments lasted about 45 minutes. Rush said the court will discuss the case and issue an opinion, although she did not indicate when that might take place.