Sleepless in Olympia: I-1183 Transition

Report
Mary M. Tennyson, Sr. Assistant Attorney General
Legal Counsel to Washington State Liquor Control
Board
March 13, 2013
Initiative 1183 Timeline
 December 8, 2011, I-1183 took effect
 March 1, 2012, Distributors and Suppliers
licensees allowed to sell to spirits retailers
 May 31, 2012, State stores closed
 June 1, 2012, new Spirits Retail Licensees can
sell to public
Washington Supreme Court Rejects
Constitutional Challenge to
Initiative 1183
Defending I-1183:
Two legal challenges filed
 December 6 and 7, 2011
 King County Superior Court (Seattle), Cowlitz
County Superior Court (Longview)
 Cowlitz County case heard first; Motion for
Preliminary Injunction denied.
 Judge ruled initially to overturn the law on
constitutional grounds (single subject,
subject-in-title claims)
 Judge reversed initial ruling on Motion for
Reconsideration, March 19, 2011
Expedited review by Washington
Supreme Court
 Challengers filed expedited appeal, direct review
by Washington Supreme Court
 Supreme Court accepted case on expedited review
 Appellant requested injunction pending decision
 Injunction denied after briefing and argument, April 7,
2012
 Court heard argument on May 17, ruled 5-4 on
May 31 to uphold the law.
 King County case later dismissed as moot.
Rulemaking, Auction Store Rights, Issue
New Licenses, Lay off Employees, Close
Stores
Board Rulemaking
 Emergency Rules adopted effective Dec. 8, 2011
 In effect for 120 days; some re-adopted eff. April 8, 2012
 Proposed language of Permanent rules filed March 14,,
2012; revised language for some rules filed April 18; public
hearing May 24.
 Permanent rules adopted May 30, filed June 5, 2012,
effective July 6, 2012.
 Proposed language of rules to revise and repeal existing
rules filed May 3, 2012; hearings on June 27 and July 25
 Second set of Permanent rules filed August 1, 2012, effective
Sept. 1, 2012
State liquor stores closed, 5-31-12
 WSLCB issued 1455 retail liquor licenses (10,000sf+)
 Board auctioned right to operate liquor store at 167
former state store locations (not all have active licenses)
 Board sold product in its stores to successful bidders,
returned some product to suppliers under buy-back
agreements; auctioned remaining inventory Nov. 1, 2012
 Former contract liquor stores licensed, purchased
product
 Some bidders and former contract store managers failed
to pay for product, collection efforts ensued
As of March 1, 2013, ten lawsuits filed,
challenging Board’s actions to implement
the new law
Challenges to WSLCB rules-Costco, Washington
Rest. Association, NW Grocers Ass’n, Petitioners
 1st Lawsuit filed June 21, 2012 to challenge rules
adopted on May 30 (rules effective July 6)
 2nd Lawsuit filed August 17, 2012 to challenge rules
adopted August 1, 2012 (effective Sept. 2)
 WSLCB and its member named Respondents
 Washington Beer and Wine Distributor s Ass’n
intervened as Respondents
 Framed as Petition for Review under Washington
Administrative Procedure Act
Rule challenge cases, cont’d
 2 Cases consolidated for briefing and argument
 Briefing complete as of 3/8/13, argument set for 4/4/13.
 Complaint asks for rules to be declared invalid and
unenforceable
 Challenge emergency rules as not required, no
emergency
 (Emergency rules expired in August, 2012)
 Allege Board did not substantially comply with
statutory rulemaking procedures
Rule challenge cases, cont’d
 Assert rules amend the statute, exceed WSLCB
authority
 Limit on retail to retail sale of 24 liters per day (wine and
spirits)
 Rules requiring spirits distributors and wine distributors
to sell and deliver product from their licensed location
 Rules defining who Certificate of Approval holders can,
and cannot, sell spirits to.
 Rules defining authority of Spirits Importers
 Assert rules omit rights granted to spirits distributors
and grocery stores with wine retailer reseller permit that
law grants
Rule challenge cases, cont’d
 Assert rules violate Supremacy Clause, NAFTA, and
“similar provisions of other international trade
agreements”; inappropriately discriminates between
Washington licensees and out-of-state certificates of
approval holders, grant special privileges and
immunities in violation of 2 sections of the
Washington Constitution, and
 Allege rules violate state Constitutional provision
against amending an initiative within 2 years of its
adoption
Fedway Marketplace v WSLCB
 Landlords of state store locations sued, asserting
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Board did not have right to terminate leases
Sought continued payment of rent and payment of
amortized tenant improvement costs
Filed as class action
Dismissed by Motion for Judgment on the Pleadings,
February 1, 2013, prior to hearing on certification of the
class
Discovery was voluminous and contentious
Plaintiffs have appealed dismissal to Court of Appeals
2 other landlord lawsuits
 Sprague Partners (from Spokane) Landlord for state
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store purchased right at auction to operate SRL
Did not seek license
Sued state for terminating lease
Voluntary dismissal without prejudice, participated in
FedWay Marketplace case
Cascade Plaza Associates, Summons and Complaint
served, not filed, only served. (Voluntary nonsuit)
If Fedway appeal successful, may be reactivated
City of Burlington v. WSCLB
 Factual background:
 Purchaser of right to operate liquor store at location of
former state store in Burlington, WA, was unable to
negotiate lease for that location
 Sought/obtained WSLCB approval to transfer store
operating right to location he already operated (minimart)
 City of Burlington objected to location, citing potential
for sales to minors
City challenge to grant of spirits
retail license, cont’d
 Board granted relocation of right to operate store ,
granted spirits retail license to applicant
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location does not have a negative violation history
with Board
Location is not within 500 feet of a school, etc.
 Licensee is party to the case
 Record filed with court
 City’s brief due 3/5/13; Board’s brief due 3/28/13
 Court hearing set for 4/19/13
Rez Bev, LLC
 Challenge to application of 10,000 square foot
minimum store size for spirits retail license, within
boundaries of Indian reservation
 Board has held application pending adoption of
Trade Area rules; Rez Bev asserts 10,000 square
foot limitation is a zoning regulation, not
applicable to a tribal member on his reservation.
 Petitioner’s brief due April 30, 2013, Board’s brief
due May 20, Trial set for June 14, 2013
Tillman Carr, et al, v. WSLCB
 11 former contract store managers have sued WSLCB and
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Department of Revenue.
Assert WSLCB breached their contracts by terminating
them early (unconstitutional impairment of contract and
taking of property without just compensation)
Assert WSLCB did not “avert harm” to interests of former
contract store managers.
Assert WSLCB should not require them to pay 17% fee on
sales to restaurants and bars
Allege DOR violated law by failing to adopt rules re:
unconstitutional impairment of contract
Bases of challenge:
 RCW 66.24.620(6)(b):
“The [Board’s] transition must include, without
limitation, a provision for applying operating and asset
sale revenues of the board to just and reasonable
measures to avert harm to interests of tribes, military
buyers, and nonemployee liquor store operators under
then existing contracts for supply by the board of
distilled spirits, taking into account present value of
issuance of a spirits retail license to the holder of such
interest. The provision may extend beyond the time for
completion of transition to a spirits licensee system.”
Bases of challenge, cont’d
§ 303 of I-1183 provides:
The department of revenue must develop rules and
procedures to address claims that this act
unconstitutionally impairs any contract with the state
and to provide a means for reasonable compensation of
claims it finds valid, funded first from revenues based on
spirits licensing and sale under this act.
DOR issued statement that it lacks authority to make
the required determinations
Assoc. of Washington Spirits and
Wine Distributors v. WSLCB
 Association challenges WSLCB rules adopted to
implement collection of $150 million in Spirits
Distributor License fees
 RCW 66.24.055 mandates that by March 31, 2013,
holders of spirits distributor licenses must have paid
$150 million in spirits distributor license fees (fee is
10% of sales of spirits for first 2 years after licensure).
 Board required to assess any shortfall against “holders
of spirits distributor licenses”.
 Who pays 10% fee—rule challenged in first rule
challenge also
Lawsuit by Distributors, cont’d
 WSLCB rule requires all persons “holding spirits
distributor license” to pay shortfall in collection of $150
million
 Distributors assert that all those who pay 10% fee
should also be subject to shortfall assessment, and that
payments of 10% fee by those persons should be
included to determine amount of shortfall
 If first rule challenge successful on who pays 10% fee,
will impact outcome of distributor rule challenge: if
rule struck down, may moot second case.
Second group of former contract
store managers sue: Charles Ferrel
 Suit for damages by three former contract liquor store
managers, filed 1/30/13.
 Claims similar to Carr v. WSLCB
 Also assert that 17% retail spirits license fee on sales to
restaurants and bars violates the privileges and
immunities clause of Washington Constitution
 Answer filed, scheduling conference set for 4/5/13
Tort claim by auction winner
 Board granted license to BevMo! for space awarded to
auction winner; landlord expanded space to >10,000 sf
 Auction winner allowed to relocate within one mile,
but doesn’t want competition
 Demanded Board deny license to BevMo!
 Several other similar situations
Petition to rescind purchase of
auction right
 Persons/corporations who purchased the right to
operate a spirits retail license at the locations formerly
leased by the WSLCB have filed a petition with the
Board, asking the Board to rescind the contracts and
refund the amount they paid in the auction.
 Many of the persons joining the petition are
delinquent or late in payment of the 17% spirits retail
licensee; Board has authority to suspend license for
nonpayment.
Potential other claims
 Auction winner has filed tort claim
 Group of auction winners who purchased
rights to 40+ former state store locations
have filed petition with Board, seeking
rescission of purchase contracts; no lawsuit
filed yet
Questions?

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