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Mississippi Supreme Court Rejects ‘Passage of Title’ DTC Theory

Last week, the Supreme Court of Mississippi handed down an opinion in Fitch v. Wine Express Inc., No. 2018-SA-01259-SCT. A state court decision on the rather dry subject of personal jurisdiction often merits little comment, but the Fitch opinion features an emphatic rejection of the legal theory relied upon by many direct-to-consumer retail alcohol sellers today.

As a “control” state for wine sales, Mississippi law generally prohibits the importation, transportation and sale of alcoholic beverages (a term that includes wine) outside of the state’s monopoly control system. And, as in virtually every state, the retail sale of wine to consumers is reserved to state licensees and, in the case of control jurisdictions, the state itself.

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Oklahoma Supreme Court Strikes Down New Distribution Statute as Unconstitutional

In a win for alcohol beverage suppliers, on Wednesday the Oklahoma Supreme Court issued an opinion in The Institute For Responsible Alcohol Policy v. State ex rel. Alcohol Beverage Laws Enforcement Comm’n. In a 5-4 ruling, the court struck down as unconstitutional a statute requiring the top 25 wine and spirits brands in the state, by volume, to be offered to all wholesalers without discrimination. The effect of the ruling is that a supplier of any brand of alcohol is free to choose its preferred or potentially exclusive distributor in the State of Oklahoma.

As background, Oklahoma has historically prohibited suppliers of wine and spirits from having an exclusive distribution relationship with an Oklahoma wholesaler, and required suppliers to sell their products to any Oklahoma wholesaler desiring to purchase them. For those familiar with the concept of “franchise” laws in the alcohol beverage industry—which typically require suppliers and wholesalers to establish exclusive distribution relationships—this provision effectively operated as a “reverse franchise” law.

Following a voter referendum in the fall of 2016, Oklahoma enacted a constitutional amendment overhauling its alcohol beverage laws. As part of the legislative changes, a new statute authorized suppliers to appoint a single wholesaler for their products in Oklahoma. The new statute allowed, but did not require, suppliers to establish exclusive distribution relationships with Oklahoma wholesalers.

As a reaction to the constitutional amendment and 2016 legislative changes, Oklahoma enacted a new law in May 2019 that partially restored the reverse franchise law, requiring any wine or spirit product constituting a “top brand” (i.e., by volume) to be made available to all Oklahoma wholesalers. A number of parties, including The Institute for Responsible Alcohol Policy and several members of the alcohol industry, comprising the supplier, wholesaler, and retailer tiers, sued to challenge the law. The plaintiffs argued that the law conflicted with the new constitutional amendment.

In August 2019, a district court judge held the law unconstitutional. The wholesalers appealed, and in this ruling the Oklahoma Supreme Court affirmed the lower court’s decision. Specifically, the court’s majority opinion held:

  1. The statute in question is “clearly, palpably, and plainly inconsistent” with the 2016 constitutional amendment’s provision giving discretion to a supplier of spirits or wine to determine what wholesaler(s) sells its products. Because the statute “infringes on a manufacturer’s constitutionally granted discretion to select one wholesaler to the exclusion of all others,” it is unconstitutional.
  1. The statute “is not a proper use of legislative authority,” as the constitutional amendment does not conflict with the Oklahoma constitution’s prohibition on anti-competitive activities (i.e., monopolies). The amendment does not require suppliers to sell their brands to only one wholesaler, and instead places discretion in the hands of the suppliers to determine how they will distribute their products in the state.

The ruling allows for a level playing field for all suppliers, including suppliers of high-volume brands in Oklahoma, to determine how their products will be distributed in Oklahoma.




Craft Beer Mergers and Acquisitions

Over the past several months, 15 notable deals have taken place in the craft beer space, continuing a trend toward consolidation in the industry. While the terms of most transactions remain undisclosed, the deals generally fall into three buckets:

  1. Strategic deals designed to combine leading brands and brewers and leverage distribution capacity;
  2. Targeted asset acquisitions designed primarily to expand brewing capacity; and
  3. Restructuring transactions.

McDermott’s Marc Sorini, Thomas Conaghan and Daniel McGuire walk through notable strategic deals, asset/capacity purchases and restructurings.

Access the full article.

Originally published in The New Brewer, November/December 2019.




2nd Circ. Tussle Distills Court Divide on Booze Laws

Sharp disagreements in the Second Circuit over whether a Connecticut liquor law runs afoul of antitrust law, recently exposed in a bitter dissent, highlight a circuit split that some experts predict will be taken up by the US Supreme Court.

A three-judge panel upheld the law in February by batting down a retailer’s challenge to three parts of Connecticut’s liquor sales law, including a controversial “post and hold” provision that lets wholesalers match each other’s prices. The panel rejected the retailers’ claim that the provision forced wholesalers into illegal price-fixing deals.

“There is a split, and it’s an important area,” said Raymond Jacobsen Jr., McDermott partner, backing the retailer’s view that the “post and hold” requirement creates a clear state-sanctioned violation of the Sherman Act. He said he believes it’s a question that will intrigue the justices.

Access the full article.

Originally published on Law360, September 2019.




Cannabis and Hemp Update

Cannabis legalization receives widespread popular support. According to opinion polls, more than two-thirds of Americans support full legalization—a steep rise in support considering that as recently as 2005, almost two-thirds of Americans opposed legalization. The country appears on the path to full cannabis legalization, but until that time, citizens and companies should be aware of the legal risks involved in entering the cannabis space.

Access the full article.

Originally published in The New Brewer, July/August 2019.




Implications of the Supreme Court’s Tennessee Retailers Decision

As virtually everyone in the US alcohol beverage industry knows, last week the US Supreme Court handed down its opinion in Tennessee Wine and Spirits Retailers Assn. v. Thomas, S.Ct. No. 18-96 (June 26, 2019). Now that over a week has passed since the release of that decision, it’s time to reflect on what it means and what is coming next.  (more…)




Mississippi Supreme Court Ruling Reinstates Claims Against Anheuser-Busch, Mitchell Distributing

I. Introduction

On May 23, the Mississippi Supreme Court published its opinion in the case of Rex Distributing Company v. Anheuser-Busch, LLC, et al. The ruling partially reverses the trial court’s decision to dismiss all of Rex’s claims against Anheuser-Busch and rival distributor Mitchell Distributing Company (Mitchell). The ruling will allow Rex Distributing Company (Rex) to proceed with its lawsuit alleging that Anheuser-Busch violated Mississippi’s Beer Industry Fair Dealing Act (BIFDA) by refusing to approve Rex’s attempt to sell its distribution rights to Anheuser-Busch products. In addition, the ruling will allow Rex to proceed with a claim against Mitchell for tortious interference and civil conspiracy.

The ruling clarifies Mississippi beer franchise law by limiting the rights of beer suppliers in the context of distributor transfers, effectively rendering Anheuser-Busch’s “match and redirect” contractual provisions unenforceable under Mississippi’s Beer Industry Fair Dealing Act (BIFDA). (more…)




Winds of Change Blowing for Craft Brewers

For those who follow developments in the law and craft brewing with equal passion, every year has its share of substantial issues. This year has been no exception, with a pending Supreme Court case; a substantial upswing in federal trade practice enforcement activity; a massive rewrite of US Tax and Trade Bureau (TTB) labeling and advertising regulations; and prospects for extending the biggest cuts in the excise tax on beer since the repeal of Prohibition.

As these developments play out over the next year, we may see changes translate into the marketplace. Find out what you can expect.

Access the full article.

Originally published in The New Brewer, May/June 2019.




Arbitration Clause in Beer Distribution Agreement Enforced by the Virginia ABC

On May 7, 2019, the Virginia Department of Alcoholic Beverage Control (VABC) published a decision confirming the enforceability of arbitration clauses in distribution agreements between brewers and beer distributors under Virginia’s Beer Franchise Act (BFA). In Loveland Distributing Co., Inc. and Premium of Virginia, LLC v. Bell’s Brewery, Inc., the VABC panel ruled unanimously in favor of compelling the parties to resolve their dispute through arbitration, as provided for in the parties’ distribution agreement (the Agreement).

The decision is good news overall for beer and wine suppliers hoping to avoid the cost of litigation before the VABC. Continue reading for details of the dispute and further considerations. (more…)




District Court Decision Rejects Commerce Clause Challenge to Missouri’s Retailer Wine Shipping Laws

On Friday, March 29, the US District Court for the Eastern District of Missouri handed down its decision in Sarasota Wine Market v. Parson, No. 4:17CV2792. The decision upholds Missouri’s laws permitting in-state retailers to sell and deliver directly to consumers’ homes, but withholding that same privilege to out-of-state retailers. Plaintiffs had challenged the Missouri statutes under both the so-called “dormant” Commerce Clause and the Privileges and Immunities Clause of the Federal Constitution.

The decision is not surprising, as Missouri lies within the jurisdiction of the US Court of Appeals for the Eighth Circuit. The Eighth Circuit, in a challenge to a residency requirement in a case entitled Southern Wine & Spirits v. Division of Alc. & Tobacco Control (2013), previously held that state laws regulating retailers and wholesalers are immune from dormant Commerce Clause scrutiny under the 21st Amendment. The Sarasota Wine Market decision relies heavily on Southern Wine & Spirits in rejecting the plaintiffs’ dormant Commerce Clause challenge. And, the court reasoned that because the right to engage in the wine trade is subject to the limitations of the 21st Amendment, the Privileges and Immunities Clause is not implicated.

Whether the 21st Amendment insulates state laws regulating retailers and wholesalers from dormant Commerce Clause scrutiny is currently pending before the Supreme Court in the Tennessee Wine & Spirits Retailers Association v. Blair (f/n/a Byrd) case. Thus, the Sarasota Wine Market opinion faces almost-certain reversal or affirmance, depending on how the Supreme Court rules in Blair. In the meantime, the decision serves to underscore the stakes of the question currently pending before the Supreme Court.




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