Challenge to The 3-Tier System Inevitable as Illinois Legislature Introduces Bill to Revoke Anheuser’s Stake in City Beverage
Illinois could soon find itself again at the center of the ongoing national debate over the three-tiered system. And that debate will involve the same two parties as last time.
I’m sure you all recall the 2010-2011 Anheuser Busch case in Illinois where a Federal District Court found that a previous iteration of Illinois’ Liquor Control Act violated the U.S. Constitution’s Commerce Clause by allowing some brewers to distribute if they were in-state brewers and keeping out-of-state brewers from distribution. The decision came as a result of a suit between the Illinois Liquor Control Commission and Anheuser Busch over Anheuser’s desire to purchase City Beverage, a distributor that it already owned a minority share of.
The legislature responded with the creation of the Craft Brewer’s license which gave small brewers the ability to self-distribute and prohibited large brewers from the privilege. We wrote about the Court’s denial of the $1.6 Million in attorneys’ fees that Anheuser sought from the State here.
In the end, the Illinois Liquor Control Commission ended the fiasco by ruling last October that Anheuser-Busch could retain a minority stake-hold in Chicago’s City Beverage. You can read that opinion here.
Trade groups like the Associated Beer Distributors of Illinois, the Illinois Licensed Beverage Association and the Beverage Retailers Alliance of Illinois have argued that it is illegal under the new law for Anheuser-Busch to have any ownership interest in City Beverage.
The State legislature is taking up that debate where, apparently, the Illinois Liquor Control Commission would not. They’ve introduce a bill that would amend the Liquor Control Act to keep the Commission from issuing a license to any brewer with an interest in a State distributor and that will expressly revoking any such ownership interest between a brewer and a distributor which already exists in the State.
There are currently two tracks for this bill which may make it move faster, one in the House and one in the Senate. Both bills are identical. The House Bill – HB 2606 – was introduced on February 21, 2103, and is currently with the rules committee. The Senate Bill – SB 1855 – was introduced on February 15, 2013, and is currently with the Executive.
The portion of the bill adding the language that will revoke any existing license where the licensee is a brewer with an interest in a distributor starts off with a preamble that appears geared towards any eventual challenge:
The General Assembly hereby restates its commitment to the primary purpose of the Liquor Control Act of 1934, which is to protect the health, safety, and welfare of the People of Illinois through the sound and careful control and regulation of the manufacture, distribution, and sale of alcoholic liquor through independent licensees in a 3-tier regulatory system. The State's 3-tier regulatory system is designed to prevent a manufacturer or non-resident dealer, if the non-resident dealer is also the manufacturer of alcoholic liquors, including a partnership, corporation, subsidiary, limited liability company, trust, agent, affiliate, or other form of business enterprise thereof, from exercising vertical integration between a manufacturer or non-resident dealer, if the non-resident dealer is also the manufacturer of alcoholic liquors, and a distributor, importing distributor, or retailer through any ownership interest or through control.
Again, nothing in this preamble actually says how on earth the “3-tier regulatory system” or the absence of the vertical integration they’re so worried about protects the “health, safety, and welfare of the People. Or how it effectuates sound and careful control… or how sound and careful control protects the “health, safety, and welfare”… you get my point. It’s verbage. And these platitudes might have flown through courts for years as enough to hold that this type of system has a rational basis… but that’s starting to change. People are wising up and rejecting arguments based on “just-so-stories” about how problems like tied-houses from the 19th and early 20th centuries limited consumer choice. The idea that 100 years later we couldn’t effectively legislate and then guard against any potential threats like monopolies doesn’t hold water when we have laws that guard against monopolies.
So, what happens when a long-running relationship and business enterprise – heretofore allowed – is deemed verboten by an amended law… An amazing constitutional case, most likely. Should this bill be enacted, and should Anheuser-Busch decide to stand up for itself we’re in for one heck of a show.