Federal court rebuffs latest Monarch-linked liquor law challenge

December 20, 2018

An Indiana motor carrier’s attempt to transport liquor for a Michigan City wholesaler has been blocked by the Southern Indiana District Court, which found the proposed arrangement could potentially circumvent Indiana’s three-tiered alcohol distribution and sales system.

The ruling issued Dec. 12 is the latest in a long-running battle between entities with ties to Monarch Beverage Co. and the Indiana Alcohol and Tobacco Commission. Since the dispute began in 2009, the legal arguments have reached the 7th Circuit Court of Appeals and the Indiana Supreme Court. Each time, as happened here, the commission and Indiana’s alcohol laws withstood the challenges.

The plaintiff, E.F. Transit, Inc., shares the same CEO, shareholders, board of directors and about 20 employees with Indianapolis-based Monarch Beverage, a licensed beer and wine wholesaler. Also, EFT subleases space in its warehouse to Monarch and delivers product for the wholesaler.

The transit company is licensed by the commission to transport beer, wine and liquor, but the commission turned back a couple of proposals that would have enabled EFT to handle product for a wine and liquor wholesaler in Michigan City.

In 2009, EFT and Indiana Wholesale Wine & Liquor Co. entered into a tentative agreement where the transit company would warehouse and ship alcoholic beverages for the wholesale business. Also, as part of the agreement, Indiana Wholesale would move its warehouse to EFT’s location on Pendleton Pike in Indianapolis.

The commission investigated and then indicated it would reject the proposed agreement. Primarily, the commission believed the agreement would give Monarch Beverage an interest in Indiana Wholesale, which violates Indiana law that prohibits a beer wholesaler from having an interest in a liquor permit of any type.

In 2012, EFT and Indiana Wholesale submitted another agreement that limited EFT to picking up shipments from the wholesale company’s warehouse and delivering them to the wholesaler’s customers. The commission warned the agreement could run afoul of Indiana’s Prohibited Interest Statutes. As a result, Indiana Wholesale withdrew from the agreement.

EFT then filed a lawsuit, claiming the Federal Aviation Administration Authorization Act (FAAAA) preempts state laws regulating a motor carrier’s transportation of property.

The U.S. District Court for the Southern District of Indiana did not agree. In E.F. Transit, Inc., v. David Cook, et al., 1:13-cv-01927, the court granted the commission’s cross-motion for summary judgment and denied EFT’s motion for summary judgment.

“Indiana’s intricate regulatory system that relies, in part, on the separation of liquor wholesalers from beer wholesalers, would be unable to regulate the ‘times, places, and manner under which liquor may be imported and sold’ if the challenged statutes were struck down,” Judge Richard Young wrote, citing Capital Cities Cable, Inc., v. Crisp, supra, 467 U.S. 716 (1984). “The court therefore finds the state’s interests protected by the Twenty-First Amendment, and carried out through reasonable means, outweigh the federal interest advanced by EFT.”

In finding that the proposed contract between EFT and Indiana Wholesale would violate Indiana’s Prohibited Interest Statues, the law which prevents a single entity from holding both a beer and liquor permit, the district court pointed to another case involving a company with ties to Monarch.

Spirited Sales, LLC, which was wholly owned by EFT, sued the commission after it was denied a liquor wholesaler’s permit. Upholding the commission’s denial in Indiana Alcohol & Tobacco Comm’n v. Spirited Sales, LLC, 79 N.E.3d 371 (Ind. 2017), the Indiana Supreme Court reasoned “the ties between EFT and Monarch were so extensive the EFT could reasonably be deemed to hold an interest in a beer wholesaler’s permit — an interested prohibited by a combined reading of [the Prohibited Interest Statues].”

As to whether the state regulations were preempted by FAAAA, the district court pointed to Lebamoff Enter., Inc. v. Huskey, 666 F.3d 455, 458 (7th Cir. 2012). There the appellate court held the Prohibited Interest Statues fall within Indiana’s “core power” as provided by the 21st Amendment.

“Because the transportation function is a particularly critical and far-reaching aspect of alcohol supply and distribution in this state, a wholesaler could circumvent Indiana’s three tier system by using a commonly owned motor carrier,” Young wrote. “And if one wholesaler held a monopoly, the Commission’s ability to regulate that wholesaler would be impeded due to a lack of transparency and industry watchdog, where one oversized wholesaler could unduly influence regulators through its dominant market share.”




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