Indiana High Court Spikes Monarch Beverage Bid for Liquor License

Monarch Beverage can’t enter the liquor business through an affiliated company, Spirited Sales LLC, the Indiana Supreme Court ruled.

“We find that the (Indiana Alcohol & Tobacco) Commission’s denial conformed to the statute’s plain language, and the Commission did not act arbitrarily or capriciously in initially denying the applicant’s request.  We further find that the Commission’s denial was not based on political grounds,” the court said, adding it declined Spirited’s invitation to affirm the trial court — which had ordered the Commission to issue the license — on constitutional grounds.

Spirited Sales is wholly owned by  E.F. Transit, Inc. (“EFT”), which transports beer, wine, and liquor throughout Indiana.  EFT’s ownership consists of five shareholders.  The same five shareholders also wholly own Monarch Beverage Company, Inc. (“Monarch”), an Indiana company that holds a beer and wine wholesaler’s permit.

The court noted that the Commission’s Executive Secretary, acting as a hearing judge, found that despite “some separation of business formalities,” EFT and Monarch “operated as the same company” and further found that a liquor wholesaler like Spirited, “entering into a contract with EFT, would in reality be entering into a contract with Monarch.”

That led the Commission to deny Spirited’s application.

Monarch appealed, and a trial court ordered the Commission’s decision to be set aside and Spirited to be issued a license.

In it’s review of the case, the Indiana Supreme Court held that denial “conforms with the statutory provisions.”

Indiana law prohibits “the holder of a distiller’s, rectifier’s or liquor wholesaler’s permit to have an interest in a beer permit of any time.”  The Commission argued that it’s denial of Spirited Sales’ permit “was appropriate because the statute’s plain language calls upon the Commission to base its permitting decisions on the interests of natural persons, not just paper entities.”

In denying Spirited Sales a liquor permit, the Supreme Court noted that “a denial of Spirited’s application conformed to the plain language of the statute, which is clear on its face.  The business relationships between Spirited and Monarch first ran afoul of the prohibited interest statutes through Spirited’s sole member, EFT. . . . EFT was expected to meet the same qualification requirements for a liquor wholesaler’s permit imposed on Spirited.  In other words, EFT had to be clear of any prohibited interests, whether directly or indirectly, such that granting Spirited’s permit would not violate any provision of Title 7.1.

“Here, ties between EFT and Monarch were so extensive that EFT could reasonably be deemed to hold an interest in a beer wholesaler’s.  Monarch was incorporated and began its operations in 1947.  The record demonstrates that in 1996, Monarch’s management created EFT to take advantage of certain favorable tax regulations.

“Since then, EFT has handled Monarch’s trucking operations as a “public for-hire fleet.”  EFT helps Monarch distribute alcoholic beverages by receiving and warehousing products, managing inventory, sorting and delivering, and collecting invoices.

“Monarch also sublets a facility from EFT, serves as EFT’s guarantor, is EFT’s primary customer, and is the source of almost all of EFT’s business.  Additionally, Monarch and EFT share a CEO, a board of directors, and many employees.

“This was not just the case of two separate entities conducting close business transactions.  Here, the lines between Monarch and EFT were quite blurred, making a conclusion that Monarch and EFT were practically one in the same a reasonable inference. Thus, given the extent of these ties, Spirited’s permit was barred by virtue of EFT’s interest in a beer wholesaler’s permit,” the high court ruled.

You can read the full decision here.

Philip Terry, president, Monarch Beverage, declined to comment on the decision.

Tina Noel, a spokesperson for Wine & Spirits Distributors of Indiana and the Indiana Beverage Alliance, said:

“The unanimous decision by the Indiana Supreme Court reverses the only judge that has ever mistakenly agreed with Monarch in its decade-long barrage of lawsuits against the State of Indiana. The Indiana Supreme Court joins the United States Court of Appeals for the 7th Circuit and the Indiana Court of Appeals in rejecting the company’s assault on the Indiana General Assembly’s and the Alcohol & Tobacco Commission’s authority to regulate alcoholic beverages.

“We certainly hope this is the end of Monarch’s efforts to undermine the legislature and create a regulatory environment where anything goes. We also hope this decision puts a stop to the company’s attempts to bully the ATC by burying them in paperwork, intimidating them through wasteful and unnecessary public records requests, and condemning them for doing their job.

“Monarch has been unsuccessful at the legislature, at the commission and now, yet again, in the courts. Perhaps the State can finally spend its limited resources on more pressing issues than a company that’s aiming to monopolize an industry.”

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