Wa Restaurant Assoc, V Wa State Liquor Control Bd

Citation: Not availableDocket: 48807-8

Court: Court of Appeals of Washington; August 8, 2017; Washington; State Appellate Court

Original Court Document: View Document

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The case involves an appeal concerning the Washington State Liquor and Cannabis Board's (Board) implementation of rules following the privatization of liquor distribution as established by Initiative Measure No. 1183, now codified in Title 66 RCW. Key rules under scrutiny include the 10 percent license fee for private distillers, the sell-and-deliver requirements for distributors, and the 24-liter daily sales limit for wine and spirits to retailers. The Washington Restaurant Association, Northwest Grocery Association, and Costco Wholesale Corporation (collectively, the Association) petitioned for judicial review of these rules, while the Association of Washington Spirits and Wine Distributors (Distributors) intervened to defend the Board's rules.

The superior court upheld the validity of the 10 percent license fee and the sell-and-deliver rules but deemed the 24-liter rules invalid. The Association appeals the validity of the 10 percent license fee rules, claiming the Board exceeded its statutory authority, and contests the sell-and-deliver rules as arbitrary and capricious. In cross-appeal, the Distributors argue that the superior court incorrectly ruled that the Board exceeded its authority regarding the 24-liter rules. The appellate court validated the 10 percent license fee rules as invalid but affirmed the superior court's other rulings.

Initiative No. 1183, passed by voters in 2011, privatized liquor distribution in Washington, establishing new licenses and imposing fees on private distributors and distillers. Title 66 RCW outlines the licensing framework, including the spirits distributor license, which allows licensed distributors to purchase and resell spirits.

Under RCW 66.24.140, in-state distillers can blend, rectify, and bottle distilled spirits with a license that requires an annual fee of $2,000. These distillers are also permitted to distribute their own products directly to retailers, while out-of-state distillers must acquire a spirits certificate of approval to distribute their products in-state. RCW 66.24.640 allows licensed distillers to serve as retailers and distributors, provided they comply with relevant distributor regulations. Title 66 governs liquor sales, imposing restrictions on the quantity of spirits and wine retailers can sell to each other, specifically limiting single sales to 24 liters.

The Board has the authority to establish fees and regulations related to liquor sales, leading to the creation of the "10 percent license fee rules," which impose a fee on spirits revenue for distillers and certificate holders who distribute their own products. Additional rules include the "sell-and-deliver rules," mandating that distributors sell and deliver from licensed premises, and the "24-liter rules," which limit daily sales from off-premises to on-premises retailers. Following the adoption of these rules, the Association petitioned for judicial review, claiming that the 10 percent fee, sell-and-deliver, and 24-liter rules were invalid due to exceeding the Board's authority and being arbitrary. The superior court upheld the 10 percent and sell-and-deliver rules as valid but invalidated the 24-liter rules for exceeding authority. The Association and Distributors are now appealing the decision.

The review of agency rules is governed by the Washington Administrative Procedure Act (APA), which allows for invalidation if the rule violates constitutional provisions, exceeds statutory authority, fails procedural compliance, or is deemed arbitrary and capricious.

The agency rule's validity is assessed de novo, guided by statutory authority. The Board's adoption of the 10 percent license fee rules was found invalid as it exceeded the statutory rule-making authority granted under Title 66, which does not stipulate such a fee for distillers. Consequently, the arguments raised by the Association regarding the rule's justification or claims of being arbitrary and capricious were not considered. Administrative agencies are limited to powers explicitly granted by statute or implied through legislative delegation; they cannot alter legislative enactments. When interpreting initiatives, the collective intent of the enacting populace is paramount, derived from the plain language and context of the statute. Title 66 outlines the licensing for spirits distribution and associated fees, with RCW 66.08.030(4) empowering the Board to regulate fees for licenses not directly prescribed in Title 66. Specifically, RCW 66.24.140 details the licensing for distillers, mandating an annual fee of $2,000, while RCW 66.24.640 allows licensed distillers to act as retailers or distributors under compliance with relevant laws. The rules in question treat distillers and holders of a spirits certificate of approval similarly, thus they are referred to collectively as distillers.

The Board possesses the authority under Title 66 to prescribe fees for permits and licenses, which led to the adoption of the 10 percent license fee rules requiring distillers to pay 10 percent of their gross spirits revenue during the first two years of licensure, and 5 percent thereafter. RCW 66.24.640 allows licensed distillers to act as distributors without the need for an additional distributor license or fee. The Washington Supreme Court, in Ass’n of Washington Spirits and Wine Distributors v. Washington State Liquor Control Board, ruled that the Board could not impose additional fees on distillers beyond those specified in Title 66. The Court emphasized that the specific provisions regarding distiller licenses and fees in RCW 66.24.140 take precedence over the Board's general authority to impose fees. Consequently, the Board cannot levy additional fees on licensed distillers, and the 10 percent fee rules are inconsistent with the statutory framework, rendering them invalid. Regarding the sell-and-deliver rules, the Association's claim of them being arbitrary and capricious was rejected, as they did not sufficiently demonstrate a lack of justification from the Board.

An agency rule may be deemed arbitrary and capricious if it is made willfully, lacks reasoning, and disregards relevant facts. The Board, under Title 66, aims to protect public interest, enhance public safety, and ensure efficient tax collection, which empowers it to regulate liquor sales. The sell-and-deliver rules mandate that wine and spirits distributors must store products at their licensed premises before selling or delivering them. The Board issued a concise explanatory statement (CES) to justify these rules, emphasizing their necessity for effective tax collection and control over liquor distribution. The Association's argument, referencing Puget Sound Harvesters Ass’n v. Dep't of Fish and Wildlife, that the rules are arbitrary due to a lack of justification, is countered by the Board's documented rationale in the CES, which aligns with its regulatory authority and objectives. The Association failed to demonstrate that the Board ignored relevant facts in adopting these rules. 

In a cross-appeal, the Distributors contended that the Board exceeded its authority with the 24-liter rules. The Association claimed this issue is moot due to recent amendments removing the contested “one per day” limitation, while the Distributors maintained the issue remains relevant due to potential res judicata implications. The court considered the Distributors’ argument in the interest of justice. The Association referenced Terrill v. City of Tacoma to assert that the Distributors lack standing; however, the circumstances in Terrill differ significantly from the current case.

The Distributors successfully filed a motion to intervene in the superior court action, qualifying them as an aggrieved party under RAP 3.1, which allows for appellate review of the court’s order. On cross-appeal, the Distributors contended that the superior court incorrectly found that the Board overstepped its statutory rule-making authority by implementing the 24-liter rules per former WAC 314-02-103(2) and former WAC 314-02-106(1). The court agreed, emphasizing the need to interpret the relevant statutes, particularly RCW 66.24.630(1) and RCW 66.24.360(2), which each stipulate that no single sale of spirits or wine may exceed 24 liters, but do not impose a daily sales limit. The court clarified that while the term "sale" could imply multiple transactions, the statutes' language does not support a daily limit on sales. Since the 24-liter rules contradict the statutes, the Board exceeded its authority in adopting them, rendering the rules invalid. The conclusion affirms the invalidity of the 10 percent license fee rules while upholding the superior court's order otherwise.