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Indiana Alcohol and Tobacco Commission v. Spirited Sales, LLC

Supreme Court of Indiana

July 21, 2017

Indiana Alcohol and Tobacco Commission, Appellant (Respondent below),
v.
Spirited Sales, LLC, Appellee (Petitioner below).

         Appeal from the Marion County Superior Court, No. 49D01-1502-PL-5520 The Honorable Heather Welch, Special Judge

         On Petition to Transfer Pursuant to Appellate Rule 56(A)

          ATTORNEYS FOR APPELLANT Curtis T. Hill, Jr. Attorney General of Indiana Thomas M. Fisher Solicitor General David Steiner Frances Barrow Lara Langeneckert Elizabeth M. Littlejohn Deputy Attorneys General Indianapolis, Indiana

          ATTORNEYS FOR AMICUS CURIAE WINES & SPIRITS DISTRIBUTORS OF INDIANA Michael P. Maxwell John B. Herriman Clark, Quinn, Moses, Scott & Grahn, LLP Indianapolis, Indiana

          ATTORNEYS FOR AMICUS CURIAE INDIANA BEVERAGE ALLIANCE Steven M. Badger Leah Seigel Barnes & Thornburg LLP Indianapolis, Indiana

          ATTORNEYS FOR APPELLEE, Brian J. Paul, A. Scott Chinn, Anne K. Ricchiuto, Stephanie L. Boxell, Faegre Baker Daniels LLP, Indianapolis, Indiana, Kannon K. Shanmugam, Amy Mason Saharia Katherine Moran Meeks, Williams & Connolly LLP, Washington, D.C.

          David, Justice.

         This is an expedited appeal of a trial court's order setting aside the Indiana Alcohol and Tobacco Commission's denial of Spirited Sales, LLC's application for a liquor wholesaler's permit. The order directed the Commission to issue the requested permit. We find that the 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, and we decline Spirited's invitation to affirm the trial court on constitutional grounds. Thus, we reverse the trial court's order directing the Commission to issue the applicant a liquor wholesaler's permit, and we reinstate the Commission's order denying the permit.

         Facts and Procedural History

         Like many states, Indiana has an alcoholic beverage regulatory system, dividing distribution into three distinct tiers - manufacture, wholesale, and retail. Monarch Beverage Co. v. Cook, 48 N.E.3d 325, 328 (Ind.Ct.App. 2015). Within each tier, licenses are issued separately for beer[1], wine[2], and liquor[3]. Among the many "interest restrictions" outlined in Indiana's regulatory scheme, a pair of provisions prohibiting the holder of a beer wholesaler's permit from having an interest in a liquor wholesaler's permit, and vice-versa, are at issue here.

         In September 2013, Spirited Sales, LLC ("Spirited"), an aspiring liquor wholesaler, applied to the Indiana Alcohol and Tobacco Commission for a liquor wholesaler's permit. Spirited is registered in Delaware as a limited liability company. It is wholly owned by a parent company called E.F. Transit, Inc. ("EFT"), which transports beer, wine, and liquor throughout the state. EFT's ownership consists of five shareholders[4]. The same five shareholders also wholly own Monarch Beverage Company, Inc. ("Monarch"), an Indiana company that holds a beer and wine wholesaler's permit.

         On December 16, 2014, after holding a public hearing at Spirited's request, the Commission's Executive Secretary, acting as hearing judge, issued findings of fact and conclusions of law, recommending that Spirited's application be denied. The recommendation noted 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." Appellee's App. Vol. IX at 172. On January 20, 2015, the Commission adopted the proposed findings and conclusions, thus denying Spirited's application.

         Spirited then filed a petition in Marion Superior Court seeking judicial review of the Commission's denial under the Administrative Orders and Procedures Act, Indiana Code Section 4-21.5-5-1 et seq., and the alcoholic beverages permitting statute, Indiana Code section 7.1-3-23-30. On August 24, 2016, the trial court issued an order granting Spirited's petition. The trial court order set aside the Commission's order denying the permit and it directed the Commission to issue Spirited a liquor wholesaler's permit. The trial court found that, in light of previous Commission decisions that cited to the corporate separateness doctrine in support of granting a permit to businesses whose owners held interests prohibited by statute, the Commission's denial of Spirited's application for a liquor wholesaler's permit was arbitrary and capricious. The trial court also found that Spirited's other arguments were consequently moot and did not warrant being addressed.

         The Commission then filed a Notice of Appeal and moved the trial court to stay its order, pending appeal. After briefing and a hearing, the trial court denied the stay motion on September 23, 2016. To avoid any risk of contempt, the Commission issued Spirited a letter of authority that same day, and then issued the permit on September 28, 2016. Thereafter, the Commission sought a stay from the Court of Appeals, which was summarily denied on October 25, 2016 by a divided panel.

         On October 31, 2016, the Commission filed motions seeking: 1) emergency transfer to this Court, pursuant to Appellate Rule 56(A), and 2) a stay of the trial court's order. Having considered the parties' submissions and being duly advised, we granted the Commission's motion for transfer pursuant to Appellate Rule 56(A). Thus, the matter proceeded in this Court as if originally filed here. However, we denied the motion to stay the trial court's order pending appeal.

         Standard of Review

         We review an administrative action using the guideposts set forth in Indiana's Administrative Orders and Procedures Act, under which we may set aside an agency's action if it is: "(1) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; (2) contrary to constitutional right, power, privilege, or immunity; (3) in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; (4) without observance of procedure required by law; or (5) unsupported by substantial evidence." Ind. Code § 4-21.5-5-14(d).

         A party seeking judicial review bears the burden of proving the agency action is invalid for one of the above reasons. Ind. Code § 4-21.5-5-14(a). "Our review of agency action is intentionally limited, as we recognize an agency has expertise in its field and the public relies on its authority to govern in that area." West v. Office of Indiana Sec'y of State, 54 N.E.3d 349, 352-53 (Ind. 2016) (citing Ind. Wholesale Wine & Liquor Co. v. State ex rel. Ind. Alcoholic Beverage Comm'n, 695 N.E.2d 99, 105 (Ind. 1998)). When reviewing a challenge to an administrative agency's decision, we will not try the facts de novo, nor substitute our own judgment for that of the agency. Jay Classroom Teachers Ass'n v. Jay Sch. Corp., 55 N.E.3d 813, 816 (Ind. 2016) (internal citations and quotations omitted). Rather, we defer to the agency's findings if they are supported by substantial evidence. Id. (citing Ind. Dep't of Envtl. Mgmt. v. West, 838 N.E.2d 408, 415 (Ind. 2005)). On the other hand, an agency's conclusions of law are ordinarily reviewed de novo. Id. (citing Nat. Res. Def. Council v. Poet Biorefining-N. Manchester, LLC, 15 N.E.3d 555, 561 (Ind. 2014)).

         Discussion

         At issue is whether a privately held limited liability company may be granted a liquor wholesaler's permit, pursuant to Title 7.1 of the Indiana Code, when it is wholly owned by another company, which shares directors, officers, and all shareholders with the holder of a beer wholesaler's permit. The Commission found the permittee, Spirited, ineligible for a liquor wholesaler's permit, but the trial court reversed and ordered the permit be granted. The Commission now argues that it properly relied on the plain language of relevant statutes in rejecting Spirited's application. Specifically, the Commission argues that Title 7.1 cannot plausibly be understood to allow Monarch, Spirited, EFT, and its overlapping ownership to hold or have interests in both liquor and beer wholesaler permits.

         Spirited answers by asking us to uphold the trial court's reversal of the Commission's denial. Spirited argues that the Commission's unexplained departure from its own long-standing precedent demonstrates that its denial was arbitrary and capricious. Nothing in the statute's text, according to Spirited, compels the Commission to deny a permit in the circumstances presented here. Spirited also proposes alternative grounds on which we may affirm the trial court, which include impermissible political grounds ...


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