Back in 2011 Washington voters approved I-1183 to allow the sale of spirits (hard alcohol or liquor) by certain private enterprises, ending the state monopoly over retail liquor sales.  The initiative created multiple classes of spirits distribution privileges.  Distributors operating under a “spirits distributor license” enjoy the broadest grant of authority to distribute spirits.  Other businesses, such as in-state distillers, importers, and out-of-state distillers, were granted permission under their existing licenses also engage in distribution of their own products.

The initiative also created a scheme for raising revenues distribution license fees to fund Liquor Control Board programs  Part of this scheme (RCW 66.24.055(3)(c)) required “all persons holding distributor licenses” to make up the shortfall if distributor license fees did not generate $150 million in revenue.  The Liquor Control Board subsequently adopted regulations imposing licensing fees against all businesses engaged in spirits retail sales and distribution.  But instead of creating a scheme that required all businesses engaged in spirits distribution to make up the shortfall on a pro rata basis, the Board’s rules imposed that liability only on the class of businesses enjoying the broadest range of distribution rights – “persons holding a spirits distribution license.”

Upset that they would be held responsible for the entirety of the shortfall, this class of distributors challenged the Board’s rule.  In the case of Association of Washington Spirits and Wine Distributors v. Washington Liquor Control Board, the distributors claimed that the Board’s rules were contrary to the terms of the initiative and discriminated against certain classes of distributors.  These arguments had little traction, as the Washington Supreme Court unanimously upheld the Board’s shortfall cover scheme.

Applying the plain language rule, the Court explained that, under the terms of the initiative, only persons holding a “spirits distributor license” were liable to cover the shortfall.  That interpretation, the Court reasoned, was bolstered by the overall legislative scheme creating different classes of spirits distribution privileges and the specific language imposing responsibility to cover the shortfall on only one class of licensees.  Accordingly, the Court held, the Board acted within the scope of its rulemaking authority, and the shortfall cover scheme was neither arbitrary nor capricious.

The Court further held that the shortfall scheme did not unfairly discriminate against certain types of distributors in violation of the Privileges and Immunities clause because the scheme did not discriminate against one class of class of business to the benefit of another class of the same business.  Rather, the initiative created different classes of spirits distributors, some with broader rights than others.  Within the class enjoying the broadest scope of distribution rights, all businesses were treated the same.