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House Subcommittee on Courts and Competition Policy Holds Hearing on Legal Issues Concerning State Alcohol Regulation

Date: 03/18/10

Beer Wholesalers Seek to Repeal Constitution to Protect Economic Interests "Outrageous Wish List" Includes Exemption from Anti-Trust Law

While some industry observers had known for weeks that beer wholesalers were “shooting for the moon” in an attempt to prevent any reform of the three-tier system, yesterday’s hearing on “issues, concerning state alcohol regulation,” caught many by surprise. Some felt blindsided. The hearing seemed to come right out of left field.

The hearing had been called somewhat hastily. Congressional staffers contacted representatives of industry associations to ask them to participate just a week prior but were vague on what the hearings would cover. Wine America, Wine Institute, the Specialty Wine Retailers, as well as others, declined to testify.

Why the hearing?

It was about political obligations, economic protectionism and using Congress to get there in the name of the so-called public interest.

To protect its economic interests, the National Beer Wholesalers Association has a wish list and has been circulating confidential draft legislation that includes asking Congress to grant states unlimited power to pass laws dealing with wine and alcohol. The group is even asking for anti-trust immunity to protect its state-mandated monopoly on distribution.

Rep. Bobby Rush, first to speak called the subcommittee’s decision to review regulation of alcoholic beverages “wise” and necessary “in light of the 2005 Granholm Supreme Court case (on direct shipping).” Rush also said that the three-tier system is “under attack” in his home state of Illinois where the Illinois Liquor Control Commission denied a wholesaler license to the world’s largest brewer, who had been seeking to buy a Chicago a distributorship. (A-B has since filed litigation and in an ironic twist, is arguing that the state has discriminated against it in violation of the Granholm decision.)

“My objective is not to protect wholesalers or hurt producers,” Rush claimed, “but rather to protect the people of my community who are, in many cases, disproportionately overwhelmed with marketing and promotional advertising designed to get them to drink.”

Nobody had the guts to present the actual wish list. It probably would have been pretty embarrassing. Much of the testimony skirted around the elephant in the room, though Representative George Radanovich, a co-founder of the Congressional Wine Caucus, confronted it directly.

“There is draft legislation floating around the House that is associated with this hearing today,” Radanovich said. “It is believed to be promoted by the beer wholesalers, and they present this committee today with a very long, broad and quite frankly, outrageous wish list.”

Radanovich said the wish list includes: having Congress grant the States an antitrust exemption; allowing state laws to override federal and Constitutional mandates; having Congress overturn a 40 years of judicial decisions; and allowing states to be relieved from having to prove that their own laws are constitutional.

The hearing appeared to be scheduled on short notice, but players had lobbied for it for a considerable time. A statement issued by Beer Institute’s board on March 11 confirmed that the institute had worked with NBWA’s executive committee to help co-author federal legislation to “further protect the three-tier system from recent legal challenges.” The statement noted that it’s brewers and importers are “vigorously supportive of the three-tier system,” but said the two groups were at odds and called NBWA’s legislative strategy “detrimental to the interests of all those who brew, distribute or sell beer.”

"You may hear today that this legislation is needed to curb litigation by wineries and breweries," Representative Mike Thompson said at the hearing. "These cases are modest in number, but all point to discriminatory state laws that favor wholesalers. We don’t need a new federal law – the litigation will stop when the states stop passing discriminatory laws promoted by the wholesalers."

“I think this will be the first of several hearings with the possibility of a bill being out there,” one industry insider lamented after the hearing. “It’s outrageous what they’re asking. What other business in the U.S. has anti-trust immunity and an immunity from the U.S. Constitution? There is nothing out there that has it, but that’s what they want.”

Click here for NBWI's statement on the hearing

Click here for Wine Institute’s statement on the hearing

Click here for the Specialty Wine Retailers statement on the hearing

Click here for WSWA’s statement on the hearing

The website of the committee of the judiciary includes direct links to the prepared testimony of each person that testified at the hearing, including:

Hon. Bobby L. Rush
U.S. House of Representatives
1st District, Il

Hon. C. Michael Thompson
U.S. House of Representatives
1st District, CA

Hon. Steven I. Cohen
U.S. House of Representatives
9th District, TN

Hon. George P. Radanovich
U.S. House of Representatives
19th District, CA

James C. Ho
Solicitor General of Texas
Office of the Solicitor General
Austin, TX

Nida Samona
Michigan Liquor Control Commission
Lansing, MI

Stephen K. Hindy
Chairman and President
Brooklyn Brewery
Brooklyn, NY

Pamela S. Erickson
Chief Executive Officer
Public Action Management
Scottsdale, AZ

Darren Bush, Ph.D., J.D.
Associate Professor of Law
University of Houston Law Center
Houston, TX

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