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Federal court agrees to hear Monarch affiliate's case

January 2, 2018

The legal battle over an Indiana law that prohibits companies from holding permits for both beer and liquor wholesaling will continue after the Seventh Circuit Court of Appeals reversed a lower court’s dismissal of a case brought by an affiliate of Monarch Beverage.

The decision by a three-judge panel gives new life to efforts by Monarch, the state’s largest beer and wine distributor, to sell liquor in Indiana—efforts that have been shot down repeatedly by the Legislature and have led to several lawsuits.

The affiliate in the federal lawsuit, E.F. Transit, is a transportation firm that had the same ownership and management as Monarch. It sued the Indiana Alcohol and Tobacco Commission after the agency raised questions that it says scuttled its tentative deal to deliver products for Indiana Wholesale Wine & Liquor Co. in tandem with its deliveries for Monarch.

Indiana law requires strict separation of beer and liquor wholesaling, and the commission found that E.F. Transit had an indirect interest in Monarch’s beer wholesaling permit.

Indiana Wholesale withdrew from its delivery agreement with E.F. Transit after the ATC refused to give its stamp of approval to the arrangement. That prompted E.F. Transit’s suit against the commission and its individual commissioners.

The transportation company alleged the Federal Aviation Administration Authorization Act preempted enforcement of Indiana’s prohibited-interest laws. But the U.S. District Court for the Southern District of Indiana dismissed the claim on ripeness grounds—meaning the judge decided the dispute wasn’t at the right point for the federal courts to intervene.

But while E.F. Transit’s federal case was on appeal, the Indiana Supreme Court issued a ruling in a related lawsuit. The justices (excluding Mark Massa, who did not participate, and Christopher Goff, who had not yet joined the court) overturned a ruling granting Spirited Sales LLC—which is wholly owned by E.F. Transit—a liquor wholesaling permit. The justices concluded “Monarch and Spirited’s overlapping ownership ... bars Spirited from obtaining the sought-after permit.”

The high court also concluded the ties between E.F. Transit and Monarch are “so extensive” that the transit firm “could reasonably be deemed to hold an interest in a beer wholesaler’s permit.”

That state court ruling eliminated the federal court’s concerns about timing, Seventh Circuit Court of Appeals Judge Diane Sykes wrote in a Tuesday reversal of the district court’s dismissal. The appeals court sent the case back to district court to be considered.

Indiana has a three-tier alcohol-regulatory system that requires manufacturers, wholesalers and retailers to be separate entities. Indiana is the only state in the country that restricts beer wholesalers from holding a liquor wholesale permit.

Monarch’s competitors have argued that changing the system would unfairly give the firm a competitive edge in the market.

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