Missouri Wonk

Missouri Franchise Liquor Laws – Part Two

admin — Tue, 30 Apr 2013 22:32:17 +0000

In the second of this two part post, Missouri Wonk outlines past and present legislation and provides a brief synopsis of the controversy surrounding the state’s liquor franchise laws.

Legislation Overview

Senate Bill 837 (2012)

The Missouri General Assembly passed SB 837 (Dempsey) in 2012, which modified the definition of franchise between alcohol wholesalers and suppliers so that a franchisor/franchisee would exist even without a license to use a trade name or trademark and regardless if there is a community of interest. The language also stated that judicial interpretation of cases involving the definition of franchise should not rely on the federal court decision in MO Bev v. Shelton.

This bill was passed in the Senate by a vote of 28-5 and passed in the House by a vote of 95-51. Governor Nixon vetoed the legislation citing that the change in law could impact the business development of Missouri wine growers and Missouri soybean growers by weakening the standard for franchise agreements and the bargaining power of suppliers.

Major Brands supported SB 837 by stating it was “an attempt to restore state law as it was originally intended.”

Missouri winery owners, Missouri Vinters Association, and alcohol suppliers opposed SB 837, stating, “we don’t think it’s fair for the distributors to effectively own the rights to our brand.”

Senate Bill 365 & HB 759 (2013)

Companion bills filled this year by Senator Parson and Representative Jones replicate the language in SB 837 but add new language that provides protection to small scale wine suppliers by making an exemption for 10,000 cases or less.

Senate Committee – Commerce Consumer Protection, Energy & the Environment 2/28/13

Witnesses Giving Information:

Joan Gummels – AG’s office
Joanna Trachtenberg – AG’s office

Witnesses For:

Susan McCollum – Major Brands
John Riffle – Major Brands
Mary Strate – Missouri Beer and Wine Association
Peter Hoflerr – MO Grape and Wine Alliance
Jason Gerke – Jowler Creek Winery, Inc.; MO Grape and Wine Alliance
Rodney Boyd – City of St. Louis
Daniel Kopman – Schlafly Beer

Witnesses Against:

Jorgen Schleimier
David Klarich – Glazier’s Wholesale
Zachery Brunnert – Diageo
Dave Overfelt – MO Retailers Association

The Controversy

The issues around the franchise definition, residency requirement and current legislation have sparked an aggressive battle in the state and attracted interest from around the country as well. The central theme centers on competition and protectionism. Many of these arguments are based on interpretations of constitutional law and once resolved will markedly impact the liquor distribution business.

Wholesalers like Major Brands currently benefit from the state’s protectionist residency requirements, which exclude other large wholesalers from the market. Small wholesalers argue that this hurts them because they can’t compete for the premium brands and it shrinks the market of potential out-of-state investors and purchasers that might want to acquire them. Large wholesalers, like Southern, argue that Missouri’s laws violate the dormant aspect of the Commerce Clause and the Equal Protection Clause – basically that the laws are unjustifiably protectionist. Major Brands argues that the social consequences associated with alcohol consumption necessitate a distributor who is locally based and employs officers and directors who have a vested interest in promoting responsible behavior.

Large suppliers would like to see more competition in the market so that they can benefit from wholesalers working to promote their products more vigorously. Small suppliers, like local wineries, worry that large outstate wholesalers won’t make them a priority in distribution.

If SB 365 and/or HB 759 fail to pass this session then suppliers will continue to have more latitude in their efforts to unilaterally terminate franchise agreements. If the appellate court overturns the Southern case, then wholesalers will have more opportunity to operate in Missouri. If the Southern ruling is affirmed, then suppliers have either Major Brands or Glazer’s as large-scale wholesaler options. If the proposed legislation passes and the Southern ruling is not reversed, then suppliers will have to demonstrate “good cause” before they can sever a distribution agreement.

Both bills have passed out of their respective committees but are not on the calendar in either chamber.

Everything you need to know about Liquor Franchise Laws

admin — Tue, 30 Apr 2013 01:01:02 +0000

In this two part post, Missouri Wonk presents a policy brief that will offer a historical overview of Missouri’s three-tier alcohol distribution system, summarize legal challenges to both the franchise laws and residency requirements and provide an overview of pending legislation.

Part One: Historical Overview & Court Challenges

Powers to Regulate Liquor Conferred to the States

Adopted in 1933, the 21^st Amendment repealed the 18^th Amendment (Prohibition) and banned the importation of alcohol in violation of state or territorial law. The interpretation of that provision gives states absolute control over laws relating alcoholic beverages. States have broad powers to regulate the distribution of intoxicating liquors within their borders. Although this seems to violate Article 1, Section 8 of the U.S. Constitution (Commerce Clause), which allows Congress to regulate commerce among the states, this exemption has been construed as a means for states to balance economic needs with public health and safety concerns.

Missouri Application Follows a Three-tier System

States have the power to ban consumption, control all distribution, or create three-tier distribution systems. The three-tier system has been described as an hourglass where you have many suppliers at the top, few wholesalers in the middle and many retailers at the bottom. The premise behind limiting wholesalers was to ensure accountability, transparency and responsibility through the system. Missouri follows this three-tier system for importing, distributing and selling alcohol products. Participants in each tier are subject to licensure by the Division of Alcohol and Tobacco Control of the Missouri Department of Public Safety. Producers sell to wholesalers, who then pay excise taxes and deliver products to licensed retailers.

The Franchise Relationship

Missouri is a franchise state within this three-tier distribution system. This means in order for liquor suppliers to sell products in the state, they must establish franchise relationships with in-state wholesalers who then distribute the products. In statute, “franchise” is defined as a written or oral agreement in which a person grants a license to use a trade name, trademark, service name or related characteristic and there is a community of interest in the marketing of goods or services. RSMo § 407.400. In 1975, the legislature added language that referenced liquor franchises specifically pursuant to the provisions in Chapter 311. Suppliers can neither discriminate between wholesalers when more than one franchise for the same brand has been granted nor can they unilaterally terminate a franchise without first showing good cause. RSMo § 407.413. The two parties can negotiate certain provisions regarding the sales, marketing and promotion of products, as well as financial disclosure.

The Residency Requirement

In 1947, the legislature imposed residency requirements on wholesalers wishing to sell liquor that contains alcohol in excess of five percent. To be considered a “resident corporation” all corporate officers, directors, and shareholders who own or control sixty percent or more of company stock must be Missouri residents for at least three years, as well as voters and taxpaying citizens of the county and municipality they reside. RSMo § 311.060.2(3). This provision was drafted to guarantee that wholesalers have a very localized presence in the communities they serve and that individual owners are accountable for the products they distribute.

In Missouri, two wholesalers control the lion’s share of the wine and spirits market: Major Brands and Glazer’s. St. Louis-based Major Brands is the highest volume distributor and the only company that is Missouri owned. Glazer’s is headquartered in Dallas, Texas and is the second largest distributor. Glazer’s was able to enter the Missouri market through a grandfather clause by purchasing a license from a 1947 entity. Southern Wine and Spirits, the nation’s largest distributor, applied for a distribution license in Missouri but failed to meet the residency requirements.

Recent Court Challenges to Franchise Relationship

Missouri Beverage Corporation v. Shelton Brothers

In Mo. Beverage Corp, Inc. v. Shelton Bros., Inc, 8^th Cir. No. 11-2456, Feb. 28, 2012, a federal appellate court affirmed a lower court ruling that the business relationship between MoBev and Shelton was not that of franchisor-franchisee because there was no evidence that a license to use a trademark or a community of interest existed.

The case stemmed from Shelton’s abrupt termination of MoBev’s distribution agreement. In this case, the Missouri Beer Wholesalers Association and the Missouri Wine and Spirits Association filed briefs in support of Missouri Beverage’s position. They argued that the language in 1975 was added to protect wholesale distributors and that these protections were a fundamental policy of Missouri and derived from the 21^st Amendment.

These protections only exist if the franchisor-franchisee relationship can be established. The court ruled otherwise. This ruling has led to other suppliers unilaterally terminating distribution agreements in what some have argued is an effort to consolidate and cut costs.

Suits filed after the MoBev Shelton Decision

The Shelton decision weakened the franchisee/franchisor relationship between suppliers and wholesalers and has resulted in numerous lawsuits. Diageo and Barcardi both are suing Major Brands in order to terminate distribution agreements.

In a suit filed March 6, 2013, Diageo alleges that Major Brands profits from selling its products but fails to adequately promote and sell them. Bacardi made similar claims in a suit filed March 5, 2013. Diageo also argues that “no community of interest” exists between itself and Major Brands. Major Brands filed a suit on April 15, 2013, against Bacardi U.S.A. Inc. and Mid-Continent Distributors, Inc. d/b/a Glazer’s Midwest. In addition, St Louis based Garco Wine Co. recently filed suit alleging wrongful termination of its franchise agreement with Constellation Brands. None of these cases have gone to trial.

Recent Court Challenges to the Residency Requirement

Southern Wine and Spirits v. Division of Alcohol and Tobacco Control

Based in Florida, Southern Wine and Spirits is the largest distributor of wine, spirits, beer, and various non-alcoholic beverages in the U.S. with operations in 32 states and DC. Southern is licensed as a solicitor to sell liquor to Missouri wholesalers. The company formed a wholly owned subsidiary, Southern Wine & Spirits of Missouri, but failed to satisfy the residency requirements found in RSMo § 311.060.2(3).

Southern sued the state of Missouri challenging its residency requirements under the dormant aspect of the Commerce Clause, the Privileges and Immunities Clause, and the Equal Protection Clause of the United States Constitution. The district court ruled in favor of Missouri citing that residency provides greater accountability and responsibility on the part of the wholesaler to the community and rejected Southern’s claims.

Southern has appealed the decision and oral arguments were heard on April 9^th, 2013. Judge Shepard asked specific questions about a “grandfather” provision of the residency law that allowed Glazer’s access to Missouri. Judge Colloton asked about the immunization boundaries of the 21^st Amendment. A decision is forthcoming.

The following parties filed amicus briefs in support of the state of Missouri:

American Beverage Licensees
Missouri Wine and Spirits Association
Attorneys General of Delaware, Nebraska, West Virginia, South Dakota, Mississippi, Texas, and Arkansas

The following parties filed amicus briefs in support of Southern:

Missouri Beverage Co.
Missouri and National Beer Wholesalers Association

Tomorrow we will present Part Two, which contains an synopsis of past and current legislation action, as well as a brief analysis of the controversy associated with this issue.

Regenerating the NorthSide

admin — Wed, 10 Apr 2013 04:29:00 +0000

Below are links to the final in a series of articles on the NorthSide, the area immediately north of downtown St. Louis. The links are a summary of the first 10 papers available on this website as well as a diagram that explains the logic and sequence of the regeneration of the area.

Regenerating the NorthSide

NorthSide- Formula for Change Diagram

Study Suggests Preschool Investment Reduces Societal Costs

admin — Tue, 09 Apr 2013 20:58:15 +0000

Below is a link to a report on proposed early childhood education legislation and findings from the Perry Preschool Project . This paper discusses evidence from a recent study that established a link between preschool attendance and reduced crime, fewer teen pregnancies, and less overall dependency on public assistance.

Early Childhood Education and Net Benefits of Preschool

NorthSide: Food and Jobs

admin — Fri, 22 Feb 2013 17:29:57 +0000

Below is a link to the tenth in a series of articles on the NorthSide, the area immediately north of downtown St. Louis. This paper discusses the job recruitment strategy, which involves the food science and food production industries, as well as the projected number of permanent and one-time jobs that will result from the project.

NorthSide- Food and Jobs

The first article, relating to the history and demographics of the area, can be accessed here.

The second article, relating to education of the population in the area, can be accessed here.

The third article, relating to the health care of the NorthSide population, can be accessed here.

The fourth article, relating to crime in the NorthSide area, can be accessed here.

The fifth article, relating to jobs and income of the NorthSide population, can be accessed here.

The sixth article, relating to housing in the NorthSide area, can be accessed here.

The seventh article, relating to Past Redevelopment Attempts in the NorthSide area, can be accessed here.

The eighth article, relating to Parcels, Property, and the Distressed Areas Land Assemblage Tax Credit, can be accessed here.

The ninth article, relating to public infrastructure in the area, can be accessed here.

NorthSide: Public Infrastructure

admin — Sat, 16 Feb 2013 01:48:26 +0000

Below is a link to the ninth in a series of papers relating to the NorthSide, the area immediately north of downtown St. Louis. The paper’s focus is on the public infrastructure in the area.

NorthSide- Public Infrastructure