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Washington Wine Privatization Still Stands

More court challenges expected in 'fluid situation'

by Peter Mitham
Paul Beveridge Wilridge Winery
Paul Beveridge of Wilridge Winery is selling wine with volume discounts in line with the recently passed Initiative 1183.
Kelso, Wash.—On Dec. 21, Cowlitz County Superior Court rejected an application to halt implementation of Washington State Initiative 1183, which passed with 58.7% voter support in November’s general election, but observers said that legal status of the transition remains in flux.

The initiative is expected to bring full privatization of state-controlled liquor distribution and sales by June 2012, but moves to implement the changes —including the ability of wineries to negotiate volume discounts with purchasers—are still hanging in the balance, thanks to the machinations of opponents.

“The situation is still fluid,” Susan Johnson, a partner in the Seattle office of Stoel Rives LLP, told Wines & Vines while Cowlitz County Judge Stephen Warning considered arguments in favor of the injunction Dec. 21.

Johnson’s practice focuses on issues facing the food, beverage and hospitality industries; Stoel Rives has been counselling its clients to proceed slowly with changes.

“We’re really trying to keep our clients informed, but also advising a little bit of a wait-and-see attitude so that we’re sure we know the parameters of the rules that are going to be adopted,” Johnson said. “It makes it very difficult to engage in any implementation of changes in business practices and invest money, when the landscape could completely change or revert back to the old regime.”

The initial changes under I-1183 took effect Dec. 8, including lifting of a ban on non-uniform pricing that barred wineries from negotiating volume discounts with buyers. But opponents initiated a challenge in Cowlitz County Superior Court on Dec. 7 to stop the changes.

Cowlitz County voted 52.9% against the measure in November’s election. The bid to nix I-1183 was initiated by Washington Association for Substance Abuse and Violence Prevention and joined by state liquor store landlord David Grumbois and grocer Gruss Inc.

Why opponents object
The application asks the court to declare that I-1183 violated the single-subject rule governing initiatives in Washington state by having too broad an impact—essentially, that it violates the state’s constitution. Although it didn’t redline laws governing the liquor trade in the state, as had a failed initiative in the 2010 general election, according to Washington Wine Institute president Marty Clubb, opponents still didn’t like it.

The initiative process, “should not be an exercise in log-rolling where the initiative drafter cobbles together unrelated subjects in order to attract votes or takes advantage of the popularity of one subject to obtain passage of another subject that lacks majority support,” according to a court filing by opponents.

Opponents allege this is exactly what I-1183 does, rolling “discriminatory, non-uniform pricing” and unregulated advertising of beer, wine and spirits in with the initiative’s primary objective, privatizing the sale and distribution of hard liquor in Washington state.

To have their case heard, opponents sought the “injunction prohibiting further enforcement of I-1183” that Judge Warning declined to grant this week.

According to local media reports, however, Warning expects his decision to be appealed and the matter to move to the Washington State Supreme Court.

Meanwhile, a second action in Washington State Superior Court for King County by Teamsters Local 174 and United Food and Commercial Workers 21 also challenges the initiative’s constitutionality.

A number of parties have sought status as interveners in that action, including Costco Wholesale Corp., which spearheaded I-1183; the Washington Restaurant Association; the Yes on 1183 Coalition political committee; Mackay Restaurant Group; Northwest Grocery Association and its members Safeway and Kroger Co., which operate the Fred Meyer supermarkets; and the Family Wineries of Washington State (FWWS).

FWWS president Paul Beveridge believes that approximately 100 wineries the association represents will be harmed if I-1183 is not implemented.

“Pricing freedom is one of the primary goals of FWWS and its family winery members. As enacted, I-1183 accomplishes this goal, allowing family wineries to negotiate volume discounts with their respective customers,” he stated in court filings.

“I-1183’s provisions similarly help family wineries reduce costs by allowing wineries and other alcoholic beverage producers to deliver products to customers’ central distribution centers,” Beveridge stated.

I-1183 opponents backing the Cowlitz County suit argued for harm both individually and to state residents as a whole if privatization proceeds.

Grumbois will lose a stable and hard-to-replace tenant if the state liquor store to which he leases space shuts down, while Gruss claimed it will be unable to compete against larger retailers in an environment with non-uniform pricing. Moreover, the constitutional rights of people in the state will be harmed by what the court filing describes as an “invalidly enacted initiative.”

Johnson said implementation of the initiative was expected to be as contentious as it is proving to be. “The initiative process can be a messy way to legislate, because you don’t have the normal give-and-take that you would have if our elected representatives were going back and forth and trying to anticipate as many unintended consequences as possible,” she said. “We are helping our clients monitor and interpret the ever-changing landscape.”

Meanwhile, pendi ng a legal decision to stay the initiative, Paul Beveridge, who owns Seattle’s 2,000-case Wilridge Winery, has begun selling wine with volume discounts—e.g., a bottle per case—to retailers. He told Wines & Vines yesterday that he expects discounts to make Washington state wines more attractive to restaurants, and give them access to a greater selection of state-produced wines.

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