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New liquor distribution law unconstitutional, judge rules

 The Journal Record | August 12, 2019

OKLAHOMA CITY – A controversial new state law dealing with the wholesale distribution of alcohol in Oklahoma was ruled unconstitutional on Monday.

Oklahoma County District Judge Thomas Prince ruled Senate Bill 608 unconstitutional in response to a legal challenge to the law filed by the Institute for Responsible Alcohol Policy and other parties.

“This is a victory for the voters of Oklahoma,” IRAP President John Maisch said in a statement in response to the ruling.

Oklahomans approved changes to the state’s alcohol distribution laws when they voted “yes” to State Question 792 in 2016. Maisch said voters decided then to allow suppliers of wine and spirits to choose either to sell their products to all wholesalers or opt instead to sell only to those who would meet their standards for quality control, inventory management, marketing and other matters. SB 608 took that option away, he said, requiring producers to sell to all licensed wholesalers.

“SB 608 ignores the will of the voters and violates the plain language of the Oklahoma Constitution,” Maisch said.

Bryan Hendershot, owner of Boardwalk Distribution, who pushed for passage of SB 608 during the last legislative session, also issued a statement, promising an appeal of the judge’s ruling.

“We’re obviously disappointed with the trial judge’s ruling and will immediately appeal to the Oklahoma Supreme Court. SQ 792 modernized Oklahoma’s liquor laws but contained a provision that was hidden from Oklahoma’s voters that allowed out-of-state businesses to come into Oklahoma and partner with the two biggest distributors to form a monopoly that was devastating to hard working small business men and women. SB 608 was an attempt by the Legislature and Governor Stitt to fix the situation. We look forward to presenting our case on appeal.”

SB 608 was slated to go into effect on Aug. 29. It would have required manufacturers of wines and spirits to sell top 25 brands to all wholesalers. In their challenge, IRAP attorneys argued that the bill would effectively have reversed the will of the people and penalized business owners who looked to language of SQ 792 for guidance in their planning.

“This new constitutional distribution system aligns Oklahoma with the majority of states across the country with private wholesalers in permitting manufacturers to designate an exclusive wholesaler to deliver their product to retailers,” their petition states. “(SB 608) is nothing more than a short-sighted attempt to nullify the alcohol modernization the voters approved. It punishes those businesses and Oklahoma citizens who relied on the language (approved by voters) to make educated business decisions.”

Attorneys for Hendershot’s Boardwalk Distribution countered that the Oklahoma Legislature acted appropriately in passing SB 608 in an attempt to prevent an “unbreakable monopoly” capable of driving other distributors out of business.

“Boardwalk’s records reflect that sales of the top 100 brands by volume in Oklahoma, or roughly 80% of the wine and spirits market, are exclusive to either the Jarboe and Southern Glazer’s enterprise or the Republic and Central Liquor enterprise, and no other wholesaler in Oklahoma can purchase any of those top 100 brands or sell them to any customer,” their petition states. “This control through these two companies of the vast majority of the wine and spirits market represents an unbreakable monopoly which cannot be influenced by customer service, business efficiencies or creative marketing, because in each case wholesalers like Boardwalk cannot get access to the product to sell. Without a product, there is no way to compete. … The Legislature’s immense antitrust powers confirm the validity of SB 608, and such powers were not repealed by an alcohol reform effort. … SB 608 is a valid exercise of the Legislature’s anti-monopoly powers.”

Boardwalk’s attorneys argued that smaller wholesalers have suffered financially since SQ 792 was passed, that at least one has been forced to close and that small retailers especially in rural parts of the state have seen product supplies decrease and their fees paid to distributors increase.

After Prince ruled SB 608 unconstitutional, Fred Morgan, president and CEO of the State Chamber of Oklahoma, released the following statement:

“Today’s ruling from the district court strikes down the pernicious government mandate that would have forced the top wine and spirits brands to be made available to all wholesale distributors within Oklahoma. If a supplier wishes to utilize one wholesaler, they should be free to do so sans the red tape. Senate Bill 608 represented a law that no one wanted or needed; the district court made the right decision today.”

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