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Washington Restaurant Association v. Washington State Liquor Control Board

Court of Appeals of Washington, Division 2

August 8, 2017

WASHINGTON RESTAURANT ASSOCIATION, a Washington non-profit Organization; NORTHWEST GROCERY ASSOCIATION, a non-profit organization; and COSTCO WHOLESALE CORPORATION, a Washington corporation, Appellants/Cross Respondents,
v.
WASHINGTON STATE LIQUOR CONTROL BOARD, a state agency; CHRIS MARR, SHARON FOSTER, and RUTHANN KUROSE, in their official capacities as members of the Washington State Liquor Control Board, Respondents, ASSOCIATION OF WASHINGTON SPIRITS AND WINE DISTRIBUTORS, Intervenor-Respondent/Cross Appellant.

          Worswick, J.

         The parties in this case ask us to decide whether the Washington State Liquor and Cannabis Board (Board) appropriately promulgated certain rules implementing Initiative Measure No. 1183, now codified in Title 66 RCW.[1] The Initiative provided for the privatization of the distribution and sale of liquor in the state. The rules at issue here are the 10 percent license fee rules, [2] which impose a fee on the spirits revenue of certain private distillers, the sell-and-deliver rules, [3] which require certain distributors to sell and deliver spirits from their licensed premises, and the 24-liter rules, [4] which impose daily limits for selling wine and spirits to certain retailers. The Washington Restaurant Association, Northwest Grocery Association, and Costco Wholesale Corporation (Association) brought a petition for judicial review of these rules before the superior court. The Association of Washington Spirits and Wine Distributors (Distributors) intervened to defend the Board's rules.

         The superior court granted in part and denied in part the Association's petition, ruling that the 10 percent license fee rules and the sell-and-deliver rules were valid but that the 24-liter rules were invalid. The Association appeals, arguing that (1) the 10 percent license fee rules are invalid because the Board exceeded its statutory rule-making authority in adopting the rules and (2) the sell-and-deliver rules are invalid because they are arbitrary and capricious. On cross-appeal, the Distributors argue that the superior court erred in determining that the Board exceeded its statutory rule-making authority by adopting the 24-liter rules.

         We hold that the 10 percent license fee rules are invalid but otherwise affirm the superior court's order.

          FACTS

         Following the repeal of Prohibition, Washington adopted the Washington State Liquor Act, Title 66 RCW. Ass'n of Wash. Spirits & Wine Distribs. v. Wash. State Liquor Control Bd, 182 Wn.2d 342, 346, 340 P.3d 849 (2015). Under the Liquor Act, Washington regulated the sale and distribution of spirits through state-owned liquor stores and distribution centers. See Wash. Ass'n for Substance Abuse & Violence Prevention v. State, 174 Wn.2d 642, 647, 278 P.3d 632 (2012).

         In November 2011, Washington voters passed Initiative No. 1183, which privatized the distribution, sale, and promotion of spirits in the state and created new licenses for private distributors to sell and distribute spirits. The Initiative imposed license fees on private distributors and distillers who sell and distribute spirits. Ass 'n of Wash. Spirits & Wine Distribs., 182 Wn.2d at 347. The Initiative also imposed a limit on the retail-to-retail sale of wine and spirits and allowed for retailers to sell liquor either at its licensed premises or at its warehouse facilities. The Initiative is now codified in Title 66 RCW.

         Title 66 provides four different licenses that allow for the distribution of spirits and prescribes the licensing fees for each license. 182 Wn.2d at 347. One such license is a spirits distributor license. RCW 66.24.055. Licensed spirits distributors may purchase spirits from instate and out-of-state distillers, manufacturers, and suppliers and may directly resell the spirits to other retailers. RCW 66.24.055(1)(a).

         Another, more specific, license that provides for the distribution of spirits is a distiller's license. RCW 66.24.140, .640. Under RCW 66.24.140, a distiller's license permits an in-state distiller to blend, rectify, and bottle distilled spirits. Distillers must pay an annual license fee of $2, 000. RCW 66.24.140(1). Additionally, a licensed in-state distiller may distribute its own spirits directly to retailers. RCW 66.24.140(2)(a)-(b), .640. Out-of-state distillers may distribute their own spirits by obtaining a spirits certificate of approval. RCW 66.24.140, .640. A spirits certificate of approval allows out-of-state distillers and importers to distribute their spirits directly to in-state retailers. Ass'n of Wash. Spirits & Wine Distribs., 182 Wn.2d at 348. Licensed distillers and spirits certificate of approval holders distributing their own spirits under RCW 66.24.640 are required to "comply with the applicable laws and rules relating to distributors." RCW 66.24.640.

         Title 66 also governs the manner in which liquor is sold in the state. RCW 66.24.630(1) and RCW 66.24.360(2) limit the quantity of spirits and wine that a licensed retailer can sell to another retailer. Under RCW 66.24.630(1) and RCW 66.24.360(2), "no single sale [of spirits or wine] may exceed twenty-four liters."

         Title 66 provides the Board with the power to prescribe fees associated with licenses and to regulate the sale of liquor. RCW 66.08.030(4), (6). Accordingly, the Board promulgated a number of rules to implement Title 66. These rules include WAC 314-23-030(3)(b) and WAC 314-28-070(3)[5] (the "10 percent license fee rules"). The 10 percent license fee rules impose a 10 percent fee on the spirits revenue of distillers and spirits certificate of approval holders who choose to distribute their own spirits. WAC 314-28-070(3). The Board also promulgated WAC 314-23-020(2) and WAC 314-24-180(2)[6] (the "sell-and-deliver rules") and former WAC 314-02-103(2) (2012) and former WAC 314-02-106(1)(c) (2012)[7] (the "24-liter rules"). Clerk's Papers (CP) at 120-21. The sell-and-deliver rules provide that wine and spirits distributors must sell and deliver their products from their licensed premises. Former WAC 314-23-020(2); former WAC 314-24-180(2). The 24-liter rules impose a limit under which off-premises retailers, like a grocery store, may sell only 24 liters of wine or spirits to an on-premises retailer, like a hotel or restaurant, each day. Former WAC 314-02-103(2); former WAC 314-02-106(1)(c).

         Following the adoption of these rules, the Association filed a petition for judicial review in superior court. The Association argued that the 10 percent license fee rules, sell-and-deliver rules, and 24-liter rules were invalid because they exceeded the Board's statutory rule-making authority and because the rules were arbitrary and capricious. The Distributors intervened to defend the Board's rules. The superior court determined that the 10 percent license fee rules and the sell-and-deliver rules were valid because they were made within the Board's broad regulatory authority. However, the superior court determined that the 24-liter rules were invalid because they exceeded the Board's statutory rule-making authority. The Association appeals, and the Distributors cross-appeal.

         ANALYSIS

         I. Legal Principles

         Our review of a challenge to an agency rule is governed by the Washington Administrative Procedure Act (APA), chapter 34.05 RCW. Ass 'n of Wash. Spirits & Wine Distribs., 182 Wn.2d at 350. Under the APA, an agency rule may be invalidated only if it (1) violates constitutional provisions, (2) exceeds the agency's statutory rule-making authority, (3) was adopted without complying with statutory rule-making procedures, or (4) is arbitrary and capricious. RCW 34.05.570(2)(c). The validity of an agency rule is a question of law we review de novo. Kabbae v. Dep't of Soc. & Health Servs., 144 Wn.App. 432, 439, 192 P.3d 903 (2008).

         II. The 10 Percent License Fee Rules

         The Association argues that the Board exceeded its statutory rule-making authority by adopting the 10 percent license fee rules because Title 66 does not provide for a 10 percent license fee on distillers. We hold that the Board exceeded its statutory rule-making authority in adopting the 10 percent license fee rules, and therefore, the rules are invalid.[8]

         "Administrative agencies have only those powers expressly granted by statute or are necessarily implied from the legislature's statutory delegation of authority." Lenander v. Dep't of Ret. Sys., 186 Wn.2d 393, 404, 377 P.3d 199 (2016). When an agency rule is reasonably consistent with the statutes the rule implements, an agency acts within its statutory rule-making authority, and the rule is presumed to be valid. Wash. State Hosp. Ass 'n v. Dep't of Health, 183 Wn.2d 590, 595, 353 P.3d 1285 (2015). However, an agency cannot promulgate rules that amend or change legislative enactments. 183 Wn.2d at 595. Rules that are inconsistent with the statutes they implement are beyond the agency's authority and are therefore invalid. 183 Wn.2d at 595.

         "When the people approve an initiative measure, they exercise the same power of sovereignty as the Legislature does when it enacts a statute." McGowan v. State, 148 Wn.2d 278, 288, 60 P.3d 67 (2002). Accordingly, we interpret an initiative according to the rules of statutory interpretation. 148 Wn.2d at 288. Our primary goal is to determine the collective intent of the people who enacted the initiative measure. 148 Wn.2d at 288. We discern "intent from the plain language enacted by the [people], considering the text of the provision in question, the context of the statute in which the provision is found, related provisions, amendments to the provision, and the statutory scheme as a whole." Ass 'n of Wash. Spirits & Wine Distribs., 182 Wn.2d at 350. We do not add words to a statute. Birgen v. Dep't of Labor & Indus., 186 Wn.App. 851, 858, 347 P.3d 503, review denied, 184 Wn.2d 1012 (2015).

         If a statute is unambiguous, we apply the statute's plain language as an expression of legislative intent and do not consider other sources of such intent. 186 Wn.App. at 857-58. However, if a statute is subject to multiple reasonable interpretations, the statute is ambiguous. 186 Wn.App. at 858.

         Title 66 creates licenses permitting the distribution of spirits and establishes the fees associated with each license. Ass'n of Wash. Spirits & Wine Distribs., 182 Wn.2d at 347. Additionally, the Board has the power to make regulations that extend to "[prescribing the fees payable in respect of permits and licenses issued under [Title 66] for which no fees are prescribed in [Title 66], and prescribing the fees for anything done or permitted to be done under the regulations." RCW 66.08.030(4).

         As described above, under RCW 66.24.140, [9] Title 66 provides for a distiller's license. Under RCW 66.24.140(1), licensed in-state distillers are permitted to blend, rectify, and bottle spirits and generally must pay an annual licensing fee of $2, 000. Under RCW 66.24.640, [10] a licensed distiller "may act as a retailer and/or distributor to retailers selling for consumption on or off the licensed premises of spirits of its own production." A licensed distiller "operating as a distributor and/or retailer under [RCW 66.24.640] must comply with the applicable laws and rules relating to distributors and/or retailers." RCW 66.24.640.

         Title 66 also establishes a spirits certificate of approval. RCW 66.24.140, .640; see also RCW 66.28.290(2). A spirits certificate of approval permits an out-of-state distiller or importer to distribute its own spirits to Washington retailers. RCW 66.24.640. A spirits certificate of approval holder may also "act as a . . . distributor to retailers selling for consumption on or off the licensed premises of spirits of its own production." RCW 66.24.640. Because the 10 percent license fee rules treat distillers and spirits certificate ...


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