How to Develop De Minimis Exceptions, for Minimal Cross-Tier Ownership Positions, and Remain True to the Language of and the Purposes Behind the Tied-House Rules
by Max Hess
The three-tier system structures the beverage alcohol industry by dividing the industry into functions (supplier functions, wholesaler functions, retailer functions) and, then, requiring a license to engage in those functions defined as license privileges. If the system stopped there, however, it might be possible for one company to apply for, say, both a supplier’s license and a retailer’s license.
To prevent that outcome, the system may go further and apply, using one technique for separating the tiers, tied-house rules – which, in this instance, would prohibit the licensed supplier from owning the licensed retailer. The traditional unit of measure for tied-house rules has been any interest – as in making it unlawful for a licensed supplier to have any interest in a licensed retailer.
At the annual meeting, in Chicago, of the National Conference of State Liquor Administrators (NCSLA), we took a teleological approach: it was suggested that tied-house rules are aimed at preventing exclusion – of the other guy or of the other guy’s products. And, of course, it’s only possible to exclude the other guy or the other guy’s products if one has control – control sufficient to bring about, or even possibly to bring about, exclusion. With this understanding of purpose in place, it was possible to go back and look for sensible ways apply the unit of measure any interest.
A few jurisdictions have gotten hung up on the word “any” and apparently see no way out of searching endlessly for even any one share of cross-tier ownership.
But, with the above understanding of purpose in place, it was possible to show a way out of this cul de sac: Let’s move beyond the word “any” and focus on the term interest . . . and on the purposes animating the tied-house rules.
As to purpose: Does one share of cross-tier ownership give rise to control sufficient to bring about, or even possibly to bring about, exclusion? Without a doubt, the answer is no.
As to language: It’s possible to understand the term interest as meaning the power to control or influence.
Now, we have both a purpose basis and a linguistic basis for developing a de minimis exception for cross-tier ownership positions that do not matter.
In the case of, say, statutes that use the term interest, we can do that by interpreting the term – consistent with its linguistic meaning and the purpose animating the tied-house rules – not to apply to minimal cross-tier ownership positions that carry no possibility of control or influence sufficient to bring about, or even possibly to bring about, exclusion. In addition, we can do that by promulgating implementing/administering rules and regulations that, once again, make clear that the term interest does not to apply to minimal cross-tier ownership positions that carry no possibility of control or influence sufficient to bring about, or even possibly to bring about, exclusion.
At NCSLA, proposals were then explored for de minimis exceptions, for minimal cross-tier ownership positions, with sample percentages ranging from one percent to 10 percent.
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