A Wake County Superior Court has ruled against the state of North Carolina in a lawsuit seeking a permanent injunction against enforcement of the state’s distribution cap and franchise laws on breweries.
The complaint — filed last year by Craft Freedom LLC, The Olde Mecklenburg Brewery LLC, and NoDa Brewing Co. — says the distribution cap and franchise laws injure and threaten to impose additional damage on the brewers. They can produce no more than 25,000 barrels of beer each year without contracting with a distributor.
A subsequent motion filed by the state says the complaint should be dismissed with prejudice, and asserted the challenge, according to statute, must be heard by a three-judge panel of the Superior Court.
Superior Court Judge Allen Baddour, who heard the complaint March 20, issued the ruling Tuesday, May 15.
“We are pleased with the Court’s ruling, which rejected the State’s arguments for dismissal and held that we sufficiently alleged that these laws are unconstitutional,” Drew Erteschik and Bob Orr, lawyers for the brewers, said in a statement. “Our craft brewery clients, the entire craft beer community, and craft beer consumers across North Carolina can all share in this major victory.”
The ruling allows the lawsuit to proceed toward a trial.
“We are grateful for the Court’s ruling today,” Olde Mecklenburg founder John Marrino said. “Today’s victory upholds the basic principle that the government cannot enrich one group of private parties at the expense of another.”
Craft Freedom, in a news release, announced it immediately issued subpoenas to distributors and others. “These subpoenas seek information about distributors’ political contributions, as well as communications involving their lobbyists.”
The plaintiffs challenge “the constitutionality of state regulations that do not protect the public, force consumers to pay higher prices, and benefit private beer distributors at the expense of the hardworking craft brewers who have made North Carolina one of the leading craft beer states in the nation.”
The complaint tackles two state laws — the distribution cap, “which punishes craft breweries for their own success by forcing them to hand over the rights to distribute their own beer to private distributors if they sell more than 25,000 barrels” — and the franchise law. That law, says the complaint, “forces craft breweries to enter into oppressive, one-sided contracts with distributors that literally last forever, and which require the breweries to give those distributors control of their product — including decisions about pricing.”
The plaintiffs’ brief includes a deposition by N.C. ABC Commission Administrator Robert Hamilton.
“In his deposition,” the brief says, “the state’s top beer regulator offered a number of damning revelations.” Craft Freedom says that includes “an illegal contract with Anheuser-Busch to suppress craft beer sales and push Anheuser-Busch sales by giving Anheuser-Busch beers priority over all other products.”
Dustin Canestorp, founder of Beer Army, LLC, filed an affidavit Tuesday morning. It provides an account of a recorded phone conversation and email exchange between Canestorp and Freedom Beverage Co., a distributor, and the way Freedom has handled the distribution agreement.
Beer Army, says the affidavit, is a nonprofit fundraising company with the mission of organizing beer festivals to raise funds for various charities, including charities focused on helping veterans.
“I am providing this affidavit to the plaintiffs in this case of my own volition, and in exchange for nothing,” Canestorp says in the affidavit.
“I believe that the laws that the plaintiffs are challenging are laws that are taking away our American freedoms — specifically, the freedom to control the businesses that we build with our own hard work,” Canestorp says. “Having fought and risked my life for those freedoms, and having been the victim of our State’s misguided laws, I am compelled to come forward and share my story in the hope that it will illustrate how truly unjust North Carolina’s system of beer distribution has become.”
Special Deputy Attorney General Matt Tulchin on March 20 argued the state, specifically the N.C. Alcoholic Beverage Control Commission, does indeed have far-reaching authority in controlling alcohol consumption and sale. The commission has, over the years, developed a complex statutory scheme toward that end, beginning with the 21st Amendment and the implementation of the state ABC system in 1937.
“The alcohol industry is different, and the regulation of the alcohol industry is different,” Tulchin said in court. Decisions regarding those rules are left to the state.
“We live in America, the land of the free,” Marrino said in a statement. “Yet our small craft breweries are being punished because one small group of well-connected business owners have greased the skids for years. Now it’s time to find out just how much grease has been applied.”