7th Circuit: Indiana’s Wacky Prohibition of Distributors Selling Both Beer and Spirits Has Rational Basis: Increased Cost to Consumers

You might not believe it unless you look like this:

But Indiana’s current bar against beer wholesalers selling liquor or liquor wholesalers selling beer was just held constitutional because the state claims its “rational basis” was the increase of pricing to stem alcohol consumption.

In Monarch Beverage Co., Inc. v. David Cook et al., Monarch Beverage, a scrappy beer distributor responsible for some forward-thinking challenges to Indiana’s regulatory systems, brought suit to terminate Indiana’s ban on beer distributors also holding licenses to distribute liquor (the ban applies the other way as well; liquor ⇏  beer.)  The briefs detail the argument (links below), but simply put, Monarch argued that the ban on cross-product sales violated the equal protection clause and wasn’t tailored to accomplish Indiana’s stated goals.  Since a protected class wasn’t involved and since neither fundamental rights nor federalism were implicated, the only test that the law needed to satisfy was the lowest level of scrutiny – having a rational basis, which isn’t much given that “rational” doesn’t mean “empirical” basis:

Moving to the merits of Monarch’s claim, Indiana’s prohibited-interest law comes to us with “a strong presumption of validity.” Beach Commc’ns, 508 U.S. at 314. Monarch must shoulder the heavy burden “to negative every conceivable basis which might support it.” Id. at 315 (quoting Lehnhausen v. Lake Shore Auto Parts Co., 410 U.S. 356, 364 (1973)). And Indiana does not need to present actual evidence to support its proffered rationale for the law, which can be “based on rational speculation unsupported by evidence or empirical data.” Id.

And that burden of negativing every conceivable rationale is a high one:

The Supreme Court has made it clear that under rational-basis review, the challenger must “negative every conceivable basis” that might support the challenged law, and “it is entirely irrelevant … whether the conceived reason for the challenged distinction actually motivated the legislature.” FCC v. Beach Commc’ns, Inc., 508 U.S. 307, 314–15 (1993)

In considering the various arguments advanced by Indiana in support of the law, the opinion makes it clear that the only one the appellate court took seriously was the temperance rationale.

Boiled to its essence the State’s argument is this:

(a) Temperance is an all owed rational basis (the reduction of consumption is a State goal that can support legislation);

(b) Increased cost increases Temperance (the higher the price of alcohol, the fewer people will be drinking – i.e., reduced consumption where fewer people will be able to afford alcohol);

(c) Not allowing liquor distributors to distribute beer or beer distributors to distribute liquor promotes inefficiency and increases pricing through increased distribution costs as neither distributor will be allowed to achieve cost savings through having the alcohol on the same trucks.

∴  The law has a rational basis as the split in distribution increases pricing thereby decreasing consumption and achieving temperance.

The Court kindly pointed out that a faster and more efficient way to achieve this would be through a tax, but in the end it didn’t find that there was a need to use the more expedient route:

Everyone agrees that reducing liquor consumption is a legitimate governmental interest. Monarch argues that it’s irrational to think that the prohibited-interest law furthers this interest in any meaningful way. We disagree. It’s certainly not the most direct way of achieving this aim (a tax is the most direct way), but it’s hardly irrational to think that separating beer and liquor wholesaling is likely to impose higher distribution costs than if beer and liquor wholesaling were combined. That, in turn, keeps liquor prices higher, with the salutary corresponding effect of reducing consumption.

The problem with Court’s accepting these “just so” rational basis arguments without requiring empirical proof is that they miss the mark and may just plain be wrong.  A lack of academic and empirical rigour led to the judicial decisions allowing non-empirically grounded state legislation and it is generally a detriment to current judicial philosophy that courts will not act as a check on the legislature in this regard by testing the correctness of a proposed rational basis.  Sadly, even though the system does allow litigants the opportunity to obviate proposed rationales, they may miss the opportunity, as they may have done here in not at least comparing/demonstrating that pricing isn’t affected by this system.  As Indiana is the only state that enacts this form of legislation, you would expect its pricing to vary significantly and remain higher than that of other states, but the opposite appears true (take this with a grain of salt as it’s a survey done online in about 10 minutes and includes some sale pricing) Indiana’s pricing appears lower than states that allow consolidation of liquor and beer wholesaling:

Even if you completely ignore the fact that the court appears willing to blindly adhere to 19th century notions about the propriety of imbibing in boldly asserting that a state has a legitimate interest in overriding personal autonomy in an attempt to temper alcohol consumption, the law should still not stand when presented with this kind of argument: that a statute is enacted to achieve an economic effect, and the proof then apparently belies the assertion that the prohibition achieves higher pricing.  As both the opinion and Judge Easterbrook’s concurrence point out, a tax would be the better method – but as both fail to acknowledge (both because the courts do not require empirical data and litigants may not supply it) the ban doesn’t actually achieve the stated goal.

You can find Monarch’s brief, Indiana’s response and Monarch’s reply at these links.

You can hear oral argument of the matter here.

Hopefully others may have better luck in convincing courts to expect a little more rationality under rational basis.