Lawsuit Filed Over Liquor Store Limits

A state liquor law in Arkansas that limits liquor store permits to one per person and forbids franchising or multiple minority ownership interests could be overturned by a federal court. A lawsuit filed in the U.S. District Court in Little Rock seeks to level the playing field among liquor store operators.

If overturned, the law could have statewide implications because it would reverse the protection it gives to a few owners, such as Jim Phillips of the Springdale Liquor Association, which are exempt from the law because of a “grandfather clause.”

Gild Holdings and Steven Cherry of Bentonville filed suit against the state’s Alcoholic Beverage Control Division in May claiming the law as it stands “substantially interferes” with interstate commerce and violates the “Commerce Clause of the U.S. Constitution.”

Cherry sought to open a Macadoodles store in Bentonville, which would have been a franchise issued by Gild Holdings, who owns the trademark and operates stores in Springdale and Jane, Mo.

The complaint states that the law passed in 2011 and interpreted by the ABC “unreasonably restrains and interferes with commerce” as it prohibits any person, firm or corporation from doing business with or receiving benefits from more than one retail liquor store, including franchises.

Critics of the law agree that it was written in way that allowed a few players to operate multiple stores and the criteria used to determine the exemption was customized for a select few. For example, the 2011 law gives an exemption to any company that was active on July 19, 1971 and held more than one permit as of Aug. 13, 1993.

The state recently asked the federal court to dismiss Gild’s lawsuit as the plaintiffs failed to state a claim.

The plaintiff’s council, Jim Lyons, filed a 26-page response to the Motion to Dismiss on July 26. Lyons said he did not have an estimate for how long it might take this case to play out, if they are granted the right to proceed. Neither side will comment on pending litigation and the last filing on the case docket as of Thursday (Aug. 1) was the July 26 response filed by Lyons on behalf of the plaintiffs, urging the court not to dismiss.

Rep. Dan Douglas, R-Bentonville, said state liquor laws are a “major can of worms” for lawmakers who very seldom want to tamper with the status quo. He proposed a bill earlier this year he hoped would expand the law to allow franchising, but it died in committee.

“In retrospect, the bill as it was written did not offer a broad enough scope to get the support it needed,” he said. “Mom and pop distributors around the state, particularly in smaller areas, tend to support their legislators, who then have a hard time re-evaluating the liquor law.”

Douglas and other insiders agree that some mom-and-pop operators don’t really want the store limit lifted because they fear larger retailers could corner the market if they are also allowed to expand their reach. The law already gives retailers, large and small, unlimited permits to sell beer and wine, but that competition is not available for liquor, according to Douglas.

“Alcohol is alcohol and free enterprise is free enterprise, but right now it’s not a level playing field. The current law limits free enterprise for some people. But if the law gets changed, I think it will have to be in federal court,” Douglas said.

He said it doesn’t make sense that a dad who owns a liquor store can’t help one of his adult children get started in a like venture of their own with a shared interest, but that’s the law.

Wal-Mart has made no secret that it supports a level playing field in the business it conducts around the globe and at home. The retailer did not respond to a request for comment on the state liquor law or the pending ligation. But Wal-Mart is bound to the 2011 law restrictions and has just one liquor store permit in Arkansas — Sam’s Club in Fayetteville.

When Benton County was voted “wet” in November of last year much of the financial support in the initiative was generated by Steuart and Tom Walton, grandsons of Wal-Mart founders Sam and Helen. Wal-Mart and numerous other retailers from Casey’s to Harp’s took advantage of the county’s “wet” status and got the necessary permits to sell beer and wine.

Benton County was granted up to 55 liquor store permits following the election. To date, 39 have been awarded. Cherry, a plaintiff in the lawsuit, was one of 15 lottery winners to have their permit application denied.

But for now, the fate of Cherry’s application rests in federal court.