ABC Declaratory Rulings – A Modest Proposal Whose Time has Come

By John Hinman and John Edwards

The Problem – New Technology and Process Innovation

Today’s alcoholic beverage industry is marked by technological and process innovation at every level, and in ways that were unfathomable even a decade ago. Information retrieval, accounting systems, ordering and delivery systems, social media and other new technologies pose challenges for regulators around the country attempting to fit new initiatives into statutes and regulations enacted in an earlier era. 

The regulatory challenge usually involves determining what the controlling statute or regulation means in the context of the business facts presented. The problem with quick conclusions is that facts are often not presented clearly or in an orderly fashion, which results in difficulty for both the agency and the business attempting to discern if the new business falls within the permitted activity portions of the ABC Act. 

What a statute or regulation means in the context of approving or prohibiting creative industry programs is always a challenge – new technologies usually do not neatly fit into the narrow legislative and regulatory enactments crafted for a different time. 

That results in a system where approval of new and innovative business concepts, often ones that are permitted by other states or the federal government, are routinely denied, or are undertaken under a cloud, which impacts regulators, investors, managers and licensees.

Many regulators take the position that whatever process or innovation is sought cannot be permitted unless the legislature has expressly permitted it. However, sponsoring legislation is an expensive and time consuming process and new legislative exceptions often create more problems than they solve. 

The Solution – Create a Forum for Program Analysis; NY does it and so can California

We propose a solution where the burden is on the new technology or system developer to prove to the ABC that the system is legal, and to provide an efficient forum for presenting that case.

This was brought home in a recent (January 19, 2017) declaratory ruling by the New York State Liquor Authority approving the Instacart internet marketing platform and product delivery protocols in New York.  The importance of the ruling to Instacart and those using similar marketing platforms and delivery protocols cannot be overstated.

Significant investment of time and money in a marketplace can only be justified by industry member (and service provider) confidence that what they are doing will not threaten the licenses of the participants in the system or, worse yet, expose the participants to criminal charges for violating the state alcoholic beverage laws (for example, all violations of the California ABC Act are statutory criminal misdemeanors, and that could conceivably include liability for aiding and abetting the offense).

New York is one of many states that have a specific alcoholic beverage declaratory ruling procedure.  California, however, has no specific procedure for obtaining rulings on alcoholic beverage business proposals.  The lack of such a procedure hobbles innovation and introduces unjustifiable and unnecessary risk into the process of investing in, and managing, California businesses.  Given the importance of the industry to the State, California’s regulation of alcohol can and should be made more transparent and should provide guidance on which industry members can rely.

Creating a Declaratory Rulings Protocol – it can be done

California has an administrative ruling statute that provides for declaratory rulings (through an agency not used by the ABC). We propose that the authorizing statute be amended to specifically include the ABC, to provide for ABC Appeals Board review of the ABC’s action in accordance with the California Constitution, and to provide for designating rulings as “precedent.”

Here is our proposed language. Please note that the Section 1 exclusion of the ABC from the general Government Code section is what allows the Section 2 inclusion of the ABC into the new procedure that we propose.  That’s how the Government Code works.

Section 1

Government Code Section 11465.10 is hereby amended as follows:

Subject to the limitations in this article, an agency, other than the Department of Alcoholic Beverage Control, may conduct an adjudicative proceeding under the declaratory decision procedure provided in Sections 11465.10 to 11465.70 of this article.

Section 2

The following sections are added to Article 14 of the Government Code:

Section 11465.80

(a) Any person may file a Petition with the Department of Alcoholic Beverage Control for a declaratory decision with respect to the applicability to any person, property, or state of facts of any statute or rule enforceable by the Department.

(b) Petitions for a declaratory ruling by the Department shall:

(i) Contain a statement of the declaratory ruling requested;

(ii) Include a concise statement of the state of facts or uncertainty with respect to which a declaratory ruling is required and may include a statement by the petitioner of the outcome sought and the reasons therefor; and

(iii) be filed with the Department and directed to the attention of its General Counsel.

(c) The Department of Alcoholic Beverage Control shall reject any Petition for a declaratory decision as to which any of the following applies:

(i) The Petition does not comply with requirements of subsection (b) of this section;

(ii) The decision would substantially and directly prejudice the rights of a person who would be a necessary party and who does not consent in writing to the determination of the matter by a declaratory decision proceeding;

(iii) the Petition presents a matter that is the subject of pending administrative or judicial proceedings.

(d) Unless the Department of Alcoholic Beverage Control rejects a Petition pursuant to subsection (c), the Department shall:

(a) Publish the Petition on its website; and

(b) Provide a period of not less than 30 days for interested parties to file comments with respect to the relief requested and a period of not less than 10 days for the petitioner to file responses to the comments of interested parties; and

(e) The Department of Alcoholic Beverage control may, in its discretion, schedule a public hearing on the issues presented by any Petition for a declaratory decision, at which it may permit the introduction of evidence.

(f) The Department shall issue a ruling on the Petition in writing within not less than 80 days after the date of the filing of the Petition.

(g) The Department shall designate each of its rulings on Petitions for a declaratory decision as Precedent and index all such precedents, including any subsequent rulings thereon by the Alcoholic Beverage Control Appeals Board or any court, as precedent pursuant to Government Code Section 11425.60.  The index and all rulings on Petitions for a declaratory ruling shall be published on the Department’s website.

Section 11465.90

The ruling issued by the Department shall constitute a “decision” within the meaning of Bus. & Prof. Code Section 23080.  The Petitioner or any person who filed comments with the Department may appeal the ruling to the Alcoholic Beverage Control Appeals Board pursuant to Bus. & Prof. Code Sections 23080 to 23089.

The Key Concept – Create a body of decisional law - Precedent

The most important word in this proposal is “precedent.” 

Precedents in the purest sense are examples of how the statutes and regulations are applied in actual cases. As precedents are developed they create a body of law that can be relied upon by legal practitioners, industry members and trade associations alike.  This removes uncertainly and provides an avenue for a reasoned consideration of new and innovative proposals against a background of established examples that can be used to guide conduct. 

Please note that under our proposal a petition could not be filed with the ABC after a violation has already occurred and an accusation or other proceeding initiated.  That, as well as assuring that the ABC retains essential discretion to approve or disapprove proposals, assures the integrity of the ABC’s accusation process, and insures that the ABC's other powers are not compromised.

The ultimate result will be a body of published decisions that every industry member and service provider can rely upon in making important investment and business decisions, and a mechanism for seeking illumination in those situations where the answers are unclear.  That would enable continued innovation and provide the kind of certainty that one of the most important industries in California deserves.

It’s a win-win.

  1. RESPONSIBLE BEVERAGE SERVICE ACT HEARING – OCTOBER 11TH IN SACRAMENTO – BE THERE!
  2. WHEN THE INVESTIGATOR COMES CALLING – BEST PRACTICES.
  3. RESPONSIBLE BEVERAGE SERVICE ACT PROPOSED ABC RULES 160 TO 173 – WHY THE RUSH?
  4. The TTB Crusade Against Small Producers and the “Consignment Sale” Business Model
  5. TTB Protocols, Procedures, and Investigations
  6. Wine in a 250 ML can – the Mystery of the TTB packaging Regulations and Solving the Problem by Amending the Regulations
  7. The Passing of John Manfreda of the TTB: a Tragedy for his family and a Tragedy for the Industry he so Faithfully Served for so Long.
  8. Pride in a Job Well-done, or Blood Money? The Cost of Learning the Truth from the TTB about the Benefits to Investigators from Making Cases Against Industry Members
  9. How ADA Website Compliance Works – The Steps You Can Take to Protect Yourself, Your Website and Your Social Media from Liability
  10. Supplier and Distributor Promotional “Banks,” Third Party Promotion Companies and Inconsistent TTB Enforcement, Oh My!
  11. “A Wrong Without a Remedy – Not in My America” – The TTB Death Penalty for Not Reporting Deaths
  12. Is a 1935 Alcohol Beverage Federal Trade Practice Law Stifling Innovation?
  13. Decoding the BCC’s Guidance on Commercial Cannabis Activity.
  14. Prop 65 - Escaping a "Notice of Violation"
  15. TTB Consignment Sales Investigations - What is Behind the Curtain of the TTB Press Releases?
  16. Heads Up! The ABC Is Stepping Up Enforcement Against Licensees Located Near Universities
  17. Coming Soon: New Mandatory Training Requirements for over One Million “Alcohol Servers” In California – September 1, 2021 will be here quickly
  18. 2019 Legislative Changes for California Alcohol Producers – a Blessing or a Curse?
  19. A Picture (On Instagram) Is Worth A Thousand Words
  20. Playing by the Rules: California Cannabis Final Regulations Takeaways
  21. Hinman & Carmichael LLP Names Erin Kelleher Partner and Welcomes Gillian Garrett and Tsion “Sunshine” Lencho to the Firm
  22. Congress Makes History and Changes the CBD Game for Good
  23. Pernicious Practices (stuff we see that will get folks in trouble!) Today’s Rant – Bill & Hold
  24. CBD: An Exciting New Fall Schedule… or Not?
  25. MISSISSIPPI RISING - A VICTORY FOR LEGAL RETAILER TO CONSUMER SALES, AND PASSAGE OF TITLE UNDER THE UNIFORM COMMERCIAL CODE
  26. California ABC's Cannabis Advisory - Not Just for Stoners
  27. NEW CALIFORNIA WARNINGS FOR ALCOHOLIC BEVERAGES AND CANNABIS PRODUCTS TAKE EFFECT AUGUST 30, 2018, NOW INCLUDING ADDENDUM REGARDING 2014 CONSENT AGREEMENT PARTIES AND PARTICIPANTS
  28. National Conference of State Liquor Administrators – The Alcohol Industry gathers in Hawaii to figure out how to enforce the US “Highly Archaic Regulatory Scheme.”
  29. Founder John Hinman Honored with the Raphael House Community Impact Award
  30. ROUTE TO MARKET AND MARKETING RESTRICTIONS - NAVIGATING REGULATORY SYSTEM CONSTRAINTS
  31. Alcohol and Cannabis Ventures: Top 5 Legal Considerations
  32. ATF and TTB: Is Another Divorce on the Horizon? What’s Going on with the Agency?
  33. STRIKE 3 - YOU REALLY ARE OUT! THE ABC'S STRICT APPLICATION OF PENALTIES FOR SALES TO MINORS
  34. TTB Temporarily Fixes Problem with Fulfillment Warehouse Tax Credits - an “Alternate Procedure” for Paying Taxes & Reporting
  35. CUSTOMERS WHO HAVE HAD ONE TOO MANY - THE FREE TRANSPORTATION DILEMMA
  36. The Renaissance of Federal Unfair Trade Practices - Current Issues and Strategies
  37. ‘Twas the week before New Year’s and the ABC is out in Force – Alerts for the Last Week of 2017, including the Limits on Free Rides
  38. Big Bottles, Caviar and a CA Wine Strong Silent Auction for the Holidays!
  39. The FDA and the Wine and Spirits Industry – Surprise inspections anyone?
  40. NORTHERN CALIFORNIA WILDFIRES: UPDATED REGULATORY AGENCY DISASTER RELIEF RESOURCES AT A GLANCE
  41. NORTHERN CALIFORNIA WILDFIRES: REGULATORY AGENCY DISASTER RELIEF RESOURCES AT A GLANCE
  42. Soon to come to your Local Supermarket– Instant Redeemable Coupons of the digital age!
  43. The License Piggyback Dilemma – If it Sounds Too Good to be True, it Probably is
  44. A timely message from our Florida colleagues on the tied house laws, the three-tier system and the need for reform
  45. ABC Declaratory Rulings – A Modest Proposal Whose Time has Come
  46. More on FDA Inspections - Breweries, Distilleries and Questions
  47. WHY THE FDA IS INSPECTING WINERIES
  48. Senate Bill 378—The Proposed Demise of Due Process for Alcohol Licensees
  49. ABC Enforcement - Trends and Predictions
  50. The Corruption Chronicles – Volume One: A New Hope
  51. New Alcohol Delivery Oversight on the Horizon
  52. Michigan: Canary in the DtC Coal Mine?
  53. California ABC and Federal Credit Laws – Active Enforcement and Lots of Questions!
  54. Big Bottles For The Holidays - The Highest Calling Of The Winemaker's Art
  55. FINAL COMMENTS TO TTB NOTICE 160 DUE ON WEDNESDAY DECEMBER 7TH – WE ARE ASKING THE TTB TO EXTEND THE COMMENT PERIOD AGAIN TO ALLOW FOR INDUSTRY NEGOTIATION AND ALIGNMENT OF INTERESTS
  56. SONOMA COUNTY WINERY USE PERMITS, EVENT RESTICTIONS AND DTC
  57. New TTB Labeling Requirement Regulations: Out-of-State Bottling Is Not Created Equal and Consumers Right to Know Where the Grapes in their Wine Come from is Compromised
  58. Isn't A Written Agreement With A Distributor Worthless In A Franchise State?
  59. Crowd Funding for Alcohol Producers and Retailers – Down the Rabbit Hole with the Tied House laws
  60. Everything you ever wanted to know about the BPA Warning Statement but were afraid to ask
  61. AB 2082 - A Hunting License for Police and a Lethal Weapon for Politicians that Deprives Licensees of Currently Available Due Process Rights
  62. “Better Late Than Never”-- Judge in Illinois Dismisses 201 Sales Tax Cases against Retailers
  63. The Day the Music Almost Died: The Story of the BottleRock ABC Accusations, the ABC Appeals Board and a Victory for a Common Sense Interpretation of the Tied House Laws
  64. The Arsenic in Wine Class Action Dismissal – what it means
  65. Counterfeit or Artisanal Mexican Spirits? Pick your Poison, or your lime wedge
  66. Warning - CA ABC enforcement teams are on the prowl this weekend!
  67. RELIEF AT LAST! ILLINOIS MOVES TO FIX THE SALES TAX LAWSUITS AGAINST OUT-OF-STATE SELLERS BUT PROPOSES TO PENALIZE WINERIES AND RETAILERS THAT SHIP WITHOUT PERMITS
  68. The TTB Speaks on Category Management or, be Careful What you Ask for Because you might Get it!
  69. Hinman & Carmichael LLP Announces the Addition of Jeremy Siegel to its team of top beverage law lawyers
  70. 2016 LEGISLATIVE UPDATES: Part IV
  71. 2016 LEGISLATIVE UPDATES: Part III
  72. 2016 LEGISLATIVE UPDATES: Part II
  73. 2016 LEGISLATIVE UPDATES: Part I
  74. Hinman & Carmichael LLP is Hiring!
  75. John Hinman Presents NBI Webinar on Basics of Alcohol Beverage Law
  76. ABC DISMISSES SAVE MART GRAPE ESCAPE ACCUSATION BUT REFUSES TO ADOPT JUDGE’S DECISION FINDING NO STRICT LIABILITY FOR ABC VIOLATIONS
  77. Speakeasies are still with us, and proliferating!
  78. The War for the Soul of Sonoma County – the Winery Working Group Battle
  79. Santa Claus isn’t the only one coming to town this Christmas!
  80. Arizona's Direct to Consumer Shipping Rules - An Exercise in Complexity
  81. AB 780 - Social Media and the ABC: The California Legislative “Fix” that Fails
  82. Illinois Finally Offers Certainty and Relief for Victims of Sales Tax Lawsuits, but Prompt Action is Required in Pending Cases
  83. A Modest Proposal – Adopt the federal rule on Tied-House liability in California
  84. The Grapes Escaped - Why the First Amendment Matters
  85. Appellate Court Ruling Strikes Blow Against State’s Arbitrary Beer Label Ban
  86. Illinois Attorney General's Office Announces Intention to Dismiss False Claims Act Against Liquor Retailers
  87. Commercial Speech And Alcoholic Beverages - Part III
  88. Commercial Speech And Alcoholic Beverages - Part II
  89. Craft Beverages: Social Media Marketing the Effective and Compliant Way
  90. Commercial Speech And Alcoholic Beverages - Part I
  91. A LAYPERSON LOOKS AT ARSENIC IN WINE
  92. The Biggest Retailer in the World vs. the TABC
  93. Rebecca Stamey-White presents Emerging Issues in Wine Law
  94. Top Beverage Alcohol Law Firm Adds and Elevates Partners
  95. Illinois Qui Tam Lawsuits—Private Enforcement Of a State Claim: A Bonanza For A Plaintiff’s Lawyer And A Rip-Off Of Retailers
  96. BOOZE RULES OF SOCIAL MEDIA: The Retailer Right to Pay Exception
  97. LIONS AND TIGERS AND TWEETS, OH MY!
  98. AB 2004: Brewer's Incremental Parity with Wine Makers
  99. Expanding, Proud Of It, and Wanting to Tell the World
  100. DC Weighs in Strongly on Third Party Marketer Delivery Services