In January 2020, the Oklahoma Supreme Court upheld a challenge  under the Oklahoma Constitution to a state law concerning so-called “forced sale clauses” under the state’s system of regulation for alcoholic beverages. The story traces back to 2016, when the Oklahoma Legislature passed a joint resolution to place State Question 792 on the November ballot that year. The ballot question was approved by a majority of voters, and it took effect in October 2018.
State Question 792 sought to replace and update Article 28 of the Oklahoma Constitution—involving the control and regulation of alcoholic beverages—with a new section titled Article 28A. One of the main goals of the proposed change was to repeal Oklahoma’s so-called “weak beer” law, which restricted the ability of grocery and convenience stores in the state to sell beer over 3.2 percent ABV.
The ballot question also addressed other features of the state’s alcohol regulation system, including proposing a new provision in Article 28A of the Oklahoma Constitution that specified that a manufacturer of alcohol “may sell” its brand of beverages to a licensed wholesaler in the state. This contrasted with the old Article 28 of the Oklahoma Constitution, which included a “forced sale clause” stating that a manufacturer “shall be required to sell” its brand to any wholesaler who desired to purchase it.
Shortly after the ballot question was approved, the state legislature passed SB 608, a law which re-instituted a new type of forced sale clause specifying that any wine or spirit product that constituted a “top brand” (defined as any brand in the top 25 of sales) “shall be offered by the manufacturer for sale” to every licensed wholesaler in the state.
SB 608 was promptly challenged by various companies and organizations, including numerous alcohol manufacturers, wholesalers, and retailers (collectively, appellees), who argued that it directly contradicted the recently enacted language in Article 28A stating that alcohol producers had discretion (i.e., “may sell”) when it came to selling to wholesalers. The law was defended by Oklahoma’s Alcoholic Beverage Laws Enforcement Commission as well as several other alcohol wholesalers in the state (appellants), who argued that Article 28A and SB 608 were not in direct conflict and that SB 608 was a proper use of legislative authority under the anti-competitive provisions of the Oklahoma Constitution.
The district court held that the forced sale clause of SB 608 was in direct conflict with the language in Article 28A of the Oklahoma Constitution. Appellants appealed, and the Oklahoma Supreme Court agreed to hear the appeal. The Oklahoma Supreme Court upheld the district court’s opinion, agreeing that SB 608 was unconstitutional under Article 28A of the state constitution.
The majority opinion started by noting that when a statute is challenged under the state constitution, the court “looks first to [the constitution’s] language, which if unambiguous, binds the Court.” A statute should be upheld “unless it is ‘clearly, palpably and plainly’ inconsistent with the Constitution.”
Because the “clear and ordinary language” of Article 28A of the Oklahoma Constitution states that alcohol manufacturers “may sell such brands” to alcohol wholesalers, and because the word “may” denotes that “an action is permissive or discretional, and not mandatory,” any statute that contradicts that language runs afoul of the constitution. Therefore, SB 608’s forced sale clause, which states that manufacturers of the top 25 brands “shall” sell those products to all wholesalers, is unconstitutional.
The court also addressed the appellants’ additional argument that SB 608 was a proper use of legislative authority under the anti-competitive provisions of the Oklahoma Constitution—namely, Article V, Sections 44 and 51, which bar unlawful monopolies or trusts and prohibit any laws that grant corporations exclusive rights or privileges. The court held that if a statute like SB 608 violates one part of the Oklahoma Constitution (such as Article 28A) it cannot be saved by other provisions elsewhere in the constitution. Regardless, the majority held that Article 28A was not in conflict with the anti-competitive provisions of the Oklahoma Constitution since prior court cases had declined to find antitrust violations for situations in which an alcohol producer granted a single wholesaler the exclusive rights to distribute its product.
The majority decision sparked two dissents. First, Justice Kauger argued that the majority incorrectly found an irreconcilable conflict between SB 608 and Article 28A. Justice Kauger argued the text of Article 28A was ambiguous given that it also specified that producers must sell their products to wholesalers “without discrimination,” and only selling to one wholesaler at the exclusion of others could be construed as a type of discrimination.
Justice Kauger urged a consideration of the “intention of the framers” of Article 28A, which should govern over “technical rules” regarding statutory construction. When considering the entirety of State Question 792, which implemented Article 28A—including analyzing the Final Ballot Title and the “gist” of the ballot question as they appeared on the electoral ballot—Justice Kauger concluded that the state legislature was primarily concerned with three things: preventing the formation of monopolies, preventing discrimination and retaining legislative authority to regulate the sale of alcoholic beverages. Therefore, when “the resolution, the title, and the gist, are read collectively, it is apparent the voters were voting on these same three things, [whereas] voters were not notified about whether [the ballot question would] allow a manufacturer to sell to only one wholesaler.”
Under Justice Kauger’s analysis, SB 608 was a valid use of legislative authority. The primary goal of SB 608 was to prevent wholesaler monopolies from arising if all wholesalers were not allowed to sell the top 25 brands in the marketplace.
A second dissent, authored by Justice Barnes, argued that the Oklahoma Constitution must be construed “as a consistent whole,” thus the Court must “attempt to harmonize” Article 28A with the anti-competitive provisions of the constitution. Given the broad powers the legislature is recognized to have over alcoholic beverage regulation, in conjunction with the broad anti-competitive and anti-monopoly powers granted to the legislature under the constitution, exercises of legislative power like SB 608 are “not plainly and clearly prohibited.” Therefore, the dissent argued, any doubt should be resolved in favor of the legislature’s actions, which means SB 608 should be upheld.
While it’s hard to know if the Oklahoma Supreme Court’s decision will be the concluding chapter in the state’s long saga concerning State Question 792, it definitively concludes that legislation forcing alcohol producers to sell their products to wholesalers violates the state constitution.
- “upheld a challenge”: https://law.justia.com/cases/oklahoma/supreme-court/2020/118209.html